Back to cover

Toward Productive, Inclusive, and Sustainable Farms and Agribusiness Firms

Chapter 4 | Success Factors for Effectiveness of Interventions in Agrifood System Development

We identify primary and enabling factors of success for the World Bank Group and lessons on investments that are specific to the International Finance Corporation. The primary factors that enhance agrifood system development are as follows:

Access and adoption of improved agricultural production technologies and sustainable practices. These can be successful when market access is unconstrained. Learning-by-doing approaches are particularly effective in facilitating the adoption of agricultural production technologies and sustainable practices.

Integration of market access with improved production technologies and sustainable practices, especially in low-income countries and countries at the traditional stage of development. Market access can be improved by establishing viable market links among producers and buyers and developing market infrastructure.

The enabling factors that can augment the benefits of primary factors are (i) support to producer groups, (ii) behavioral changes to facilitate the adoption of sustainable practices and develop the business skills of the actors of agrifood systems, and (iii) support tailored to the specific needs of smallholder farmers and small and medium enterprises.

Lessons from the agribusiness work of the International Finance Corporation identify specific factors for successful private investments: careful sponsor selection, stress testing during due diligence, and balancing trade-offs between development effectiveness and profitability.

Overall Project Design and Implementation

General lessons on effective World Bank project design and implementation apply to agrifood system interventions. These include design features such as clear scope and theory of change, careful identification and targeting of beneficiaries, well-selected policy interventions adapted to the country context and counterpart capacity, strong government ownership, and adequate assessment of the political economy. They also include implementation features such as presence in the field, proper client oversight, and robust coordination across agencies and levels of government. A desk review of selected agrifood-focused development policy loans highlighted the importance of some of these factors in achieving agrifood systems outcomes (box 4.1).

Similarly, learning from overall lessons on effective IFC and MIGA project design and implementation is essential for IFC and MIGA agrifood systems interventions. These lessons include the importance of a thorough due diligence process and deal preparation, prior analytical work (including value chain and market studies), sponsor experience and financial standing, and client capacity. A key success factor for implementation is collaboration among IFC’s dedicated client relationship manager, portfolio team, investment team, and E&S team.

Box 4.1. Factors Associated with Development Policy Loan Contributions to Agrifood System Development Outcomes

Morocco’s first and second development policy loans in support of the agricultural development strategy for fiscal years 2011–14 improved the efficiency of domestic agrifood markets, enhanced economic benefits for smallholder farmers, and increased access to agricultural services. Positive factors included tailored prior actions designed to improve agricultural sector performance; strong alignment among prior actions, expected results, and the monitoring and evaluation framework; coordination among counterpart agencies; and clear links between supported policy reforms and other instruments to translate the reforms to outcomes at the local level.

By contrast, Ghana’s agriculture development policy loan series (fiscal years 2009–13) achieved only modest progress in improving the management of soil and water resources and overall agricultural productivity and growth. Insufficient upstream reforms and fragmented prior actions that were spread across several policy areas limited the achievement of development outcomes.

Sources: World Bank 2015 (Morocco), 2017d (Ghana).

World Bank, IFC, and MIGA interventions also face some common external constraints. These include underdeveloped markets, state engagement in contestable sectors, governance issues (including political instability, policy unpredictability, overcentralization, and corruption), legal and regulatory challenges, and limited access to infrastructure and finance. Developing country markets may also carry added risks that can be difficult to mitigate, including climatic shocks, pandemics, and market volatility. Although we did not analyze the impact of external constraints on the effectiveness of agrifood system interventions, designing programs to mitigate these risks is essential to achieving good outcomes.

Factors of Success Specific to Agrifood Systems

The remainder of this chapter focuses on factors of success that are specific to agrifood systems. To identify factors of success, the team purposively selected 17 case studies grouped into four project typologies (focus areas): (i) support for agricultural production (supply-side approaches), (ii) support for a combination of production and market access (a supply-and-demand approach) with a focus on staples, (iii) support for a combination of production and market access with a focus on high-value crops and livestock, and (iv) private sector investments in production and market access, mostly in high-value products (table 4.1). The evidence from these selected cases is expected to provide lessons relevant to similar interventions in the portfolio. About 41 percent of the 17 case studies are in LICs, and 47 percent are in LMICs; 59 percent are in countries at the traditional stage of agrifood system development, and 29 percent are in countries at the transitional stage. A portfolio review and two structured literature reviews complemented the case study approach. (For more details, see appendix A for the case study design and appendix C for a synthesis of the main findings.)

Table 4.1. Purposive Sample of Cases Used to Derive Factors of Success

Focus Area

Projects

Country or Region

Income Category

Stage of AFSD

World Bank production-focused interventions (supply)

1. Irrigation, Rural Livelihoods, and Agricultural Development

Malawi

LIC

Traditional

2. Integrated Agricultural Productivity

Bangladesh

LMIC

Traditional

3. Land Husbandry, Water Harvesting, and Hillside Irrigation

Rwanda

LIC

Transitional

World Bank

production and market-access interventions (mainly food staples; supply and demand)

4. Agricultural Productivity and Agribusiness

Kenya

LMIC

Traditional

5. Agricultural Growth Project

Ethiopia

LIC

Traditional

6. Rural Alliances

Bolivia

LMIC

Traditional

7. Sierra Rural Development

Peru

UMIC

Integrated

World Bank production and market-access interventions (high-value crops and livestock; supply and demand)

8. Agriculture Sector Support (cocoa, rubber, cotton, palm oil, and cashews)

Côte d’Ivoire

LMIC

Transitional

9. Institutional Development and Agriculture Strengthening (production, processing, food safety, and EU standards)

Montenegro

UMIC

Integrated

10. National Dairy Support Project (production, marketing, processing, and quality and safety)

India

LMIC

Transitional

11. Livestock Competitiveness and Food Safety (production, marketing, processing, and safety)

Vietnam

LMIC

Transitional

12. Dairy processing (IFC)

Eastern Africa

LIC

Traditional

13. Grain milling (IFC)

Eastern Africa

LIC

Traditional

14. Grain milling (IFC)

Southern Africa

LIC

Traditional

15. Cocoa value chain (IFC)

Western Africa

LMIC

Transitional

16. Poultry operation value chain (MIGA)

Eastern Africa

LIC

Traditional

Source: Independent Evaluation Group.

Note: AFSD = agrifood system development; EU = European Union; IFC = International Finance Corporation; LIC = low-income country; LMIC = lower-middle-income country; MIGA = Multilateral Investment Guarantee Agency; UMIC = upper-middle-income country.

The projects selected for the in-depth analysis had overall positive outcomes. Most of the 17 case studies positively affected productivity, inclusion, or sustainability (table 4.2). Fewer cases were effective in enhancing sustainability (65 percent of cases) than inclusion (88 percent of cases) or productivity (76 percent of cases).

World Bank interventions focused only on production were less successful than approaches that combined production and market support. Projects that combined supply- and demand-side interventions were more successful than supply-side-only interventions at achieving productivity outcomes (75 percent versus 33 percent success) and inclusion outcomes (100 percent versus 67 percent). They were almost equally successful at achieving sustainability outcomes (table 4.2).

Table 4.2. Case Studies: Effects on Outcomes

Effective Cases by Outcome (no.) [%]

Focus Areas

Cases (no.)

Productivity

Inclusion

Sustainability

World Bank production-focused interventions (supply side)

3

1 [33]

2 [67]

2 [67]

World Bank production and market access interventions (mainly food staples; supply and demand)

4

3 [75]

4 [100]

2 [50]

World Bank production and market access interventions (high-value crops and livestock; supply and demand)

4

3 [75]

4 [100]

3 [75]

IFC and MIGA private investments (production processing, and value addition; supply and demand)

6

6 [100]

5 [83]

4 [67]

Source: Independent Evaluation Group case-based analysis.

Note: Because there are few cases, percentage values should be interpreted carefully. See appendix C for details on the case studies. IFC = International Finance Corporation; MIGA = Multilateral Investment Guarantee Agency.

The analysis identified three categories of success factors: primary, enabling, and IFC specific. The primary factors are (i) technologies and practices to improve production and sustainability and (ii) integration of production technologies and practices with access to markets. The enabling factors, which can augment the benefits of the primary success factors, are (i) support to producer groups, (ii) behavioral changes to facilitate the adoption of sustainable practices and develop the business skills of the actors in agrifood systems, and (iii) support tailored to the needs of SMEs and smallholder farmers. Other success factors specific to IFC agrifood system activities are carefully selecting sponsors, conducting stress testing for investments in agribusiness, and balancing trade-offs between development effectiveness and profitability.

Technologies and Practices to Improve Production and Sustainability

Interventions supporting production through technology improvement and adoption of sustainability standards and practices (the supply-side approach) can be successful where market constraints do not limit productivity. Technology interventions may include improved seed, new crop varieties, new livestock breeds, pest and disease control, climate-smart practices such as soil and water management and reduced tillage, and small-scale irrigation. Access to finance interventions for smallholders to buy farm inputs and technologies are important complements of technology interventions. The World Bank’s Bangladesh IAPP is an example of a successful supply-side project. The project’s support for technology improvements and adoption of sustainable practices to increase production of crops, livestock, and fisheries for which there was high market demand led to increased productivity, sustainability, and inclusion (box 4.2). Production-only interventions are likely to increase productivity where market access is not a major constraint, and small producers can sell their surplus production at attractive prices.

Box 4.2. Adapting Technology to Boost Productivity in Bangladesh

The Integrated Agricultural Productivity Project in Bangladesh enhanced the productivity of agriculture by supporting technology development and adaptation, including yield-increasing and production-intensifying technologies and practices for conserving surface water and enhancing the efficiency of irrigation. The project provided capacity building and technology extension support to farmers, increasing the availability of improved crop varieties, livestock, and fish breeds. The improved technologies benefited 51,000 farmers. Milk productivity more than doubled, milk consumption increased by 96 percent, milk sales increased fourfold, and milk sales earnings increased fivefold. The interventions significantly increased seasonal crop sale earnings of targeted farmers compared with nonbeneficiaries, enhancing inclusion. The project enhanced sustainability by putting more than 27,000 hectares under improved irrigation.

Source: Independent Evaluation Group case study based on World Bank (2016a) and (2017a).

However, when market constraints are limiting, which is often the case in LICs and countries at the traditional stage of agrifood system development, focusing only on supporting production could undermine effectiveness. Where market access is limited, large returns on investment and achieving productivity, inclusion, and sustainability outcomes require complementing the introduction of improved production technology with efforts to improve market access (Ashraf, Giné, and Karlan 2009; Barrett et al., forthcoming; Deutschmann et al. 2021). Two of the three projects that focused on supporting production technologies (Malawi and Rwanda) had no significant impact on productivity (table 4.2), and one had no impact on inclusion and sustainability. By focusing on production where market access was limited, the Malawi Irrigation, Rural Livelihoods, and Agricultural Development Project had a limited impact on productivity. Smallholder farmers struggled to find sustainable market outlets (World Bank 2021c). As a result, although the productivity of both maize and rice improved in the early implementation phase, it stagnated or became more volatile over time (World Bank 2021c). The Land Husbandry, Water Harvesting, and Hillside Irrigation Project in Rwanda—which addressed supply-side constraints first and introduced marketing activities only later—did not affect productivity or household income.1

Integrating Production Technologies and Markets

Integrating production and access to market support is associated with enhanced effectiveness. Underdeveloped local markets and insufficient access to external markets are common in LICs and traditional-stage countries, where complementing supply-side activities with market access activities is critical. All eight World Bank case studies that integrated technology and market access approaches had a positive impact on inclusion; six (75 percent) had positive effects on productivity, and five (63 percent) had positive effects on sustainability (table 4.2). Across cases, complementary supply and demand interventions that improved access to inputs, advisory services, technologies, and markets increased productivity and inclusion more than supply-only interventions. IFC and MIGA projects integrating supply and demand interventions also had high effectiveness across all dimensions. All six projects had positive impacts on productivity, five out of six (83 percent) had positive impacts on inclusion, and four out of six (67 percent) had positive impacts on sustainability. IFC usually enables market access for SMEs and smallholders through lead firms that buy products from small providers. See box 4.3 for project examples that provide evidence of these results.

Box 4.3. Effective Projects Integrating Production Technologies and Markets

Through its investment and advisory services to a milk powder processing company in East Africa, the International Finance Corporation supported the organization of a dairy supply chain. It helped develop off-take agreements and establish aggregation centers offering fair, transparent, and timely payment to dairy farmers. The International Finance Corporation support led to the integration of about 10,000 farmers into the supply chain and the production of 320,000 liters of milk per day (against a target of 240,000 liters per day), and it improved the social inclusion and mobility of small farmers. In parallel, the company developed a distribution network that increased access to foreign markets.

The World Bank Ethiopia Agricultural Growth Project supported farmer access to crop and livestock technologies, climate-smart practices (including small-scale irrigation), and markets. An impact evaluation found that the project had a positive, statistically significant effect on improving irrigation and drainage services (on more than 10,000 hectares of farmland) and on crop output supplied to the market. More than 58,000 farmers (including more than 12,000 women and 6,000 young people [mainly from ages 15 to 24]) benefited from improved irrigation. Climate-smart land practices, adopted on 217,000 hectares, led to increased vegetation.

Source: Independent Evaluation Group case study based on World Bank (2017b) and IFC data on the East Africa dairy project.

Investments in market infrastructure and equipment enhance market access for farmers and SMEs to diversify production to high-value products. Market infrastructure—including logistics, infrastructure for cold chains (for example, refrigerated trucks and warehouses), and storage for bulking equipment—is critical to increasing market access, especially for diversification to high-value, perishable products. One example is the IFC dairy intervention in Eastern Africa (box 4.3), which complemented financing for a dairy processing plant with the construction of raw milk collection points. Another is the World Bank’s India National Dairy Support Project, which provided production technology with support for upgrading milk collection infrastructure for small producers (such as milk coolers and quality testing equipment). Support for digital agriculture solutions (such as an automated milk collection system that allows real-time quality testing) increased efficiency and facilitated growth into new areas. As in the case of the IFC-supported dairy intervention in Eastern Africa (box 4.3), small-scale dairy farmers in India benefited from enhanced access to markets. In addition, small milk producers in India also benefited from access to high-value markets and increased adoption of food safety and quality standards (World Bank 2020c, 2021b).

Enabling Factors

Supporting Producer Groups and Cooperatives

Producer organizations can help the actors of agrifood systems, especially smallholders and small firms, adopt new technologies and practices and access markets, increasing inclusion, productivity, and sustainability. Most projects that aimed to increase inclusion supported producer organizations to facilitate access to inputs, technologies, services, and markets. Producer organizations come in several forms, such as common interest groups and cooperatives in Ethiopia and Kenya, farmer groups in productive alliances in Bolivia and Peru, dairy and livestock cooperatives in India and Vietnam, and water user associations in Bangladesh and Rwanda. Fifteen of the 17 case studies (88 percent) showed that producer organizations’ support for farms and SMEs improved inclusion by facilitating access to advisory services, inputs, irrigation, other farm technologies, or enhanced links with buyers. For example, in Vietnam, the Livestock Competitiveness and Food Safety Project helped livestock producers build links with slaughterhouses and markets. The producer groups and cooperatives facilitated sharing knowledge and improved collective bargaining (purchasing power), increasing production efficiency through joint purchases from input providers, leading to 3–5 percent cost savings in animal feed expenses.

Group-based approaches also strengthen farmer organizations and mobilize new group formation, facilitating the integration of small-scale producers into value chains. For example, dairy cooperative societies supported by the National Dairy Support Project in India helped integrate smallholder milk producers into organized markets based on a stable, transparent, merit-based approach. The project organized more than 853,000 milk producers into dairy cooperative societies across 40,000 villages. Six new dairy producer companies were established under the National Dairy Support Project and supported more than 834,400 small-scale dairy producers. Dairy cooperative societies and dairy producer companies facilitated coordination of the dairy value chain (World Bank 2020c, 2021b). Similarly, the success of the IAPP was based on the cohesion of beneficiary groups anchored in unions and villages with the support of a community facilitator. The establishment of more than 7,000 Livelihood Field Schools by the IAPP trained and improved production packages for more than 180,000 crop, livestock, and fish farmers (World Bank 2016a, 2017a).

Behavioral Changes to Adopt Sustainable Business Models and Develop Managerial Skills

Cultivating behavior changes among farmers and agrifood SMEs enhanced the adoption of more sustainable business models and the development of managerial skills. Key success factors included incentivizing behavior change among producers to facilitate uptake of better practices and sustainability standards and developing managerial skills among farmers and SMEs.

Concerted attention to incentivizing behavior change among producers can change attitudes toward more sustainable business models and practices. Three of the four World Bank projects supporting high-value crop-livestock activities facilitated the uptake of improved food safety and sustainability standards. For example, the Vietnam Livestock Competitiveness and Food Safety Project prompted a mind-set shift within farmer groups and government agencies, reinforced by capacity building and institutional strengthening. Before the project, livestock production was scattered, and farmers sold pigs and poultry in wet markets whose processing facilities failed to meet food safety and environmental standards. The project used cultural levers—including peer-to-peer learning, peer pressure to strengthen compliance, and branding for social recognition—to influence farmers to adopt new livestock practices. The organization of producers into associations helped achieve certification and accreditation, and improved food safety and environmental practices. By project close, 70 medium-to-large slaughterhouses and 300 small ones complied with national environmental standards (World Bank 2019b).

Support for developing business plans and skills among farmers, cooperatives, and SMEs can contribute to success. Providing IFC advisory services to develop the business skills of agrifood actors in the value chain helped them prepare for IFC investment. For example, IFC successfully supported West African cocoa cooperatives through training to enhance their capacity to operate in a commercial environment, which allowed them to use the IFC risk-sharing facility.

The Latin America productive alliance model has effectively strengthened the business development capabilities of smallholders and small firms. Productive alliance models in Latin America supported producer groups by developing business plans through productive investments and technical assistance for business development. In the Bolivia Rural Alliances Project, this support resulted in a 73 percent average increase in the income per producer of the alliances, with increases ranging from 51 percent for cocoa to 136 percent for beef (World Bank 2018a).

Tailoring Interventions to the Needs of Farmers and Agrifood Small and Medium Enterprises

Clear targeting and tailoring of Bank Group interventions to the needs of the clients and beneficiaries is critical. Tailoring the approach to farmers and SMEs includes both explicitly targeting them and using participatory delivery models.

For interventions focused on enhancing agricultural production, an explicit targeting of smallholder farmers was essential to achieving inclusion. Partnering with an experienced lead firm with a clear road map for targeting smallholder farmers and SMEs was key to success for IFC and MIGA interventions in improving inclusion. Evidence from case studies and earlier IEG studies shows that clients that already have records of working with the base of the pyramid—for example, by engaging with supply chain farmers through technical assistance and provision of inputs or collection infrastructure—have better business success and a higher potential for increasing their outreach to the base of the pyramid (World Bank 2018d).

A participatory delivery model with the bottom-up engagement of stakeholders contributes to achieving outcomes. Centering project design and implementation on bottom-up engagement—including technical support, sensitization, and mobilization of local communities—gives stakeholders opportunities to select interventions in line with their needs. For example, the Bangladesh IAPP engaged beneficiaries at design and thus increased their ownership of the adoption of irrigation and water harvesting infrastructure, leading to improved production technologies and management practices for crops, livestock (milk), and fish production.

Factors Specific to the International Finance Corporation

Three corporate factors derived from a review of IFC experience are relevant for the design of IFC agrifood systems interventions. These factors are (i) careful sponsor selection and stress testing during due diligence, paying special attention to the risks of protected value chains reliant on tax exemptions or protection from competition through trade policy restrictions; (ii) consideration of the level of diversification of a firm’s product portfolios and destination markets; and (iii) balancing trade-offs between development effectiveness and profitability.

For IFC, factors of success included selecting high-quality sponsors paired with stress testing during due diligence, which was of value for investments in protected value chains. High-quality sponsors were those with sufficient managerial and financial capacity, regional operating experience, and the ability to respond to unforeseen events by cutting costs or reorganizing business activities. For example, for its investments in an East African dairy operator, IFC carried out up-front due diligence with detailed firm, sponsor, and market assessment. The due diligence allowed IFC to identify risks and build custom features into the loan structure to manage project risks. A careful due diligence process is particularly important when investing in protected value chains—that is, those that benefit from tax exemptions or reduced competition because of policy restrictions (tariff and nontariff barriers) that limit imports or market entry into the sector and provide protection to firms operating in the industry. Subsidies and protectionism are more common in agrifood value chains than in other sectors. Although investments in protected value chains appear lucrative at first, they can also interrupt business success when reduced or abolished, which need to be anticipated in the due diligence. For example, IFC’s support to an East African grain milling operation initially enjoyed a range of tax incentives. However, their elimination and the subsequent introduction of value-added tax on wheat flour products hurt project performance.

To a much greater degree than firms in other sectors, agrifood firms need diversified product portfolios and destination markets to weather macroeconomic shocks, including losses from foreign exchange and price fluctuations. Export-oriented agribusiness exposed to foreign exchange fluctuations can offset foreign exchange losses in one market by gains in other markets—that is, they can use their natural hedging positions from revenue sources in other currencies. Although IFC cannot influence the level of diversification in the short term, it could select investee companies with sufficient levels of diversification or work with them toward diversification as they stay engaged (box 4.4).

Box 4.4. Product and Market Diversification as a Natural Hedge to Navigate Macroeconomic Uncertainties

Vulnerability to undiversified markets was seen in the International Finance Corporation’s investment in an Eastern European fruit juice producer, which concentrated 80 percent of its exports in the Russian Federation. When the Russian ruble depreciated by almost 100 percent because of the 2014 economic crisis, the firm’s revenues decreased significantly. By contrast, an Eastern European industrial pork producer weathered macroeconomic shocks because of high product and market diversification. Although pig prices dropped during the country’s currency depreciation in 2014, the firm made up for these forgone revenues by selling its own feed components (corn and soy) in US dollar–denominated export markets.

Source: Independent Evaluation Group.

IFC can balance trade-offs between development effectiveness and profitability to reach frontier markets by using its portfolio approach and blended finance. The IFC 3.0 strategy calls for active portfolio management across sectors, geographic areas, and instruments to optimize the balance among development impact, financial sustainability, and risk (IFC 2020). An active portfolio management approach can help IFC offset the negative risk-adjusted return on capital (RAROC) from investments in frontier markets through above-average RAROC rates from other, more profitable investments. For example, IFC’s agribusiness investments in LICs have a RAROC of –11 percent, which is much lower than the envisioned corporate RAROC of 8 percent. This is because (i) such investments are smaller (about half the dollar volume of those in UMICs); (ii) they often take longer and hence consume more resources to acquire and reach commercial closure, resulting in higher operational costs for IFC; and (iii) they have higher losses because of higher country and commercial risks. Blended finance can help reduce the financial risk of investments in frontier markets, at times setting in motion high-risk projects with positive development impacts, including in IDA and FCS countries (World Bank 2019a). In the agribusiness sector, the Global Agriculture and Food Security Program Private Sector Window plays an important role in supporting projects designed to improve the livelihoods of smallholder farmers in LICs. The Global Agriculture and Food Security Program has been facilitating support outside IFC’s traditional investment and advisory activities, leading to benefits beyond the financing instrument itself through technical assistance and links to the client company and related beneficiaries (World Bank 2017e). Examples include IFC support for a dairy operator in East Africa and a cocoa value chain in West Africa.

  1. An impact evaluation found that there was no statistically significant difference in total household income (excluding seasonal agricultural income) between project-supported and unsupported sites (World Bank 2018d).