Thursday, 25 October 2012

Can big business sell nutritious food to poor people? The case of Grameen Danone Foods in Bangladesh

By Ewan Robinson

Groupe Danone, the largest global producer of fresh dairy products, has done something unusual for a massive, global food business: it has experimented with selling nutritious foods to very poor people. This move is part of a growing interest in nutrition by big businesses.

If you live in North America or Europe, you’ve probably come across Danone’s products, most likely its yogurts. And the company is increasingly present in developing countries. In 2011, 51 per cent of Danone’s sales came from emerging countries.

In 2007, Danone and Grameen Bank invested a total of $1 million to create a small social enterprise venture in Bangladesh, known as Grameen Danone Foods. Grameen Danone produces a yogurt known as Shokti (Bengali for strength), which is fortified to meet 30 per cent of children’s daily requirements of vitamin A, iron, zinc and iodine. The goal is to increase consumption of these yogurts by children in poor, rural areas of Bangladesh.

Grameen Danone’s business model: It is innovative, but is it successful?
Grameen Danone was designed as a social business: it needed to be profitable, but all profits would be invested back into the business, rather than paying dividends to shareholders. The venture operates a single small factory in the city of Bogra, which was designed to use simple production techniques and minimise costs.

Grameen Danone’s distribution model was unique; it worked through saleswomen known as ‘Grameen Ladies’ to sell yogurts in remote areas where there were few shops or refrigerators to store yogurt. The saleswomen received training on how to promote the nutritional benefits of Shokti yogurt, and earned a commission fee for each yogurt they sold.

Yet despite its innovative features, Grameen Danone struggled both to earn a profit and to deliver nutrition to those who needed it. On the one hand, the venture was unable to secure a reliable supply of cheap milk. When fresh milk prices doubled in Bangladesh in 2008, Grameen Danone was forced to raise the price of Shokti, and sales plummeted. At the same time, sales by Grameen Ladies were low, and the venture operated at a loss.

Grameen Danone responded to low sales by beginning to sell yogurts to wealthier urban consumers, alongside those in rural areas. It used conventional marketing techniques, including TV commercials, to promote the yogurt’s health benefits and the fact that it was a social business.

Urban sales grew quickly, and by April 2010, they made up 80 per cent of Grameen Danone sales. While re-orienting sales had kept the company afloat, it had diverted it from its original purpose of providing nutrition to the rural poor.

Can social enterprise be big enough for nutrition?
Grameen Danone is trying to revitalise rural sales and promote new products for rural consumers. It hopes to double sales to urban shops and triple the number of Grameen Ladies, while using promotional events in villages to increase awareness and demand among the rural poor. The company has introduced a new product, a yogurt-cereal blend with a low price and a 30-day shelf life, to cope with the lack of refrigeration in rural areas.

Ultimately, Danone hopes to attract investment in the social business model to replicate it across Bangladesh.

However, it’s unclear whether the rural portion of the business can be made profitable and large scale. Grameen Danone may contribute to Danone’s efforts to expand its brand presence in South Asia, but how much will it contribute to reducing undernutrition for the poorest people?

The challenge is getting the people who really need nutritious foods to pay for them
The case of Grameen Danone also shows the challenge of convincing people to pay for nutritious foods. It has been pointed out that the rural poor in Bangladesh don’t normally buy yogurt products. Still, yogurt is already a well-established product across Bangladesh, produced by several national firms. If it is difficult to grow sales of a familiar product, introducing entirely new foods may prove even trickier.

Wednesday, 17 October 2012

Infrastructure and development finance institutions: How to maximise the development impact of private investment

By Stephen Spratt

Infrastructure remains seriously underprovided throughout the developing world. The OECD estimates:
  • More than 1 billion people lack access to roads
  • 1.2 billion do not have safe drinking water
  • 2.3 billion have no reliable sources of energy
  • 2.4 billion lack sanitation facilities
  • 4 billion are without communication services. 
  • And yet the World Bank finds that investment in Africa alone falls short of the level required by $48 billion a year.
However, it is not just the quantity of investment that matters, it is also the quality. New facilities that provide low quality services, or which poorer sections of society cannot access or afford, may tick boxes with respect to quantity, but do badly in terms of quality. Bilateral and multilateral Development Finance Institutions (DFIs) seek to use their resources to improve outcomes in both areas: they aim to attract private investment (quantity), but also try to enhance the development impact that this finance can achieve (quality).

It is in this context that I recently undertook a systematic review of the evidence for the Private Infrastructure Development Group (PIDG) to see how DFIs are performing in both areas (PDF). The results were encouraging in many ways, but less so in others.

On the positive side, we found that:
  1. DFIs have been successful in attracting additional private finance into infrastructure. They are particularly important in leveraging the long-term finance which infrastructure projects require.  
  2. DFIs are able to influence project selection and design to boost growth. For example, they tend to select infrastructure projects that relieve bottlenecks and then try and influence their design – and the policy framework in which they operate – to further boost growth effects. 
Less positively, we also found that:
  1. DFIs do little to influence projects to increase direct poverty impacts. We found surprisingly few examples of DFIs seeking to influence projects positively in vital areas such as access or affordability for the poor. Interestingly, projects where this was the case all had some form of concessional finance. This suggests that purely commercial finance may be incompatible with maximising development impacts in some areas – a very important finding. 
  2. DFIs could do more to amplify the economic impact of projects.  The supply of good jobs for local people, and linkages with small local firms, for example, are crucial for enhancing the long-term impact of infrastructure projects. While there were some positive examples, where DFIs sought to influence projects in these areas, there is considerable scope for more. Again, this was quite surprising.
  3. Demonstration effects have hard limits. A priority for DFIs is to demonstrate the commercial viability of infrastructure projects, so that private investors will then invest without needing DFI support. While there is scope for this in some areas, there are limits. Often, DFIs are able to do what they do because they are DFIs. Political backing allows them to borrow on favourable terms and to lend with greater confidence. It is simply not possible for private investors to replicate this in many cases, as they do not enjoy the same advantages.  
We were also asked to make suggestions for how DFIs could increase their impact:
  1. Project appraisal and selection is key. Only projects with the largest possible development impact should be selected, but this requires a much more thorough assessment than currently takes place. Projects should be selected solely on their potential development returns, irrespective of potential financial returns, and results should be rigorously assessed and fed back into the appraisal process.
  2. Project finance should be structured to fulfil development potential. Some projects, such as in the telecom sector, produce high financial and high development returns. Others have quite low financial returns but very high development impacts, water and sanitation is a good example. Being clear about these distinctions and structuring finance accordingly is crucial to realising these impacts. In some cases it may be necessary to combine commercial investments with concessional finance such as grants, to ensure that water projects supply rural areas at prices the poor can afford, for example. While some progress has been made here much more could and should be done. 
  3. DFIs should cooperate much more with each other. In areas such as project appraisal, design, financing, delivery and impact assessment, there is huge potential for DFIs to coordinate. While there are many positive examples of this, they are quite ad hoc. Competition is just as likely as cooperation. 
So, while DFIs are having a positive effect, they could do more, sometimes much more. It is particularly important that they are not pulled towards the most commercially viable projects at the expense of those that may not be so lucrative but have large development potential. To do this, DFIs need to maintain a complete focus on development results, and use private finance to further these goals. This requires:
  • Much stronger appraisal and selection procedures than currently exist, linked to effective impact assessment mechanisms
  • Finance to be structured to realise development results rather than suit private investors
  • Well-crafted incentives, where staff are rewarded for the development results they achieve, not the amount of deals they bring in 
  • Reform of some DFI mandates, which do not allow concessional finance to be used, and insist that DFIs are self-financing, creating an inevitable pull towards the most commercially viable types of project. 
  • More transparency: one of the problems that comes with private investment is their habitual insistence on ‘commercial confidentiality’. Evaluations of publicly funded projects are made available as a matter of course; the same should be true of projects with a private investment component. If not, it is not possible to assess their impact, or to compare with the impact of other forms of financing. 
Given the urgent need for infrastructure in low income countries, the increasing focus on private investment is understandable. However, the goals of private investors do not always align fully with development goals. As donor-funded agencies, it is the DFIs job to ensure that maximising development outcomes is the goal of all their projects, and that these are carefully structured and designed to achieve this. Leveraging private finance is a vital part of this process, but it needs to be always remembered that private investment is a means to a (development) end, not an end in itself.

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Spratt, S. and Ryan-Collins, L. (2012) Development Finance Institutions and Infrastructure: A Systematic Review of Evidence for Development Additionality,  Surrey: Private Infrastructure Development Group (PDF)
See also: Spratt, S. and Ryan-Collins, L. (2012) Executive Summary – Development Finance Institutions and Infrastructure: A Systematic Review of Evidence for Development Additionality,  Surrey: Private Infrastructure Development Group (PDF)

Friday, 12 October 2012

The European welfare state: Will it survive?

By Carlos Fortin

In my recent trip to Oslo to give a lecture at the Norwegian Peacebuilding Resource Centre I had a chance to discuss with colleagues there the present difficulties and the future prospects of the European welfare state. The issue is topical in Latin America, where progressive leaders and parties have for some time now argued that the welfare state model offers an ideal combination of market efficiency and societal concern with equity and justice.

The crisis in the Eurozone has given defenders of the neoliberal Anglo-Saxon model of capitalism –who were badly shaken by the subprime crisis in the US and its aftermath- the opportunity to go on the offensive and denounce the shortcomings of the European model as well as predicting its demise.  Typical of this position is the statement in a 2011 paper from the Heritage Foundation, the right-wing U.S. think-tank, which proclaims:
“Europe’s socialist (or “social democratic”) welfare state is collapsing under the load of unsustainable debt. There is no chance European politicians will ever make good on the many costly and unfunded entitlements they have promised their citizens.”1 
The thesis sounds plausible, and it has been eagerly seized by Latin American neoliberals to try and fend off efforts at altering the status quo. The problem is that it is empirically false and conceptually simplistic.

It is not the case that the welfare state be the main cause of the eurozone crisis. As Nobel Prize Economics laureate Paul Krugman wrote last November:
“The nations now in crisis don’t have bigger welfare states than the nations doing well — if anything, the correlation runs the other way. Sweden, with its famously high benefits, is a star performer, one of the few countries whose G.D.P. is now higher than it was before the crisis. Meanwhile, before the crisis, “social expenditure” — spending on welfare-state programs — was lower, as a percentage of national income, in all of the nations now in trouble than in Germany, let alone Sweden.”2 
It is true that excessive social spending may have been an aggravating factor in some cases, such as Greece (although even there there are other equally important factors like the high military spending in the period 1997-2003); but empirical data show that the European debt crisis is primarily a function of problems of monetary management and the difficulties of the euro,3 and not of the existence of the welfare state.

But there is a deeper error in the vision of the Heritage Foundation. It is grossly simplistic. The modern European welfare state is not only a set of economic and social policies. It is the expression of a social compact through which, in the aftermath of Second World War, the main economic, social and political actors - business, workers, political parties and movements, various occupational groups, civic organisations - asserted their willingness to share the benefits and the costs of the economic and social reconstruction and of democratic coexistence. It is a covenant for the legitimisation of the institutions and structures of society. A radical departure from this covenant is only conceivable if society can reach a new legitimising consensus. In continental Europe the individualistic and atomistic ideology of neoliberalism does not seem to be able to provide that consensus. And for the time being no other rationale has emerged which can serve as basis for a new European social covenant.

What lies ahead is therefore a long, complex and difficult process of adjusting the welfare state to the new realities of demographics and globalisation. The process can have significant social and economic costs, as can be presently seen in countries such as Greece, Spain or Italy.  But the ultimate goal is not the demise of the welfare state, but its reinvention as a model that combines modernity and efficiency with the basic consensus that is the essential foundation of democracy.4

To paraphrase Mark Twain, it would seem that reports of the death of the European welfare state are greatly exaggerated.

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1 Roberts, J. and Foster, J. D. (2011) Flashing Red: European Debt Crisis Signals Collapse of Social Welfare State, The Heritage Foundation, 16 August 2011 
2 Krugman, P. (2011) 'Legends of the Fail', International Herald Tribune, 10  November 
3 Nelson, R. M.; Belkin, P.; Mix, D. E. and Weiss, M. A. (2012) 'The Eurozone Crisis: Overview and Issues for Congress', Washington D.C. Congressional Research Service, 29 August 2012 (PDF)  
4 For a recent effort at giving substance to this proposition, see Diamond, P. (2012) Governing as Social
Democrats. Key policy priorities for the left in Europe, Policy Network Paper

Friday, 5 October 2012

The business of measuring impact

By Vivienne Benson

Measuring impact should not be a post mortem, according to Vinay Nair, Business Development Manager at the Acumen Fund.

Vinay was responding to the conundrum we have posed in the latest Business and Development Seminar Series: how do you assess the impact of business on development?

Is considering impact just a case of measuring outputs?
Within his presentation, Vinay explained the Acumen Fund approach in measuring outputs to ascertain the company’s impact. Husk Power Systems (HPS), a company hailed by Vinay as a successful Acumen Fund investment, founded in 2007 to reach the 20,000 villages considered out of reach by the Indian government. The company takes agricultural waste, rice husks otherwise left to rot, and converts it into gas that powers an off-the-shelf turbine to generate electricity.

Essentially, the HPS output is 75 operational plants in Bihar which serves 150 villages, or more than 150,000 people, and yet ultimately the impact is vast:
  • Extends villagers’ activities beyond daylight hours
  • Promoting economic development and microenterprise
  • Reduces indoor air pollution
  • Improving health
  • Increases the time children can study 
  • Improving education
  • Reduces the amount of time women spend collecting firewood
  • Increasing gender equality
  • Reduces emissions
  • Protecting global and local environments.
So when assessing impact, the question that Vinay posed to the seminar participants, is how do you measure the value of education from a good reading light? It is a challenge, so beginning at the level of output seems a good place to start.

The Acumen Fund
The Acumen Fund is a non-profit organisation which invests in social enterprises, emerging leaders, and breakthrough ideas. According to Vinay’s presentation, the Fund targets business ventures based on several criteria:
  • Potential for large-scale social impact (10x growth or 1M+ customers)
  • World-class team committed to solving problems for the poor
  • Enterprises that have the potential to be financially self-sustaining
  • Potential “game changers” – new global approaches for fighting poverty
Nair’s seminar followed Stephen Kenzie’s presentation, Manager of the UK Secretariat of the United Nations Global Compact. He argued that anecdotal evidence suggests that the Global Compact has led businesses to change their behaviour and has had a positive impact on development. However, this kind of evidence is not necessarily quantifiable.

With 6,953 business participants in 135 countries the Global Compact is the world’s largest corporate citizenship initiative, where all the business have agreed to commit to ten core principles within the areas of human rights, labour, anti-corruption and environment.

Reaching the standard: The Business of measuring and assessing impact
Kenzie introduced the first of this series of IDS Business and Development seminars, Reaching the standard: The business of measuring and assessing impact. There are a multitude of Global Initiatives designed to encourage businesses to behave ethically and sustainably, including the Global Compact, as well as others such as the Ethical Trade Initiative.

In our seminar series, leading thinkers and practitioners in businesses, government and research are outlining their vision of the impact of business in development schemes. Presenters are responding to key questions:
  • Do business and development schemes succeed in making private sector organisations have a more positive impact on development?
  • And also importantly, how can we measure this impact?
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Business and Development Seminar Series
Check out the upcoming Business and Development seminars, with speakers including Helen Wilson, Head of Corporate Social Responsibility at Old Mutual Plc (23 October 2012), and experts on Fairtrade and labour standards.

The Business and Development Seminars take place at the Institute of Development Studies, Brighton, UK and are open to everyone to attend. You can listen to interviews with previous speakers in the seminar series on the IDS website. Please contact Vivienne Benson for further information.

Image credit: Acumen Fund / Flickr