Innovation Guide
Service Delivery
Procurement
Farmer Impact
Block Farms
31 Aug 2023
•
3 minutes read
by
Juan Carlo Intriago Zambrano
What is this guide and why does it matter?
This guide contains actionable steps on how to design and implement a block farming model (hereafter referred to as a “block farm”). Block farming is a model of clustering smallholder farmers together while providing services and sourcing produce from them. While we have not explicitly focused on block farms in our aggregate analyses, their prominence in the business models that we have analyzed has seen them heavily discussed in the following pages:
- Crop type versus service delivery cost
- Last mile delivery versus service delivery cost
- Scale versus service delivery cost
- Scale versus direct cost recovery
We see several consistent patterns with block farms when compared to scattered farming models. For instance, block farms have higher service delivery costs, recover more costs directly through service payments and create more value at farm-level.
This guide is for companies either implementing or looking to implement a block farming model. It is also useful to organizations and donors supporting companies in setting up or strengthening a block farm model. The information in this guide is based on the direct experience of companies that have implemented block farms in a range of contexts.
What is block farming?
Block farming is a model that works by establishing a single contiguous large area of agricultural land and parceling this into numerous smaller plots. Under this model, smallholder farmers are assigned a specific plot to farm within this larger block. Alternatively, though less common, if the block farm is set up using already established farms, farmers usually keep working on their respective plots. The whole block farm is overseen by a company that is responsible for providing farmers with access to goods and services at scale. These include inputs, mechanization, training and affordable financing and a guaranteed market. Typically, the company in question will either own or lease the land and allocate it to farmers for a specified period of time.
Short on time? Watch this animation to get all the key information in a few minutes.
How does it typically work?
While there is no one-size-fits-all approach to block farming, we do provide an illustrative overview of how it works in the graphic below. This guide’s “How to design a block farm” section provides more detailed guidance on how to design, set up and operate a block farm.
- A company acts as a produce off-taker and in some cases, an agri-food processor.
- The company acquires several contiguous plots or a single large plot of land, which is then segmented into smaller plots. Each of these smaller plots is allocated to farmers.
- The company provides its block farmers with several agricultural services such as inputs, training, mechanization, irrigation, etc. Due to the contiguous nature of the plots, mechanization is possible for land preparation, planting, input application and harvesting.
- The farmers grow their produce in their respective plots, under close supervision of the company’s dedicated staff.
- At the appropriate time, the company coordinates and often conducts (using mechanization) the harvesting and off-taking of produce
- The company pays the farmers for their produce and/or labor. The cost of providing farmers with goods and services throughout the season is typically deducted from these payments.
Why implement it?
Click the links below for more information on the benefits that block farming offers different stakeholders across the value chain:
Company
Company
- More reliable supply - Block farming ensures that companies can secure a reliable supply of specific crops when compared to buying produce from the open market or through a scattered outgrower model. This is due to the concentration of farms in a single (or a small number of) contiguous block(s), proximity to the company’s aggregation and processing facilities, as well as a higher degree of visibility and control of the company over production and harvesting cycles. All these reasons greatly reduce or sometimes eliminate the risk of side-selling, one of the major challenges to agribusinesses.
- More commercially viable service provision - Block farms typically recover more service provision costs than other smallholder-inclusive business models that subsidize services to farmers (i.e., farmers are not charged for or charged less than the cost of those services). That cost recovery happens despite the fact that block farms offer more complex and expensive services than most other models. This is because of the high degree of control that a company has over service provision, especially harvesting. It is also due to long-term contracts governing transactions and relationships between farmers and the company. These two conditions allow companies to automatically deduct costs for delivered goods and services from the payments provided to farmers for their produce and/or their labor.
- Better market opportunities - By having more control over production systems, supply, and produce quality (through closer supervision), companies are able to effectively meet end-buyer requirements. This improved planning capacity allows companies to target better markets, adapt to consumer preferences, and explore new business opportunities.
- Improved produce quality - Companies can source greater volumes and help farmers produce better quality crops due to the high level of supervision and wide array of services they provide to their block farmers.
Farmers
Farmers
- Inclusive land access - Customary law systems of some countries such as Nigeria and Ghana prevent certain members of the society from accessing land tenure rights. In this respect, block farms can enable more inclusive land access opportunities to traditionally disadvantaged farmers such as women and youth
- Improved access to credit - Traditional financial institutions typically consider smallholder farmers as high-risk individuals, thus excluding them from access to finance. Through the block farms, and supported by the overseer company, smallholder farmers are more likely to have access to credit for inputs and farming operations throughout the production cycle, due to being perceived as lower risk
- Access to a more complex set of services - Farmers engaged in block farm models typically have access to more, higher-quality, and in some cases, more affordable services than outgrowers. Since the company running the block farm can make bulk purchases and negotiate the cost of certain services (e.g., inputs and equipment), farmers can benefit from lower costs as compared to accessing these services themselves. Mechanization and irrigation are just some of the benefits of block farming since these services are often not economically feasible on small, scattered and non-adjacent plots.
- Improved capacity-building - Block farmers can boost their agricultural capacity by receiving more frequent and closer supervision and targeted training from the company. They can also benefit from cross-learning with other block farmers, who are in close proximity to one another, farming the same crops and using the same production methods and inputs.
- Guaranteed market - Farmers can benefit from guaranteed offtake of their produce, which is a common practice among companies involved in block farming. It is important for offtake contract agreements to benefit farmers by offering a fair price for their produce.
- Higher value creation - Due to the benefits mentioned above, yields on block farms are typically higher than on scattered plot farms. Higher yields, in combination with often premium prices, create more value for farmers.
Communities
Communities
- More diversified sources of income - A block farm can create jobs and new sources of income for a given community because it requires farmers, laborers as well as managers to keep it running. By providing these opportunities, block farms can help reduce youth unemployment and economic-based migration.
- More social cohesion - A block farm can improve a community’s social cohesion because it brings people from different backgrounds together, thereby helping them build trust and establish stronger relationships.
- Better land use systems - Block farms can improve land use by targeting communities with idle or underutilized plots. Many of the block farm models have high initial costs to make underused lands suitable to farm, a heavy investment that is beyond the means of independent smallholder farmers.
- Improved food security - By timely offering a broad range of high-quality services (e.g., inputs, extension, mechanization, long-term storage, transport, processing, etc.), block farms can increase yields while reducing post-harvest losses. By attaining these two goals, more food is available not only to supply the company’s needs, but (depending on the agreements with farmers) also for possible consumption within the communities
Context matters: What are the enabling conditions for a block farm?
Context plays a major role in the viability of block farms. Having worked with multiple block farm business models in different contexts, FarmFit is able to identify the conditions in which block farms flourish:
Value chain Perishability Geographical dispersion of farmers Degree of farmer organization Policy environment Digital infrastructure Rural infrastructure
Why not? Key limitations, risks and unintended consequences
Capital intensity Crop viability Land availability Litigation risks Low diversification of sourcing area
Similarly, there are unintended consequences that can emerge as a result of block farms. These can impact (certain segments of) farmers, the environment, local communities, partner organizations and other stakeholders as shown below:
Reduced farmer agency Land degradation Conflicts with and within the community Disengaged farmers
Smarter design choices can help mitigate some of these limitations, risks and unintended consequences. Read on further to see how you can smartly design your block farm.
How to design a block farm
This section first outlines the steps involved in establishing a block farm, before providing key recommendations on how a block farm can be optimized to improve performance outcomes. Click on the sub-headings below for more details:
How to get started
From our experience supporting companies in the design and implementation of block farms, we propose the following five steps:
Design of the block farm
Design of the block farm
- Set a clear plan for the block farm based on the target volumes and expected yields. Consider the required land, farm layout, number of farmers, plot size per farmer, required services, services providers available, and timings of service offering.
- Identify the right crops. Choose value chains based on a region’s climate, soil type, and market demand. Favor crops that benefit from large-scale dynamics. Design a crop rotation scheme to manage pests, diseases and soil quality.
- Choose the right location. Consider the sources and availability of land. Evaluate the pros and cons of either purchasing land or leasing it from communities, individuals or the government. Assess the agro-ecological suitability of possible locations through technical studies. The location must be logistically accessible to your services providers and should be conveniently located for the farmers.
- Plan the production economics. Block farming models are characterized by high initial capital investments such as land acquisition, land preparation and the acquisition of mechanization equipment. Analyse the required capital and long-term economics – Break-even normally takes a few years given high initial capital needs. Secure the capital that your company needs before embarking on this process. Look into diverse sources of capital such as your own funding, grants, loans and subsidies. Make contractual agreements with financial institutions to provide credit to the farmers and pre-finance services to be offered
- Develop a management plan for the block farm. Engage the required staff, including managers, supervisors, agronomists, extension agents, and security personnel. Include decision-making hierarchy, chain of command, and responsibilities. Consider agricultural management features like irrigation scheduling and pest control measures.
- Assess the projected economics of farmers that will be operating within your block farm model. Confirm that you are able to provide a strong value proposition to farmers based on land size, expected yields, production costs, offtake prices and capacity-building, in addition to potential secondary benefits such as housing and education.
Land acquisition and allocation
Land acquisition and allocation
- Negotiate the terms of purchasing or leasing the land. If leased, evaluate the minimum leasing period to ensure that the block farm is financially viable. Once potential plots are identified, negotiate the price, length of the lease, and ownership agreements.
- Conduct due diligence on selected plots of land, leveraging legal and technical experts with local knowledge. Before closing the lease or the sale, check the ownership status, land titles, zoning compliance, and soil quality of the plot. Conduct research on possible issues with regard to farmers operating without land tenure rights.
- Engage with potential farmers. Discuss their roles within the block farm as you negotiate land. Be aware of cultural and social dynamics within the community. Engage with community leaders to expedite this process. As mentioned above, ensure that you have an attractive and fair value proposition for farmers. Discuss contractual agreements, including plot size, duration of the contract, cost of services, price and volume of offtakes and secondary benefits.
- Segment the block farm and allocate plots to individual farmers, unless they are to farm in their own original plots. With this in mind, consider factors such as total land, number of farmers, crops’ land requirement, targeted yield, and land productivity. Assess different segmentation methods (e.g., equal allocation and pro rata allocation).
- If necessary, and depending on the agreed services to be offered, conduct land clearing and land preparation to make it suitable for farming.
Service delivery
Service delivery
- Develop a service delivery plan. Make deals with relevant service providers. Coordinate the delivery of services such as training schedules and production cycles. Determine if and how to price the costs of goods and services. Businesses typically factor these costs into the offtake contract.
- Ensure that block farmers are aware of the services available, when they should be delivered and how pricing and payments are structured.
- Implement and monitor service delivery. Ensure that they are provided on time and at the agreed upon volumes. Assign field staff to closely monitor the process throughout the production cycle. Adjust the plan accordingly in case certain services are unavailable or if some farmers underperform.
Harvest and offtake
Harvest and offtake
- Plan the harvest process by taking note of timing, required equipment and labor, and plot logistics. Share the harvesting plan with the farmers in advance.
- Monitor the harvesting process. Make backup plans for unexpected events like power outages or machine failure. Prepare contingencies for pests and diseases that may damage crops during and right after the harvest period.
- Load, transport and store the harvested produce. Use reliable methods to minimize post-harvest losses.
- Pay farmers for the harvested produce. Settle any outstanding debt, including the costs of delivered services. Make payments on time to maintain farmer loyalty
Monitoring and continuous improvement
Monitoring and continuous improvement
- Establish a data collection, reporting and management system. Include data collection requirements and responsibilities, reporting formats, and reporting frequency. Assign staff to monitor and maintain communication with the farmers and validate the quality of data collected.
- Use key performance indicators (KPIs) to monitor and evaluate farmers’ performance. Include metrics like production cost, yield, quality, irrigation water used, fertilizer volumes, net farmer income, and farmer satisfaction.
- Modify the block farm based on performance, farmer feedback, and market dynamics. Incorporate new services, retrain farmers, recruit new farmers, and substitute/or shift the focus crop where necessary.
How to optimize your block farm
Improving Efficiency
Improving Efficiency
- Negotiate better prices - Negotiate lower bulk prices for services required within the block farm.
- Coordinate services - Coordinate training sessions, and/or cascade it through training-of-trainer models to maximize their efficiency. Effectively plan mechanization to maximize economies of scale. Coordinate planting and harvesting to minimize underutilization of resources and having idle periods of costly equipment
- Co-invest - Co-invest with block farmers to reduce investment costs. Farmers can cover labor and input expenses, while your company pays for training, harvesting and storage. For instance, one Ugandan firm in the FarmFit portfolio provides its block farmers with parent seeds only while the farmers pay the company for fertilizer, crop protection products, mechanization, and post-harvest tarpaulins. The company guarantees offtake of all the produce while the investment burden is shared with the farmers.
- Focus on unused lands - Acquire unused or underused lands with agricultural potential. This may vary from country to country. For instance, in Nigeria government-owned agricultural land that is yet to be developed is usually the least expensive option as compared to privately owned or developed plots. In other countries, it may be cheaper to acquire plots from landowners who have no desire to farm it themselves (often where they have inherited small plots of land).
- Incorporate technology - Implement platforms, systems, and use equipment (e.g., GPS devices, smartphones) to automate tasks and reduce costs in farmer management and data collection, and insights generation
Increasing Impact
Increasing Impact
- Involve farmers - Engage with farmers early in the planning and design phases of the block farm. Communicate to them the goals, benefits, and risks of this model. Count on their feedback to ensure the block farm meets their needs. Update them regularly and transparently on the progress of the block farm
- Promote equity - Prioritize farmers who struggle to access land (e.g., women and youth). Offer them opportunities to learn, grow, and become self-sufficient. Make efforts to ensure gender equality and avoid undesirable social arrangements.
- Provide access to better services - Pre-finance farmers to improve the uptake of improved and high-quality inputs, as well as mechanization and irrigation services.
- Provide low-risk market linkages - Sign offtake agreements with the farmers, including minimum and/or premium prices to reduce the risk incurred by them. Close forward deals with buyers to guarantee that the farmers will have a market for their produce.
- Provide better farming opportunities - Block farms offer smallholders the opportunity to improve their livelihoods through better access to knowledge, inputs, equipment, finance and markets. Ensure that your contractual agreements with the farmers create a strong and equitable distribution of value so that they not only benefit from a better income, but also gain long-term knowledge and skills, and are more resilient. If possible, design ways of creating long-term value for farmers. This may include equipping them with knowledge or connecting them to opportunities that encourage them to run their own farms as well besides the block farm, or after they stop working on the block farm
Mitigating Risk
Mitigating Risk
- Empower your farmers - Guarantee fair conditions for your farmers by offering reasonable and advantageous contract agreements. Prevent disputes and dissatisfaction at later stages by explaining transparently the benefits and obligations contained in the contracts. It may be prudent for community leaders and/or village heads to co-sign the contracts as well.
- Empower the community - Implement a community relations program to build rapport with neighbors. Engage with relevant organizations like schools, churches, and farming groups. Identify and mitigate risks such as potential conflicts between block and non-block farmers, clashes with other neighboring activities (e.g., cattle invasion), vandalism and theft. Assign dedicated staff to oversee security issues if necessary.
- Consult with legal experts – Invest in legal support to equitably resolve legal challenges related to land agreements. Communicate those arrangements transparently to prevent tensions and longer-term risks associated with loss of land ownership. Be particularly mindful of situations where people’s livelihoods depend on farming land that they do not currently own. Proactively find ways to protect the rights and livelihoods of these farmers.
- Make a backup plan - Identify alternative service providers for your block farm to prevent possible delays in your operations. Ensure that you have alternative ways to run your block farm in case of equipment failure and power outages.
- Be environmentally conscious - Minimize environmental degradation by implementing good agricultural practices (e.g., crop rotation, organic fertilizer usage, low land tillage). Use crop varieties resistant to extreme weather conditions such as droughts and floods. Rely on weather forecast services to make timely decisions (e.g., harvesting crops earlier to avoid flood-related losses). Diversify your sources of produce (e.g., through different block farms) to minimize climate-related risks and losses.
- Incorporate insurance - Look into suitable crop, asset and credit risk insurance service providers. Alternatively, explore the option of leasing equipment to reduce the risk of breakdown.
- Implement sustainable practices - Maintain and monitor soil health to minimize long-term risks from poor land use. Implement regenerative agricultural techniques. If necessary, install sensors to collect farm data and optimize farming practices (e.g., irrigation, fertilizer application).
Scaling Up
Scaling Up
- Scale up your operation gradually - Take incremental steps to expand your operation in phases. Assess the increased farm needs, management of involved risks, and overall performance. Evaluate the results before planning for further growth.
- Plan for scalability - Design your block farm with future scaling goals in mind. Project a gradual increase in output as the relationship with farmers matures over time. Consider expansion stages, timelines, resources, and new services and/or service providers. Carry out research on landowners and the legal status of plots to ensure that your growth plans are feasible. Consider either expanding your current block farm or starting a new one in another area.
- Secure resources - Secure adequate financial resources since expanding a block farm is capital intensive. Negotiate new volumes with your service providers. Work with bigger and more reliable providers if necessary.
- Leverage technology - Incorporate new technologies that support farm management. Consider adopting Farm Management Information Systems (FMIS), mobile payment platforms, farm sensors, and precision farming technologies.
Recovering Costs
Recovering Costs
- Make contractual agreements - Offer required services on credit and settle those costs during the offtake period. Include this repayment scheme in contractual arrangements with your farmers. Be transparent with farmers on the details of these agreements to ensure that the process remains objective.
- Charge for services - Focus on recovering the costs of more expensive services (e.g., seeds, irrigation, and mechanization). Make relevant compromises in cases where services are less profitable (e.g., training). Consider charging farmers a land rental fee
- Target premium markets - Aim to meet produce quality standards based on the control and traceability that block farms allow. Use this to access premium markets
- Optimize the use of the block farm - Practice crop rotation and diversification to ensure year-round production. This will increase the return on investment for some of your more expensive services such as machinery and irrigation. This process will also and to improve farmers’ year-round cash flow
How to complement your block farm
The successful implementation of an
- Crop insurance - Block farms are capital intensive. They involve high risks, especially in cases of crop failure. Insuring crops against extreme weather events can mitigate those risks, both for the company and the farmers.
- Tripartite financing agreements - Securing and delivering all the required services needed to run a block farm requires substantial financial capacities. Small and medium-sized enterprises (SMEs) typically face difficulties in securing that capital. Tripartite financing agreements can alleviate that burden while securing the smooth flow of services
- Mechanization, irrigation, precision farming - Block farms benefit from economies of scale and the contiguous nature of the land. They make it possible for farmers to access services that would be otherwise infeasible or unaffordable like mechanization, irrigation, and precision farming. These services can considerably improve the productivity, profitability and efficiency of your block farm.
- Crop rotation and organic fertilizer use - Block farms can contribute to climate change mitigation and ecosystem restoration through the large-scale adoption of environmentally conscious practices such as crop rotation and the use of organic fertilizer, both of which favor soil regeneration.
What is the impact of block farming?
There are a number of ways in which block farms impact outcomes:
Service delivery cost per farmer
Service delivery cost per farmer
Our data shows that non-scattered farming models like block farms tend to have a much higher
Direct cost recovery
Direct cost recovery
FarmFit data shows that block farm models, as well as other non-scattered farming models, tend to have much higher
Value creation at farm-level
Value creation at farm-level
FarmFit data finds that block farms, in addition to other non-scattered farming models, are associated with higher
Where to find more inspiration
Case Studies
Case Studies
- SDM Case Study: Allied Atlantic, Nigeria: https://www.idhsustainabletrade.com/publication/sdm-case-study-allied-atlantic-nigeria/
- SDM Case Report: Niji Foods, Nigeria: https://www.farmfitintelligence.org/resources/sdm-case-report-niji-foods-nigeria
- Smallholder Inclusion in Cassava Supply Chain in Nigeria:https://www.idhsustainabletrade.com/publication/smallholder-inclusion-in-cassava-supply-chain-in-nigeria/
External Resources
External Resources
- Block Farming Model – A guide to block farming from a cassava business case of FMS Farms in Nigeria: https://www.idhsustainabletrade.com/publication/block-farming-model/
- The HPW – IDH project – A case study of pineapple block farming in Ghana: https://www.idhsustainabletrade.com/publication/block-farm-model-for-pineapple-production/
- Impact of Block Farming on Livelihood of Farmers in the Eastern Region of Ghana: A Case Study of Block Farmers in the Kwahu West Municipality and Kwahu South District: https://www.hilarispublisher.com/abstract/impact-of-block-farming-on-livelihood-of-farmers-in-the-eastern-region-of-ghana-a-case-study-of-block-farmers-in-the-kwa-21999.html
- Service Provision As A Viable Business: Lessons from analyzing 50+ smallholder business models that create value for smallholders and companies alike (pp. 28-32): https://www.idhsustainabletrade.com/publication/service-provision-as-a-viable-business-insights-report/
- Implementing Sugarcane Block Farming for Increased Farm Income and Productivity: https://www.pids.gov.ph/publication/research-paper-series/implementing-sugarcane-block-farming-for-increased-farm-income-and-productivity
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