Helping smallholders benefit from vanilla value chains in Tanzania
The CFC’s investment in Natural Extracts Industries (NEI) came at a particularly opportune time for the Tanzania-based agribusiness. We began working with NEI in 2019, just as the price of vanilla began to fall from its peak and only a few months before the Covid pandemic brought the world to a standstill.
As an impact investor we aim to finance viable agribusinesses that drive positive change in the communities around them. That takes long-term commitment and a willingness to stick with them through challenging times. This was a moment to practise what we preach.
‘The double whammy of declining prices and Covid created a lot of uncertainty,’ says NEI Co-founder and Managing Director Juan Guardado. ‘But the Common Fund kept going with us so we could weather that storm, which was really fantastic because nobody knew what was going to happen to the market. The CFC has always been there to see us through thick and thin and it is a testament to the type of investor they are.’
CFC financing helped NEI to continue paying its smallholder farmers for their vanilla, giving them much needed financial security. It also put NEI into a strong position to take advantage of the opportunities that would emerge during the pandemic. ‘2020 was actually a really good year,’ adds Juan. ‘Covid forced everybody to eat and cook at home and we had retail-focused customers who increased volumes significantly. So even though prices were coming down volumes kept up.’
For farmers that meant they could continue planting vanilla crops in the knowledge NEI would provide a secure market for them. This has helped keep the average increase in income per NEI farmer on trend, with that figure hitting USD 291 in 2022, equivalent to more than 25% of GDP per capita in Tanzania.
Since 2020 the number of farmers benefitting from working with NEI has expanded from around 6,000 to more than 10,000. On a recent trip to Tanzania CFC Impact Investment Manager Peter Nielsen visited one of those smallholdings in the Kilimanjaro region near NEI’s processing facility in Moshi, accompanied by NEI Field Officer Jacqui Shayo and the Vice President of Operations Godbless Baluhya.
On the farm, run by a smallholder called Priscilla, he met Cleopa, a smallholder champion who represents 100 farmers in the area. Cleopa described how the farm’s 100 vines have generated valuable extra revenue for Priscilla. There are costs to cover, including labour and the expense of irrigation during the dry season. But most of that money is reinvested into the farm or used to pay for school fees, creating both economic and educational opportunity.
To help kickstart this revenue stream, NEI provided vines subsidised at 20% of the cost, as well as training in how to intercrop vanilla with the smallholding’s coffee and plantain plants. Working with NEI also means Priscilla benefits from its commitment to direct farmer payments, which results in smallholders receiving around 60% of the export price and 25% more than a middleman would offer. The traceability tech that verifies this, provided by SourceTrace, also enables NEI to track field work data such as how many times they’ve trained a farmer and who may need extra support.
From a CFC perspective, Peter says: ‘NEI sets smallholders up for success by providing access to inputs such as vines and a connection to international markets that gives them economic certainty in terms of pricing and demand. For many of these smallholders vanilla has become their main cash crop and we’re looking forward to helping NEI reach more farmers and expand their processing capabilities.’
The CFC has so far disbursed more than USD 1 million to NEI, and the company aims to build on this support by expanding its reach to around 30,000 smallholders in the years to come. This will help it further develop the reliable supply chains large vanilla buyers are looking for.
‘Big buyers wait for scale in a value chain before they commit, so they know the origin can guarantee the volume they need. Many of the top ten global flavour houses are now buying from us,’ explains Juan.
The potential to increase the volumes being sold to those influential customers is part of a wider east African story that Juan is eager for NEI to contribute to. He sees an opportunity for the region to provide the diversified vanilla supply chain larger international buyers are looking for, to counter the price volatility that often afflicts the sector.
‘There is huge scope for growth left,’ he says. ‘We’re developing a sustainable value chain and operate in more than seven regions in Tanzania, but vanilla’s potential goes beyond us as a company. Tanzania’s economy has come on in leaps and bounds recently and there is a large young population looking for the opportunities a thriving industry can offer. We need to be focussed on creating industries and taking a systemic view across the value chain.’
The goal is to expand Tanzania’s share of the global vanilla market from 1% to 5%. NEI hopes to play a large part in that growth and, importantly, continue to pass the rewards down to the farmers who make it possible.
At the CFC, we’re excited to see our investment supporting a company that is genuinely enhancing the livelihoods of smallholders.
Growing the impact of agroforestry
NEI has enhanced its commitment to agroforestry and is now working with smallholders to create a regenerative and diversified agroforestry whole farm system.
Following 10 agroforestry demonstration trials, that will prove its potential both on existing vanilla plots and in regenerating forest cover in open maize fields, the company aims to roll out the initiative across its supply chain.
This will include additional technical support from its field teams as well as new partnerships with reforestation and carbon credit organisations.
The new model will deepen the resilience of farms, putting them in a stronger position to weather the impacts of climate change, sequester carbon dioxide, improve vanilla productivity through enhanced shade and soil fertility, increase farmer incomes by integrating more high value tree crops, and boost biodiversity by ensuring 50% of the new canopy cover is made up of indigenous trees.
Smallholders are keen to benefit from the programme. After conducting focus groups in just two regions of Tanzania, NEI estimates there is an opportunity to plant more than 100,000 shade trees on over 1,200 acres, benefitting more than 2,000 farmers.