Design of Onion and Groundnuts Storage and Warehouse Receipts System and Technical Assistance for Financial Innovation

Job Description

DESIGN OF ONION AND GROUNDNUTS STORAGE AND WAREHOUSE RECEIPTS SYSTEM AND TECHNICAL ASSISTANCE FOR FINANCIAL INNOVATION

SUMMARY DETAILS

Name of consultancy: Design of Onion and Groundnuts Storage and Warehouse Receipts System and Technical Assistance for Financial Innovation
Timeframe for implementation: Between 15 November 2015 and 15 March 2016
Type of consultancy: Short term consultancy
Estimated LOE: 40 days for international consultants and 40 days for Ghanaian consultants
Deadline for submission: 2pm UK time, October 26th, 2015

INTRODUCTION – GHANA MADE

Nathan Associates London Limited is implementing a UK Department for International Development (DFID) funded four-year programme entitled Market Development (MADE) Programme for Northern Ghana. The MADE Programme supports DFID Ghana’s objective of promoting growth and reducing poverty in the 63 districts covered by the Savannah Accelerated Development Authority (SADA) covering the Northern Savannah Belt of Ghana.

More specifically, the MADE Programme is expected to improve the incomes and resilience of poor smallholder farmers (SHFs) and small-scale rural entrepreneurs (SSEs) in the Northern Savannah by improving the way that markets work. The Programme is using the Making Markets Work for the Poor (M4P) approach and aims to achieve a positive change in annual real incomes for 78,000 SHFs and SSEs by promoting, facilitating and supporting the development, adoption and use of new or improved business models, technology and agronomic practices to help increase agricultural yields, productivity and competitiveness and thereby contribute to increased sales and turnover. The Programme currently works in five agricultural markets (value chains): rice, groundnuts, onions, other vegetables (chillies, okra, garden eggs, tomatoes, watermelon, etc.), and livestock (cattle, sheep and goats).

BACKGROUND AND CONTEXT

The Background

During the inception phase of the programme, the MADE team undertook an in-depth analysis of the five markets and identified a number of interventions to address systemic constraints in each. A shortlist of interventions was developed for implementation which started in March 2014. The shortlist included five interventions in the onion market aimed at:

1. Improving farmers’ access to and use of improved high yielding onion varieties
2. Improving supply chains of onions originating from the Northern Savannah
3. Increasing farmers’ adoption of good agricultural practices (GAP) and low external input and sustainable agriculture (LEISA)
4. Improving farmers’ access to finance for working capital and household consumption smoothening
5. Establishing public private partnerships for irrigation to enhance year round production

The following is the shortlist of groundnut market interventions, also, aimed at:

1. Promoting increased usage of improved seeds and good agronomic practices by groundnut farmers;
2. Improving supply chains of groundnuts originating from the Northern Savannah by, among others, fostering the development of aggregating businesses and attracting top of the supply chain buyers and processors;
3. Fostering cooperation and collaboration between and among value chain actors in the groundnuts market with support for the formation and operationalisation of a Groundnuts Alliance to serve as an industry stakeholders’ platform;
4. Developing lease and rental market to improve the provision of mechanisation services for groundnut production and processing;
5. Facilitating the provision of business development services (BDS) for farmers, traders and processors in the north to grow and manage their businesses well thereby allowing them better access to finance.

These terms of reference are related to the objectives of onion intervention 4 and groundnuts intervention 5 respectively and together.

The Context

Onion and groundnuts production are important sources of incomes and livelihoods in Northern Ghana. According to the GLSS (2008)[1], over 20,000 households in the Northern Savannah Belt cultivate onions and approximately 625,000 households cultivate groundnuts with an estimated annual production of 49,000 metric tonnes (MT) on approximately 4,400 hectares (ha), i.e. 11MT/ha for onions; and 475,100MT on 528,000ha, i.e., approximately 1MT/ha for groundnuts respectively.

The majority of households in the Northern Savannah, however, struggle to turn a profit from the cultivation and sale of these crops due to a variety of factors including the use of low yielding varieties, poor cultivation and post-harvest practices, particularly storage which is one of the focal areas of this piece of this assignment. Storage would allow farmers to stagger sales and offload stocks when market conditions are more favourable. A 2012 analysis[2] of the sector estimates that onion producers in Ghana are likely to realise a 350 fold increase in income per kilogramme of onions if sales were staggered. Groundnuts farmers can make an additional 50% income from the sale of groundnuts if sales could be deferred or staggered.

However, unlike storage of cereals, storage of onions is challenging because high temperatures promote rot and too low temperatures and humid surroundings cause sprouting. Storage of groundnuts is, similarly, challenging because it is preferably stored in-shell, requiring large storage space. If shelled, the kernel shelve life is short and losses are high due to high mold and insect infestation.

In addition to storage, SHFs require working capital to finance production of the crops and consumption finance to support household consumption and to meet basic and essential economic and social needs during the so-called lean season. While both storage and finance needs can be met separately through, e.g., the construction of warehouses and other infrastructure and micro-finance loans or loans from a village savings and loans scheme, it is widely believed that a warehouse receipts scheme (though not necessarily the best solution) can effectively and innovatively address both gaps at the same time.

Based on the above background information, the MADE Programme is looking for an external product/service design consultant or firm backed by a multidisciplinary team of professionals with expertise in the design of warehouse receipt or inventory credit systems as well as financial product development to undertake this assignment.

SCOPE OF ASSIGNMENT

There are, currently, a number of solutions aimed at addressing the storage and financing gaps in the onion and groundnuts markets. These include pilots that have been run by TRIAS, an NGO working with onion farmers in the Upper Region.

• Community Based Storage Facilities: TRIAS has piloted 23-community facilities built by farmers in the community from their own resources and funding from TRIAS for shelves and roofing. Farmers with access to these facilities can now store their produce, increasing their ability to sell onions at a later stage. However, these community facilities are small, suitable for only 10 farmers storing an average of 234kg of onion each. The facilities, also, face problems caused by construction errors. For instance, the platforms are low, making room for rats and termites. They are, also, poorly ventilated. Improvements could be made in the design and construction of new community storage facilities. On the flip side, the community storage facilities are not used in the rainy season. They could easily be used to store other crops for a fee.
• Household storage: In spite (and partly because of the limitation) of the community based storage facilities most farmers continue to store onions in their houses. Although this does give them some ability to sell produce off slowly as the need for cash arises, it is not ideal for the household or the quality of the onions. Also, even with such facilities, farmers are still unable to leverage the stored onions to obtain finance, so they are often unable to store until prices are highest. On the flip side, some rural and community banks have been financing household storage facilities (stock stored at home). However, very little is known about their operations. More information is, therefore, needed on the financial products the banks use and how they have performed.
• Warehouse receipts: Some banks, working with TRIAS, have, also, attempted to address the financing gap by running simple warehouse receipt systems in which the farmer stores produce in an approved warehouse and can borrow cash equivalent to a proportion of the value of onions stored. When the farmer is ready to sell, he can reclaim the same bag(s) of onions he stored by paying off his cash loan plus storage charges. However, the number of suitable warehouses is very limited, as the community based facilities built by NGOs are not good enough for this purpose. Therefore, an assessment of the current situation and what is required to scaling up, if feasible, is required.

As part of this assignment, the consultant/consulting firm will build upon TRIAS’ work including its work with the rural and community banks as entry points to work with rural and other banks and micro finance institutions (MFIs) to assess the feasibility of further solutions. The case of groundnuts needs to take account of the interests of both smallholder farmers (SHFs) and rural small-scale entrepreneurs (SSEs). The situation in the case of each of these is briefly summarised in the mini-case study below:

Groundnuts Case Study

The MADE Programme is supporting with Noyine Maltinga, a micro scale agro-processing enterprise in the Bolgatanga Municipality of the Upper East Region of Ghana. Noyine supports income generating activities for rural women including a ready market for groundnut farmers as a source of livelihood. It processes about 30 metric tonnes of groundnut per annum which it markets through 40 sales centres throughout the country.

Noyine’s products are in high demand all year round requiring all year round processing, hence all year round raw material availability. Noyine, therefore, aggregates, shells, sorts and stores groundnuts from farmers at the time of harvest and pays for the farmers’ stored shelled nuts in the off-season at a price slightly below the going market price at the time of sale. The price though slightly below the going market price to off-set the cost of storage still benefits farmers as, in general, the price at the time of sale is higher than at the time of harvest. It also benefits the business as it is assured of its raw material which it holds in storage for the farmers.

Noyine hopes to procure and process more groundnuts as it grows, but it does not have adequate storage facilities. It does not, also, have sufficient funds to pre-finance part of its procurement by making upfront part payments to farmers at the time of harvest to help meet their cash needs and to motivate them to keep the groundnuts in storage. Noyine will, also, benefit from improved warehousing management and better warehouse receipt system operations and practices.

ASSIGNMENT OBJECTIVES

The assignment has the following key objective:

To promote and support the development of storage solutions that, in addition to physical adequacy and integrity, can be leveraged to develop pre and postharvest financing options which will allow onion and groundnut SHFs to meet their working capital and household consumption needs, avoiding the need to sell all of their crop in the immediate postharvest period when prices tend to be depressed.

For purposes of the above, the consultant(s) will be required to carry out the following:

1. Review all relevant reports, publications and studies on onion and groundnut value chains in the Northern Savannah Belt and Ghana more generally. Reports generated by the MADE Programme itself will be made available. The review should identify specific gaps in knowledge that need to be filled to achieve the objective of this assignment and the overall objectives of the MADE Programme.
2. Identify, on the basis of an assessment of production, marketing and financing options, products, services, delivery models etc., which can be used by rural and community banks and other financial institutions, such as MFIs, to lend profitably to SHFs, SSEs and other industry players for increased production, improved storage and marketing of groundnuts and onions.
3. Outline technical assistance that various market actors may require to develop and roll out the recommended products, services, business models, etc.

DETAILED ACTIVITIES

The recommendations from this assignment will be implemented in a pilot to be run in selected communities in the Upper East Region. Thus, in addition to the key activities outlined above, the consultant/consulting firm will be required to undertake further assessments and analysis as follows:

Household/Community Storage Facilities

• Assess the suitability of existing household/community level storage models, including technical suitability of different types of existing storage infrastructure, e.g., household and community onion storage facilities and existing grain warehouses.
• Assess the willingness of farmers to adopt and invest in improved household storage facilities and estimate the number of farmers who would be interested in accessing finance to invest in such facilities.
• Analyse how existing “infrastructure” loans and other financial products for storage facilities have performed and what’s required to improve their performance; and
• Review the performance of current lending against stocks held in household/community storage facilities, including default risk mitigation measures instituted by financial institutions.
• Based on the above assessments:

1. Recommend models (new products, services, delivery models etc.) for lending for the establishment of improved household/community storage facilities and against stocks held in such facilities, including the need for new technology, if required.
2. Outline a plan for delivering technical assistance to financial institutions to allow them to develop and roll-out the recommended new products, services, delivery models, etc. This will potentially include staff training, the development of systems, for instance, for appraising applications and monitoring the “infrastructure” and stocks backed loans more effectively; and models for developing of links with input dealers, seed suppliers and larger farmers capable of buying from smallholders, etc.

Warehouse Receipts System (WRS)

• Analyse any existing warehouse receipt and inventory credit systems and determine their scalability and what may be required for scaling up.
• Identify potential investors (large-scale farmers and/or buyers, financial institutions, “freelance” investors, etc.) who can invest in and/or operate warehousing facilities, in particular, under a warehousing receipt scheme. Identify their capacity and other needs.
• Develop a model setting out:

1. What will attract farmers (including appropriate level of interest, fees and other charges) to patronise the services of warehouses and participate in the WRS;
2. Who is best placed to invest in, operate and manage the warehouses and WRS;
3. What the banks need to do to lend against produce stored in the warehouses and to recover loans;
4. Translate these insights into a model for establishing, operating and managing a warehouse receipts scheme that includes a financing plan, as well as operational and marketing plans;
5. Outline the technical assistance that may be required by potential operators/managers and investors to operationalise the model of the warehouse receipts scheme.

OUTPUTS AND MILESTONE DELIVERABLES

The selected consultant/consulting firm will be expected to deliver the outputs set out in the table below. This is a preliminary list of deliverables which will be reviewed after the receipt of proposals and discussions with the successful bidder. Payments will be made against achievement of the following milestones:

Outputs/Milestones:

1. A report setting out the key finding from the review of relevant reports, publications and studies on the onion and groundnut markets (value chains); an overview of products, services, delivery models etc., which can be used by rural and community banks and other financial institutions, such as MFIs, to lend profitably to SHFs, SSEs; as well as the technical assistance that various market actors may require to develop and roll out the recommended products, services, business models, etc.
2. A second report on the recommended models (new products, services, delivery models etc.) for lending for the establishment of improved household/community storage facilities and against stocks held in such facilities, including the need for new technology, if required including the outline plan for delivering TA to financial institutions to allow them to develop and roll-out the recommended new products, services, delivery models, etc.
3. A third report setting out the model for establishing, operating and managing a warehouse receipts scheme and the TA that may be required by potential operators/managers and investors to operationalise the model
4. An action plan for the MADE Programme to use to support piloting of a groundnuts and onion warehouse receipts system - WRS (or any similar integrated storage and financing model), setting out in broad outline assistance that may be required by financial institutions, SHFs, SSEs, investors, warehouse operators, etc., to successfully establish, operate and manage the WRS.

SELECTION CRITERIA

Interested bidders should set out their response to these Terms of Reference in the form of a technical and financial proposal, detailing their capability to carry out the assignment and methodology for doing so. Bids will be evaluated according to the scoring criteria below.

Technical Criteria:

1. Company experience and capability (Tot. 20 points)

• Previous experience in financial product development and innovation and warehouse receipt systems (10 points)
• Experience working in agricultural value chains, especially the groundnuts and onion value chains, in Northern Ghana (10 points)

2. Approach & methodology (Tot. 30 points)

• Responsiveness to Terms of Reference (20 points)
• Ability of work plan to meet outputs/deliverables (10 points)

3. Key personnel: Suitability of CVs of key personnel (30 points)

Financia Criteria:

4. Value for money (20 points)

RECIPIENT

The recipients of the consultancy services will be the MADE Programme, SSEs such as Noyine Maltinga, onion and groundnut producers and outgrowers, the banks and other financial institutions, prospective investors, etc.

WORKING ARRANGEMENTS

The preferred bidder to be contracted by the MADE Programme will be managed by its market development specialists responsible for groundnuts and onions, and will report to the MADE Team Leader. Day to day support in facilitating interaction with SHFs, SSEs, the financial institutions and other stakeholders will be provided by local service providers who have been contracted by the MADE Programme to serve as its sub-facilitators.

SOLICITATION PROCESS

Required documentation to be submitted:

1. A Technical proposal consisting of:

• Previous experience and capability (max. 3 pages)
• CVs of team members (max. 2 pages per CV)
• Approach and methodology (max. 8 pages including detailed work plan)

2. A financial proposal including:

• Fees for consultants
• Reimbursable expenses
• A budget template can be requested by sending an email to Ngoc Do at ndo@nathaninc.com

Submission and requests for clarification

All required documentation and requests for clarification should be sent in electronic form to the MADE Programme Manager – Ngoc Do (ndo@nathaninc.com) by 2 pm UK time, October 26th, 2015.

[1] These ToRs were drafted before the report of 6th series of the GLSS was published.
[2] ASNAPP-TRIAS-NORTHFIN Onion Value Chain for Bawku Red Findings Report- 2012

About the Organization

Nathan Associates London is a leading provider of economic and management consultancy services worldwide. For over 15 years, we have successfully delivered more than 250 projects in over 50 countries throughout Africa, Asia, Eastern Europe and Latin America, including working in many post-conflict environments.

We work with the private sector to align business interests with development objectives; design, implement and manage programmes that generate institutional and policy reform, private sector innovation and improved livelihood strategies for the poor; provide advice to governments and donors on strategies for inclusive growth. Our approach is to maximise the impact of all projects and programmes by understanding the political economy of change and the need to provide incentives to help overcome vested interests.

Our expertise encompasses three key areas: private sector development; agriculture and rural livelihoods; and financial sector development.

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