Ghana’s Growth and Poverty Reduction Strategy (GPRS II) launched in 2005 and covering the periods 2006 to 2009, and the Food and Agriculture Sector Development Policy (FASDEP) initiated in 2002, both focus on poverty alleviation through private sector-led agricultural development. German Financial Cooperation through KfW is willing to provide funding for investments related to outgrower schemes. German Technical Assistance through GIZ is willing to support the development of outgrower schemes. The two institutions work under one programme in Ghana, the market oriented agricultural programme (MOAP) which is the name of the focal area programme of the German Development Cooperation. The programme aims to support national initiatives by assisting value chain schemes and smallholder farmers. By participating in that programme, small-scale farmers should get better access to commercial markets and increase their income. Thus, the programme contributes to poverty reduction, which is ultimate aim for the Outgrower and Value Chain Fund (OVCF).
KfW has been active in the outgrower and value chain sector in Ghana for a while. It co-finances the rubber component of the perennial crop programme, which has proven successful, and has led to an increased engagement for outgrower and value chain work. At the same time, GIZ have already acquired excellent knowledge and experience with specific value chains in Ghana through their work. In the context of the present programme, a close cooperation is envisaged between the OVCF and the MOAP.
Medium to long-term agricultural financing is rarely available to small-scale farmers and value chain schemes in Ghana. To close this gap, the OVCF will provide different windows of agricultural financing for small-scale commercial farmers and for small and medium sized processing companies. The Fund includes financial contribution of EUR 10 million loan from KfW. In addition, there is an Euro 1 million-grant facility to cater for Fund Manager’s expenses for the first 2 years, studies on value chains, training and similar expenses.
Other donors/funders are expected to join the fund so that the small-scale farmers and value chains can be further developed.
Description of OVCF
- What is OVCF? OVCF is Outgrower and Value Chain Fund. It is a medium-long term refinancing vehicle for outgrowers in the agricultural sector through a financial operator (FO).
- Rationale behind OVCF: Though agriculture accounts for about a third of Ghana’s economy and employs over 50% of the labour force, it suffers from credit access. This has been a major discussion point for the policy makers and key stakeholders in the sector. For agriculture to develop and grow there must be a sustainable funding over long periods. Lack of access to long-medium term credit facilities has affected yields, technology adoption, efficiency, quality and competitiveness especially among smallholders, who account for over 80% of the nation’s agricultural out.
- As one of the strategies to mitigate this setback, OVCF was set up. It is designed to fill a gap in agricultural financing for smallholder farmers in particular and “on case-by-case for Technical Operators (TOs)”.
- Goals and Objectives: OVCF aims to reduce rural poverty through creation of jobs along agricultural value chains and hence the generation of income for the rural folks.
- Target Clients: OVCF defines outgrowers as smallholder farmer groups producing specific agricultural commodity for an off-taker under a contract. Those targeted are smallholder commercial farmers and on case by case TOs directly linked to these smallholder farmers. The project therefore targets the productive poor to generate jobs and incomes.
- Primary and Necessary Condition for accessing the fund: Conclusion of a tripartite agreement among key actors namely: Farmers’ association or Famer Based Organization (Outgrowers); Technical Operator (TO) and; Participating Financial Operators (FOs)