Seven lies against mass markets in developing countries

Like many practices that are seriously misunderstood in developing countries, mass markets are full of distortions, faulty assumptions and wrong thinking. To assist policy makers, investors and ordinary people in getting past a number of lies and discover the real truth about mass markets, eMKambo has taken time to identify and expose the following lies:

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  1. Commodities in the informal mass market are of poor quality. This is one of the biggest faulty assumptions. If it was true, informal food mass markets like Mbare in Harare, Nairobi mass market in Kenya and Makola market in Accra would not attract high income consumers. Supermarkets, hotels, restaurants and hotels would not be seen buying food from these markets.
  1. Mass markets are about low prices. That is not true because sometimes supermarkets can have lower prices, not to mention quality, than mass markets due to various reasons.
  1. Mass markets have one category of middlemen all called Makoronyera, for instance in This is another myth. Mass markets have more than seven types of middlemen, most of whom have been conducting honest business practices for decades, otherwise they would have gone out of business years ago.
  1. Mass markets do not use formal means of payment and terms of trading. In fact all forms of transaction modes and business practices found in the formal economy are also characteristics of mass markets. Many traders in the mass market provide agricultural commodities to hotels and restaurants on credit terms ranging from 7 to 15 days, the same terms given to farmers by some hotels and supermarkets. Commodities that are given to the formal market on such credit terms include butternuts, carrots, green beans, potatoes, peas and many others.
  1. Commodities traded in the mass market lack freshness compared to those traded in the formal market. In fact the opposite is true. The reason why high income earners visit mass markets is because they get commodities fresh from the field unlike commodities that would have moved from one cold room to the other over a week or more days. Consumer consciousness on freshness is increasing and most consumers prefer commodities from farm to fork than from farm to factory to fork. Long supply chains that are typical of formal markets result in some commodities losing freshness, quality and taste.
  1. Another decades old lie is that mass markets experience high commodity losses, especially of perishable commodities. In mass markets only poor quality commodities that would have been brought for speculative selling may be lost. High quality produce is rarely lost since everything is sold fast and cleared daily within hours. Any losses that happen are in proportion to the volumes sold which means they are very minimal. Conversely, formal markets can sometimes throw away high quality commodities due to low sales.
  1. Finally, there is a wrong impression that mass markets do not deal with high value commodities like grapes, strawberries, pears and mushrooms yet all these are traded in the mass market.

Practices that are unique to mass markets

Unlike the formal market where some companies engage merchandisers to promote their products in supermarkets, traders in the mass markets are merchandisers for farmers from whom they buy commodities for breaking bulk and reselling. The merchandising function has been embedded in the owner (trader).  This is an advantage against formal markets where commodities are just displayed with the assumption that the customer knows what s/he wants.  Trader-merchandisers have acquired intimate knowledge about their commodities are ready to share such knowledge with consumers. Such knowledge can include nutritional benefits and methods of cooking particular commodities. The trader-merchandiser-knowledge broker role is critical in mass markets where 100 traders can be selling one commodity, meaning everybody has to bring out his/her product’s unique selling proposition.

Another unique feature of mass markets is that they use informative advertising as opposed to persuasive advertising used by formal markets which border on deception and over-selling commodities as if they perform magic.  Informative advertising provides benefits of each commodity. Forms of sales promotion in the mass market include allowing customers to taste products. Mass markets also have a wide product range and there is always a discount for volume purchases, for instance if you buy 20 cabbages you can get one or two for free. The more significant the volume purchases the more the discount. Mass markets have room for negotiation – all prices are negotiable and no commodity is returned to farmers due to poor sales like what is done by formal markets where perishable commodities like lettuce and spinach can be returned to farmers if not sold.

Mass markets as pathways of innovation

Most seed companies use demonstration plots to develop and assess the performance, size, shelf life and fruit filling (brics) of the their horticulture varieties usually over two to three seasons before releasing the varieties to farmers. Market acceptance for these varieties is also tested through formal markets without investing in getting feedback from the mass market. While formal markets give them feedback on how tomatoes and vegetables are performing in the kitchen and in sandwiches, mass markets are where performance is really proven.

For instance, when Charter Seeds began introducing tomato varieties in Zimbabwe, it started with 11 star varieties but it was in the mass market that Star 9009 and Star 9003 proved to be champions. Feedback from the mass market enabled the company to save resources and concentrate on the few most popular varieties. Star 9003 sold very well in Bulawayo market due to appropriate environment like temperatures and adequate levels of heat. In cold temperatures like Mashonaland East, Star 9009 has remained the performer, thanks to evidence from the mass market.

In another example, the mass market is refusing to accept all other jam tomato varieties except HTX14 which is performing better than Riogrand, Petrorosa and others.  HTX14 has good fruit size while Riogrand has small fruit size. In addition to long shelf life and high yield in the field, HTX14 has good inside flesh (brics) which is required by processing companies. Besides not buying and experimenting with a wide range of varieties, formal markets do not sell jam tomato preferring green-house tomato whose uses are very narrow. On the other hand, mass markets order and sell by variety while formal markets do not ask about variety but are more interested in whether the tomato is produced in the open field or green house.

Decisions to buy seed and other inputs should be informed by micro climates as opposed to generic information. Unfortunately most farmers just buy any seed they see in the retail shops without adequate knowledge on whether it will perform in their area. It is more of guess work than informed decision and that is how farmers lose income through risks associated with wrong decisions.

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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The easy of doing business fallacy in low income countries

Besides focusing on pleasing foreign investors, the easy of doing business hype https://tradingeconomics.com/zimbabwe/ease-of-doing-business gives an impression that business is easy.  If doing business was easy everybody would be a business person.  Farmers and entrepreneurs who wait for conditions to become favorable in order to get into business will stop forever.  Most organizations and people who promote the notion of easy of doing business have never run businesses themselves.

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Isn’t it correct that fortunes are born in bad markets?

The ability to navigate uncertainties is the most powerful skill in the business world.  Those who do well in hard times will survive anywhere. For a long time, development organizations have pretended to simplify people’s livelihood including doing business but this has happened at the expense of innovation. Open markets in developing countries have for decades been proving that doing business is not easy. If business was easy those with collateral would easily get all the money from banks and succeeding in doing their businesses. Conversely, small actors like SMEs who do not have the collateral required by banks have a better sense of the business environment than big boys who can easily walk into a bank and get what they want but fail to run businesses.

Lessons from dynamics in African mass markets

Every farmer who brings commodities in the mass market is expected to sell everything within four hours irrespective of the volume of commodities s/he brings. The farmer will have to know different actors including opportunistic traders who jump onto every fast moving commodity.  Being opportunistic, these traders go for a commodity when it has the best price. For instance, when tomatoes are in short supply they colonize them but when there is a tomato glut they leave farmers to struggle on their own. A desire to quickly seal a deal is one characteristic of a trader. Before the farmer knows it, s/he has already agreed to a deal.  These are the same techniques applied by some foreign investors on uninformed government officials who end up signing deals that do not help ordinary people like farmers.

How mass market traders also use behavioral economics

By looking at dressing and walking style, traders can tell whether one is a farmer or trader. Traders walk much faster. The way commodities from a farmer and a trader are stacked is also telling. Traders have a structure of stacking and grading by stacking while the farmer’s commodities are often mixed up. A  trader’s commodities are well packed and in large sizes or portions on top.  When traders visit farms they go with experienced packers – packing is where some of the manipulation happens through over-packing. Since most smallholder farmers do not have scales to weigh commodities on-farm, measuring through observations sees the trader getting an extra crate from at least four crates. This is just to illustrate how there is no real easy of doing farming as a business.

How competitors close to the market end up setting prices

A farmer who brings 1000 crates of tomatoes tend to set the price and rules of the game for the farmer who brings 200 crates.  If a box is going for $10, the farmer who brings 1000 crates will earn $10 000 while the one who brings 200 crates will earn $2000 within the four hours of marketing.  Assuming transport costs constitute 20% of sales, the 1000 crates farmer will incur $2000 transport costs while the 200 crates farmer will incur $4000 transport costs because s/he has to do five trips in order to match the 1000 crates farmer who will have brought his consignment in one trip.

This means the 1000 crates farmer enjoys economies of scale, enabling him/her to set prices. He can afford to drop prices to $8/crate and still break even while the 200 crate farmer will not be able to survive. This is how big volume farmers can push out smallholder farmers who bring small volumes. The same scenario applies to the inputs side. Farmers who are subsidized with inputs push those who buy their own inputs out of the market. It means prices will not be set by supply and demand but by some farmers with hidden advantages that enable them to set prices downwards. The market does not care that commodities coming to the market were produced with different costs.  It is the same with formal education. Children in rural areas are expected to write the same examination with urban children who have many advantages like electricity and libraries and be expected to compete for the same employment opportunities.

In agriculture, farmers close to supermarkets have a lot of advantages like good road network and abundant transport. On the other hand, farmers in Rusitu which is a good production zone but beset by poor infrastructure are less competitive in the same market with farmers from Mazowe or Norton. That is how they are taken advantage of by farmers close to the market whose price settings influences prices on the entire market.  Farmers close to the market end up becoming buyers of commodities from those in distant production zones.

 

Promoting easy of doing business through exploring other competitive advantages

Besides price, what other competitive advantages can be used to assist farmers far from the market?  Nyanga potato farmers in Zimbabwe have managed to stand up to the competition due to their unique micro climate which enables them to produce high quality potatoes and supply when competitors do not have the commodity. What competitive advantages can be identified in distant farmers so that they can have a percentage share in setting prices?  When such advantages are identified and cultivated, price stops becoming the only determinant of consumers’ decisions to buy.  From that angle, there will be a justification for prices to differ as farmers from distant areas will have a unique selling proposition justifying higher prices to compensate market-related costs. Unless policy makers understand these issues at a granular level, easy of doing business initiatives will not benefit farmers and small entrepreneurs.

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 banks and mobile money platforms are robbing farmers and citizens

Mobile money continues to be touted as a solution to the financial exclusion of many people in developing countries. However, examples in Zimbabwe are showing the need for cautious optimism. As an economic hub, Mbare mass market in Harare has more than 500 mobile money agents and the number is increasing. Why?  The answer is that mobile money platforms are taking advantage of the fact that when farmers bring their commodities for sale they are paid in mobile money but will not be able to find cash when they go back home in rural and farming areas. They are therefore forced to buy cash at the market after selling their commodities. Being a cash economy, the market also compels consumers and traders to get some cash before buying some of the commodities traded in the farmers’ market.

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What does this mean?

Through a network of cash barons and mobile money agents, mobile money operators are siphoning money from banks and selling it in busy markets like Mbare. Charges for cashing in and out from mobile money agents range from 10% to 31% of the amount of money being transacted. The rate changes willy-nilly according to the wishes of cash barons who are part of the system involving banks. Every transaction charge on money that is supposed to transact within the agriculture sector, means that money is withdrawn from agriculture commodities and moves without being attached to commodities.

For instance, if charges related to cashing in and out withdraw 10% from $500 000 circulating Mbare agriculture market daily, $50 000 is moved out without commodities being attached to it. As a result, agricultural commodities are under-sold by the same amount. Commodities that were supposed to be collectively bought for $500 000 will be bought for $450 000. This suppresses prices and value of agricultural commodities as less money competes for the same quantity of commodities. Farmers lose as prices of commodities go down due to money being swallowed by uncalled for transaction charges.

A black market for local currency

By facilitating selling of cash, mobile money platforms have created a black market for local currency. Why should farmers, consumers, traders and ordinary people buy cash, a medium of exchange? No country has ever built a middle income economy that way. Through banks, cash barons are the ones financing mobile money agents. Rather than admiring such practices and calling them innovation, financial and monetary authorities should identify and control this predatory system.

Some of the economic actors suffering from this injustice are traders who borrow trading finance from banks and micro finance institutions. Given that most of the money is now received through mobile phones, a trader who receives a $1000 loan from an MFI and accesses it through mobile money losses, $200 if cashing out charges are 20%, leaving him/her with $800 on which the MFI will charge 20% interest (another $200). That means the trader will only do business with $600. There is no worse daylight robbery than this and the situation is the same rural business centres colonized by mobile money agents.

Importance of recognizing dynamic economic hubs

With the right attitude and evidence-based approach, financial policy makers should by now have recognized how economic hubs like Mbare and many others have their own ecosystems and nodes. Besides being a source of livelihood for the majority, mass markets circulate a lot of money that should be protected through decent financial systems. It cannot just be one financial jacket fits all.  Given that banks prefer to remain located in the Central Business District of cities like Harare, farmers and traders have nowhere to put money they handle daily except keeping it in pockets and taking it home at the end of the day.

If banks open cash accounts for traders, traders would be willing to put money in the bank because they would know their money is protected. Absence of a robust financial system for the entire economy explains why cash is not flowing into banks. Currently, at least 70% of the cash deposited in Zimbabwean banks is taken out into the street by cash barons with the tacit approval of banks. Monetary authorities are not able or willing to keep track of money in circulation. If financial and monetary policy makers had put in place a financial system to anchor and protect money circulating in the Mbare economy so that farmers, consumers and traders are supported, there would not be such a big number of mobile money agents around the market. Customers, farmers and traders should not buy money from a mobile money agent.

The financial sector should rebuild its image and integrity

Unless banks work hard to rebuild their image, citizens and economic actors will not put money in banks. Most people have resorted to using cash as a store of wealth not as a medium of exchange and this has caused cash shortages, including of US dollars. Cash is being sold through systems that were established legally. Policy makers should revisit this system just as they have dealt with the parallel forex market.  Why are banks without cash while streets have a lot of money being sold to citizens?  Mobile money operators should be compelled to control their systems or lose the licence. The system is being abused to rob the poor. Such robbers should have a place in Chikurubi Maximum Security Prison.

Banks should immediately stop the system of selling money and maintain minimum transaction charges. Why are financial institutions charging people for withdrawing money from banks or for moving money from one source to the other (bank to bank), from bank to purchases (for instance, a farmer is charged when buying fertilizer through transfer), from one form of money to another (mobile money to cash)?  Conversely when a farmer or trader is depositing money using the same system there is no incentive for bringing money into the system.

Financial institutions are taking money through charges irrespective of where business is taking place or not. When is withdrawing there is no real business or use of money as a medium of exchange but moving money to money, a process which should not attract a charge. Financial institutions and mobile money operators should make money from extending loans as opposed to milking citizens through charges. Where a bank takes money from just maintaining an account and loan out that money to someone else, that constitutes double charging which should be discouraged from an ethical perspective. Such charges withdraw money from circulation. If calculations of how much money is withdrawn from circulation through charges and end up in the hands of banks, the figure would be shocking. Yet such money should be stimulating production and the entire economy instead of being used for speculation.

 What forms of collateral are backing up mobile money platforms?

No country has ever developed by placing its entire financial system on mobile money. Several known and unknown risks characterize mobile money. In the event of mobile money platforms crashing like pyramid schemes while holding the entire population’s money, how will people get their money?  Financial institutions are fond of using immovable property as collateral, what forms of collateral are being used to back up mobile money platforms in case the entire system crashes? These are some of questions policy makers should not wait to be asked but answer without stammering. Innovation should not be confused with introducing unnecessary complexity on services like use of money that are crucial to people’s everyday lives.

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

Empowering communities to appreciate and conduct research

If developing countries are going to only recognize and respect research results from formal research institutes and universities, they will continue excluding diverse voices and stifling ambition. While formal institutions in Africa are doing their thing, ordinary people in farming communities, fishing villages and informal markets are creatively shaping their own future and adapting in the moment. It is unfortunate that the conventional notion of research does not arm ordinary people with principles of conducting research that informs their daily lives in ways that inform national policy.

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Before making recent overnight monetary pronouncements, the government of Zimbabwe could have benefitted from throwing a few simple research questions to ordinary people. Such questions could include: What are the uses of money?  To what extent do local communities understand what money is and its role in their daily lives or economic development?  What is foreign exchange?   What do you think are the benefits of a country having its own currency?  Such basic questions can open the door to a lot of knowledge and should not be a preserve of monetary circles.

The surprising power of genuine consultation

Getting ordinary people to answer the above questions does not require a sophisticated consultancy firm using imported methodologies but simple tools and consultative processes. When key economic actors like farmers and informal traders participate and contribute in such research, it become easy for government to come up with informed monetary policies owned by the majority. Economic fundamentals like currency are an example of public knowledge which should be understood by every citizen starting from a tender age. Such knowledge can speed up adoption and implementation of policies. Implementers are people on the ground who face different contexts daily and any changes in monetary policies directly affects their daily lives.

Injecting relevance in agricultural research

The need to democratize research is more telling in African agriculture. In as much as knowledge is said to be in research institutes, chemical companies and seed companies, when such knowledge comes down to farmers, it is brought more as remedies like drought tolerant varieties or chemicals to control diseases and pests. There is scant explanation why the recommended seed varieties are drought tolerant and why other seed varieties do not have the same characteristics or why chemicals have an expiry date.

Communities are wondering why experts are failing to control Fall Armyworm with local medicines. A question being asked repeatedly by farmers is: What is in Fall Armyworm that makes it resistant to all existing ways of controlling it without having to resort to imported chemicals?  In the absence of convincing scientific explanations, farmers in Gokwe North district of Zimbabwe have been quietly conducting their own experiments to kill Fall Armyworm by inserting grains of sand in the heart of the maize plant in which the Fall Armyworm will have created a home for itself. The thinking among the experimenting farmers is that sand will squeeze and suffocate the pest as it tries to feed or move.

Farmers in Gokwe and Hurungwe districts of Zimbabwe are also experimenting with different ways of controlling American Bollworm which they have given a nickname “Madzibaba” because of its white presence resembling clothing used worn by members of the Apostolic sect.  Those in tomato production are also quietly grappling with diverse ways of controlling Tuta Absoluta. The fact that formal research is not providing adequate answers does not only fuel local experiments but increases speculation among farmers that new diseases and pests are being manufactured by chemical companies so that they can continue selling different chemicals as remedies.

After decades struggling with cattle ticks, farmers continue to wonder why science and formal research has not found a permanent solution. They notice that some researchers have been making a living from researching and studying the same pests for decades.  Why should pests and weevils like maize grain borer be part of a syllabus for 30 years when such insects should be controlled or killed? By now, such pests would have been removed from the university syllabus if there had been commitment to using research in finding permanent solutions. Farmers and ordinary people may be forgiven when they think that research has become more for business and academic excellence than a source of solutions.

 Governance and political structures as knowledge and research pathways

Since not all research findings or pieces of knowledge can be conveyed through conventional extension methods, there is scope for using political and government structures as pathways for sharing knowledge and research findings with ordinary people who are supposed to be the consumers of research-driven knowledge.  Most African countries have the same structures. On the political side are councilors or local authorities and members of parliament connected with the grassroots. On the other hand, some government departments have representatives at village level, for example government agricultural extension officers and village health workers as well as veterinary officers and nurses. More than 60 percent of these officers need re-training if they are to convey fluid research knowledge in the digital era.

The importance of embedding financial literacy in service provision

Wherever the above service providers go they use money. That means financial literacy should be part of ordinary people’s knowledge. Unfortunately many African countries are locking core facilities in silos for different economic sectors like Agriculture, Environment and Health.  They are not building the financial component into service provision yet behind every service are budgetary and monetary issues which should be known by ordinary consumers of the services. Supply trends for services are affected by budgetary implications. For instance, because farmers do not know financial underpinnings of the extension worker, when an extension officer does not show up they will just say, “Our extension officer is very lazy” yet his/her failure to deliver services is being affected by budgetary issues.

Likewise, behind NGO programs are budgetary and monetary implications which communities are entitled to know. When commodities coming into communities are more expensive than elsewhere, local people blame the store owner who brings the commodities just as farmers blame the traders in the market when commodity prices remain low. When ordinary consumers do not understand underlying budgetary and financial issues related to availing goods and services, they blame the service provider yet service providers like agro-dealers are messengers of budgetary and financial issues. There is no platform for sharing the message behind the message. Failure to use research in clarifying these issues invites political implications based on lack of correct information and knowledge. Localizing research can ensure knowledge flows from the grassroots frequently.  The government should focus on consolidating solutions from the ground such that if those solutions go back as feedback, communities quickly buy-in because they recognize their contributions.

Decolonizing knowledge systems

One of the reasons formal research is not speaking to informal ordinary people’s daily research in most African countries is because knowledge structures and systems are still very colonial. For instance think tanks and experts are still located at head offices in capital cities. While the Ministry of Agriculture has largely been set up for farmers, an individual extension officer is expected to work with more than 100 farmers at the grassroots while economists and other professionals are based at the head office. The extension officer is expected to be conversant with agriculture, energy, finance, environment, climate and many other issues that trouble famers daily.  Of the more than 20 government ministries, less than five have grassroots representation.  In the digital era, why does the ministry of ICTs not have an ICT officer at the grassroots? The ministry of finance also does not have officers at village or district level. As a result, financial and ICT issues are left to financial institutions and Mobile Network Operators who are mostly profit-oriented and not subscribe to the notion of knowledge as a public good.

As if the above is not enough, African countries are building universities that are disjointed from the ecosystem in which they exist and not bringing value into communities where they are located. Why are local communities in which universities are located still struggling with commercial and financial issues when university students are studying those courses for at least four years? These universities should be conducting knowledge cafes in their surrounding communities and building knowledge hubs to address local people’s real like aspirations, challenges and opportunities. Such knowledge should also inform educational curricular so that commerce and finance is taught at primary school than beginning at secondary level. School children in the digital age have become conversant with foreign currency, exchange rates and mobile money at a tender age.

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 consumers use their buying patterns to signal priorities

As buying patterns signify ordinary people’s priorities, developing countries should invest more in finding pockets of opportunity from micro-markets than pursuing mega deals. In most African countries, much of the overlooked growth is within open food markets from which the majority get food and income. An outside observer may see open markets as chaotic economic but these environments are characterized by order and a distinct buying pattern.  For instance, when food vendors get into the market with their baskets early in the morning, they first go for tomatoes, followed by leafy vegetables, then onion. All these are necessities.

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Then the buying pattern swings to wild fruits, followed exotic fruits. By then the baskets are becoming heavy but the buying process is not over until lemon, avocadoes, banana and cooked dried groundnut are picked from one of the two farmers’ markets where apples are also picked. The basket is then taken to the Matatu/Kombi station before buying route goes to oranges and then cabbages. If the budget is still not exhausted, the buyer goes to the dry retail markets to pick Maputi, matemba, soya chunks and Madora to complete the food basket.

Prices are also determined by the buying pattern

Besides communicating buyers’ priorities, the buying pattern also sets prices for most commodities especially when vendors get into the market in huge volumes.  Buyers who come in individually may not know and own the buying price. The buying pattern also shows how the farmers market brings together demand and builds it outside the market before opening. By the time the market is opened, demand will have already been consolidated as people from different areas congregate at the market. At a given day, 400 to 500 vendors flow into the market and, as mentioned above, they start with buying tomatoes before moving to leafy vegetables. The previous day’s prices influence the amount of money or budget brought to the market each day. Impulse buying is kept to a minimum. If the vendor finds a Sandak of tomatoes going for $80 instead of $75, she forgoes other commodities which may not be necessities. To avoid risks associated with introducing a new commodity to permanent consumers, vendors concentrate on what they know to be on demand.

Emerging characteristics of the market

While social class and income also tends to determine pricing of commodities, the evolving customer classification in open markets comprises the following:

  • Walk-in customers who come into the market where there are options to buy straight from the farmers’ market or from wholesale traders.
  • Wholesale markets in which bulk is broken and commodities are properly graded.
  • Vendors from high density residential areas who have market stalls where they live.
  • Road side traders and vendors – some with trucks loaded with fruits and vegetables.
  • Push-cart traders moving around selling vegetables and fruits.
  • Food basket packers – this group is increasing and comprise small food distributors.

Benefits of staying informed about buying patterns

Staying connected with buying patterns is critical in understanding how prices are set when buyers congregate around commodities in ways that influence competition between different commodities. More than 60% of the pricing is set when commodities come together in one big market.  Other benefits of being constantly informed by buying patterns include improved knowledge sharing. For instance, when one buyer asks a question everyone available benefits from the answers provided. Relationships are also built intuitively in the market as buyers move together from one commodity to another, leading to decision for collective purchasing and then sharing, increasing affordability.

Smart decision-making is also cultivated. Buyers learn a lot from the behavior of other buyers through the price negotiation process. On the other hand, it is difficult for a single buyer to benefit from mob or collective price setting techniques. Buying patterns also classify commodities through ways in which markets classify all commodities and determine how they are arranged in the market as well as how measurements are arranged into areas for Sasekas, buckets and numbering (counting). This is critical for minimizing confusion and chaos.  Slow moving commodities also have their buying pattern and often their prices can stay the same for up to a month while horticulture commodity prices change daily, calling for dynamic pricing.

For planners, making sense of buying patterns simplifies decisions on how to set up market spaces according to commodities. Farmers, planners and nutritionists also need to be aware of these critical issues. Although open markets continue to carve a unique identity in the global economy, the demand for exotic high value horticulture commodities continue to be largely influenced by up-market consumers. Others sources of influence include events like weddings, parties and catering as a service.  Catering service providers have been trained in the English way of preparing meals, incorporating exotic vegetables. Very few indigenous vegetables and fruits are finding their way into the catering curricular, thus spreading their nutritional benefits.

 

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

Who really sets prices in the open market?

No matter how many times this question is answered, it continues to be asked again and again.  One of the reasons is that the answer may be correct but unbelievable. As in all other markets, rules of supply and demand influence pricing of agricultural commodities in open markets that are powerful ecosystems in developing countries.  In fact the major determinant of price is supply with demand only responding to supply. In big urban food markets like Mbare in Harare, when the market opens at 5am in the morning, it takes a few minutes for sellers and buyers to see that today there are more tomatoes than yesterday.

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The farmer or trader whose supply coincides with a shortage starts setting the calling price based on the previous day’s price. Another sign of a shortage is the concentration of many buyers around one consignment or heap of tomatoes or potato and this also influencing the price. Some of the buyers pull away from the crowd and approach the seller independently, offering prices. Through a silent auctioning mechanism by buyers and sellers, the day’s prices are quickly agreed upon and trading gets underway.

From the calling price to the actual final price

In all open mass markets across Africa, there is a distinction between the calling price and the final price. The calling price is what the farmer, trader or seller expects to get while the final price is what the commodity finally fetches. In the marketing process buyers resort to several negotiation dynamics like referring to yesterday’s price trends. They can begin negotiations by saying, “yesterday’s prices were lower for the same quality, why are you demanding a higher price today? Your quality is also lower than yesterday and your crates are not full.”

There is also an element of ganging up among buyers. For instance if a new buyer comes along and finds other buyers standing alongside the commodity but not buying, the new buyer gangs up with those standing in order to push the final price down. This ganging up ends up re-setting the price. Another name for this practice is demand response to supply.  While some buyers just stand near the commodity, others buy a few commodities in protest. In addition to complaining about many things related to the commodity, some buyers use comparisons.  They can say, “This same quality of commodity is going for a lower price in the other market and supermarkets.” Some of the buyers go to an extent of verbally abusing the commodity owner or seller. “You are better off taking my offers and going home early than wait for prices to rise when your commodities at the farm have no one attending them.”

Farmers and sellers use the same technique

On the flip side, farmers and sellers also use the same tactics when they find the market in short supply.  The farmer or seller observes the way buyers stampede for commodities and tap into such levels of desperation by buyers to pretend that s/he does not want to sell. As a result buyers bid and increase their offers.  Ultimately this is also how actual prices are determined and set.  This process can be complete within a minute when a commodity is in short supply but can stretch for 30 minutes to an hour if there is a glut. Loaders, off-loaders and those who carry commodities to waiting trucks also respond to the price of the commodity such that if the price increases they also increase their costs correspondingly.

Additional tactics used by buyers on farmers

Even if they may have struck relationships with farmers, buyers keep a bag of tricks. They send part payment and packaging to the farmer so that the farmer starts harvesting butternuts or other perishables. The buyer makes a point of arriving to collect the consignment with a truck when the farmer is packaging or has already finished packaging. At that point the buyer opens the conversation by undermining the quality of the commodity (“Aaah why is this commodity different from the last one?  You have to lower the price for me this time.”)  After a few uncomfortable exchanges, the buyer ends up getting the commodity at a price he determines.  He knows that the farmer cannot start looking for another new buyer when the perishable commodity is already harvested and packaged.

Need for regulations and policy interventions

Dynamics and processes mentioned above show the extent to which linking farmers to the market is not enough unless the entire processes and hidden behavioral economics tricks are fully understood. Ideally farmers should know distances from where they are farming to the market and the cost of moving commodities to the market. They should also strive to be aware of the margin earned by traders from each commodity and consignment. A pricing index and farmers’ diary comprising information related to distances to the nearest markets as well as all critical cost elements should be developed especially for smallholders who often struggle to find usable market information beyond just price.

Circumstances under which price information is critical for farmers include:

  • When a buyer shows up on-farm and the farmer needs to make a decision to sell at the right price.
  • When the farmer has not done his/her costing and wants to use the market price as a guide. This is very common among many farmers.
  • When the farmer wants to sell locally and has to compare with prices elsewhere.
  • When the farmer wants to conduct barter exchange between different commodities. The farmer has to know the monetary value of the two different commodities being bartered.

A major challenge in most developing countries is that it is difficult to regulate the production and supply of rain-fed agricultural commodities. Regulating production and supply is easy with irrigated production. You cannot tell farmers to grow fewer groundnuts or tubers which may be the only ideal commodities in particular areas and farming seasons. One can regulate the production of cabbages, tomatoes and potatoes whose production can be controlled to some extent in response to the market. It does not make sense for government to set the same prices for commodities whose yields can be very low in some areas due to rainfall patterns, soil types and other factors.

 

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

How capital determines the structure of agriculture and food systems in Africa

How capital determines the structure of agriculture and food systems in Africa

Although finance will not solve all challenges facing developing countries, the structure of African agriculture is largely shaped by the way capital flows into this fundamental sector. In Zimbabwe, for instance, more than 55% of the entire capital devoted to agriculture goes to tobacco with all other commodities competing for the remainder. That situation is not by chance. High tobacco production is directly linked to financing mechanisms. Contractors release money to individual farmers without considering collateral issues because the finance is secured by the crop itself.

The power of structured markets

Tobacco financing mechanisms are also secured by the way the market is structured.  Side marketing is minimal because tobacco is linked to a grower’s number. Before the planting season each farmer submits estimated production statistics and expected yields. When the marketing season begins, a farmer who delivers more tobacco than initially estimated will have to convince the Tobacco Industry and Marketing Board (TIMB) that all the tobacco is from his farm.  Loan repayment is also guaranteed through an efficient stop order system managed by the TIMB. This is how and why tobacco draws much of the agricultural funding from banks. Viability and profitability to the small scale producer is assured.

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What about other commodities?

Other commodities including indigenous foods do not attract much capital because profitability and loan repayment is not assured due the way they are marketed and where they are marketed. Some of the commodities like maize and wheat are government controlled in ways that standardize cost structures as if farmers in different farming areas and rainfall regions incur the same costs. Farmers in Masvingo and Mhangura have different rainfall patterns but they receive the same payment ($726/ metric ton from the Grain Marketing Board (GMB).

Some of the crops like soya bean and sugar bean are contracted by specific private buyers who tend to dictate prices instead of allowing farmers to negotiate prices in correlation with costs of production in different production zones. This compromises viability. In additional, a big proportion of tubers, pulses and grains are sold through open markets where forces of supply and demand determine prices in ways that are not based on costs of production in different areas.  If sugar bean, onion, groundnut or tomato supply increases, prices drop drastically. The same happens if there are no takers. All these dynamics do not take into account cost structures.

Other commodities depend on big traders whose take up depend on uncontrolled markets and can stop taking in the event of gluts. Another way in which capital flow is affected by lack of clearly outlined markets is where commodities like sugar bean are mostly bought by commodity brokers who cannot be considered a market since some of them either stop buying when their orders are satisfied or have no permanent presence in the market. Consequently capital flow into commodities that pass through commodity brokers is low as financiers do not have guarantees of repayment.

As a result of all these issues, banks are crowding their financing in tobacco at the expense of other commodities which have more important economic, health and nutritional as well as food security significance. The capital market does not think subsistence crops have a definite market. To fill some of these gaps, there is an increase in financial arrangements involving institutional borrowers like processing companies who are expected to hedge risks as off-takers.

Dangers of concentrating finance in one commodity

Besides limiting opportunities, pouring all funding into one agricultural commodity is at odds with intentions by the financial sector to create and support long-term social, economic and ecological well-being. Unless properly deployed, financial inclusion overlooks economic injustice resulting from all banks financing tobacco as if the whole country is suitable for producing the crop. Environmentally-conscious financing should explore new ways of investing in agriculture and rural development without perpetuating monoculture, resource extraction and inequity. At the moment, very few financial institutions in Africa see a clear link between their financial modelling, climate change and economic justice.

 The place of literacy in cultivating a new sense of wealth creation

Low financial literacy levels in most agricultural and rural communities also prevents capital flows into marginal areas and commodities. Agriculture is considered a profession for people who have failed to do sophisticated things in life. Most farmers are not able to prepare a project proposal or complete a loan application form.  As a result, banks are consistently funding the same people. This is worsened by a tendency by development financiers and policy makers to insist on rural development and agricultural financing passing through banks.

Besides the fact that banks are located in cities, bankers are not good at identifying opportunities but identifying risks. Most banks will get interested in you when you have already made your money not when you want to use them to create wealth from scratch. Innovation should see more cases where finance goes straight to the grassroots without passing through banks. Meanwhile, what policy makers and development agencies may think is a financial problem could be about a primitive sense of wealth creation. That is why soft assets like knowledge and skills are increasingly being considered part of development support.

 

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