Of packaging and units of agricultural trade

Units of measurement and packaging have an enormous influence on the value of agriculture commodities in all markets including people’s markets. Many farmers lose or gain depending on packaging and units of measurement used in the market. While it may seem easy to determine the value of meat by using a weighing scale, most farmers feel short-changed. eMKambo often runs into arguments between cattle farmers and butcheries where some meat parts end up being sold using subjective measurements. For instance, weighing a head of a beast will certainly favour the farmer but the butchery owner would rather have an agreement which doesn’t use a weighing scale. Again, most farmers have no clue regarding beef grades such as Super and Economy.

The situation is not better in the horticulture and field crops side where commodity value is determined through a mixture of modern weighing scales, taste and visual appearance, among other parameters. Consumer preferences also add to the complexity. Some consumers prefer buying commodities in kilogrammes while others prefer boxes or punnets. Some of the key questions in every farmer’s head include: What is more profitable selling agricultural commodities in larger units of trade or in smaller units? For example what is more profitable, selling tomatoes using the plastic crate (sandak) as a unit of trade or using the wooden boxes? How else can I sell leafy vegetables besides in bundles?

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Insights from farmers and traders
From a recent survey by eMKambo, there are diverse preferences in terms of units of measurement and packaging, depending on type of commodity. A number of farmers are not even sure about the origins of units of measurement used in Mbare Agriculture market, for instance. According to one farmer, using wooden crates to pack tomatoes is an age-old practice that was started by early farmers who began trading in the 1950s. Since then, the wooden crate has become a standard unit of trade. However some farmers think using a much smaller crate will give them better returns than the standard box. Mr Spencer Muchenje, a farmer from Domboshava said it is more profitable to sell tomatoes using the wooden crate as a unit of trade than using the plastic crate which is much larger and has a superiority complex for most consumers with little disposable income. Using wooden crates also ensures tomatoes are quickly re-sold in high density areas, allowing vendors to come back for more rather than grappling with large volumes in plastic sandaks.

On the other hand, some traders in the wholesale market prefer to buy tomatoes from the farmer using the plastic crate (sandak) as a unit of trade. For these traders, using plastic crates is more profitable since they are a preferred unit of measurement for supermarkets, restaurants and other big institutions. However, some wholesale market traders find it more profitable to break bulk and sell commodities like tomatoes in heaps of +/-10 tomatoes depending on the prevailing tomato price. They say a number of consumers prefer these heaps that are usually cheap and sufficient for consumption at home for three days or less.

For onions, the standard unit of trade has become the 10kg pocket. An onion farmer who spoke to eMKambo said if it was possible farmers would break bulk and sell onions as singles because it is more profitable than selling in pockets. “When you sell as singles, a pocket gives you $3 more compared to selling in a pocket which gives you just a $1 profit,” said the farmer. From the consumer’s point of view buying onions in singles and in pockets is just the same but to the farmer it is not.

Regarding leafy vegetables, Jongwe, a covo farmer from Bindura said leaf vegetables have always been known to be sold in bundles. Sometimes they only way to realise more returns is reducing the bundle size and maintaining the same price per bundle on shortage days. Mr Ndarowa, a leaf vegetable trader said it is more profitable to sell leafy vegetables in smaller bundles. While a bigger bundle may go for $4, when he breaks the big bundle into smaller bundles he comes up with approximately 10 smaller bundles which he sells for 50c each, realizing $5. Ndarowa is convinced selling leafy vegetables is kilogrammes leads to heavy losses for farmers.

The standard unit of trade for sugar beans is the bucket. Bean traders in Mbare wholesale market obtain beans in tonnes and sell using buckets as the unit of trade. On the other hand, many consumers prefer buying beans from the market using tea cups as the unit of trade. To consumers, this is way cheaper than buying a whole bucket. Using the bucket as the unit of trade is only profitable to the consumer who resells in high density residential areas.

For commodities like zviyo, mapfunde, mufushwa, chimera, mhunga, it is rare for a consumer to buy a whole bucket. Consumers usually buy these dried grains and vegetables in smaller quantities e.g metal cup or the 5l gallon. However retail market traders say it is more profitable to sell in larger quantities like buckets.

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For squash butternuts, traders use the 50kg Ssseka or Kwekwe bag as a unit of trade when buying from farmers. They however do not use the same unit of trade when reselling to consumers and supermarkets. Instead, they repack into pockets that weigh approximately 7.3kg. Some traders further break the bulk into smaller packets of $1 and $2 each. Some consumers prefer pockets while the majority prefers butternuts in smaller packs of $1 and $2 containing three to four butternuts depending on the butternut size.

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In Garikayi market of Masvingo, packaging is one of the most important determinants of agricultural commodity pricing. While both traders and farmers package their commodities in different sizes and units, traders prefer to buy commodities packed in small units since bigger units are expensive. Farmers in Garikayi market prefer selling their produce in large quantities such as boxes, crates, 50kgs and 90kgs because they will be able to sell large quantities at fairly high prices. Traders who sell sugar beans say it is more profitable to sell to household consumers using tea cups as a unit of trade. One 16.9kg bucket of beans translates to approximately 65 cups of sugar beans. The price for a cup is usually pegged at $1 for 2cups and this price rarely changes. After selling the whole bucket using cups a trader gets a return of $32.50. A trader who sells using a bucket as unit of trade earns $25-$27.

In Mutare’s Sakubva market, consumers prefer buying maize grain in kilogrammes because most metal buckets and gallons would have been tampered with by some traders so that they carry less produce than expected. On the other hand, 60% of consumers who visit Sakubva market said they prefer buying produce in heaps since it allows them to select products of preferable quality as compared to the already packaged produce. The tricky part in buying already packaged produce is that there might be low quality products in the non-visible areas of the pack.

In BUTA markets of Bulawayo, some consumers purchase commodities for re-sell while others buy for household consumption. The former prefer produce packaged in 50kg bags so that they can break bulk while the latter do not mind what form of packaging is used since the produce is bought for immediate consumption. Other household consumers prefer buying in kilogrammes. Both farmers and traders in Bulawayo said it is more profitable to sell in smaller units of trade.

In all the markets, most of the farmers who spoke to eMKambo indicated a strong desire to know how much wholesalers earned after buying from them. This can give them an idea whether they got a fair deal from retailers and wholesalers. However, all farmers said each market has its units of trade according to different types of produce sold in each particular market. In most cases, farmers are forced to use those units. On the other hand, large producers can sometimes determine the units of trade and influence prices.

Transporters usually charge per unit when transporting commodities from smallholder farming areas to agricultural markets. The bigger the unit size, the more it costs to transport. However, some transporters charge per kilometre travelled. Some transporters told eMKambo it is more profitable to charge transport costs per unit when travelling shorter distances while for longer distances using kilometres travelled is more profitable. On the other hand, farmers prefer the vice versa.

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More information:
Charles@knowledgetransafrica.com / charles@emkambo.co.zw
Clever@knowledgetransafrica.com / clever@emkambo.co.zw
tafadzwa@knowledgetransafrica.com / tafadzwa@emkambo.co.zw
tenjiwe@knowledgetransafrica.com / tenjiwe@emkambo.co.zw
farai@knowledgetransafrica.com / farai@emkambo.co.zw
wilson@knowledgetransafrica.com / wilson@emkambo.co.zw
tembie@knowledgetransafrica.com / thembi@emkambo.co.zw
tariromk@knowledgetransafrica.com / tariro@emkambo.co.zw
Laizah@knowledgetransafrica.com / laizah@emkambo.co.zw
Website: www.emkambo.co.zw / www.knowledgetransafrica.com

eMkambo Call Centre:
0771 859000-5
0716 331140-5
0739 866 343-6

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How ‘informal’ agriculture markets generate and distribute power!

If you have become accustomed to think of power in terms of electricity or political power, evidence from the people’s market indicate you should think again. ‘Informal’ agriculture markets have remarkable ways of dealing with power. The market has become smart at distributing power among value chain actors such that no single agricultural value chain actor holds power forever.

1Power of the people’s market

Farmers hold power around production, use of land, inputs as well as ownership of livestock among other assets. Without these assets, the market will stop functioning. To that end, farmers have power to determine life in the market. On the other hand, by informing farmers about market expectations as well as sorting and aggregating commodities, traders have power to determine the value of farmers’ agricultural commodities. Through creative interaction and relationship building, traders and farmers do not just exchange commodities and money but power.

Not to be outdone in the power game are transporters. Transporters determine whether commodities will arrive on the market on time and in a fresh state. They also influence packaging. The size and number of crates of tomatoes a farmer can bring to the market depends on available transportation. However, some agricultural commodities influence transport choices. Commodities like peas certainly demand cold chain while some bulk commodities like potatoes coming from Nyanga to Masvingo or Harare can’t be viably transported in anything smaller than 10 -30 ton trucks. Still, other high value crops require careful handling, small trucks and specific ways of packaging.

Inputs providers and agro-dealers also have power to distribute inputs and influence production. This power is drawn from producers and the market. Without inputs there is no food on the market. The market also distributes power between local authorities (Harare City Council, Bulawayo City Council, Mutare City Council, Masvingo City Council, etc) and market committees. Local authorities have power to allocate market infrastructure while committees have power to organise traders and regulate the movement of commodities. The committees draw power from local authorities and vice versa.

Of course, we can’t ignore consumer power. Any market shock (positive or negative) reveals the power of consumers. A positive increase in consumer incomes translates to an increase in demand for commodities and sales on the market. Consumer tastes and consumption patterns can influence supply trends significantly. eMkambo has seen an improvement in the taste of small grains and nutritional awareness driving consumer demand for these commodities. At any given time, if consumer incomes increase, there is an effect on the operations of the market and value of commodities. The market often performs well during the festive season when civil servants receive their bonuses. As a result, the market draws bonus income to a central place and distributes it to other value chain actors. Transporters, vendors and those involved in packaging end up smiling all the way home.

In the market, power also travels from people to commodities and vice versa. Like people and institutions, some agriculture commodities and markets set the tempo and pace of the market. On the other hand, some commodities just follow the leader. In most markets such as Mbare, Bulawayo, Masvingo and Mutare, the tomato tends to be a leader because it is involved in the preparation of every food. If the tomato misbehaves or becomes scarce, other commodities like cabbages and fruits are affected not because they are of poor quality but merely because the leader is not behaving normally. The tomato can influence the performance of sugar beans in ways that ordinary farmers can’t understand. This power is also transferred to value chain actors so much that the economic performance of a potato on the market empowers potato farmers, traders, transporters, processors and input suppliers. Potato seed producers whose crop performs better on the market end up enjoying more seed sales when consumers testify to the superiority of their variety.

To sum it up: The market is at the centre of power generation and distribution vertically and horizontally, depending on value chain actors. Horizontal power sharing is with the market institution and other actors like traders while the vertical connection is with processors and policy makers. Downward integration is with transporters, agro-dealers and producers. All these power dynamics reinforce vertical and horizontal power integration within the market, contributing to sustainable markets.

So what?
Unless you have evidence in terms of figures, you can’t qualify the amount of power, produce or business generated from the market along the value chain towards economic development. The power of each commodity speaks to its position in national food reserves. Maize is not as powerful as other commodities like potatoes and thus should not be over-rated. Agriculture-based economic drivers can only be supported with evidence and statistics, especially from the market which is the ultimate barometer. The power of an agricultural commodity to be an economic driver can been seen by its numbers on the market. There is no doubt that potatoes and oranges are economic drivers in Nyanga and Mazowe districts of Zimbabwe respectively. Livestock is a key economic driver in Gwanda and Matobo districts of Zimbabwe. Numbers in the chart below illustrate the power of different commodity classes in the market.

Chart 1: Expected Revenue (E R ) per produce class in Mbare Farmers Market – January 2015

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Monitoring and Evaluation (M&E) approaches by agriculture-related development organizations and financial institutions should strive to develop indicators from the market. Pertinent questions should include: How much volume of commodities from beneficiaries were traded on the market and how much income was generated by beneficiaries during the project life? Financial institutions should also be interested in a question like: Out of the US$300 million extended to the agriculture sector, how much volume of commodities was traded? It’s highly misleading to measure hectares of commodities financed because a lot happens between production and marketing with some of the losses difficult to account for. If the banking sector extended US$300 million to farmers, how much percentage of sales did this money generate?

Currently, most M&E approaches have no indicators from the market. Instead of baseline questions including a question on how much each household generates from sales of agricultural produce, conventional questions focus on: (a) own capital/savings, (b) loans from the bank, (c) from relatives or remittances. There is an assumption that poor people don’t need a market. Yet if you ask farmers you realize how far they have used their own means to start projects or uplift their status. If you ask rural people how they have acquired a plough or a scotch-cart, it is common to hear the answer being: “ I sold my cattle or my crops during a good season”. If you say to a rural woman: “How did you end up owning plates and pots among other cooking utensils?, the answer can be: “I sold my vegetables, goats, chicken and other things”. If you want to find out how they acquired clothes, the answer can be barter trade involving agricultural commodities such as chickens and groundnuts.

While in many districts of Zimbabwe development partners emphasize goats, sorghum and other commodities as economic drivers, the market shows 50% of the income that goes to Buhera is drawn from wild fruits like Mawuyu (baobab fruit), for instance. This shows Mawuyu is becoming a powerful economic driver. In addition, you don’t hear the role of Masawu in development interventions targeting Muzarabani and other areas where Masawu fruit is abundant yet the market shows the fruit’s exciting performance. Interventions that move people from subsistence to commercial levels have to be anchored on the market. The market can be a powerful baseline for each district or community and points to levels of resilience as well as sustainability strategies.

Lack of focus on market intelligence has resulted in financial institutions failing to make a mark in rural areas. Banks should focus on supporting commodities and farmers not farmers alone. If you want to effectively support farmers from Mutoko, the market can give you entry points to sustainable interventions. Don’t just focus on resources like land, water, labour, transport, etc. All these are important but not on their own because when farmers produce but fail to market, there is no improved livelihood. That is why in most communities, there is poverty in the midst of important natural resources. The market has power to draw commodities and people together in ways that minimize costs. Through the market, financial institutions can extend loans to farmers in groups which can easily manage each other.

More information:
Charles@knowledgetransafrica.com / charles@emkambo.co.zw
Clever@knowledgetransafrica.com / clever@emkambo.co.zw
tafadzwa@knowledgetransafrica.com / tafadzwa@emkambo.co.zw
tenjiwe@knowledgetransafrica.com / tenjiwe@emkambo.co.zw
farai@knowledgetransafrica.com / farai@emkambo.co.zw
wilson@knowledgetransafrica.com / wilson@emkambo.co.zw
tembie@knowledgetransafrica.com / thembi@emkambo.co.zw
tariromk@knowledgetransafrica.com / tariro@emkambo.co.zw
Laizah@knowledgetransafrica.com / laizah@emkambo.co.zw
Website: http://www.emkambo.co.zw / http://www.knowledgetransafrica.com

eMkambo Call Centre:
0771 859000-5
0716 331140-5
0739 866 343-6

Why Agriculture Markets Deserve Attention Every Day

At any given time, if you walk in Mbare Agriculture market of Harare assessing the value of agriculture commodities, you will see diverse commodities collectively worth more than US$20 million. Assuming you are not tired and decide to do the same thing in Bulawayo, Mutare, Gweru, Kwekwe, Masvingo and Chinhoyi urban agriculture markets, you will see commodities worth a collective US$30 million. How many agriculture companies listed on the stock exchange hold commodities worth a quarter of the above figures at any given time?

The true performance of agro-based economies like Zimbabwe can be seen through people’s markets (the so-called informal agriculture market) where the volume, variety and velocity of commodities and hard cash are more than formal markets.

Mbare Agriculture Market is an institution with its own subsidiaries like corporate businesses which have branches across the country. Mbare supplies Masvingo, Mutare, Bulawayo, Kwekwe and rural markets such as Guruve or Gokwe. The market saves all income levels and all sectors of the economy including mining, manufacturing as well as processors, input suppliers, food chain stores, transporters and government institutions. It also creates post-harvest employment around activities like harvesting, grading, transportation, off-loading, marketing and repackaging for end-users. From harvesting up to when the commodity is in the hands of consumers, employment creation is tenfold. We start with two employees loading the truck and at the end of the chain 20 people will have been employed. Although this form of employment may not be formal or monthly, it is hourly everyday employment which ensures household income and sustenance. To that end, the market distributes wealth to common people, creating a real commonwealth. It’s unlike the formal economy which tries to create employment for formally educated people who, in most cases, lack practical wisdom that comes from handling commodities along the value chain. Since hourly everyday employment goes un-recorded, formal institutions are busy under-estimating agriculture’s employment potential. A complete re-definition of employment is long overdue. Seriously.

As has become our passion and tradition, eMKambo continues to gather evidence from the people’s markets around Zimbabwe. Below is a table showing revenue (USD 28 million) that exchanged hands in Mbare Agriculture Market from January to December 2014.

Revenue Generated by Produce Supplied in Mbare Farmer’s Market (Jan – Dec 2014)

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While the above figures are telling enough, they understate the true value of commodities traded because barter deals, which are not reflected numerically, constitute a significant slice of the value. The tables below show how we have clustered commodities into Gold, Silver and Bronze according to revenue generated. Gold stands for commodities that generated above US$100 000. Silver represent commodities fetching US$10 000 to US$100 000 while Bronze stands for US$10 00 and less.

 
Using price as an indicator gives us the potential value of the commodity. This is important for farmers so that they can consider factors like standards, trends, market information and crop calendars before coming to the market. The intrinsic (embedded) value of each agriculture commodity is important than the face value represented by price and revenue. From eMKambo observations, gluts and cash shortages in the market tend to suppress the true value of agriculture commodities. Mbare Agriculture Market has a minimum re-order stock level. That is why at no point you find the market without agriculture commodities. Mbare Agriculture market’s minimum re-order level is commodities worth at least $5 million.

 
Contrary to conventional consensus and wisdom, fluctuations in prices along the agricultural value chain do not affect value chain actors the same way. If the price of tomatoes falls, a restaurant benefits but does not reduce the price of a plate of sadza or rice. On the other hand, if the price of tomatoes goes up, the restaurant suffers but does not increase the price of a plate of sadza to recoup losses.

 
If Mbare Agriculture Market was a corporate company, it would have strong links with insurance companies, infrastructure developers, exporting companies, government institutions (labour, NSSA, health, and parastatals like EMA and ZESA. However, people’s markets don’t have these explicit networks. Commodities in the market are always in transit without any form of insurance. Coincidentally nothing negative happens in most of the cases. It is a purely trust and relationship-based market where everybody does his or her best to make sure things function smoothly.

 
Part of the reason why Zimbabwean agro-processing companies have collapsed is because they depended so much on the production side forgetting that a lot happens between production and the market. On-farm assessments do not often translate to correct quantities that reach the market due to post-harvest losses estimated to be around 40% in Zimbabwe. Assessment of commodities on the market is a better measure of the country’s capacity to sustainably drive manufacturing. This is because the people’s market competes for commodities with processors. That means processors should have an interest in what happens on the market, otherwise investment in machinery and labor will be offside if processing companies are not able to estimate consumption patterns and surplus in the people’s market. eMKambo has seen a few processors who specialize in sugar beans forging strong relationships with bean traders in the people’s market in order to ensure consistent supply.

 
The people’s market has an amazing capacity to sweep commodities from all corners of the country efficiently while it will be very costly for private companies to do so. Not all commodities go into processing. There is a certain percentage that head straight to consumers without going through commercial processing. Some commodities are either consumed raw or processed at household and small enterprise level. Agro-processing companies need to know how much is processed at household and small enterprise levels in order to accurately angle for the surplus.

 
Due to food safety and other concerns related to over-processing of food, many consumers now prefer household processing or small enterprise level processing where processes are manageable and fairly predictable. In addition, fewer financial resources imply potential processors now preferring small and affordable processing equipment rather than grappling with heavy duty equipment which requires tons of commodities at one go.

 
There should be a strong relationship between people’s markets and manufacturing companies. Everyone needs to know his or her competitor. People’s markets tend to have strong relationships with producers. There are numerous cases of contractual agreements between companies and farmers going sour. In the people’s market everything is clear and a farmer can see how his or her produce is competing with that from other farmers. Because contract companies take commodities and the farmer doesn’t see or know what’s happening behind the scenes when he or she has handed over the commodity, there is always suspicion that companies are making more money. Making things transparent has numerous advantages. People’s markets like Mbare pay cash on delivery whereas companies make farmers wait for 7 to 30 days. Since farmers consider opportunity cost more than price, they would rather get less money for their commodities immediately than wait two weeks for a slightly higher price offered by a company. Usually when farmers sell there is an issue requiring immediate attention and can’t wait for seven or more days.

 
One of the most critical roles of people’s markets like Mbare is coordinating the distribution of food across the country. When food comes from farming areas into the market, it is not usually coordinated but the market will distribute this food to deficit areas according to demand. That’s why you find pineapples produced in Chipinge end up in Bulawayo within hours.

 

More information:

Charles@knowledgetransafrica.com / charles@emkambo.co.zw
Clever@knowledgetransafrica.com / clever@emkambo.co.zw
tafadzwa@knowledgetransafrica.com / tafadzwa@emkambo.co.zw
tenjiwe@knowledgetransafrica.com / tenjiwe@emkambo.co.zw
farai@knowledgetransafrica.com / farai@emkambo.co.zw
zvifadzo@knowledgetransafrica.com / zvifadzo@emkambo.co.zw
tariromk@knowledgetransafrica.com / tariro@emkambo.co.zw
Laizah@knowledgetransafrica.com / laizah@emkambo.co.zw
Website: www.emkambo.co.zw / www.knowledgetransafrica.com

eMkambo Call Centre:
0771 859000-5
0716 331140-5
0739866343-6

Where TRUST is more than collateral!

A few financial institutions and policymakers are beginning to see what farmers and traders working in the people’s market have known for decades. That TRUST is a key enabler of successful agriculture development. On the other hand, academics are also waking up to the fact that without TRUST you cannot build a successful knowledge organisation. The notion of TRUST is what makes the people’s market (informal market) much more efficient than the formal economy where everything has to be written down. If every farming or marketing process was to go through documentation, farmers and traders would spend much of their time buried in paper work. TRUST absorbs many of the time-consuming steps that are typical of the formal sector.

In the formal sector, a business enterprise has to be registered. Transactions have to go through a lot of paper work – quotations, orders, invoices, delivery notes and receipts, among others. Payments take 7 to 30 days. No serious farmer can wait for that long. If it is a bank transfer the payment has to go through a lot of authorization. Most formal institutions, especially banks, consider formal businesses as a legal entity merely because such businesses are registered. These businesses enjoy benefits from banks in spite of poor performance. High cases of Non-Performing Loans in Zimbabwe have been incurred by businesses which hide behind registration certificates when they have no clue about delivering value.

In the informal sector, employment creation is directly linked to business performance. People are employed as per demand for their services, which is why there can be hourly, daily or weekly jobs. It is in such situations where TRUST is built and sustained. One can work for a few hours and get paid according to his/her contribution as verbally agreed. No receipts or any form of bureaucracy. The rate at which services are delivered or transactions are done in the informal sector will certainly be constrained if paper work was the order of the day. Informal sector players avoid banks because the nature of their business transactions cannot stand the red tape in formal transactions systems.

On the other hand, banks do not separate the informal business owner from his or her business, the way they treat formal businesses. Instead of considering the potential of the business in its own right (e.g. Mbare market as an institution), banks categorise traders and give them names – an indication of lack of TRUST. Additionally, in formal contexts registration is used as collateral. In informal businesses where commodities like bananas can actually be seen in physical form, banks look the other way preferring to see papers not the size of the business or commodities.

Why TRUST is very important

Without TRUST we can’t build a sustainable economy. The flexible nature of informal businesses is fuelled by TRUST along value chains. It doesn’t make sense to formalize a small section of agriculture value chains, for instance, traders. Again, if banks or policy makers were to insist on formalizing the entire agriculture value chain such a move would mean farmers, traders, transporters and other actors being registered as businesses. Can you imagine the amount of paperwork, queues and lost opportunities?

The informal agriculture market is more efficient because it has eliminated paper work and documentation which are over-rated processes. In the informal agriculture market, TRUST is extended through short-term loans in the form of tradable commodities. Of the close to US$12 million generated by 19 products in Mbare-Harare’s wholesale agriculture market in 2014, US$6 million worth of commodities traveled on the value chain based on TRUST up to the final consumer. Imagine farmers handing over to traders commodities worth such a value without any money exchanging hands until consumers pay and then value migrates in reverse direction.

The following table shows the estimated revenue per commodity in Mbare’s wholesale agriculture market from January to December 2014.

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b

Potatoes and carrots are some of the commodities that have dominated the wholesale market

In case formalization becomes the only option
Formalization has to match the rate at which business transactions take place in the informal market and take into account: activities on the auction floor; long distance supplies where there is no room for paper work; traders who want to switch from bananas to tomatoes in pursuit of opportunities; transactions that take place with clients in transit; the perishable nature of commodities; and, adjustments to market trends like shortages and gluts.

Mobile technology to the rescue
eMkambo has seen how mobile technologies are helping in cementing TRUST and lowering boundaries between formal and informal marketing activities. A number of formal process such as getting quotations, orders and payment receipts (confirmation) can all happen on a mobile phone within the context of TRUST. In fact TRUST comes after RELATIONSHIPS have been cultivated. Informal traders and farmers keep mobile contacts for business purposes. Mobile phones are also surmounting literacy barriers because you can’t tell people’s level of education by their phone calls. On the other hand, paper work would actually show that someone is not formally educated. Through mobile technology, relationships are quickly transformed into TRUST based on continuous interaction.

ICTs and banking services should also be tailor-made to suit the rate at which transactions take place, also taking into consideration transaction costs. At the moment it costs 50c to transfer $5. If a trader is going to do 200 transactions within an hour, the cost of transfers will be $10. This is quite expensive and traders now know it.

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ICTs are increasingly enhancing TRUST in agriculture marketing

The informal market tends to show free market forces at play. There is no collusion like what happens in manufacturing or bread making where players connive to fix the price of a loaf of bread at $1 irrespective of different production costs. If there was no collusion in this case, we should see bread prices ranging from 87c to $1per loaf.

Where two formal companies try to get into business paperwork and bureaucracy is involved unlike in the informal market where TRUST rules. We are increasingly seeing some private and formal companies now working with the informal market for easy penetration and business deals. Should it become unavoidable, formalization of SMEs should be needs-based and tailor-made for various business sectors, sizes and commodities. It can’t be a one-size-fits-all. Formalization should not just target taxation. Farmers and traders do not TRUST formalization processes which they are convinced will kill innovation.

The terms formal and informal should be revisited taking into account a number of factors such as number of years in business. Those who have operated for 5 to 10 years in informal business arrangements should be considered formal since they have been in business long enough to shape a professional identity. You can’t refer to someone who has been in business for 25 years informal when some so-called formal business fail to live beyond 5 years. Besides business lifespan, other considerations should include: employment creation levels, business size and consistency.

Through TRUST, some traders are already providing inputs to farmers based on long-term relationships. Input providers can ride on such demand-driven relationships unlike providing inputs when farmers have no clue how the market will behave by the time agriculture commodities are harvested.

More information:

Charles@knowledgetransafrica.com / charles@emkambo.co.zw

Clever@knowledgetransafrica.com / clever@emkambo.co.zw

tafadzwa@knowledgetransafrica.com / tafadzwa@emkambo.co.zw

tenjiwe@knowledgetransafrica.com / tenjiwe@emkambo.co.zw

farai@knowledgetransafrica.com / farai@emkambo.co.zw

zvifadzo@knowledgetransafrica.com / zvifadzo@emkambo.co.zw

tariromk@knowledgetransafrica.com / tariro@emkambo.co.zw

Laizah@knowledgetransafrica.com / laizah@emkambo.co.zw

Website: www.emkambo.co.zw / www.knowledgetransafrica.com

eMkambo Call Centre:

0771 859000-5

0716 331140-5

0739866343-6

Why access to the right kinds of food will soon be an election issue in all countries including Zimbabwe.

Imagine a member of parliament earning his/her ticket into parliament on the basis of how s/he articulates food and nutrition issues to consumers. That means looking at potential voters more as consumers than just voters. Such a scenario is not very far from happening in both developed and developing countries as more people become aware of the value of eating the right kinds of food not just food.

A policy maker who understands the importance of the right food stands high chances of winning the hearts and postal votes of Zimbabweans living in the United Kingdom. Zimbabweans living in Northampton, Milton Keynes, Wellingborough, Rusden and other cities in the United Kingdom drive miles for to get beef that tastes closer to Zimbabwean beef. They certainly travel distances to get indigenous chickens from Tsholotsho, Binga and Bikita, not to mention Mawuyu and fruits from Mutoko, Buhera, Guruve and Gokwe. In the last six months, a company known as Zambezi Foods which used to supply Zimbabwean products to like maputi, groundnuts, dried vegetables (mufushwa) and many others suddenly stopped doing so. And you can guess what this means for Zimbabweans who had become accustomed to their food away from home.

Pre-land reform, a consortium of companies and white commercial farmers used to fly commodities like flowers, horticulture and meat from Zimbabwe to the UK and other European countries. In fact, Zimbabwe had its own beef quota into the European Union. One of the dynamics over the years is that there is now a huge African population in UK which demands some of the food which didn’t used to be exported by former commercial farmers. That means there is an entirely new market for Zimbabwean food waiting to be exploited. Also, with so much concern about processed food, organically produced Zimbabwean food will soon be part of the global food future. Partnerships and relationships are already cultivating this new paradigm.

“Maize meal, sweet potatoes, peanut butter (dovi), lemon creams biscuits, maputi, mufushwa, grass-fed beef and mazoe are some of the highly demanded foods in UK. These foods evoke enormous nolstagia for Zimbabwe as much as Nigerian food does the same for Nigerians. Initially Zimbabweans were excited about British food. Around 2005, Zimbabweans were more inclined to British culture (mainly language and food). Now that they have settled into British society, nolstagia is kicking in, causing a deep craving for home food. Women can drive 50 miles just to get Camphor Cream from Zimbabwe at GBP10 per bottle. While its good to tolerant each other as human beings, nothing can replace one’s true individual identity as British, Zimbabwean, Jamaican, Nigerian or Polish. People now prefer butchery meat than supermarket meat, perhaps due to whatever supermarkets do to beef and other forms of meat. Butchery meat is said to taste much better than that in supermarkets. Road runners and crows from India are now part of food in Britain,” said a Zimbabwean living in the UK.

Another Zimbabwean added:

“If Mangoes from India and vegetables from Ecuador can find their way into UK, why not those from Zimbabwe (Mutoko, Murewa, Mhondoro, etc), when we have strong historical ties with the UK and a growing population of Zimbabweans in the UK? Our relationships at household and community levels should be the foundation for robust food market not controlled by bureaucratic national and international trade processes.

1If countries like Ecuador and India can get their fruits into Tesco and other British shops, why can’t Zimbabwean products be found on the UK market?

2 Another opportunity for Zimbabwean products is the demand for organic food in UK and other countries. British supermarkets like Tesco and Sainsbury have organic food sections.

Perhaps rather than dreaming of reviving companies like the Cold Storage Commission and a host of other big food companies to their earlier state, Zimbabweans should build small flexible companies that effectively coordinate themselves to supply agriculture commodities in developed countries like the UK. If 70 to 80% of European people are now employed by small and medium enterprises, why should Zimbabwe continue focusing on building gigantic companies that cannot swiftly respond to demand?

In a rapidly globalizing world, the future belongs to adaptive solutions and flexible arrangements.Development agencies should start exploring market – based approaches to poverty reduction by connecting local African producers with consumers and other value chain actors in developed countries like UK. It is now clear that lack of markets and related intelligence is holding back poverty reduction strategies in Zimbabwe and other developing countries. In a world where knowledge and people are becoming more and more mobile, food offer business opportunities at household and community levels.

“We came to UK around 2004 and cannot continue to remain consumers forever. While the Zimbabwean population in UK is increasing, there are very few Zimbabwean businesses in UK. We have to start smart win-win business partnerships. It’s not enough to send money (remittances) home through Western Union or Mukuru.com or eCocash because such money is insignificant for serious long-term investment. People have to be involved at grassroots level rather than leaving important issues like food to government alone. The Polish population in UK is the size of the Zimbabwean population but the Polish have established their own food systems and businesses. We certainly have to start thinking business rather than consumption,” another Zimbabwean said to eMKambo.

As shown below, people’s markets like Mbare Agriculture market in Harare continue to supply most of the food craved by Zimbabweans at home and around the world.

Mbare Wholesale Agriculture Market analysis March 2015

A total of nine products supplied to Mbare wholesale market during the month of March 2015 generated an estimated revenue of $ 618,856.00. Given that more than 70 different agriculture products flow into the market daily, you can imagine the amount of business generated by all commodities in the market.

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Table 2: Expected Revenue (E R) by province 5

Table 3: E R by district 6

The revenue generated per district or province is an indication of the existence of economic drivers in each particular province. Development partners and policy makers need to support these efforts by ordinary producers. Zimbabweans in the diaspora whose original homes are sources of diverse agricultural commodities can be proud to associate themselves with their home areas.

More information:

Charles@knowledgetransafrica.com / charles@emkambo.co.zw Clever@knowledgetransafrica.com / clever@emkambo.co.zw tafadzwa@knowledgetransafrica.com / tafadzwa@emkambo.co.zw tenjiwe@knowledgetransafrica.com / tenjiwe@emkambo.co.zw farai@knowledgetransafrica.com / farai@emkambo.co.zw wilson@knowledgetransafrica.com / wilson@emkambo.co.zw tembie@knowledgetransafrica.com / thembi@emkambo.co.zw tariromk@knowledgetransafrica.com / tariro@emkambo.co.zw Laizah@knowledgetransafrica.com / laizah@emkambo.co.zw Website: www.emkambo.co.zw / www.knowledgetransafrica.com

eMkambo Call Centre:

0771 859000-5

0716 331140-5

0739 866 343-6

Why financial institutions need behavioural economics: Lessons from eMKambo Perishable Finance Models

In an effort to lure reluctant financial institutions into the agriculture sector, over the last two years we brokered business relationships between a sample of financial institutions and agriculture commodity traders. Dubbed eMKambo Perishable Finance, the initiative is still ongoing across five urban food markets in Zimbabwe where high frequent trading is a key feature. An instructive set of experiences and lessons has emerged from this business model.
While the conventional, brick and mortar banking model has traditionally thrived on command and control, the informal agriculture market has shown the wisdom of replacing this mindset with influence and respect. The most important thing when working with traders and other value chain actors in informal agriculture markets is building relationships and trust. Farmers and traders can only give you accurate information if they trust you.

eMkambo

Financial institutions have to understand typical behavior in informal agriculture markets like Mbare, Harare

Financial institutions that want to survive and thrive in the current network era should remove all structural barriers to learning fast. Banks should realize learning has become an essential part of doing agribusiness not expecting people to just repay loans without banks making an effort to understand commodity cycles fully. The expansion of mobile technology imply financial institutions have to grapple with innovative disruption coming from all corners. Coincidentally, economic value is getting redistributed to creative workers and then diffused through networks.

Farmers and traders may not have solutions to the world’s challenges like recession or the collapse of banking as an industry. However, their knowledge of their own cultural and socioeconomic realities is paramount in the creation of sustainable agriculture finance models. Without integrating the expertise of farmers, traders and other value chain actors, financial interventions in the agriculture sector are doomed to fall short of their full potential. Unfortunately, it seems prioritizing insights from farmers and traders often runs into financial institutions’ institutional, systemic and power barriers.

Looking back over the past two years of eMKambo Perishable Finance modelling, Zimbabwean financial institutions continue to be unaware of business models and structures in the agriculture sector. They continue deluding themselves into thinking that the agriculture sector is predictable. Confusing beautiful models with messy reality is the main reason why the majority of banks have become victims of non-performing loans.

As the cases below illustrate, leveraging behavioral and evolutionary economics will empower financial institutions with much clearer insights into the reality of agriculture markets. They will also probably gain a better understanding of how to add value through cognitive issues such as crafting appropriate agribusiness finance models. Very few financial institutions have grasped the complexity of agriculture production and marketing systems and how value migrates between farmers, traders and other market players. A new set of skills are needed if financial institutions have to fully participate in fostering agricultural ecosystems that collaborate and compete based on agriculture commodities.

Case Study 1: Still waiting for a bank loan disbursement approved 5 months ago.
Why need a loan?
For the past 10 years the business has been into trading of fruits and only 5 months ago it moved into specializing in onion trading. The former fruit business focus was more lucrative because not much capital for restocking was required and trading in a variety of commodities provided a fallback position in the event one of them does not perform well on the market. Like any other business factors surrounding trading space/premises, rentals included contribute to its success. A hike in trading space rentals resulted in the owner changing the premises sensing increased burden to the business. The new trading space however is not suitable for trading more perishable commodities like fruits as it is exposed to sunlight during the greater part of the day.

The new business is now into onion trading. Not much value addition is done to the onion between farmer and trader hence profit margins are maximized through bulk buying and selling. Therefore this new trading venture required more capital and the owner had to apply for a bank loan 5 months ago and up now she has not received the approved loan due to cash shortage experienced by banks. The business had applied for a loan of $250 at a monthly interest rate of 10% and to be repaid over 3 months in 6 installments. Using own capital, the business restocks 2 x 90kg bags at $40 per bag of onion bought from the farmers’ market. The stocks last within 2 days during good business days and not more than 4 days when the business is low. At maximum, 30% profit margin is realized after every stock run down and most of which goes towards payment of weekly rentals of $18.

Micro Financiers riding on Traders’ Desperation

Left with no option due to delay in loan disbursement, the business owner had to try her luck with Micro Financier and accessed a loan of $100 with conditions to repay $5 per day for 24 days. Despite quick disbursement and relaxed preconditions that only required one’s national identity number, passport size photo and proof of residence, this loan package proved to be a burden to the business and owner. The package does not give room for the business to reinvest the loan due to very short repayment period and daily reduction of working capital going towards loan repayment. Pressure is also put on business as on a daily basis pressure mounts to make sure the daily repayment due is made. Stress and embarrassment is then passed to the owner as he/she runs around to further borrow to repay daily rate in the event the business fails to make any sales on the day in question. The same pressure comes from Market Committees on a daily basis as Financiers report the defaulters and in most cases the committees threaten the owner that he/she will lose trading space as he/she is putting the market’s name in disrepute.

Case study 2: Financing Farmers through the Market – Loan Multiplier Effect

This trader has been in agro produce trading for the past 25 years. Some call them ‘Makoronyera’, a derogatory term referring to traders at Mbare Musika as tricksters. But if these traders are what they are called, why then do farmers and other value chain actors continue to work with them? What of banks, how do they view this crop of business people?

In November 2014, eMKambo facilitated a bank loan for the trader in question. This case study tried to track, to what extent a market loan goes on to support farmers in their agribusinesses. The trading business first received a loan of $250 to be repaid over 3 months in 6 installments. On a daily basis the business would purchase commodities worth at least $250 per day for the first 2 weeks according to the owner’s records. For the second forty night the loan amount was now buying commodities worth $250 less principal ($41) loan repayment amount , leaving $208. For the third forty night the business was now buying commodities worth $208 less $41 and so on. The table below shows summary tabulation of loan multiplier effect for the first cycle.

1

Upon repayment of the first loan the trader qualified for the second then third and finally fourth rounds. The table below shows how much in total the loan amount exchanged hands between her business and farmers in 12 months.

2

The above multiplier effect shows that 490 farmers received US$250 from one trader in 12 months. Loans advanced through eMKambo Perishable Finance account for less than 10% of the market demand which banks are failing to meet.

Case Study 3: Bank and Loan Purpose Defined from the Market

The trader and his/her own business plays a pivotal role in supporting other up and down stream growth of agriculture value chain businesses. Having started his trading business 5 years ago, as a young man, the business owner chose commodities to trade that are unique and serve a niche market. Such crops are broccoli, green beans, peas, green/yellow pepper and carrots among others. The business supplies food chain stores, high income families and hotels in Kariba and Victoria Falls through his networks with other traders in those towns. At any given time the business trades in at least 5 and not more than 10 vegetable varieties. According to the young entrepreneur trading in such a business is like a white collar job in the formal economy. The business requires one to be ‘smart’ in areas of planning, relationship building, negotiations, business ethics and product knowledge and presentation. The fact that not everyone goes for these products, the business needs to develop a very strong relationship with suppliers as well as the buyers. With suppliers they share best cropping calendars, volumes needed by the market specifically his business and supplier capacity to meet orders, market trends up to point of sale and during trading period. Production in this line of business is market oriented.

When do banking services become necessary?

According to the owner, for his line of business banking services become necessary when one intends to save for assets that require large sums of money. Plans that then follow after deciding to bank are that the business should not do unnecessary withdrawals from this account. The working capital in business is just to build up profits that are then saved in asset account. The business owner just opened a bank account when he had plans to buy a residential stand. Once the amount he was looking at to build was enough he withdrew all of it and bought a stand and to date whatever business surplus generated however small goes towards purchase of building materials without passing through the bank.

Why not use banking services for working capital and business transactions?

High value crops needs the business to have ready cash at any given time especially during supply shortages. Any hint or information of the availability of produce needs one to act promptly by either paying the producer via mobile phone or rush to the sources in person to make payments. Secondly the perishable nature of the commodities require that fresh produce is ordered on a daily basis and hence cash needs to be readily available to fulfill this purpose. The current capital/stock requirement for the business is between $800 to $1000 between one and two days.

Why applying for a loan?

The purpose of the loan is not just for the sake of business growth but to see something tangible come out of the business loan injection. According to the owner now that he had started a housing construction project the business needed to be boosted so that more income is realized towards purchase of building materials. The bank loan approved 5 months ago is yet to be disbursed.

 

Concluding insights

Financial services should match the velocity (speed at which money changes hands) among value chain actors, for instance, between farmers, traders and transporters. Otherwise the money misses the target and fails to meet needs. If you put $100 in the market, how many hands does the money change hands within the market?

The type of products that traders specialize in selling are determined by location, space of the stand from which they operate. This also depends on the capital used in the business in terms of the amount needed for purchase of stock as well as the revenue that comes from consistent selling of the product.

More information:
Charles@knowledgetransafrica.com / charles@emkambo.co.zw
Clever@knowledgetransafrica.com / clever@emkambo.co.zw
tafadzwa@knowledgetransafrica.com / tafadzwa@emkambo.co.zw
tenjiwe@knowledgetransafrica.com / tenjiwe@emkambo.co.zw
farai@knowledgetransafrica.com / farai@emkambo.co.zw
tariromk@knowledgetransafrica.com / tariro@emkambo.co.zw
Laizah@knowledgetransafrica.com / laizah@emkambo.co.zw
Website: www.emkambo.co.zw / www.knowledgetransafrica.com

eMkambo Call Centre:
0771 859000-5
0716 331140-5
0739866343-6

The informal agriculture market as dynamite in small packages!

Zimbabwean agriculture has reached a point where almost everyone now knows how to produce maize, sugar beans, tomatoes, cabbages and a diverse range of crops and livestock. However, lack of market intelligence is preventing farmers from translating yields into money in the pocket. Having been socialized to think of markets in terms of big companies and buyers, farmers and policy makers are still to be convinced that informal markets are big market players. Through the right mix of market data, people (farmers, traders and transporters, etc) in informal agriculture markets, eMkambo is surfacing market evidence that used to remain silent. While a single smallholder farmer harvesting two bags of sugar beans can find it difficult to imagine the volume of sugar beans flowing into Mbare Agriculture market daily, it is now possible for serious farmers to know who is bringing what volume of commodities from where. Farmers who don’t care to know about their competitors have not started farming. This analysis brings you snippets of how sugar beans have performed on the informal market based on activities at Mbare Agriculture Market (the biggest informal market in Zimbabwe). Sugar Beans (dried)– Mbare Agriculture Market (Harare): January to October 2014 a Quantities supplied to the market A total of 28719.3 20l buckets of sugar beans were supplied to Mbare Agriculture market. With one 20l bucket weighing approximately 16.9kgs, a total of four hundred and eighty five metric tons (485.36 metric tons) were supplied to the market from January to October 2014 in small doses. b As can be seen in the graph above, supply of sugar beans was high in February. This peak supply in February is attributed to the speculative pricing of the preceding season. Just after February, new harvests will start flowing into the market, knocking prices downward. This is evident from March and the following months. Evidence gathered from farmers indicated that they will be waiting for such peak price periods to earn more income which they then use to pay school fee balances carried over during January school openings. As the months progressed, supply also decreased gradually. In July, supply increased followed by a gradual decrease from August through to October. Sources The sugar beans were supplied from 30 different districts and areas around Zimbabwe from January to October 2014. The table below lists the different sugar beans sources. c Looking at the sources, sugar bean production has invaded many areas of Zimbabwe cutting across all farming regions. While NGOs have contributed to sugar bean production through provision of inputs and extension, farmer to farmer learning also explains why the crop has taken off in the country. Dry areas like Rutenga, Gokwe, Mt Darwin, Muzarabani and Mudzi have shown a commendable appetite to supply commodities to the market. Farmers are realizing that the only way livelihoods can be improved is through increased income not just high yields or bumper harvests. d The price has also been firm on the market. However, decreases in September and October can be attributed to the introduction of pre-paid metres by ZESA which have seen many urban consumers opting for faster – cooking relish which does not increase the energy bill. e The major determinant of sugar bean prices is the demand against supply on the market. The months of January and February attract old stocks onto the market due to demand for a crop that will be out of season. Unlike horticulture crops, shortage of beans on the market attracts more supplies to be released from old stocks due to their non – perishability nature. This explains why prices were high in January and February, with a decline in March as illustrated by the graphs above. However, prices remained almost constant from March through to August, followed by a further decline in September 2014. f The graph above depicts Expected Revenue by month. October saw the lowest revenue while February recorded the highest. g As shown in the above graphic, the bulk of sugar beans supplied were recorded as coming from Harare because they represented stocks by traders who source from around the country in small quantities and store in their warehouses around Harare. In most cases, traders are not comfortable to reveal their sources because they are afraid to lose their competitive advantage. Stocks in Harare are released in small volumes to the market according to demand. This has the effect of keeping the price a bit constant, in the case of February. Why is agriculture market data such a big deal? It is only through data that viable agribusiness models can be crafted in Zimbabwe, resulting in sustainable revenue streams. Technology is now enabling the agriculture sector to reveal its true potential which is no longer in yield per hectare but surplus for the market. By ignoring data from informal markets like Mbare, Malaleni, Sakubva and others, agricultural experts, development agencies and policy makers are missing part of the answers to their solutions. Data has to be converted into accountable agricultural programming. Making use of data can enable the media to steer evidence-based public discourse on agro-based economic development. While there seems to be a glut of information, it’s not the kind of information that will enable farmers to make effective decisions. Traders and farmers know much about agriculture markets than policy makers and development agencies combined. Without integrating expertise from farmers, traders and transporters who operate in the informal market, agriculture development efforts will continue to fall far too short. Reliable data can reveal gaps in the current agriculture system and provide opportunities to see fine-grained agricultural details, indicating choices that would work for farmers and all value chain actors. It is through market data and feedback processes that we are able to see emerging agricultural patterns and commodities that are relevant to farmers in particular areas.   Agricultural inputs worthy thousands of United States Dollars flow to farmers annually. In the absence of the right data and associated performance analytics, it’s impossible to pinpoint the highest performers. Good data will lead to efficient allocation of agricultural resources.

More information: Charles@knowledgetransafrica.com / charles@emkambo.co.zw Clever@knowledgetransafrica.com / clever@emkambo.co.zw farai@knowledgetransafrica.com / farai@emkambo.co.zw Laizah@knowledgetransafrica.com / laizah@emkambo.co.zw Website: www.emkambo.co.zw / www.knowledgetransafrica.com

With support from:

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