Joint learning with private companies, publicly funded agencies and farmer organisations in Arusha

Joint learning with private companies, publicly funded agencies and farmer organisations in Arusha

19/11/2018

Are we romanticizing the economic potential of smallholder farmers? Does working on the inclusion of smallholder farmers in food chains increase the dominance of big business? Can NGOs be honest brokers to promote inclusiveness, or are they captives of big business?

These were the guiding questions in an exchange between Belgian funded NGOs, together with farmer organisations, researchers, national commodity associations and local governmental agencies in Arusha area, northern Tanzania.

Over the course of two days the participants visited farmer organisations and processors, examined successes and challenges of various business development approaches and models and explored areas of collaboration particularly between Belgian NGOs and their strategic partners in business development.

In this article we take you along on their trip and share the main insights…

Great African Food Company: the challenges of forward contracts

The first stop was Great African Food Company (GAFCo), a social impact business, operating commercial hubs around Tanzania which enables farmers to access essential services, such as seeds, mechanised equipment and finance that enables them to produce more at a lower cost leading to increasing the incomes of thousands of families.

GAFCo, offers forward contracts, meaning that farmers are assured to sell their products to a buyer at a set price at a future point in time. The contract enables GAFCo to provide bundled services (inputs, extension services, financing, crop insurance and mobile wallet services to monitor loan balance and for accessing profits deposited in a savings account) to the farmer.

Despite a contract being in place and a focus on export crops which means few competitors, there is still a significant problem with GAFCo contracted farmers selling to other buyers, sometimes reaching up to 40% of farmer production within an operational area. GAFCo believe that the primary cause is the urgent, unforeseen emergencies that farmers face (e.g. hospital bills/ school fees, etc.) which cause them to sell to local traders. There is also a significant lack of trust by farmers of traders/off-takers which means that a contract is not considered a binding document.

The lessons learned over the last 4 seasons working with smallholder farmers are therefore that they were too optimistic about their business model and most businesses cannot quickly incorporate large numbers of smallholder farmers without taking on very high risks. During the event, there was also a reflection about the way in which farmer behavior is affected by different NGO approaches……

“It is much easier to establish a successful supply chain in areas of the country where NGOs have limited presence – the dependency syndrome is a real challenge for business once it has been established.”

UWAMALE: attracting investments led to significant benefits to its members

UWAMALE, a farmer cooperative in Lekitatu, near Arusha, based around 600 hectares of irrigated land planted with paddy rice, maize, and beans, plus fruit and vegetables, was the second field visit of the day. It was claimed in a Farm Radio article that this farmer-driven irrigation project is one of the most successful in Tanzania as it enabled farmers to triple their harvests to six tonnes of rice per hectare twice a year. As a result, UWAMALE has benefited from over US$1m investment in a store, drying yard and machinery. The challenge for UWAMALE is how to harness this investment and enable it to deliver significant benefits to its members.

Rikolto is working with UWAMALE and KATRIN (the Regional Centre of Excellence for Rice Research) to improve the quality of production and processing that will enable UWAMALE to deliver significant benefits to its members by accessing better markets for their rice.

MUVIKIHO: the advantages of owning a Global Gap certificate as a farmers' organisation

The second learning journey brought the participants to MUVIKIHO, an apex farmer’s association dealing with horticultural produce with an office located in Usa River, Meru district, Arusha region. Today, MUVIKIHO has a membership of 22 groups representing over 400 smallholder farmers. Their main aim is to strengthen the power of their member farmers in the market by providing a centralized focal point and coordinating collective marketing. The main crops produced by the primary groups are green beans and peas for export.

According to its Chairman, Jeremiah Ayo, an important game changer was when MUVIKIHO obtained its own independent Global GAP certificate in August 2016. Before that time, they sold exclusively to the export company which sponsored their Global GAP certificate. The company, as the owner of the certificate, dictated all the terms – price, volumes, schedules. Now they have their own independent certificate, meaning they are not tied to one buyer any more who had monopoly over their business. MUVIKHO can work with multiple exporters and they choose the one that offers the best prices and conditions. Jeremiah noted that many other cooperatives had come to learn from their approach such as those from Manyara and Zanzibar. The impact has been clear in terms of not having to worry about basic needs, such as putting food on the table or paying for school fees, and they are looking forward to their children who have returned from University to take the business on.

However, success requires continued hard work and Jeremiah highlighted some of the challenges that they must face in the next year:

  • Making sure that the farmers continue to trust the management of MUVIKIHO, that no fraud occurs.

  • There is less demand for vegetables in both export and local markets, because the consumers’ purchasing power in those countries has declined and they therefore tend to stick to staple foods. There has also been a reduction in the number of exporters which narrows the competition down.

  • The exporters also continue to “play games”: they claim that the vegetables do not meet quality standards, and “negotiate” a price products in a lower quality scale. Or they use fraudulent weighing scales to “cheat” farmers.
    GlobalGAP certification companies are based in Kenya. To pay the transport and other fees for the controllers remains very expensive

  • If Muvikiho wants to obtain a loan from a local bank to have enough working capital to buy farmers’ vegetables, or for investments, the interest rates remain very high, up to xx percent/month.

  • Tax policy which appears to penalize the MUVIKIHO set up, i.e. double charging of tax for the same transaction. The farmer groups in the villages have to pay when selling their product to MUVIKIHO, and MUVIKIHO a second time.

They would like to see the business continue to expand, partly through the Arusha Safe Food Initiative where they may move to packing and selling their crops to the local market.

Rikolto and the Tanzania Horticulture Association (TAHA) has been working with MUVIKIHO for 4 years and this business model is now widely recognized as a successful approach. Rikolto and TAHA have now joined forces with TRIAS and World Vegetable Centre to work on a joint horticulture program which aims to replicate the MUVIKIHO model and also pilot new approaches for supporting farmer-entrepreneurs.

Meat King Distributors LTD: towards better collaboration with smallholder farmers and NGOs

Another stop on this second learning journey was made at the meat processing and packaging facility of Meat King Distributors Ltd, the Meat King Group has operated butchery and deli shop in Arusha for 26 years and opened a new meat processing and packaging plant (the largest in Tanzania) in 2017. In its first year of operation the plant utilized merely 20% of its processing capacity due to lack of cash flow and shortage on raw materials. This meant that only 180,000kg of meat was purchased from 755 local farmers amounting to roughly Tsh 1,200,000,000 in revenue for those farmers. Meat King plans to expand to full capacity within the next 3 to 5 years but will need to overcome a number of constraints facing the Tanzania meat industry including lack of credit opportunities, multiple taxes, unskilled labour, limited amount of commercial farmers – implying low quality meat, variable weather, disease outbreaks and poor infrastructure related to transport, water and electricity. For a private company, those challenges are often too much to try to contain by themselves and therefore joint action with NGOs should be undertaken in order to contribute to better collaboration with smallholder farmers, instead of having to rely on middlemen traders.

“NGOs should focus on supporting farmers to have basic business skills and support to enable them to understand and meet government regulations.”,

Lesley de Kock. Meat King Managing Director

Need for strong partnerships

It is clear that in order to really understand the opportunities and challenges within a market then there must be dialogue and action from many partners: private sector, farmer organisations, Government, NGOs, etc. The Regional Director from Rikolto in East Africa, Mark Blackett, concluded this 2 day event by encouraging stronger partnerships: “We must continue these discussions and take action beyond this event. We can see that the private sector wants collaboration and we must engage constructively and creatively to find a way forward that enables smallholders to earn a decent living from agriculture”

We can see that the private sector wants collaboration and we must engage constructively and creatively to find a way forward that enables smallholders to earn a decent living from agriculture

Mark Blackett Regional Director of Rikolto in East Africa