Various shades of shrinkage and identity theft in the market

Every time farmers inquire about prices of commodities in the market they are often looking for the highest price. However, unless there are serious shortages, in both formal and informal markets, it is rare for farmers or suppliers to sell the entire consignment at the top price. In almost all agricultural commodities sold either through auction systems, open markets and formal institutional markets like retailers, 50% of commodities may fetch the top price, 25% the medium price and 25% the bottom price. In all developing countries, very few farmers are aware of these invisible market dynamics.

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Different shades of shrinkage

As the process in which commodities become less or smaller, shrinkage of commodities is a major reason for different price ranges irrespective of grades and quality. Shrinkage is the main reason why traders who frequent farming communities buying commodities vigorously negotiate for lower prices on-farm because they have an idea of shrinkage levels that happen from field to fork. Depending on commodity, shrinkage can constitute more than two percent of the commodity volume and value.  Some of the shrinkage is theft-related in the selling process and during overnight security, especially in the informal market. During selling, miscounting contributes to shrinkage. For instance a farmer can mistakenly pack 24 heads of cabbage in a customer’s sack instead of 20 heads or 125 cobs instead of 120 cobs. This is very common because the marketing process is very fast and prone to errors that eat into a farmer’s profitability.

Some of the shrinkage is related to product replacement to customers. For instance when a customer sees that a cabbage she has bought from the farmer has defects, the farmer has to replace with a good one. In Zimbabwe, a cabbage variety called Star 3301 has been notorious for breakages which has caused farmers to lose through replacements in the market. Unfortunately, seed breeders do not breed for some of these market-related factors but focus on breeding for high yields.  They also often don’t even breed for taste.

Theft-related shrinkage

In the retail trade, shrinkage is a euphemism for shoplifting. In African food markets, commodities mostly affected by replacement shrinkage and theft-related shrinkage include cabbage, green mealies, water melon, leafy vegetables and butternuts. The same applies to potatoes whose pockets are easily stolen either in transit or in the market during over – night storage.  As a challenge, shrinkage happens across all markets including formal and informal. In formal markets like supermarkets and food chain stores, shrinkage is often in the form of slow turn-around and slow selling which reduces quality and freshness such that some commodities become unsaleable.

In the past few years, African farmers have started complaining against an unfortunate reluctance by formal markets like supermarkets to pay for what is not sold which they consider returns to the supplier. On the other hand, informal markets do not have returns policies but thrive on relationships which ensure everything is sold and in most cases, traders are willing to take the bulk of the risk. Although shrinkage is worse in perishable commodities, it is also prevalent in dry crops like pulses where, besides theft, reassessment leads to some form of shrinkage. Where a trader buys soya bean or groundnuts from farmers for supplying to formal companies like processors, the processor may want to reassess quality and quantity, leading to renegotiation of the final price downwards to the trader’s disadvantage. Strangely, the processing company will not pass on the benefits of reduced prices to consumers.

Identity theft in the market

Identity theft is common in both formal and informal food markets. For instance, due to the nature of potatoes, more than 90% of potato farmers are not willing to participate directly in the market. In the majority of markets, the potato value chain has established channels of selling through the trader who has space in the market for stocking the commodity and has a way of dealing with theft in the market. Since farmers are often in and out of markets depending on commodity production cycles, they do not have  permanent stalls for stacking potatoes. As a result, once the farmer has sold the potato to the trader on-farm, the commodity can no longer be identified with the farmer or source. It now assumes the trader’s identity. In the eyes of the consumer, the farmer becomes invisible because s/he is not available to interface with consumers.

Packaging as identity

At least the informal market tries to preserve the identity of the farmer or source by selling commodities in the original packaging in which the commodities come from the farm into the market. Supermarkets and food chain stores do not sell commodities in the original packaging. They ensure potatoes are first of all cleaned by wholesalers. The farmer sells to a wholesaler who is told by the supermarket to re-package in attractive packaging with labelling showing the identity of the supermarket. The wholesaler is told by the supermarket to pack into 5kg, 10kg and 2kg but mostly in 2kg plastic packaging.

Ultimately the same potatoes from the farmer are sold in a new identity through a different packaging. The supermarket or food chain store does not add much value beyond cleaning or washing and re-packing for distribution in a new identity. The consumer does not see the farmer who is the original producer. This is how branding becomes more powerful than knowledge applied by the farmer to feed the nation. On the other hand, an Iophone or Lenovo laptop is identified with the original inventor even if it seats somewhere in remote villages of Nyeri and Musambakaruma. If food is identity it should be marketed accordingly. Although it is not an illegal practice, companies that stick their logos on unsuspecting farmers’ commodities and market such commodities as if they are the original producers are not different from con men.  In the knowledge economy, the fact that there are no laws against such a practice does not make it ethical and right!

 

 

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

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

Mobile: 0772 137 717/ 0774 430 309/ 0712 737 430

 

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To sell or not – decision making challenges in unstable economic environments

A majority of African farmers tend to make decisions based on their experiences, expectations and fears, especially in an unstable economic environment and changing climate. At the beginning of each  marketing season, a question in every farmer’s head is “Should I sell now or later?”  Since the future is unpredictable from both an economic and climate perspective, farmers are taking long to make decisions.  Most farmers are unwilling to sell in a hurry as they try to make sense of the fluid economic and environmental situation. This presence a challenge for processing companies who are end up not being guaranteed of surplus.

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A catch 22 scenario

A farmer might be pushed to sell quickly in order to buy inputs before the price of inputs surges. In almost all African countries it is now known that input prices are always on an upward trend.  Where the farmer decides not to sell immediately, s/he will be expecting commodity prices to appreciate more than the past year given that the competitive environment is very thin due to climate change induced drought. Uncertainties on the next season may also compel a farmer against selling now in order to counter the rising price of food, for instance in Zimbabwe and other countries in East and Southern Africa.

Another issue is currency.  Due to currency uncertainties and rumors in countries like Zimbabwe, farmers may wonder: “If I sell now, what happens to my income if the currency changes?” This decision-making crisis is worsened by the fact that farmers do not have attractive savings or investments in which they can invest their earning from agricultural commodities. To sell commodities worth USD10 000 a farmer should have reliable and valuable uses. A smart farmer cannot keep the money in a bank where tomorrow the value of the money may be less by 25% due to inflation.

Consequently, farmers would rather store wealth in tangible commodities like grinding mills or livestock.  Most farmers are selling agricultural commodities to get something they can use immediately. If there was reliable information on who is selling what and who wants to buy what, a swapping economy would simplify some decisions and reduce pressure on cash. For instance, if somebody selling soya bean wants to buy a tractor while the tractor owner wants to invest in soya bean production, the two would easily meet and transact.

Re-imagining a new role for government extension

African agricultural extension services should be empowered to assume new roles in facilitating decision-making among farmers who are struggling to make sense of a dynamic and complex environment. Since the dawn of industrial agriculture in Africa, extension officers have been assisting farmers to produce the same agricultural commodities for decades. There is no longer any new knowledge on producing such old commodities. To stay relevant in a changing environment, agricultural extension officers should acquire new skills which include gathering fluid data using modern technology, interpreting evidence for farmers and facilitating aggregation of commodities at community level as well as guaranteeing fair trade.

Government extension officers can only protect farmers from unfair market practices if they have accurate data. Where private companies want to buy more than 100 tons of groundnuts from one community, extension officers with data on their finger-tips should easily mobilize such commodities in appropriate grades. They can also prevent cases where farmers compete to supply commodities to one buyer in ways that knock prices down. Most of the data should be collected at farmer level because every farmer knows where his/her commodity is going. Relying on production data alone for decision-making explains the poor state of our agriculture system. Production side data on its own is not enough. It needs to cover end to end along entire value chains.

The role of extension services in building rural finance models

Lack of data is a major reason why developing countries are failing to come up with robust rural finance models. If local extension officers have data from Chimanimani district of Zimbabwe or Taveta in Kenya showing that US$20 000 worth of bananas leave each of these districts daily for Harare and Nairobi, it becomes easy to build rural finance models in these districts.  Such data should be captured at source together with what remains for local consumption because a farmer knows better where s/he takes his/her commodity. This evidence will assist ministries of agriculture in negotiating resources from the fiscus and accurately predicting harvests in ways that also help farmers to make accurate decisions. Using data, the government can organize production to minimize unpredictable price fluctuations.

When extension services departments are able to collect and analyze data at local levels, they become reference points for financial institutions keen to work with specific value chains. Evidence-based farmer characterization can show farmers at different income levels ranging from $100 to $20 000 and such information can be used to craft appropriate collateral systems for different farmers. Most smallholder farmers do not have a banking history because much of their trading happens in the open market where data is often not recorded. Once a farmer’s local production records are consolidated with his/her market records that should automatically constitute collateral. Extension services can authenticate these facts.

Policy makers should not use price as a carrot

Most African governments are not using data to guide farmers what to produce. Instead, they are using price announcements as a carrot to lure farmers to produce a crop. Ideally, data should be used to convince farmers to produce diverse crops and livestock by showing gaps in food security and commercial opportunities.  Better prices can then be offered to incentivize farmers and control numbers.  In this case, data gives direction so that there are no gluts and shortages. Once farmers show interest to produce certain commodities it becomes possible for floor prices to be set.  That is how policy makers can re-allocate resources. Currently bumper harvests come with costs in the form of post – harvest losses.

In the absence of data, development agencies end up spending resources and time conducting baselines when agricultural data should be on the finger-tips of the ministry of agriculture like an exchange rate.  Unless farmers know the value unlocked by their commodities in the market, they cannot price such commodities correctly on-farm. That is why informed conclusions have to come from both the market and production side. Comparing market performance with production performance can only happen if there is fluid collection of data. Price is no longer the main decision-making determinant for farmers.  If that was the case, farmers would rush to deliver maize each time government announced a price.

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

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

Mobile: 0772 137 717/ 0774 430 309/ 0712 737 430

How marketing systems in developing countries penalize poor farmers

Whether it is potato production in the highlands of Rwanda, cassava production in Northern Mozambique or sweet potato production in Gokwe South district of Zimbabwe, the marketing season presents the same headaches for farmers. While production is now much easier, profitably moving commodities from farms to markets remains a nightmare that cannot be solved by price information or ICT platforms alone.

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Processes through which farmers continue losing money

Several visible and invisible costs are incurred by farmers when moving butternuts, potatoes, sweet potatoes and many other commodities from the farm to the market. The following steps reveal the extent to which the movement of agricultural commodities from field to fork does not favor poor farmers:

  1. Transport to move commodities from the farm to urban markets. Most transporters are based in cities where the farmer has to go and identify appropriate transport, thus incurring costs of going to look for transport.
  2. Cost of empty bags and tying strings – like transport, these are also often found in the city.
  3. Cost of food for the farmer on the way to and back from fetching empty bags, tying strings and transport. Farmers often ignore this cost yet it actually chews into their profit.
  4. Communication costs (phoning and texting) – farmers spend a lot of money calling the market.
  5. Labor costs for loading at the farm and off-loading at the market.
  6. Vehicle entry fee into the market. Depending on size, a two toner truck can pay at least $4 while a seven toner truck pays $7.
  7. Selling space fee in the market ($6 or more).
  8. Cost of security overnight if commodities arrive for selling tomorrow or if there are left overs.
  9. Cost of sales assistant who helps the farmer to sell in the market while the farmer collects money from customers and puts it in the bag.
  10. Cost of food for the farmer and sales assistant during eight hours in the market (5am – 1pm).
  11. If commodities are leftover for selling tomorrow, transport cost for the farmer and sells assistant who have to travel to and from a relative’s residential place in the city.
  12. Cleaning fees for the space which might be too dirty for ordinary cleaning services.

Depending on distance, the above costs can be highly prohibitive for most farmers who live more than 100 km from the market. In addition to fetching transport, empty bags and strings from the market in the city, farmers are expected to pack commodities according to grades, standards and volumes acceptable to the market. Such knowledge is often missing in farming areas. The farmer should also know how to properly tie up the bag in the way the market expects for long distances or final destination.

Selective treatment of farmers and the power of relationships

The transporter has more confidence in the trader or middlemen than the farmer because he deals with traders regularly, thus the transporter often takes advantage of farmers by over-charging especially where the relationship is only once-off.  Transport hired by the farmer tends to be more expensive than if hire by the trader or middlemen. A major reason is that middlemen or traders are good negotiators who have also built good relationships with transporters, among other actors. They also know distances to most production zones while farmers do not have such knowledge and that comprises farmers’ pricing and negotiating power. Farmers are also often asked to pay cash upfront to the transporter before the commodity leaves the farm.

On the other hand, the trader pays after selling. In fact, when the traders goes to buy commodities on-farm, he summons the transporter to come once the consignment is ready.   Transporters also tend to over-price in order to justify or hide behind cost of vehicle maintenance. Most of the transport is highly localized in cities and cannot go outside as the owner wants to monitor it and also prefer local roads so that vehicle maintenance is kept to a minimum. Rural roads are very bad such that they increase wear and tear. To justify these challenges, the few transporters willing to go to rural areas tend to over-price farmers with the costs being passed over to the consumer.

While farmers may not be sure about different commodity grades and quality specifications in the market, traders often have such details on their finger-tips. Absence of knowledge about grades and standards makes it difficult for famers to negotiate the cost of transport because low grade and high grade commodities use the same amount of fuel on the road. Another challenge is that the farmer has no guarantee of getting selling space and if s/he finds the market full s/he is forced to off-load in order to sell the following day. Off-loaders at the market also tend to over-charge farmers than traders with whom they have a long-term relationship.  As if that is not enough, most first-time farmers in the market do not know customers so their commodities sell slowly unless they hire a sales assistant. Farmers coming to the market for the first time also do not know where to get health food and water so they end up buying expensive food where as traders get food from caterers on loan and pay end of day or after some days.

Conventional marketing systems favor regular participants in the market

Both formal and informal systems of marketing agricultural commodities in African countries favor traders and a few farmers who are always in the market building relationships with transporters, food caterers and every actor. Marketing costs are so random that there is often no clear basis for charging. For instance, security people in the market have their own criteria for charging fees. It is very easy for farmers to throw away a lot of money in the process. When selling is not completed, marketing can continue to the following day and this means the entire process can take more than three days. Strangely, most farmers want to complete the sale within a day. They lack patience to sell a commodity that will have taken at least three months to grow.

 Middlemen or traders do not make money on fair pricing but it is the farmer who has to adjust the price downwards. Unfortunately, the farmer cannot succeed in persuading input providers to reduce the cost of inputs. In any case, the farmer will have bought inputs before producing commodities and cannot go back to negotiate with input providers for a reimbursement. Meanwhile, African governments remain stuck with marketing institutions that have become irrelevant to the new dynamic context. If you hear the so-called Agricultural Marketing Authorities advertising their activities you would think they have solutions for most of these challenges that have been confronting farmers for decades yet those institutions are only interested in levying value chain actors including the poorest of the poor.

The majority of smallholder farmers cannot produce enough surplus that can be profitably taken to distant markets in the city. This is where aggregators become very important. In the absence of an aggregator or efficient transport system, farmers in distant areas end up selling locally at a loss or resort to barter trade. All farmers want to sell on time in order to get into production cycles of other commodities. Since traders/buyers do not often come on time, farmers end up taking lower prices in order to run with the next production cycle but they will be under-cutting themselves.

 

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

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

Mobile: 0772 137 717/ 0774 430 309/ 0712 737 430

 

Extent to which inherited knowledge systems are constraining African Imaginations

The introduction of exotic crops, fruits and livestock into Africa was initially guided and informed by the way indigenous crops, livestock and fruits performed in different micro climates. Unfortunately, instead of cultivating co-existence between exotic and indigenous foods, the colonial knowledge system has sought to completely replace indigenous crops, fruits and livestock with exotic food systems

charles dhewa

A telling example is how African agronomists and horticultural specialists have been equipped with knowledge on promoting plantations of apples, oranges, peaches and other exotic fruits. They cannot imagine plantations of indigenous fruits like Masawu, Matohwe, Tsvubvu, Nyii and many others that respond well to a changing climate. In addition to maize and wheat, exotic leafy vegetables have also been over-researched such that there is no longer any new knowledge about these food commodities. On the other hand, thousands of indigenous crops, fruits and vegetables are yet to be researched and commercialized for the benefit of consumers.

 The folly of replacing natural ecosystems with exotic foods

As seen in most rural communities, you don’t need foreign currency to produce indigenous fruits and vegetables. By embracing exotic foods at the expense of local foods, African policy makers have destroyed local knowledge about different food systems. The entire agricultural and nutrition curricular focuses more on generating knowledge about the production, processing, marketing and consumption of exotic foods whose market base is no longer expanding. Financial systems are also biased towards exotic agricultural commodities on the pretext that they have off-takers.

Rather than exploring and developing local food systems, development agencies are also supporting the production of exotic commodities, most of which have reached their ceiling. Community irrigation schemes are being compelled to produce exotic crops and fruits using inputs whose knowledge and ingredients are also exotic such that foreign currency is required if production is to continue. Development efforts have a wide pool of indigenous crops, fruits, tubers and vegetables from which to choose instead of bringing Chia and other exotic crops for production in Africa.

Having destroyed their natural resources through unregulated industrialization, some developed countries are now curious to get new food systems from Africa. This is a huge opportunity for African countries to develop their own indigenous foods and use diaspora populations to promote consumption of African food in developed countries. Traditionally, Africans have developed tastes and preferences for foods that grew naturally without destroying local economies and ecosystems. This is what the new generation of Western consumers are craving for. African countries should not squander an opportunity to provide unique food with distinct flavor to the world just as Africa is now a haven for tourists from Asia and the West.

The role of African research institutes, universities and financial institutions

There is a limit to which African research institutes and universities can continue using exotic knowledge to produce exotic food just for the sake of earning foreign currency. An African agricultural research institution should ensure more than 90 percent of the commodities being researched on are indigenous.  Exotic knowledge and methodologies have to be creatively combined with Indigenous Knowledge Systems. African gene banks should contain more local and indigenous seed and planting materials than exotic ones.

Universities and research institutes in Africa should play a leading role in regenerating indigenous natural foods as an important way of minimizing the effects of climate change and foreign currency deficit. Currently the whole African agriculture system is anchored on foreign currency yet local knowledge on natural products can be a solution to foreign currency challenges. Once developing countries are able to apply knowledge in developing natural resources they can create markets for new commodities unlike exporting commodities to countries where those commodities originate. It is not sustainable to continue earning foreign currency from commodities that originate externally.

African financial institutions like the Africa Development Bank should ensure more than 75 percent of their agricultural funding supports indigenous crops and livestock unlike promoting exotic commodities that have reached their ceiling and are no longer resilient to climate change. You will never find a European bank or an American bank financing research and production of purely indigenous crops, fruits and livestock in Africa because these institutions have vested interests in promoting hybrids and equipment from their countries. When will African financial institutions wake up to this reality?

Harnessing the power of collective community knowledge

Meanwhile, African rural communities are already using their knowledge and food systems to cope with a changing climate. On the contrary, formal research institutes continue focusing on exotic food systems and related knowledge. Unfortunately, community knowledge tends to be individualized when it should be layered the way academic knowledge is built through layers from primary school to PhD level. This is where   knowledge brokers can play a fundamental role in layering local knowledge in diverse ways including by age, gender, location and culture.

The starting point in transforming African agro-based economies is obtaining comprehensive knowledge on local food systems and natural ecosystems. Where necessary, imported knowledge should be combined with local knowledge in producing and preserving natural foods and ecosystems. This can be achieved though the following activities:

  • Conducting research and consolidating knowledge on indigenous foods, starting from seed, production and all the way to plantations for natural trees. Thorough research should also be conducted on livestock including guinea fowls that are game animals and very resilient.
  • Introducing data gathering tools to capture supply, demand, prices, tastes, preferences, sources of indigenous fruits, tubers, vegetables and livestock flowing into the mass market across Africa.
  • Establishing a basis for frequent analysis of market data to inform production and preservation.
  • Exploring value addition options – porridge, snacks, flour and others in the market given that more than 90% of indigenous crops, tubers, fruits and vegetables are consumed raw.
  • Initiating continuous policy papers that inform policy reviews on the promotion of indigenous foods as part of local content.
  • Government funding directed at researching the extent to which exotic knowledge systems continue to substitute IKS. In all African countries, more than 80 percent of decisions are based on local indigenous knowledge while in cities less than 5% of decisions are informed by indigenous knowledge. To what extent is urbanization eroding IKS in Africa? As African countries grow their towns and growth points, to what extent are they destroying IKS?

We are not advocating for the complete reversal of the gains associated with exotic knowledge. There is no doubt that imported knowledge and technology has contributed to some measure of progress in African countries. Given that each knowledge system has its limitations, Africa is likely to benefit more through intentionally promoting co-existence between exotic and indigenous knowledge, especially in relation to food systems under threat from climate change. Eating habits, tastes and preferences are beginning to be influenced by a rapidly changing climate.

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

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

Mobile: 0772 137 717/ 0774 430 309/ 0712 737 430