Stimulating a Reliable Market for Maize
In Kenya, maize markets are fragmented and volatile, especially for vulnerable smallholder farmers. Many farmers continue to trade directly with middlemen who often take advantage of them. Partnering with major commodity buyers is a win-win strategy to empower smallholder farmers to live with prosperity and dignity while driving inclusive trade and economic development. One exciting example of this type of collaboration is Global Communities’ partnership with Cargill in Kenya. Since November 2017, we have been working with Cargill to provide a stable, reliable market for 150 maize producer organizations in Nakuru, Trans Nzoia and Uasin Gishu counties in the Rift Valley region of Kenya. In return, Cargill will secure reliable suppliers to provide sufficient quantities of quality maize.
The partnership is supported by the U.S. Department of Agriculture (USDA), which has funded Global Communities’ Agribusiness Investments for Market Stimulation (AIMS) program since its inception in 2014. Cargill, a major commodity trader, purchases several thousand tons of grains, including maize, in Kenya per year.
In the past, Cargill has struggled to source sufficient volumes of maize in Kenya to meet the demand of its commercial customers. Cargill usually sources maize directly from maize traders who buy from farmers and resell to Cargill. They find that the quality is often poor and end up rejecting whole consignments. Likewise, smallholder maize farmers struggle to find markets that are reliable and can pay a good price within a reasonable time frame. With these challenges in mind, Global Communities and Cargill partnered to identify and link Cargill to suitable farmers’ groups that can supply good quality – and sufficient quantities – of grain.
In the 2017/2018 harvest season (Dec 2017 – Feb 2018), the partnership facilitated the sale of 6,200 bags (90 kg) of maize to Cargill. This volume came from the sale from just nine farmer organizations that were ready to sell at that time. Preparations are already underway to expand up to 150 groups for next harvest season, which begins in October 2018.
In an effort to scale up the volume, Global Communities has identified and profiled a total of 143 farmer organizations based on their production capacity and potential to be a reliable supplier to Cargill. During this process, a needs assessment was conducted to identify specific capacity building needs. Global Communities then hosted a series of engagement meetings to introduce the farmer organizations to Cargill. For most groups, this was their first time to meet and learn about Cargill. The forums were designed to share Cargill’s procurement requirements, buying processes and unique payment method which pays farmers within 48 hours. This is particularly attractive to farmers as most buyers take 90 or more days to make payments, hurting the ability of farmers to prepare for the next planting season and meet their regular household payments.
This facilitated engagement with Cargill is a key step in developing market linkages. Farmers get to interact directly with Cargill and understand Cargill’s standards and buying processes. Cargill’s participation at the engagement forums has led to higher credibility, trust and ultimately to higher sales.
To build the capacity of these groups to work together and to overcome key market obstacles, including access to finance, Global Communities provided targeted trainings to the farmer groups led by private sector Business Advisory Service Providers (BASPs). BASPs are a key part of the AIMS strategy of strengthening the entire agricultural market system. AIMS has identified and prequalified 43 BASPs to provide essential business services – such as business planning, financial management and aggregation – to a range of agricultural small and medium enterprises at an affordable price. “These trainings are an eye opener to us, especially on cash flow management. We have been losing a lot of resources due to ignorance and issues that we have been considering non-consequential,” says Samuel Njoroge, Coordinator CHICOFAR CBO, a farmer group in Nakuru County that was linked to Cargill earlier this year. The business plans are extremely important to the farmers as they are a prerequisite to access any type of formal financing or credit which can be used to grow and invest in their maize production business.
As with any new business relationship, earning trust is a slow process. Many farmer groups decided to start by selling relatively smaller quantities to Cargill, to test if its payment system functioned and if they really were reliable and trustworthy. After this first experience, many groups have seen that Cargill is a good faith partner and plan to sell more volume to it next season. Barnabas Kirwa, chairman of Moiben Farmers Marketing Federation in Uasin-Gishu County, was initially reluctant to the partnership. “If at all we would foretell the future of maize market this year, we would have engaged with Cargill from the onset of our introduction by Global Communities,” he said. “We would not be suffering losses experienced today. We shall plan accordingly for the coming season to supply to Cargill.”
We have learned that establishing good payment terms is a key step, but often more is needed to work with farmer organizations. Cargill is considering providing transport to groups that are able to aggregate sufficient quantities. This could be a big incentive to producer groups that struggle with the high cost of transport and loss of grain in transit. Access to data is also an issue. Although Cargill posts prices at their grain depots, this information does not always get to farmers, especially those who live far from the depots. Cargill is looking into how to disseminate price information daily via the cellular phone system.
Through this partnership with Cargill, we have learned that the capacity and cohesion of the selected farmer groups was not as high or as strong as expected. This came as a surprise since many of these groups had received considerable support from previous donor programs. Even when groups had a dedicated aggregation center, members still sold individually as they did not trust the group leadership to manage their commodity. These groups still need much help in establishing strong governance structures, rules and relationships that inspire confidence among members to aggregate their commodities.
We are encouraged and inspired by what we’ve seen so far in this partnership, are ready for a very productive and profitable maize harvest in 2018 and hope to expand this model into other crops.