using ict to integrate smallholder farmers into agricultural value chains: the case of drumnet in...
TRANSCRIPT
Using ICT to integrate smallholder farmers into agricultural
value chains: The case of DrumNet in Kenya
Julius J. Okello, Edith Ofwona-Adera and Oliver L.E Mbatia
Paper presented at IAAE eARN Africa Symposium, Beijing, August 19, 2009
Julius J. Okello, Edith Ofwona-Adera and Oliver L.E Mbatia
Paper presented at IAAE eARN Africa Symposium, Beijing, August 19, 2009
University of NairobiUniversity of Nairobi
Smallholders and market linkage
Smallholder farmers continue to experience difficulties being linked to markets in Africa
Most of them face poorly functioning input markets/failed market for essential inputs, e.g., Credit (& certified seeds) InformationTechnical advice
Smallholder farmers and market linkage contd…
Small farmers are also not able to integrate into better paying output markets
Output markets fail for such farmers because they are: Widely scattered hence high assembly costs Many and poorly organized Tend to trade in small volumes
These factors make it costly to do business with small farmers. Worsened by lack of market information
Small farmers’ market place
Typical volumes traded by most smallholder farmers in Africa
What’s the point?
Input markets fail for smallholder farmers Output markets also fail. And are:
Fragmented Offer poor prices Are thin (only handles small volumes) Relational transactions – personal exchange
Hence smallholders are poorly linked to both input and output market
Poor market linkage contributing to the low-equilibrium poverty trap low investment, low harvests, low marketable surplus, ….
The DrumNet Intervention
The DrumNet intervention aimed at resolving the constraints small farmers face by:
Linking them to input markets (provision of credit)
Linking them to ready and better paying output markets (includes transportation)
Technical advice (information)
Players in the value chain are linked through a mobile phone-based platform
Provides a high-demand set of business support services to about 2000 resource-poor farmers in rural Kenya.
Targets sunflower producers in western Kenya (see location).
Three sets of business support services are provided — marketing, finance, and information as an integrated package.
Key actors in the sunflower value chain include:– farmer groups, transaction agents, produce buyers, input suppliers, financial organizations and agricultural extension workers - all are interconnected using ICTs.
This presentation looks at the effects/impact of the DrumNet intervention in smallholder sunflower production in Kenya
Overview of the DRUMNET intervention
Before DrumNetSource: baseline research
Value Chain Before DrumNet
Small Plot Farmers Farmgate Brokers Local Brokers Central Brokers
Processors
Exporters
Large Retailers
Market & Other FeesTransporter
Large Institutions
65%
9% 3%
23%
Finance
BUYER
Bank
Stockist
Farmer Groups
The model creates efficiencies and allows participants to enter markets
Banks shielded from complexity of managing large number of farm input loans
Repayment risks reduced with connection to produce payments
Buyers access predictable supplies of produce without significant field mobilization
Disintermediation of traditional brokers, resellers, and traders
Farmer Input Suppliers alerted to upcoming Farmer demand for products
Full transparency and market data for all participants
Farmers grow under structured contracts with Buyers
Transaction agents/group leaders (use cell phones within the value chain)
All financial transaction occur on cashless basis
DrumNet Flow
Partnerships Buyer Farmer Intermediary
Organizations (FIOs) Farmer Groups (FGs) Banks Agro Suppliers
MembershipFGs become DrumNet
members Fill Membership form Pay DrumNet
Membership fee
TrainingFGs get trained on DrumNet model Crop Agronomy
System Input• Partner & FG data get
input in the system• SMS generated by the
system acknowledging receipt of fee
E-Token: 382764Seed:10kgDAP:500kg
System E-Token • System sends E-token to FGs
to pick inputs from agro-dealers
FGs pick inputs from Stockist• Stockist uses DrumNet
procedures/tools• Stockist gets paid cash or by
Bank transfer against FGs loans
PlantingFGs plants & takes care of their plots
based of the Crop Agronomy training received
DrumNet Flow
Field Audit• Pre-scheduled messages to
FGs from DrumNet system
Harvest Projections• Buyer gets projections on
expected yields
Produce Collection• Produce aggregated from FGs
and collected at DrumNet Collection Points
Buyer Receives produce• Buyer receives produce,
weighs and grades• Buyer makes payment to
DrumNet Lockbox
Deductions & Payment• Deduct Principal & Interest• Deduct DrumNet Fees• Net payments transferred to
FG bank accounts
Before DrumNet
Small Plot Farmers
Processors
Exporters
Large Retailers
Market & Other Fees
Transporter
Large Institutions
86%
5%
9%
Comparison of the two value chains…..Before & …After
Finance
Small Plot Farmers Farmgate Brokers Local Brokers Central Brokers
Processors
Exporters
Large Retailers
Market & Other FeesTransporter
Large Institutions
65%
9% 3%
23%
Finance
After DrumNet
Other benefits of DrumNet intervention: household food security
0 10 20 30 40 50
Non participating
Participating
How much food did you borrow? (kg)How much food did you borrow? (kg)
0 5 10 15 20 25
Kg
Non participating
Participating
How much food did you donate? (kg)How much food did you donate? (kg)
Other benefits of DrumNet intervention: income and medicare
0
10000
20000
30000
40000
50000
net income non crop income crop income
Kshs
Non participating
Participating
0
10
20
30
40
50
60
Non participating Participating
maintained expenese as before
Reduced medical expenses
Income (Kshs)Income (Kshs) Access to medicare (% of farmers)Access to medicare (% of farmers)
Systems approach:
Linkages to agricultural value chain actors not previously accessible to farmers
Use of mobile phones for business as an emerging area (Lessons of Experience)
Influence on policy & institutional practices:
Lessons from DrumNet have informed a Ministry of Agriculture program - Kilimo Biashara - in partnership with Equity Bank – IFAD –AGRA.
Equity bank has expanded its financial products to include lending to rural farmers
More BenefitsMore Benefits
Rate of farmer participation still low and reaching scale Rate of farmer participation still low and reaching scale elusiveelusive
Tonnage and yield per acre below MOA recommended Tonnage and yield per acre below MOA recommended levelslevels
Sustainability- Need for further costs reduction across the Sustainability- Need for further costs reduction across the supply chain (DrumNet is migratory due to strategic default supply chain (DrumNet is migratory due to strategic default by farmers)by farmers)
Adoption of SMS technology still low with Farmer Group Adoption of SMS technology still low with Farmer Group Leaders (30% adoption)Leaders (30% adoption)
Some Challenges Some Challenges
Challenges contd..
Side selling and diversion of inputs by Side selling and diversion of inputs by FarmersFarmers
Strategic default – farmers borrow with intention of not paying back Fuelled by poor coordination and monitoring of
farmers Reliance on rain-fed agriculture – easy for farmers Reliance on rain-fed agriculture – easy for farmers
to blame weather for failure to payto blame weather for failure to pay
Despite the above challenges , some Despite the above challenges , some encouraging outcomes have been realizedencouraging outcomes have been realized
Products & Services facilitation
MarketMarket Finance Information
Re-defining the ICT functionalitiesOffer bundled services to DrumNet partners
Payment Processing
CashAdvance
FarmingTechniques
WebHosting
Savings Product
TransactionBrokering
TransportationCoordination
Pricing Farm InputBrokering
ProductAggregation
MarketingGroup Support
Farm Input Credit
Crop Insurance Credit Ratings
Financial Planning
FarmInputs
Newsletter MarketReports
Communication
Transportation
Advertising
The Future - Built On IDRC’s Initial Support
Conclusion
Linking smallholder farmers in the agricultural value chain requires an integrated intervention that fosters linkage with Input providers Buyers Other services providers
Reducing the length of the value chain and integrating ICTs facilitates this linkage.
It also has other benefits Household food security Household income
However there are challenges that require careful monitoring of input use and well coordinated produce pickup.
Project areaProject area