Transcript Maduekwe-384-384_pptx

Corporate sustainability and social responsibility of
smallholder farmers:
Implication for agriculture financing
Ebele Maduekwe*,
Emmanuel Benjamin*,
Maarten Punt+,
Gertrud Buchenrieder*°
*Technische Universität München,Germany
+University of Southern Denmark, Denmark
°Martin-Luther-University Halle-Wittenberg, Germany
Introduction
• Majority of sub-Saharan African population live in rural areas
• 70 per cent depend on (rain-fed) agriculture for their livelihood
• Climate change effects reduces environmental quality
• Huge effects on sub-Saharan smallholder farmers and on SubSaharan African economies
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


Climate change Warmer sub-Saharan Africa
Nutrient stress
Water stress
Decrease in output  up to 90% output loss by 2100
Cropper & Griffiths (1994), IFAD (2011 & 2013), IPCC (2007), UNEP (2008), FAO (2014)
Introduction → Theoretical framework → Empirical research → Conclusion
2
Introduction
•
Potential solution to smallholder climate change vulnerability
– Climate smart agriculture and/or conservation agriculture
•
Agri-environmental schemes
– Voluntary measures
– Environmentally friendly farming techniques
– Provision of ecosystem services
•
Payment for Ecosystem Services (PES)
•
Agroforestry with PES
PES farmer
Introduction → Theoretical framework → Empirical research → Conclusion
3
Theoretical Framework
Linking agri-environmental schemes
with PES to signaling financial
institutions
2
3
Societal
welfare
Environmental
quality
1
Agroforestry with PES,
Carbon sequestration
4
5
6
Positive
signaling to
financial
institutions
Corporate social
responsibility
(CSR)
Corporate
sustainability
(CS)
Introduction → Theoretical framework → Empirical research → Conclusion
4
Theoretical Framework
• Corporate social reponsibility“the continuing commitment by business to behave ethically
and contribute to economic development while improving the
quality of life of the workforce and their families as well as of the
local community and society at large”
• Corporate sustainability –
“business approach that creates long-term shareholder value
by […]managing risks[…] from economic, environmental and
social developments”
Dow Jones Sustainability Index (2015), World Business Council for Sustainable Development (1999)
Introduction → Theoretical framework → Empirical research → Conclusion
5
Theoretical Framework
• Profit maximizing PES farmers
• Theoretical model:
PES farmer
Capital and welfare theories of
corporate social responsibility (CSR) and corporate sustainability (CS)
• Extended to:
– … account for PES and social welfare
– … account for land availability and quality
• Assumptions underlying are:
 Corporate social responsibility (CSR)
 Improved societal welfare
 Pareto improvement (above a certain threshold)
 Corporate sustainability (CS)
 Stable income over time
 Positive signal to financial institutions (less risky)
Hediger (2010)
Introduction → Theoretical framework → Empirical research → Conclusion
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Theoretical Framework
Short term profit maximization of a smallholder farmer in agroforestry
agri-environmental schemes with PES involving CSR
Farmer maximizes profits 𝜋 by allocating inputs to agriculture (𝑥𝑓 ) and
PES (𝑥𝑃) subject to …
• ... a constraint on available land
 x , x , l
 x , x , l
F
P
P
F P F 0





Shadow price of land

l


l
F
P
• … a constraint on minimum welfare (W) to be retained (CSR)




 W
 x , l , l

P F P
 z
x
F




 x , l , l
 W
F F P
Shadow price of welfare

x
 z
P




 0
z 
x 
P
z
x
F
Introduction → Theoretical framework →Empirical research → Conclusion
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Theoretical Framework
Long term profit maximization of a smallholder farmer in agroforestry
agri-environmental schemes with PES involving CSR and CS
Important capital asset : the fertility and quality of farmland 
All the variables are time dependent
  xF t , xP t , lF t , lP t , qt   yt 

  qt   t  W zt   W0   t  l AG t  lF t  lP t
Lt  yt  t  
Pt




Lt  H t ( x F t , x P t , l F t , l P t , qt , yt )  t  W zt   W0 
qt

Corporate Social
Responsibility (CSR)
 xF t , xP t , l F t , l P t , qt   yt

H t ( xF t , xP t , l F t , l P t , qt , yt )  yt   t 
 qt   t  l AG t  l F t  lP t 
Pt


Introduction → Theoretical framework → Empirical research → Conclusion
Corporate
Sustainability (CS)
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Empirical Research
Non-governmental agroforestry program with PES
Implementation countries
India, Kenya, Tanzania & Uganda
Total number of planted
trees in Kenya
7,370,638
Number of farmers in Kenya
59,553
Amount of Carbon dioxide
(CO2) sequestrated in Kenya
250,000 tons (2012)
Year of survey
2013
Number of observations
Areas surveyed
The International Small
Group and Tree Planting
Program (TIST) Kenya
210 (TIST and non-TIST farmers)
Embu, Meru and Nanyuki (Kenya)
Benjamin (2013)
Introduction → Theoretical framework → Empirical research → Conclusion
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The International Small
Group and Tree Planting
Program (TIST) Kenya
Empirical Research
40000
Maize revenue
outcome of TIST
farmers
35000
Revenue Ksh
30000
25000
Revenue after TIST
20000
Revenue before TIST
15000
Linear (Revenue after
TIST )
10000
Linear (Revenue before
TIST)
5000
0
0
0.5
1
1.5
2
Hectares
2.5
3
3.5
4
Benjamin (2013)
Introduction → Theoretical framework → Empirical research → Conclusion
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The International Small
Group and Tree Planting
Program (TIST) Kenya
Empirical Research
90%
80%
60%
50%
40%
30%
10%
Building
Material
Fuelwood
20%
Productivity
Improvement
Environm. & climate change effects
Percentage of farmers
70%
Multiple Reasons cited
for joining TIST
0%
Social welfare
PES income
Income in-kind
Benjamin (2013)
Introduction → Theoretical framework → Empirical research → Conclusion
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The International Small
Group and Tree Planting
Program (TIST) Kenya
Empirical Research
PES farmer’s CSR and CS …
• … improve agricultural output and profit
• … protect against reputational risk
• … build up reputational capital
 credit risk evaluation (adverse selection and moral hazard)
• … produce positive observable signals to financial institutions.
This is important considering that the lending portfolio …
-
… of commercial banks to smallholder farmers is less than 10%
-
… of rural microfinance institutions is about 49%
Hediger (2010); Benjamin (2013)
Introduction → Theoretical framework → Empirical research → Conclusion
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The International Small
Group and Tree Planting
Program (TIST) Kenya
Empirical Research
Payment
for
Ecosystem
Services
Stable
income –
trust and
creditworthy
Environmental
quality and
social welfare
Farm
training
and
investment
Smallholder farmer in
agroforestry with PES
Corporate
social
responsibility
Reputational
capital
Corporate
sustainability
Sustainable agriculture in the
static and intertemporal sphere
Positive
signaling
to financial
institutions
Access to agricultural financing
Farmers in Kenya were less likely to be credit constrained if they
participated in PES scheme!!
Benjamin (2013)
Introduction → Theoretical framework → Empirical research → Conclusion
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Conclusion
• Climate resilient practices benefit the society and smallholder
farmers  stable income flow through PES
• Huge implications for farmers (CS), societal welfare (CSR) and
agricultural financing
• This signaling can make PES farmers attractive as potential
borrowers for financial institutions
• PES revenue, reputation, human and social capital knowledge
transfer associated with PES programs improve smallholder’s
livelihoods
• Important indicators for financial institutions’ credit risk
management
Introduction → Theoretical framework → Empirical research → Conclusion
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Thank you
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References
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Benjamin, O.E. (2015), ‘Financial institutions and trends in sustainable agriculture: Synergy in rural sub-Saharan Africa-epublished doctoral dissertation)’, available at http://elpub.bib.uni-wuppertal.de/servlets/DerivateServlet/Derivate4580/db1501.pdf: http://elpub.bib.uni-wuppertal.de/edocs/dokumente/fbb/wirtschaftswissenschaft/ diss2015/benjamin
(accessed February 2015).
Benjamin, E.O. and Blum, M. (2015),‘Participation of smallholders in agroforestry agri-environmental scheme: A lesson
from the rural mount Kenyan region’, The Journal of Developing Areas, 49 (4), 127 – 143.
Benjamin E.O. and Buchenrieder, G. (2016), ‘Credit risk and ecosystem services: A review of small-scale emission certified
agroforestry’, in Othmar Lehner (ed.), Routledge Handbook of Social and Sustainable Finance (forthcoming).
Benjamin, E.O., Punt, M., and Blum, M. (2016), ‘The impact of extension and ecosystem services on smallholder’s credit
constraint’, The Journal of Developing Areas, 50 (1), 333 –350.
Dow Jones Sustainability Index (2015), ‘ Corporate sustainability’. Available online at: http://www.sustainabilityindices.com/sustainability-assessment/corporate-sustainability.jsp (Accessed 25 February 206)
European Commission (2015) , ‘Agriculture and environment: Agri-environment measures’, available online at
http://ec.europa.eu/agriculture/envir/measures/index_en.htm (accessed 28 January 2016)
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http://www.fao.org/geonetwork/srv/en/ (accessed 10 February 2016
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Hediger, W. (2010), ‘Welfare and capital-theoretic foundations of corporate social responsibility and corporate
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Fourth Assessment Report: Climate Change 2007’, available at
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Prakash, A., and Stigler, M. (2012). Part 1- The setting. Available at: http://www.fao.org/docrep/015/i2490e/i2490e00.htm
(Accessed 21 February 2014)
TIST (2015) , ‘Planting Trees and Improving Agriculture for Better Lives’, available at: http://tist.org/i2/index.php (accessed
February 2015).
TIST (2004) , ‘ Sustainable (Annual) Economic Benefits to the Small Groups Participating in
TIST’, available at http://tist.org/i2/docs/TIST%20Benefits%20Chart.pdf (accessed February 2015).
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Washington, DC, USA: World Bank.
World Business Council for Sustainable Development. (1999). Corporate social responsibility – meeting changing
expectations. Geneva, Switzerland.
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