How Pay-for-Results is Driving Access to Finance for Tanzania’s Dairy Sector       

How Pay-for-Results is Driving Access to Finance for Tanzania’s Dairy Sector  

ACCESS to finance is crucial for businesses to support and expand operations, otherwise they lack the cash flow needed to make upfront investments and deliver goods and services to their consumers.

Sometimes, limited access to finance is enough to stifle an entire market. In Tanzania, most smallholder dairy farmers suffer from low dairy productivity due to the limited access to quality inputs and advisory services.

The lesson learnt by AgResults through its Nigeria competition (2013-2019) that helped it take a proactive approach to increase access to finance with its Tanzania Dairy Productivity Challenge Project (2019-2023).

 The project is implemented through its US dollars 152 million initiative that designs and implements Pay-for-Results prize competitions to motivate the private sector to overcome agricultural market failures.

The competition awards to private sector input suppliers and dairy processors to deliver input bundles of parasite control, nutrition, vaccines, and/or artificial insemination along with extension services — to smallholder farmers to increase the quality and quantity of milk production.

The AgResults Tanzania Dairy Productivity Challenge Project is a Pay-for-Results prize competition that incentivises private sector input suppliers to provide input bundles and advisory services to farmers to increase the use of quality inputs.

AgResults Project Team Leader, Ms Neema Mrema said that by understanding that many input businesses in Tanzania historically struggled to get credit, AgResults knew it was important to engage stakeholders along the value chain right away to create a stronger financial enabling environment.

 She said that along with government representatives, donor representatives and potential competitors, financial institutions were invited to the project’s launch in November 2019, where they learned about the project’s goal and prize structure.

"Formally receiving this information reassured the banks that the prize was legitimate and showed that it could be worthwhile to grant loans to those businesses that qualified," she said.

She noted that, at the event, National Microfinance Bank (NMB) and CRDB Bank presented credit facilities available to competing input providers based on their business operations and also talked one-on-one with competitors about the loan process.

"Empowered with this knowledge, input suppliers assessed their capacity to finance operations during the competition and conducted an inventory of their existing customer base and potential new customers to gauge the investment needed to facilitate the commitments in their loan application," Ms Mrema said.

She noted that the assessment results forced competitors to think more deeply about how to mobilise funds to support the commitments made when they chose to participate in the competition. The results also showed companies how to provide more targeted solutions to their customer base.

She cited how Morogoro-based Damian Agrovet leveraged its access to finance, saying it offered extension services to dairy farmers for 18 years.

 Ms Mrema said prior to the AgResults competition, Damian could not find the right financial resources to make upfront investments in pasture, standard dairy meal and cold chain for quality artificial insemination (AI) services.

However, thanks to the competition’s proactive approach to connect businesses with banks, Damian had all the necessary pieces to approach NMB and access a 17m/- loan to support their business goals.

  She said through the loan, Damian purchased a 35kg tank for storing liquid Nitrogen, two 3kg tanks for AI service delivery, and a motorbike to ensure that AI services could be delivered on time. This infrastructure enabled Damian to register 81 AI transactions in four months, leading to 37 reported cow pregnancies.

Damian Agrovet also used a portion of the finances to purchase hay and fodder so that its farmers could access a ‘complete’ nutrition bundle per the prize competition criteria.

"To help more distant farmers' access hay at competitive prices, Damian diversified the loan to develop a cost-effective dairy meal that met standard requirements with support from TanFeeds International, a feed manufacturing company," she said.

 With these linkages in place, she added, Damian could promote the use of standard dairy meal to improve milk production and nutrition for cows, preparing them for AI services.

During Sales Period 1 (July 17, 2020 – April 16, 2021), Damian delivered 77,133.5 kg of standard dairy meal through 552 sales transactions. Selling more standard dairy meal also drove up how many AI services they offered: Damian sold 6,600 kg of standard dairy meal in December 2020 and 24,500 kg in January 2021, which then led to sales of 98 conventional semen straws in January and February. This trend continued through the end of the sales period.

Ms Mrema further explained that, the long-term impact of access to finance goes beyond higher input sales.

 "By proactively addressing the challenge of access to finance early in the competition, AgResults has empowered Damian Agrovet and other input suppliers to build sustainable relationships with banks and use prizes to pay loans and further scale their operations," she said.

She said the same capital is helping businesses expand access to inputs among smallholder farmers, increasing productivity and strengthening the entire dairy sector in Tanzania.



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