TerraVerde Agriculture was recently assigned to assess a large smallholder-focused rural development program hit by several macroeconomic and competitive disruptions in recent years.
Our mission was to perform a rigorous risk assessment evaluation and develop robust management and mitigation strategies to improve economic performance, smallholder livelihood in a developing country, and overall sustainability and resilience of the program.
As a background we adopted the theory that as an economy develops from “Low” to “Medium” levels of development, and then eventually on to “High”, the business environment undergoes radical transformations.
Therefore, the resources, capabilities, and key success factors (KSFs) required for an enterprise to prosper in that economy shift radically too
.
Business Environment as a function of Country Development Ranking*
As shown in the leftmost panel, when the economy is at a Low level of development, the key challenges that an enterprise needs to overcome are issues such as lack of infrastructure (transportation, water, energy, etc.), lack of a trained, educated, and motivated workforce, and unreliable government and regulatory support.
Issues such as marketing and competition tend to be less problematic since the lack of local production means that demand for basics generally outstrips local supply. Competition often consists of mainly expensive imports, and local competitors are likely to be unsophisticated and small scale if they exist at all.
As the economy develops into the Medium development category however (middle and right panels), this picture begins to flip. Infrastructure, human resources, and government services become more generally available, and therefore management of production and logistics become less challenging.
As a result of these improvements, investors and corporations begin to find the market interesting and accessible. So, this stage generally brings an influx of scale competitors.
Simultaneously, a middle-class starts to emerge, and with it more consumer spending power and an appetite for more than simply basic products. With this, the retail environment also begins to evolve (e.g., towards more supermarket chains) and food distribution channels grow more sophisticated and diverse.
So overall, the logistical and operating environment becomes simpler, while the consumer, distribution, and competitive environments all become much more complex.
Businesses that prospered in the Low level of development, but do not realize, underestimate or are in denial of changes in the business environment, and do not adapt, are likely to lag and fail.
Our assessment included analysis of:
• Macroeconomic disruptions (e.g.,significant inflation and exchange rate shifts)
• Evolving government policies such as changes to agricultural and food products tariff regimes.
• Emergence of powerful new competitors able to undercut smallholder farmers due to significant economy of scale advantages.
• Current and expected evolution of local and export food markets and distribution channels.
• Analysis of agronomic risks related to the rural development program concerning smallholder agriculture and large-scale ventures.
Based on the prioritized risk assessment, modified business configurations, new smallholder-appropriate ventures, and risk management approaches were developed and are currently under evaluation and refinement in view of implementation.
