Nucleus Model

Farming Model High Ambition Farmer Organisation Off-taker

Definition

Farming system with contractual arrangements whereby a large company/farmer (nucleus farmer), who is well-resourced, provides smallholder farmers in the surroundings (i.e., outgrowers) with required services (e.g., inputs, training, etc.) to produce specific commodity crops. Nucleus models generally comprise two well defined parts: the nucleus farm or centralised estate, and the smallholder outgrowers scheme.

Lead Actors

Farmer Organisation; Off-taker

Target Demographics

Farmer Organisations; Smallholder Farmers

Objectives addressed

Farmer related

Strengthen income stability: Nucleus models can strengthen income stability by (typically) relying on contractual relationships that include guaranteed off-take clauses. These clauses, alongside improved productivity and quality, make farmer income more predictable

Improve yields: Nucleus models can contribute partially to improving yields by allowing the timely and structured delivery of required services (e.g., inputs, training) to farmers in both the nucleus farm and in the outgrower scheme. In addition, the proximity of outgrowers to the nucleus farm allows the company to oversee and control the farming performance throughout the season, allowing it to implement early corrective measures that influence the eventual yields.

Increase farmer income: Nucleus models can contribute moderately to increasing farmer incomes by reducing service costs charged to farmers (due to economies of scale), and hence their production costs. In addition, nucleus farms also contribute to increasing farmer incomes by enabling higher revenues from improved yields, as well as from typical guaranteed off-take clauses.

Improve market access: Nucleus models contribute strongly to improving market access by relying on contracts that include guaranteed off-take clauses. These clauses mean that farmers have a guaranteed market where to sell their produce (normally the company managing the nucleus farm), as opposed to being stuck with unsold produce at the farm.

Reduce farmer cost of production: Nucleus models may contribute partially to reducing farmer cost of production by leveraging economies of scale and resource optimisation, reducing costs of services and service delivery (including off-take and aggregation). The reduction of these costs lowers the cost of production of outgrowers at farm level.

Business related

Reduce side-selling: Nucleus models can contribute moderately to reducing side-selling by granting companies more control of harvesting operations, reducing the likelihood of side-selling. However, this control may be contingent on the actual physical aggregation of the outgrower farmers. Moreover, a good relationship with outgrower farmers (including good prices) increase their loyalty, discouraging practices of side-selling to other buyers.

Address sourcing needs: Nucleus models can contribute moderately to addressing sourcing needs by enabling companies to deliver (high-quality) services that can maximise yields and produce quality. In addition, nucleus models can also contribute to addressing sourcing needs by having more consistent production practices in the nucleus farm and its outgrower schemes (as opposed to scattered, isolated farmers), contributing to consistency of produce quality across farmers and seasons.

Improve sourcing efficiency: Nucleus models may contribute to improving sourcing efficiency by concentrating on farmers in a common area. The physical proximity reduces the complexity of logistics and costs of produce sourcing, while enabling the use of larger vehicles for produce transportation (as opposed to transporting small volumes in several small vehicles).

Reduce cost-to-serve: Nucleus models can contribute moderately to reducing cost-to-serve by leveraging economies of scale, and the geographical proximity between outgrower farmers amd the nucleus farm that simplify logistics in service delivery.

Increase revenues: Nucleus models can contribute moderately to increasing revenues by offering companies more control over production, which can lead to increased supply of raw materials, improved produce quality, reduced production costs, and reduced side-selling. All these factors can have a direct influence in increased sourcing margins. In addition, the proximity of outgrower farmers, and the larger control over farming operations, can enhance the cost recovery of delivered services.

Attract investment: By ensuring that a company has more influence over their supply chain, nucleus models can be more appealing to investors who are looking for the impact of a smallholder outgrower scheme but the predictability and efficiency that is more aligned with a commercial farm.

Contexts Best Suited to

High-yield cash crops produced in large quantities: which benefit from large-scale services (e.g., cereals, root crops, tree crops).
Land and farmers availability: available land and presence of many smallholder farmers in the proximity of the nucleus farm.
Infrastructure: minimum road infrastructure conditions to deliver services effectively.

Key Risks

Capital requirements: nucleus farms require large amounts of working capital at several stages (delivering services, offtaking produce), which can delay or halt the operations.
Land litigation: litigation risks and eviction concerns can emerge if due diligence is not properly conducted.
Environmental and climatic risks: nucleus farms can be impacted by these risks owing to concentrated production in a consolidated area.
Social risks: possible conflicts with nearby communities can happen if these communities feel left aside from partaking in the nucleus farm or feel threatened by the company's interventions.

Environmental Impact

Ambiguous: Nucleus farms are intensive by nature. Negative environmental impacts can emerge if it focuses on monocropping. In contrast, it can produce positive impacts if regenerative agricultural practices are effectively implemented. Furthermore, some operations can cause undesirable impacts if not properly monitored (e.g., overabstraction of irrigation water, land compaction and soil degradation by overuse of heavy machinery)

Ambition level
High

Time

Establishing a nucleus farm has several time-intensive components: land identification, land due diligence, land negotiation, land purchase/leasing, community engagement, negotiation with prospective farmers (including contract conditions), securing working capital, and engagement with service providers at scale.
If the nucleus farming builds off an existing large farm, time can be saved.

Investment Need

Establishing a nucleus farm has several cost-intensive components, especially working capital to secure service provision to outgrowers at scale, and working capital to secure off-take during harvesting period.