Improving Livelihoods of Smallholder Farmer Communities through Innovative Post-Harvest Storage and an Inclusive Peer-To-Peer Micro-Warehouse and Grain Trading Platform
The Food Security team at Vestergaard S.A have designed an alternative business-based platform called ZeroFly® Chombo that specifically targets improving livelihoods of smallholder farmer communities. The platform provides an innovative affordable environmentally friendly technology for post-harvest storage of food commodities, to be used within a peer-to-peer micro-warehouse and grain trading platform.
Vestergaard is a family-owned Swiss-based global health company that operates according to a humanitarian entrepreneurship business model, devoting its entire innovative platform to producing breakthrough products and solutions for disadvantaged people, mostly in developing countries. The company’s intimate knowledge of markets and its network of strategically located warehouse facilities help program implementers distribute products affordably and efficiently. The Food Security portfolio, is an advanced, reduced-residue defense against insect pests for crop protection prior, during and post-harvest, promoting increased prosperity for farmers and food security for communities. The ZeroFly Chombo program is a rural, decentralized, community-based Peer-to-Peer micro-warehouse and trading platform for commodities. Chombo improves the livelihoods of smallholder communities through innovative post-harvest storage and price risk management. This raises smallholder farmers out of extreme poverty through better access to fair markets, management of price risks and disrupting the current food value chain. Vestergaard reaches approximately 100 million households a year with its PermaNet mosquito net distribution. Vestergaard has implemented initial steps to reach a high percentage of those net users who are farmers in order to educate them about the Chombo micro-warehousing and grain trading platform.
One of the key issues impacting global food security in developing countries is that most smallholders cannot afford to store large parts of their harvest and lack access to safe and affordable crop storage. Insects feeding on crops after the harvest multiply and destroy the economic and nutritive value of the crops within 2 – 4 months and becomes completely inedible after 6 – 9 months. Furthermore, insects increase molds growth and produce substances called aflatoxins, linked to the high rates of liver cancer and stunting observed in much of Sub-Saharan Africa. Smallholders find themselves in the post-harvest poverty trap. They are forced to sell most of their crops shortly after the harvest when prices are low to cover loans and expenses and are often not able to benefit from price increases in the months following main harvest season. Due to their inability to keep crops throughout the year they are forced to buy crops (back) in the lean season, when prices are high. This sell-low buy-high behavior traps smallholders in poverty.
Crop traders on the other hand aggregate food commodities from smallholders. Low production volumes, variable quality, a value chain lacking trust and credit facilities and poor transport infrastructure makes aggregation expensive. Aggregated crops are stored in warehouses and fumigated and treated with insecticides regularly to kill insect pests. Then crops are transported and sold back to the communities in the lean season again incurring high transport costs. This inefficient value chain drives up food prices in rural areas especially when hunger persists. Kenya is a typical example with 75 percent living in rural areas where agriculture employs 80 percent of the population and poverty rates are around 50 percent. Almost a quarter of the population suffers from chronic food insecurity, yet post-harvest losses destroy 12-30 percent of the country’s staples and cause an even higher economical loss. This is also evident in crop prices rising by an average of 50 percent in the lean season.
The ZeroFly® team at Vestergaard proposed and tested ZeroFly® Chombo, an innovative business model based around an app-based platform for food commodity trading between farmers and entrepreneurs, in Western Kenya in 2019. Internet coverage, smartphone penetration and mobile money are widely spread in Kenya allowing payments through the app. These are the essential elements of the platform because food commodity trade is highly profitable in Kenya, and the app shares profits between ZeroFly® Chombo agents and small holder farmers, and this requires automated payments from a trusted source.
Local peer-to-peer food commodity trading and safe storage through micro-warehouses allow value creation in smallholder communities, and ultimately turns post-harvest losses into profits. The process starts out when smallholders receive a purchase offer at current local market prices through the app or from the Chombo agent word of mouth. Upon acceptance the small holder farmers delivers the agreed crops, quality is confirmed, and the farmer gets paid through the Chombo app. The Chombo agent stores purchased grain in ZeroFly hermetic storage solution. The storage solution is traceable so the Chombo agent always knows from which smallholder farmer which product was purchased. Dependent on market price fluctuations the Chombo Agent later sells the grain, and the smallholder farmers receive an additional 10 percent of the profit the local micro-warehouse has generated by safely storing the crops in ZeroFly Hermetic Bags. This payment is received automatically through the apps payment gateway and is on top of the initial sales price paid to the smallholder farmer. Smallholders do not have to modify their behavior AND do not take on additional risk but are included in the value chain.
In many developing countries food storage is traditionally a women’s business involving tedious work, repeated application of chemicals or exposure to sun to reduce insect infestation. They are expected to be the main suppliers and users of the micro-warehouse system. Rural women entrepreneurs are given the opportunity to enter a lucrative food commodity trading market with minimal investments. They can become Chombo Agents and run their own micro-warehouse system and platform or they can simply buy state of the art hermetic storage systems from the Chombo Agent and do own on-farm storage in smaller quantities based on their available cashflow at harvest. Communities benefit from local value creation, resilience due to local food storage and chemical-free high-quality crops. Smallholder farmers can buy and try out on-farm hermetic storage from local Chombo micro-warehouses. Value is created in the community and profits are kept (and to some extend shared) in the community and not.
Once Chombo micro-warehousing is at scale, it will enable local aggregation of high quality food commodities to allow access to different and higher priced sales-channels to more lucrative outside markets.
With a footprint of thousands of rural micro-warehouses, a communication and payment channel to hundreds of thousands of famers through the app this data can be leveraged for other impactful business models. These include remote agricultural extension via the Chombo agent, input buying groups and/ or targeted retail of transformative agriculture.
The business model was tested in 2018/19 in Kakamega in Western Kenya with three Chombo micro-warehouses operated by three Vestergaard entrepreneurs. Maize was the dominant crop and was purchased by the Chombo Agents at a market price of € 162 /mt. It was sold back to the same community at € 252 in the lean season (+56 percent). Smallholder farmers buying from the micro-warehouse appreciated chemical-free, good quality crops. Small holder farmers selling to Chombo micro-warehouse received 10 percent of the profit generated as additional income from maize and the three ZeroFly entrepreneurs operating the micro-warehouses realized a 30 percent return on capital invested over a 4-5 months period.
The next stage, following the success in Western Kenya, will be to establish a scaling business model establishing 500 to 1,000 ZeroFly® micro-warehouses and to bring this to at least 2,000 micro-warehouses during the next three years.
The ZeroFly Chombo team has developed the following targets based on the Sustainable Development Goals (SDGs), and is looking for partners in order to realise these goals:
Reduction of post-harvest losses SDG 12.3: 11,000 to 27,000 mt of post-harvest losses prevented.
Market size: 0.6 – 1.6 m mt of post-harvest losses.
Increased incomes for smallholder farmers SDG 2.3: € 1.5 of increased income to smallholders with 20% profit share and a crop/ food commodity price increase of 50% (or 10% higher income for smallholders).
Jobs for entrepreneurs in rural communities SDG 8.3: € 5.6 m in annual EBIT for 2,000 rural entrepreneurs.
Food security improvements SDG 2, health improvements SDG 3, improved community resilience SDG 9.1: Food security will be improved, and health improvements include prevention of aflatoxin intake or intake of harmful chemicals used to kill insects.
Reduction of greenhouse gas emissions SDG 13:Agriculture is a large emitter and post-harvest losses necessitate higher production, transport of crops during aggregation and distribution is expensive and causes emissions, prevented by local micro-warehousing.
Vestergaard has partnered with the Post-Harvest Loss Innovation Lab since 2014 to test and scale ZeroFly Hermetic Bags. Learn more with this introductory video: