Beste Collega's
Hierbij stuur ik jullie de pdf versie van het rapport dat ik geschreven heb over het gebruik van indicatoren door DREO partners om voedselzekerheid te monitoren. Ik wil jullie tevens bij deze nogmaals bedanken voor jullie input en medewerking.
Ik vond het leuk om dit onderzoek uit te voeren en hoop dat de resultaten en aanbevelingen bruikbaar zullen zijn. Voor eventuele verdere opmerkingen, suggesties of commentaar, ben ik bereikbaar op mrijerse@hotmail.com.
Met vriendelijke groet,
Marja Rijerse
Junior Policy AdvisorDepartment Research & Development ICCO
Friday, December 14, 2007
Wednesday, December 12, 2007
Case study: Savanna Farmers Marketing Company Ltd
Introduction
In 2004, ACDEP, a network of 20 agricultural development stations in Northern Ghana, launched the Farmers Agricultural Production and Marketing (FAMAR) Project. This project aims at the development of supply chains from small-scale farmers in Northern Ghana to agro-processors inside or outside Ghana. As part of the project, Savanna Farmers Marketing Company (SFMC) was established. The other part of the project is to develop three layers of farmer based organisations (FBOs) that will become shareholders in SFMC in the future. SFMC is now in its third season. The company is successfully marketing sorghum, groundnuts, soybean and sheanuts for over 5,000 farmers, selling to customers in Ghana. Development of primary (community-level) and secondary (district-level) FBOs is in progress, set-up of tertiary (regional) level cooperatives is yet to start.
In 2004, ACDEP, a network of 20 agricultural development stations in Northern Ghana, launched the Farmers Agricultural Production and Marketing (FAMAR) Project. This project aims at the development of supply chains from small-scale farmers in Northern Ghana to agro-processors inside or outside Ghana. As part of the project, Savanna Farmers Marketing Company (SFMC) was established. The other part of the project is to develop three layers of farmer based organisations (FBOs) that will become shareholders in SFMC in the future. SFMC is now in its third season. The company is successfully marketing sorghum, groundnuts, soybean and sheanuts for over 5,000 farmers, selling to customers in Ghana. Development of primary (community-level) and secondary (district-level) FBOs is in progress, set-up of tertiary (regional) level cooperatives is yet to start.
The project model
In the value chain design, a deliberate choice was made to set-up a commercial company for the marketing of the farmers’ produce separate from the FBO. This is different from the traditional cooperative model where farmer cooperatives are expected to perform the marketing function themselves. The advantage of this split is that the marketing is done by professionals and that the long term interest of the marketing function is balanced against the short term interest of the farmers.
In the value chain design, a deliberate choice was made to set-up a commercial company for the marketing of the farmers’ produce separate from the FBO. This is different from the traditional cooperative model where farmer cooperatives are expected to perform the marketing function themselves. The advantage of this split is that the marketing is done by professionals and that the long term interest of the marketing function is balanced against the short term interest of the farmers.
Groundnut farmerThe role of the NGO ACDEP was to provide training and technical assistance in order to develop the farmers organisations. It was a deliberate choice to not make the NGO a chain actor, because of the risks of lack of business focus and lack of sustainability. Separating the business role from the NGO role worked very well. They each have different interests and this creates healthy tensions between the NGO goal (poverty reduction) and the business goal (volume and profitability). There is however a concern that the business will focus too much on its business objectives, thereby jeopardizing the equally important social goals. Governance of the company is therefore a challenge at this moment.
Sorghum farmerAn important lesson is that farmers are far more receptive to capacity building (e.g. agronomic extension and training in group development) when they know there is a ready and attractive market for their produce. We call this the push-pull model. The company pulls the farmers into the chain by providing a secure market. The NGO pushes the farmers in the right direction by assisting them with capacity building.
Development of SFMC
SFMC needed seed capital to start the business. It was not possible to get this capital from local sources and therefore ICCO decided to provide a loan to the NGO ACDEP to be used to buy the shares in the company, thereby providing the seed capital. This made ACDEP the shareholder, holding the shares in trust for the farmers. ACDEP appointed an independent Board of Directors. The ICCO business advisor was appointed Managing Director.
SFMC needed seed capital to start the business. It was not possible to get this capital from local sources and therefore ICCO decided to provide a loan to the NGO ACDEP to be used to buy the shares in the company, thereby providing the seed capital. This made ACDEP the shareholder, holding the shares in trust for the farmers. ACDEP appointed an independent Board of Directors. The ICCO business advisor was appointed Managing Director.
Soybean farmerSavanna decided to start trading sorghum, soybean and groundnuts. In the third year sheanuts were added as a fourth product. The number of farmers in the first season was 3,000 growing to 5,000 in year 3. The farmers are organised in groups of between 10 and 20 members. Savanna signs formal supply contracts with these groups. As part of the contract, farmer groups have the possibility to access production credit, either directly from Savanna or through local banks.
Involvement of farmers
In 2004 the farmers were organized through the agricultural member stations of ACDEP. The start was not easy. At the start sensitization meetings were held, whereafter contracting meetings were held in which the leaders of the groups signed formal contracts with Savanna Farmers for supply of produce. The main enticement for the farmers to participate was initially the credit that was provided. But in the second season the farmers started to see the benefit of the marketing service. Gradually the most committed groups sustained (most groups that fell apart could not repay the credit or did not meet the supply demands), and in 2007 these groups were assessed against a set of criteria for group development. The best performing groups are coached in order to help them to become certified as a co-operative under Ghana co-operative law.
With the high illiteracy level of farmers (over 90 %) and the lack of tradition to form groups as challenge, the step to form secondary groups of farmers at station level worked well. They represented the primary groups at local level. Having capable leaders in place had a very positive impact on the performance of the primary groups. Another key success factor was the huge investment of time in dialogue with farmers. This helped a lot in building trust and in getting feedback from the farmers. The next step in the process is that the farmers need to build and formalize their primary and secondary groups, so that they finally can become shareholders of SFMC. It is expected that the handover of the shares will take place within the next three years.
In 2004 the farmers were organized through the agricultural member stations of ACDEP. The start was not easy. At the start sensitization meetings were held, whereafter contracting meetings were held in which the leaders of the groups signed formal contracts with Savanna Farmers for supply of produce. The main enticement for the farmers to participate was initially the credit that was provided. But in the second season the farmers started to see the benefit of the marketing service. Gradually the most committed groups sustained (most groups that fell apart could not repay the credit or did not meet the supply demands), and in 2007 these groups were assessed against a set of criteria for group development. The best performing groups are coached in order to help them to become certified as a co-operative under Ghana co-operative law.
With the high illiteracy level of farmers (over 90 %) and the lack of tradition to form groups as challenge, the step to form secondary groups of farmers at station level worked well. They represented the primary groups at local level. Having capable leaders in place had a very positive impact on the performance of the primary groups. Another key success factor was the huge investment of time in dialogue with farmers. This helped a lot in building trust and in getting feedback from the farmers. The next step in the process is that the farmers need to build and formalize their primary and secondary groups, so that they finally can become shareholders of SFMC. It is expected that the handover of the shares will take place within the next three years.
Truckloading at warehouseThe credit caused a lot of groups to break down. We applied a group credit concept in which the group as a whole is responsible for repayment of the total credit taken. This meant that in some cases members of a group had to pay-off the debt of other groups members that failed to supply to our company. Our rule was (and is) that groups that don't pay off their credit are not given more credit in the next season. Many of the groups where this happened fell apart for this reason.
Pricing model
Savanna has many competitors. Especially for the groundnuts, the number of traders is high. It is a product with strong price fluctuations. Since contracts in Ghana do not have much value, it was very difficult for SFMC to guarantee the supplies of peanuts when SFMC’s price was lower than the price of traders. Therefore, in the first year there was a large number of farmers that did not obey the contracts and sold their product to traders.
After long discussions it was decided not to penalize these farmers immediately, but to withhold their loans in the second year. The ‘carrot – stick approach’ was introduced. When the loans were not repaid from the first year, these farmers were excluded from further credit. This penalty system worked out quite well. In the first year the repayment percentage of credits (through supply of produce) was 70 %, in the second year it was 85 %. This was done through a quite strict monitoring system. The farmers who violated the roles where immediately visited by a representative from SFMC, and with some of them they confiscated some assets of farmers.
Farmers decide who they sell to mostly on price. It is therefore important for SFMC to offer a price to farmers at least equal to the market price. But this is easier said then done when you operate in an intransparant volatile market and when you have a customer who wants the best price in the market as well.
SFMC started applying a fixed price model with both farmers and customers. In the first year the price was determined at the start of the planting season. This created difficulties when the market price exceeded the Savanna price and farmers started diverting. This made us decide in the second year to fix the price at the beginning of the harvest season. This allowed us to anticipate on price fluctuations. SFMC is also experimenting with a so called staircase price model. In this model, the season starts with a fixed price for farmers and for the customer. When the market price goes up and reached the fixed farmer price, SFMC renegotiates a higher fixed price with the customer and increases the fixed farmer price.
Savanna has many competitors. Especially for the groundnuts, the number of traders is high. It is a product with strong price fluctuations. Since contracts in Ghana do not have much value, it was very difficult for SFMC to guarantee the supplies of peanuts when SFMC’s price was lower than the price of traders. Therefore, in the first year there was a large number of farmers that did not obey the contracts and sold their product to traders.
After long discussions it was decided not to penalize these farmers immediately, but to withhold their loans in the second year. The ‘carrot – stick approach’ was introduced. When the loans were not repaid from the first year, these farmers were excluded from further credit. This penalty system worked out quite well. In the first year the repayment percentage of credits (through supply of produce) was 70 %, in the second year it was 85 %. This was done through a quite strict monitoring system. The farmers who violated the roles where immediately visited by a representative from SFMC, and with some of them they confiscated some assets of farmers.
Farmers decide who they sell to mostly on price. It is therefore important for SFMC to offer a price to farmers at least equal to the market price. But this is easier said then done when you operate in an intransparant volatile market and when you have a customer who wants the best price in the market as well.
SFMC started applying a fixed price model with both farmers and customers. In the first year the price was determined at the start of the planting season. This created difficulties when the market price exceeded the Savanna price and farmers started diverting. This made us decide in the second year to fix the price at the beginning of the harvest season. This allowed us to anticipate on price fluctuations. SFMC is also experimenting with a so called staircase price model. In this model, the season starts with a fixed price for farmers and for the customer. When the market price goes up and reached the fixed farmer price, SFMC renegotiates a higher fixed price with the customer and increases the fixed farmer price.
Farmers as shareholders in the company
The interests of SFMC are sometimes in line with those of the farmers, but sometimes they conflict, for instance when the farmer price is concerned. By making farmers shareholders in the company, their interest is safeguarded. The second reason for involving farmers in the company is to be able to pay them dividend in order to keep them in the value chain.
Farmers are not yet shareholders in the company. They first have to build and formalize their primary and secondary groups before this process can start. The shares are presently held in trust for the farmers by ACDEP. The conditions for hand-over of the shares to the farmer groups have been agreed between ICCO and ACDEP (because ICCO provided the funds to ACDEP for buying the shares). We expect that the handover will start within the next three years, but that it will take several years before all shares are handed over. This because farmer groups do not develop at the same speed.
In the mean time farmers do not have a formal say in the company, although they are consulted on important issues. ACDEP is looking for ways to get farmer representatives more involved in decision making, even before they become shareholders in the company.
The interests of SFMC are sometimes in line with those of the farmers, but sometimes they conflict, for instance when the farmer price is concerned. By making farmers shareholders in the company, their interest is safeguarded. The second reason for involving farmers in the company is to be able to pay them dividend in order to keep them in the value chain.
Farmers are not yet shareholders in the company. They first have to build and formalize their primary and secondary groups before this process can start. The shares are presently held in trust for the farmers by ACDEP. The conditions for hand-over of the shares to the farmer groups have been agreed between ICCO and ACDEP (because ICCO provided the funds to ACDEP for buying the shares). We expect that the handover will start within the next three years, but that it will take several years before all shares are handed over. This because farmer groups do not develop at the same speed.
In the mean time farmers do not have a formal say in the company, although they are consulted on important issues. ACDEP is looking for ways to get farmer representatives more involved in decision making, even before they become shareholders in the company.
This article is written by Ties Kroezen
e-mail. tieskroezen@yahoo.com
Business Advisor ICCO in Ghana from June 2004 - July 2007
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