Transcript Slide 1

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
University 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)
 Information
 Technical 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 lowequilibrium 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
Overview of the DRUMNET intervention

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
Value Chain Before DrumNet
Before DrumNet
Source: baseline research
Finance
Transporter
65%
Small Plot Farmers
Processors
3%
9%
Market & Other Fees
Exporters
23%
Farmgate Brokers
Local Brokers
Central Brokers
Large Retailers
Large Institutions
The model creates efficiencies and allows participants to enter markets
Stockist
 Farmer Input Suppliers
alerted to upcoming Farmer
demand for products
 Full transparency and market
BUYER
 Buyers access predictable
supplies of produce without
significant field mobilization
 Disintermediation of traditional
brokers, resellers, and traders
data for all participants
Farmer Groups

Farmers grow under structured contracts
with Buyers

Transaction agents/group leaders (use cell
phones within the value chain)

All financial transaction occur on cashless
Bank
 Banks shielded from complexity of
managing large number of farm input
loans
 Repayment risks reduced with connection
to produce payments
DrumNet Flow
Partnerships
 Buyer
 Farmer Intermediary
Organizations (FIOs)
 Farmer Groups (FGs)
 Banks
 Agro Suppliers
Membership
FGs become DrumNet
members
 Fill Membership form
 Pay DrumNet
Membership fee
Training
FGs get trained on
 DrumNet model
 Crop Agronomy
Planting
FGs plants & takes care of their plots
based of the Crop Agronomy
training received
System Input
• Partner & FG data get
input in the system
• SMS generated by the
system acknowledging
receipt of fee
E-Token: 382764
Seed:10kg
DAP:500kg
System E-Token
• System sends E-token to FGs
to pick inputs from agrodealers
FGs pick inputs from Stockist
• Stockist uses DrumNet
procedures/tools
• Stockist gets paid cash or by
Bank transfer against FGs
loans
DrumNet Flow
Harvest Projections
• Buyer gets projections on
expected yields
Field Audit
• Pre-scheduled messages to
FGs from DrumNet system
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
Comparison of the two value chains…..Before & …After
Finance
Before DrumNet
Transporter
65%
Small Plot Farmers
Processors
3%
9%
Market & Other Fees
Exporters
23%
Farmgate Brokers
Local Brokers
Central Brokers
Large Retailers
Large Institutions
Finance
After DrumNet
Processors
9%
Transporter
86%
Small Plot Farmers
Exporters
Market & Other Fees
5%
Large Retailers
Large Institutions
Other benefits of DrumNet intervention:
household food security
How much food did you borrow? (kg)
How much food did you donate? (kg)
Participating
Participating
Non participating
0
0
10
20
30
40
50
5
10
15
Kg
Non participating
20
25
Other benefits of DrumNet intervention:
income and medicare
Income (Kshs)
Access to medicare (% of farmers)
50000
60
50
40000
Kshs
40
30000
Non participating
maintained expenese as before
30
Reduced medical expenses
Participating
20000
20
10
10000
0
0
Non participating
net income
non crop income
crop income
Participating
More Benefits
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
Some Challenges
 Rate of farmer participation still low and reaching scale
elusive
 Tonnage and yield per acre below MOA recommended
levels
 Sustainability- Need for further costs reduction across the
supply chain (DrumNet is migratory due to strategic default
by farmers)
 Adoption of SMS technology still low with Farmer Group
Leaders (30% adoption)
Challenges contd..


Side selling and diversion of inputs by
Farmers
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
to blame weather for failure to pay

Despite the above challenges , some
encouraging outcomes have been realized
The Future - Built On IDRC’s Initial Support
Re-defining the ICT functionalities
Offer bundled services to DrumNet partners
Products &
Services facilitation
Market
Transaction
Brokering
Transportation
Coordination
Pricing
Product
Aggregation
Finance
Information
Payment
Processing
Savings
Product
Farm Input
Brokering
Cash
Advance
Farm Input
Credit
Marketing
Group Support
Crop Insurance
Credit
Ratings
Farming
Techniques
Web
Hosting
Advertising
Financial
Planning
Farm
Inputs
Transportation
Newsletter
Market Communication
Reports
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 area