A COMPARISON OF MODELS ENABLING SMALLHOLDER PRODUCERS OF STAPLE FOODS TO ACCESS COMMERCIAL MARKETS IN EAST AFRICA

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1 A COMPARISON OF MODELS ENABLING SMALLHOLDER PRODUCERS OF STAPLE FOODS TO ACCESS COMMERCIAL MARKETS IN EAST AFRICA May 2011 This publication was produced for review by the United States Agency for International Development. It was prepared by Chemonics International Inc.

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4 Acronyms AGMARK CGA COMPETE CVS EAC ECA FBOs FCI FTF Kshs MoSS MT or Mt NGO P4P RUDI Tshs SSMATI UNADA USAID WFP Agricultural Market Development Trust Cereal Growers Association Competitiveness and Trade Expansion Program Commercial Village Store East African Community East and Central Africa Farmer Based Organizations Farm Concern International Feed the Future Kenya Shillings Model Satellite Store Metric Ton Non Governmental Organization Purchase for Progress Rural Urban Development Initiative Tanzania Shillings Sustainable Smallholder Cross Border Trade Integration Uganda Agro-Input Dealers Association United States Agency for International Development World Food Programme iii

5 Contents Acronyms... iii Background... 1 The Four Grantees and their Models... 3 Grant Summary Chart... 3 Results matrix... 5 Case Study No 1: Cereal Grower s Association (CGA)... 6 Case Study No 2: Farm Concern International (FCI) Case Study No 3: Agricultural Market Development Trust (AGMARK) Case Study No 4: Rural Urban Development Initiative (RUDI) Reflection Annex Production flow analysis iv

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7 Background USAID s Competitiveness and Trade Expansion Program (COMPETE) is working to reduce poverty in East and Central Africa by supporting smallholder farmers to: reduce their post harvest handling losses, increase their bulking and aggregation of produce, develop innovative technologies for sharing information on the trade and availability of staple foods, improve access to financing, and increase their market access and trade across borders. To accomplish this task, USAID COMPETE has given grants and technical assistance to four different NGOs with four different agricultural models. Each model has its unique challenges and opportunities, and each model has met with varied success. What follows is a breakdown of each model and most importantly, lessons learned. The information in this document was gathered from grantee reports, field visits, and interviews with grantee management and beneficiaries. The data collected falls within the timeframe of the grant (see grant summary on page 5). The earliest grant started in September 2009 with Farm Concern International (FCI). Cereal Growers Association (CGA) followed shortly afterwards, then Rural Urban Development Initiative (RUDI) and finally, Agricultural Market Development Trust (AGMARK). Grants extend from one to two years. Grantees were chosen for a number of factors. Importantly, they were able to articulate a clear objective, that matched with COMPETE s own objectives of increasing regional trade and enhancing food security, and they demonstrated through past experience, organizational structure, and references, the capacity to fulfill their objectives. As mandated by USAID under the Global Health and Food Security Initiative GHFSI, our grantee models focused on smallholder farmers who needed help in accessing commercial markets and supplying for WFP P4P. To further the impact of this work, COMPETE chose grantees that worked with nascent farmer groups in vulnerable areas groups that had not been exposed to commercial markets. Strengthening in-country value chains is a critical first step to integrating regional value chains, ensuring food security and increasing regional trade. Because smallholder production and post-harvest efficiency are a critical piece of that value chain development process and because farmer based organizations (FBOs) across the region operate with varying degrees of success, COMPETE felt that an assessment of different models from across the region would provide unique insights into what is required to operate a successful FBO/aggregation program. Those insights could then be used to help strengthen existing FBOs and inform the development of new FBOs across the region. COMPETE s work with its FBO partners came at an opportune time as the World Food Programme was rolling out its Purchase for Progress (WFP P4P) program, which seeks to source commodities from smallholder farmers as part of a broader effort to integrate them into agricultural markets. It is also very much in line with Feed the Future s (FTF) goal of identifying available technologies and best practices that can be expanded from national to regional level. 1

8 Formal regional trade in agricultural commodities has been flat for many years and in some cases has actually shrunk. Part of the reason for this is that smallholder farmers are not a part of the formal marketing chain, preferring to trade informally when they see opportunities to enter the market, or, as is often the case, when they are forced to do so out of necessity. Other factors at work include: small volumes of production, weak farmer-based organizations, limited access to post-harvest handling technologies and/or facilities, information asymmetry across the value chain, varied, inconsistent, or arbitrary quality requirements, governmentimposed import/export bans, and prohibitive transport costs. As smallholders account for most of the production in Eastern Africa, this has a significant impact not only on cross-border trade but also, and perhaps more importantly, on the region s food security, as the bulk of production may be either lost to poor handling or may never reach the formal market. The four agricultural models approach these issues in several different ways. They focus on strengthening farmer-based organizations by promoting viable organizational models that can sustainably provide needed services such as training, storage, access to finance, and market links to smallholders. They also focus on institutionalizing harmonized regional grain standards through EAC training materials. Beyond the policy-level work required to develop and gazette the standards, grantees focus on driving adoption and use of the new standards across the entire value chain to ensure greater transparency and uniformity in buyer-seller transactions. Finally, the models focus on driving smallholder production into regional marketing chains by building or strengthening formal value-chain links between farmers/fbos and downstream value chain participants as well as regional marketing infrastructure such as larger warehousing facilities and commodities exchanges. 2

9 The Four Grantees and their Models Grant Summary Chart Grantee Farm Concern International (FCI) Grant Duration Sept. 14 th, 2009 to Sept. 13 th 2011 Area of Operation Kenya and Uganda Grant Amount Model $320,000 Commercial Village Stores concept (CVS) Number of Farmers Impacted 10,000 grain producing households in Meru, Kenya and 2,000 in Jinja, Uganda Cereal Growers Association (CGA) Rural Urban Development Initiative (RUDI) Agricultural Market Development Trust (AGMARK) Oct to Dec and March 1, 2011 to Feb. 29, 2012 Dec. 1 st 2009 to Nov. 30 th 2011 Jan. 11 th 2010 to May 31 st 2011 Kenya and Tanzania $248,000 $192,615 Model Satellite Stores (MoSS) Tanzania $447,000 Expansion of WRS program through village bulking, aggregation and value addition Kenya and Uganda $249,000 Output marketing Sustainable Smallholder Cross border trade integration(ssmati) 53 FBOs comprised of 1,578 members in Trans Mara, Kenya and 1 FBO umbrella group in Tanzania that has 135 subgroups comprised of 1,792 members 2,000 farmers in Kilombero district, 500 farmers in Iringa district and 700 farmers in Handeni district 25,000 smallholder farmers and 50 agrodealers in Kenya and Uganda 3

10 Partnership Fund Grantee Activities in East Africa UGANDA Te so Kase se Jinja /Ig ang a Mbar ara Mukon o Bun go ma Kap cho rwa Sia ya Siro nko Soroti South Im enti Th ar aka Tigania East Tigania W est Kab ale Trans Mara RWANDA BURUNDI TANZANIA Kon gwa Hand eni Ir ing a Kilo mbe ro Grantees AGMARK CGA FCI RUDI Northern Corridor Central Corridor Dar Corridor 4

11 Results Matrix The results matrix in the table below will be used to discuss the progress of each grantee and their respective model. The progress section will highlight the parameters in which the grantee did exceptionally well, i.e. received a high mark or full circle. 5

12 Case Study No 1: Cereal Grower s Association (CGA) CGA has been working with smallholder cereal farmers in the grain surplus areas of Kenya and Tanzania, specifically the Trans Mara region of Kenya and the Dodoma region of Tanzania, to build their capacity to engage in profitable farming. Though their farmers are in a very productive area, they have no access to appropriate storage facilities and they lack good market information. The combination of no storage and no market information leaves these farmers vulnerable to selling their surplus product to middlemen / informal traders who offer quick sales at very low prices. The general smallholder farmer trend is to sell locally, immediately and at the lowest prices. They may only keep 10% of their harvest for home consumption. To combat this trend, CGA implemented Model Satellite Stores (MoSS). MoSSs are intended to act as model centers for grain bulking, quality control and as hubs for market information. The MoSSs are supported by CGA trainings on best farming practices, organizational development, marketing/negotiation, and post harvest handling. The ideal end result of MoSSs is high quality grain, made possible through trainings and better equipment, which can be properly stored without fear of quality degradation. Proper storage alleviates the pressure on farmers to sell immediately and attracts buyers who are interested in better product. By aggregating, smallholders can sell larger volumes, which is critical for achieving high prices. Farmers can then use the newly available market information to choose a buyer that offers a price that makes farming profitable. Progress The MoSS model provides comprehensive services to farmer based organizations (FBOs) During the life of the grant, CGA has assisted in the formation of 54 FBOs. There are 53 FBOs in Kenya, comprised of 1,578 members and 1 FBO umbrella group in Tanzania that has 135 subgroups comprised of 1,792 members, the majority of whom are women. The Tanzania umbrella group was adapted to fit the existing village organization in Tanzania, in which subgroups respond to one central village organization. In March, 2011, CGA added 10 new FBOs in Tanzania that would aggregate under 2 MoSSs. CGA FBOs benefit from a host of programs: leadership trainings, education on East African Community (EAC) maize standards, seminars on negotiation and gaining access to markets, demonstrations on input application and post harvest handling, and experiential field trips. The experiential field trips involve CGA sponsoring a group of farmers to travel to another high performing farmer group where they can discuss best practices and learn from their peers. On average, CGA farmer groups boast an increase in maize productivity from eight 90kg bags per acre to 25 bags per acre. This rise in productivity is a result of a collaborative effort between CGA, AGRA, and KMDP. The massive increases in yield contributes to farmer income and general food security, especially when these farmers have a safe place to 6

13 store their surplus and are able to use their new negotiation and market access skills to find a good buyer. CGA farmers, Mr. Jeremiah Mtagwa and Mrs Damalis Nuhu, from the Tanzania region stated CGA helped bring us together by mobilizing us, and training us in quality control, post harvest handling, storage and provided us with business skills. Before we had no control over quality or price, and just accepted whatever we could get at Kibaigwa market. Demonstrated significant returns to producers in terms of higher prices and built strong reputations with traders and other buyers One of CGAs most successful endeavours was building linkages between its FBOs and the WFP Purchase for Progress (P4P) program. In the very first month of the COMPETE grant, October, 2009, WFP P4P procured 150 metric tons from CGA s Kopitgei widows FBO of Angata Barrikoi, Kenya. This procurement led to a 30% increase in their earnings. On October 23rd, Christine Ngongi, the chair of Koptigei Widows Group, received a cheque for 2.6 million Kenyan Shillings (or approximately U.S. $35,000) from WFP for 100 metric tons of maize the first instalment. The maize was later distributed by WFP to drought affected communities within Kenya. After the successful first Koptigei uplift, WFP P4P contracted with nine Trans Mara FBOs for 1,019 MT of maize. The nine FBOs were highly motivated to improve their quality and aggregate The Koptigei women celebrate their new WFP P4P contract as a group. WFP P4P uplifted all 1,019 MT of the contracted maize in April Based on the success of the first two contracts, WFP P4P contracted with 22 Trans Mara FBOs for 4,552 MT of maize to be delivered at the end of While WFP is a reliable buyer that pays fair market price and its WFP P4P program is able to reach deeper into rural areas and buy from previously marginalized, its uplift and payment processes can be extremely slow, which presents a challenge for smallholder farmers who need money immediately. In this case, the farmers could not wait the 3 months that WFP P4P took to uplift and the additional month they took to pay. The farmers sought out other buyers for their product. Consequently, only 1,176MT of 4,552 MT of maize that P4P contracted at the end of 2010 was delivered at a value of US $326,875. Despite the high default rate (approximately 75%) CGA still maintains a strong relationship with P4P, though six of the 22 FBOS who defaulted on 4,552 MT of maize have been prohibited from contracting directly with WFP P4P because of their lack of capacity. These prohibited FBOs can still supply grain, but they have to go through a registered FBO to do so. 7

14 Still, Dominic LeClercq of P4P Tanzania noted that P4P has been impressed with the organization and leadership of CGA. But clearly this default rate brought to light some flaws in the systems on both sides of this contract that need to be addressed internally. CGA needs to work directly with its FBOs so they better understand the importance of building long-term relationships while working with P4P to streamline/improve its procurement processes to ensure that it is able to better meet the needs of smallholders and deliver on its mandate. As a first step toward a solution, WFP P4P recently negotiated a direct purchase contract with WFP P4P for a total 342 MT worth USD 360 per MT. Direct purchase is WFP P4P s attempt to speed up the process. COMPETE is also working with WFP P4P and CGA to see if Purchase Order Finance (POF) could help ease the burden of slow contracts. Through a POF arrangement with a regional bank, farmers could receive up front cash while they wait for their WFP P4P contracts to be processed. WFP P4P is not the only buyer in town. As CGA FBOs have improved their standards to meet the kind of quality that WFP demands, they have attracted more and more private buyers who will often offer higher rates and cash on the spot. The WFP P4P sales are a source of pride for farmers, because P4P demands high standards. But for sustainability purposes, these farmers also need to know that they can rely on local buyers for their product. Kenyan CGA FBOs sold MT of maize, $257,140 worth, and 173 MT of beans, aggregated from 491 farmers, to other traders. They also contracted with the Kenya Seed Company (KSC) at the start of the planting season in September 2010 to sell 23.4MT of beans and 34MT of white sun flower. The FBOs delivered the goods in February 2011 for a value of USD 14, and USD 12, respectively. CGA has helped facilitate these trades by maintaining market information at the MoSSs. CGA store managers gather and disseminate market information through collaboration with the Eastern Africa Grain Council s Regional Agricultural Trade Intelligence Network (RATIN). Blackboards sit outside collection hubs on which CGA supervisors chalk up the daily prices from surrounding wholesale markets. The major task of RATIN is to supply traders with improved early warning marketing and trade information that would lead to more efficient and competitive transactions in food trade between surplus and deficit regions in East Africa. RATIN information is accessible to users in real time through SMS or the internet. CGA FBOs proper use of market information is demonstrated through their contracts with the private traders and their ability to submit appropriate bids in response to WFP P4P tenders. 8

15 Leveraged appropriate and essential technologies and effective quality control systems One of CGA s grant objectives was to establish three model satellite stores. In just over a year, CGA surpassed their aim by helping to establish 8 model satellite stores in Kenya and Tanzania. By the end of 2011, they will have 5 operating MoSSs in Tanzania and 11 MoSSs in Kenya. One of these additional stores is a farmer-funded initiative where they developed their own bulking center based on the CGA model a ringing endorsement of the model and a positive sign for long-term sustainability and affordability. In the CGA model, the typical store is a renovated warehouse that is on community land. CGA outfits these stores with tarpaulins, moisture meters, pallets, gunny sacks, and weigh scales all the tools necessary for farmers to bulk and maintain quality grain. The WFP P4P Wiikhall The FBOs own and maintain the stores. Additional stores also came in the form of WFP P4P Wiikhalls, mobile storage tents that range in size and provide easy to set up mobile storage to areas that lack hard infrastructure. In , WFP P4P Wiikhalls provided an additional 2,250 MT of quality storage for four different MoSSs. They have been key to the success of the CGA/WFP relationship, allowing farmers to bulk and maintain quality grains until WFP are able to arrange for transport. The use of temporary storage structures such as Wiikhalls demonstrate the benefits of storage in areas where post-harvest losses are likely quite high and serve as motivation for farmers to build their own permanent store. In addition to supporting farmers with storage facilities and appropriate technologies, CGA trains farmers on the East African Community (EAC) Quality Standards for grade 1 maize. Applying these standards help farmers produce more uniform, high quality product and enables CGA FBOs to more effectively market their grain and attract quality buyers from across the region. Remaining Challenges The CGA FBOs are doing well, but challenges remain. FBOs in the Trans Mara and Dodoma areas tend to have an over-reliance on maize. To address this issue, CGA plans to organize field demonstrations and field days to train farmers on crop diversification for food security and alternative income generation. 9

16 Proper drying continues to be a challenge. Through the COMPETE grant, CGA provides tarpaulins and moisture meters to its FBOs. The use of tarpaulins is labor intensive, weather dependent and slow, but they are also inexpensive and easily accessible. They provide the necessary buffer between ground and grain that prohibits increased incidence of aflatoxin due to contamination from the soil. They offer a lot of function for very little cost a good example of appropriate level technology. While moisture meters are expensive, they are critical to the success of community-level aggregation as they ensure that the grain is properly dried before it is bagged and stored. CGA farmers demonstrate drying maize on tarpaulins One moisture meter per storage area should be sufficient in the MoSS model as farmers work together to bulk and store their grains; however additional farmer-level training on proper drying techniques could go a long way towards improving a FBOs overall volumes and quality. Transportation remains one of the biggest hurdles to market access. The rural roads of Trans Mara where CGA s FBOs are located are mainly dirt with many sections that become impassable with rain. CGA has been successful in establishing easily accessible stores in the Dodoma region of Tanzania, where more roads are paved and several farmer groups are located very close to major regional thoroughfares. The Trans Mara region of Kenya is not nearly as ideally situated. The roads to the CGA FBOs in Trans Mara are bumpy, unreliable, and long. While WFP P4P has agreed to send trucks for large quantities of high quality maize, the slowness of WFP uplift combined with what the FBOs consider inefficient uplift as a result of WFP s required use of approved providers typically larger transport companies with bigger trucks that are not well suited to the region s difficult road conditions. Program manager, Anthony Kioko, of CGA claims that FBOs would prefer to arrange local transport and deliver their product directly to WFP, which would speed uplift and allow them to negotiate higher prices. More private sector traders have been moving into the area looking to procure the improved volume/quality that CGA FBOs are producing. These private traders always pay cash and arrive ready to uplift on the spot. What s more, with the volatile price of maize, these private buyers often offer more money then what the farmers contracted for with WFP P4P. As a result, CGA FBOs have begun defaulting on WFP P4P contracts. Sometimes they even sell branded WFP P4P gunny bags out of loaned WFP P4P Wiikhalls directly to private buyers. 10

17 CGA admits that this a problem from a contract point of view, but their main objective remains getting farmers higher prices for their produce. And for sustainability purposes, this increased competition is definitely a good thing for the CGA MoSS model, though default on contracts is not. Lessons Learned The CGA MoSS model is effective in organizing farmers into groups and providing these groups with services that enhance their market competitiveness. This competitiveness is illustrated in the number of high value sales CGA FBOs have been able to make with both WFP P4P and private traders. Furthermore, the MoSS model is easy to replicate, CGA farmers have already begun to do so, and it is fairly low in cost especially when WFP P4P is willing to loan their Wiikhalls for storage. The CGA organization is comprised of experienced farmers who know how to mobilize rural farmers quickly and efficiently. They have credibility in Kenya and Tanzania where they work and they have their sights set on regional expansion throughout the East African Community (EAC). In Kenya, the MoSS model is limited by the structural shortcomings of Kenya s warehouse infrastructure. Currently, Kenya s stock of storage facilities is skewed either to smaller, household level stores, which are often located far from major trading centers or to large government-operated facilities that are not accessible to smallholder farmers because of quantity minimums but more importantly because of location. The shortage of medium- sized storage facilities that serve as an aggregator for a network of household level stores represents a tremendous investment opportunity in the sector and will be critical to the sustainability of all FBO models across the region. Storage isn t as much of an issue in Tanzania, as the government and FAO have spent a great deal of money building mid-size stores the management of which have been turned over to village leadership. The downside of the MoSS model includes factors that may be outside CGA s control Trans Mara s poor infrastructure, WFP P4P s slowness in uplift and payment, and the political nature of maize (i.e. the tendency of both the Kenya and Tanzania governments to interfere in maize markets). To combat some of these issues, CGA could make a greater effort to promote MoSSs that are strategically located closer to primary roads or regional thoroughfares. CGA could also work with both banks and farmers to obtain appropriate financing such as Purchase Order Financing that would afford farmers access to necessary funds while they wait for uplift by and payment from WFP P4P. As WFP s slow process is well known and recognized within the organization, there might be potential for the cost of financing to be either included in the contracts or shared among the parties. The good news is that many of these farmers are now opening bank accounts where as previously they only worked on cash transactions. This will encourage them to move into more formal trading systems in the future, such as warehouse receipts. Finally, the CGA MoSS model should encourage their farmers to move away from the maize monoculture and rotate their crops to help with soil fertility and yields and diversify their crop risk. CGA could also help introduce crop risk insurance to mitigate the effects of adverse weather. 11

18 Case Study No 2: Farm Concern International (FCI) The Meru area is in the heart of the Kenyan bread basket, known for its fertile land and temperate climate - perfect conditions for growing agricultural products. Yet smallholder farmers in this area do not thrive and most sell their limited surpluses well below market value. As individual farming households, they lack the resources, storage, and quantity of product necessary to be competitive players in the regional agricultural market. To assist farmers to move away from subsistence livelihoods and towards more profitable commercial production, USAID COMPETE provided FCI a grant to promote the use of the Commercial Village Store (CVS). FCI commenced its CVS project in September It aims to transition smallholder farmers from subsistence to market-oriented producers, earning reliable income from selling surplus produce. Under the CVS programme, FCI has mobilized almost 9,000 farmers in the Meru area of eastern Kenya and 2,000 farmers in Jinja, Uganda to establish 11 village-based storage facilities in Kenya and three in Uganda for a wide range of cereals, pulses, and horticultural produce. These community bulking centers rely on the commitment of local smallholder farmers to aggregate their commodities. Each CVS serves between 500 and 1,000 households and has an average capacity of 150 MT. The CVS model utilizes the traditional village leadership structures to oversee the stores and mobilize community support. Establishing a common aggregation point is critical to marketing success as FCI is better able support the groups marketing efforts by providing direct linkage with buyers who are attracted to larger volumes. This system improves upon the traditional practice of individual farmers selling small quantities of goods to middle men who offer significantly lower prices. Another benefit of the CVS is that they serve as locations for FCI trainings that target a number of critical areas such as reducing post harvest losses through proper grain handling, grading, and storage pest management. They also work to increase food security and increased revenue through collective marketing, knowledge of EAC maize quality standards, and sustainable access to markets. By establishing community storage infrastructure and educating smallholder farmers, FCI helps enhance value chain efficiency. Mugambi K. Mutituuri is a Meru farmer who saw the wisdom of the CVS plan and immediately deposited seven 90 kilogram bags of grain into the village store. To Mutituuri, the logic of a CVS was obvious: "When I sold to middle men, I would get maybe 700 Kenyan Shillings per bag. Selling as a community, I can get twice that." 12

19 Progress Effective quality control systems FCI teaches business skills training and EAC maize quality standards to all of its farmer groups and was instrumental in producing EAC maize quality standards training materials that are now used across the region. As noted in the CGA section, the implementation of EAC standards is key to regional trade and the marketing of oneself as a high quality dealer in grains. Unfortunately, despite FCI s emphasis on standards and quality, the implementation of the CVS model in Meru encountered a serious set-back in the spring of Extended rains pounded Eastern Province leading to an aflatoxin outbreak in maize. Unable to check all harvested maize for the contamination, the government issued a blanket ban on all maize from Eastern Provence. The result was that all farmers who embraced the CVS model and stored their maize in anticipation of high off season prices, were now unable to sell any of the product. In stark contrast, farmers who sold individually and immediately came out ahead. After much petitioning of their case, FCI was able to convince the Ministry of Public Health to come and test the FCI sponsored stores. FCI was proud to report that despite the lengthy rains, CVSs in the Tigania and Tharaka regions reported zero incidents of aflatoxin. The maize that was not contaminated was sold. The infected maize was handed over to the Ministry of Public Health in Imenti South District. Builds strong reputation with traders and other buyers Before the aflatoxin outbreak and resulting government ban, FCI had courted several larger buyers including Pisu, a large commodity trader in Kenya. FCI farmer groups and Pisu were negotiating prices when the government ban took place. Pisu was drawn to FCI CVSs because of their leadership and quality/amount of bulked grain. This relationship was put on hold in 2010, but could be revisited in CVS aggregation points are of great interest to buyers since they reduce the time and cost of procurement. 13

20 Leverages appropriate and essential technology The 20MT GrainPro Cocoon To offset the lack of grain storage in the Meru area, FCI supplemented with 20 MT GrainPro cocoons provided through the COMPETE grant. The GrainPro cocoon is a hermetically sealed bag that is freestanding and can be assembled in minutes. Pluses to the cocoon include ease of transport, assembly, and grain protection. When hermetically sealed, the cocoon controls insects by reducing the oxygen needed for their survival, eliminating the need for pesticides. The cocoons received mixed reviews. FCI felt that the bags were too expensive (approximately $3,000 for the 20MT model) and were not very durable as they were susceptible to punctures and slashes. FCI reported an incident in which a horned cow ran into one of the cocoons, ripping the bag. A quick end to the usefulness of a $3,000 hermetically sealed bag. However, because the cocoons are easy to move and install, they proved, when used correctly, a viable solution for remote areas. One of FCI s biggest technological successes was one of its simplest --the Grain Savings Passbook. Each FCI Grain Savings Passbook contains a photo that serves as a personal identifier. Inside the passport, is a register that tracks deposits (dates and volumes) made into the CVSs and withdrawals. Another useful feature is the inclusion of market prices at the time of deposit, which allow the farmer to track the benefits to storage. The Grain Passbook is a simple concept that has proved invaluable to FCI as it seeks to build community support for CVS. By introducing record keeping, FCI is working to develop a commercial focus among smallholders while at the same time securing buy-in for community grain bulking and marketing. With Grain Passbooks, farmers are better able to track their investments and monitor price movements. The passbooks also introduce formal structures to a system that had previously relied on verbal agreements, which were less efficient and often gave rise to disputes and mistrust among farmers for similar systems. Another added benefit is that local banks, such as Equity bank, have started accepting passbook deposits as collateral for farmer loans. 14

21 Model is replicable across the region FCI had initially intended to run CVSs in both Kenya and Uganda. After a year of various logistical and operational problems, FCI decided to shift their Uganda focus from Bushenyi in western Uganda to Jinja in eastern Uganda. It seems that Bushenyi farmers largely served the fresh grain market and therefore harvested and sold their produce while green. Convincing farmers to wait for their grain to dry and thereafter store their grain to take advantage of higher prices away from the harvest season, proved to be too difficult of a task. Also, and perhaps the greater determinant, the neighbouring Mbarara district had a warehouse receipts system that paid farmers a percentage upfront for grains delivered, before a buyer had been identified. Farmers who were introduced to the CVS project had similar expectations. When they discovered that CVS did not have a WRS that paid farmers in advance, the Bushenyi farmers lost interest in the concept. FCI anticipates greater success in the Jinja/Iganga area of eastern Uganda where there is a greater concentration of maize farmers who are used to having surpluses every season. These farmers have a history of aggregating, cleaning and storing their product. FCI would like to expand on their work, and further formalized trade, by having these farmers store in locations such as Agroways warehouse, a privately owned warehouse that is certified by Uganda Commodity Exchange (UCE) to issue warehouse receipts. Warehouses like Agroways draws larger traders from Kenya who are eager to purchase surplus product from Uganda that they can sell in Kenya, a deficit country. Remaining Challenges FCI has not yet implemented an actual WRS, though their grain passbook is a good first step that is having the desired effect with banks. Transitioning from the current system to a full WRS will present some challenges, particularly as FCI are testing out a hybrid CVS model that relies on farmers using household storage and transitional stores rather than having farmers immediately bring their product to the CVS. By having farmers first store their product at home using a variety of household storage options and only bring their product to the CVS when a buyer has been identified FCI could reduce the cost of extended storage and the reliance on expensive cocoons or the need to build additional stores. The CVSs would serve as satellite aggregation points and a second round of quality control, ensuring conformity to EAC maize Grade 1 standards. 15

22 As of December 2010, over 4,500 farmers have been trained on the new household storage/ transitional storage concept. Household storage models range from metal silos (using the CIMMYT model) to traditional mud silos. They tend to be easy to use, prevent rodents and pests and can be built with local labor and easily available materials. They also ensure individual responsibility for grain storage, providing an initial quality check before the grain reach the transition store - reducing the possibility of one lot of moist grain infecting an entire CVS with aflatoxin. According to FCI, since introducing new household storage technologies, farmers have reduced their post harvest losses from an average of 30% to between 17% and 23%. Enhanced household post harvest handling and storage has helped improve the quality of grains produced by farmers and reduced the incidences of aflatoxin contamination. Lessons Learned Similar to CGA, FCI excels at organizing smallholder farmers into productive units that benefit from a shared vision and an understanding of economies of scale. Part of this shared vision includes an understanding of quality parameters, facilitated through the application of the EAC maize qualitystandards, and the realization that the grain business is a high volume, low margin industry that requires great aggregation to turn a profit. Emphasis on quality translates into expanded access to both storage facilities and appropriate storage technologies. However, also similar to CGA, FCI s project focuses much of their attention in Kenya, where minimal mid-size storage exists. To combat this problem, FCI has tried expensive cocoons with mixed reviews. They ve now reverted to training their farmer groups on effective household storage methods, allowing their minimal CVSs to be used only as transitional stores when buyers have been identified and the final aggreagating step needs to take place. Kenya s ban on all maize from Eastern Province in 2010 revealed flaws in FCI s model. For one, its storage facilities were not insured (there is a lack of available post harvest insurance at a farmer level) and as a result the contents were worthless once they were determined to be infected with aflatoxin. Another weakness in the model was poor quality control. While none could have anticipated the extent of the aflatoxin problem, FCI s stores did not have the capacity to screen incoming maize. In an effort to address the aflatoxin problem, FCI has already reassessed the CVS approach to storage and is promoting greater use of householdlevel storage prior to group bulking. While this is a thoughtful attempt to address the problem it does not eliminate it. FCI needs to ensure that it trains farmers in the prevention and identification of aflatoxin, develops the systems and acquires the right technology, aflatoxin screening kits, to ensure that their farmers are protected. FCI also discovered that certain conditions limited the transferability of its model across the region. As the reluctance of the farmers in western Uganda revealed, aggregation without access to some sort of pre-sale financing is not as appealing as WRS. Perhaps FCI, as a precursor to regional expansion, could engage with local banks in target areas and introduce the concept of the Grain Savings Passbook as a reliable indicator of collateral. FCI will also 16

23 need to see how the Grain Savings Passbook works in a model that relies on household-level storage, which is harder to verify and monitor. Case Study No 3: Agricultural Market Development Trust (AGMARK) Through its Sustainable Smallholder Cross Border Trade Integration (SSMATI) program, AGMARK aims to use agro dealers as a means to integrate smallholder surplus production in Uganda into the Rwanda and Kenya cereals value chain. Eastern and southern Uganda are major grain producing regions yet farmers in those areas lack the organizational structure to export their produce across, despite the significant demand from traders and processors in Kenya and Rwanda. SSMATI agro dealer RABS Agrover, Rose Wanyala at her agro dealer store in western Kenya commodity to the formal markets in Rwanda and Kenya. Through a COMPETE grant, AGMARK used its agro dealer model to support 50 agro dealers as they developed sustainable, cross-border value chains that led to the purchase of grain from surplus countries for sale in deficit countries. AGMARK collaborated with the Uganda Agro-Input Dealers Association (UNADA). Their goal was to facilitate 20 agro dealers in the Kigezi Region and 30 agro dealers in eastern Uganda to aggregate surpluses from an estimated 25,000 smallholders and link the In addition to linking smallholder farmers to agro dealers and agro dealers to larger buyers, AGMARK helped farmers access finance, training, insurance, improved seed varieties, and other inputs. Rose Wanyala, pictured above, sold 55 Syngenta crop insurance policies in the beginning of 2011 to her farmer client base. When farmers deposit their surplus stocks into an agro dealer warehouse, the agro dealer provides services to the farmers based on the collateral of their deposit. Farmers are able to access inputs on time at a zero interest rate, and secure insurance for their purchased seeds. These services enable farmers to be more efficient and prepared for the growing season. Furthermore, because of the volatility of maize, the price at harvest is often quite low. Prices increase dramatically the further one gets from harvest. Thus, storing with an agro dealer is an ideal situation for farmers. They can use their collateral for inputs and insurance, and sell their product at a later date once prices have risen. Progress AGMARK began the project by identifying 70 agro dealers through a project wide survey. Of these 70 identified agro dealers, 57 were trained in grain storage and bulking. The best operators from the 57 were identified for the improvement of storage facilities through matching investments. Improvement of storage facilities could be anything from additional pallets, weighing equipment, moisture meters, gunny bags, store branding or minor 17

24 renovations. To date, AGMARK reports that 21 agro dealers have been actively buying grain (maize, beans, sorghum, rice and sunflowers) from 14,000 farmers, 6,000 in Kenya and 8,000 in Uganda. Six buyers from Kenya, Uganda, and Rwanda have purchased a total of 5,995 MT of grain. To ensure good product for all these linkages, 4,000 farmers have been trained on post-harvest handling. These trainings will help farmers to produce high quality product that keeps buyers coming back. Builds strong reputations with traders and other buyers and reduces risks to producers Of the four models, AGMARK s SSMATI model extends the furthest along the value chain from local smallholder farmers to large export buyers and processors who frequently cross borders with their trade. The model relies on sound relationships and trust between the three key players: smallholder farmer, agro dealer, and buyer. Evelyn Wanyera, who converted from a smallholder farmer to successful agro dealer through the AGMARK program, is a prime example of someone who has succeeded SSMATI agro dealer, Evelyn Wanyera, in her maize warehouse with one of her farmers, Evans Makanda based on her relationships. Wanyera now works with four farmer groups. As part of her agro dealer services, she supplies them with timely inputs so they can increase their yield and thus income. She also stores grain for these same farmers, enabling them to sell at higher prices later in the season. The farmers are grateful for her support and their increased access to markets. Evans Makanda, a farmer from the Khasinga Self Help group notes that his maize was being destroyed without storage Wanyera provided storage and good rates and access to inputs. Jacquelyn Odayo comments similarly, My farm wasn t doing well. I didn t have inputs. Now that I ve met Evelyn I m doing well. Last season Wanyera stored 319MT of commodity in here warehouse. Farmers deposited their grain when prices were 1300ksh per 90kg bag. They later sold to Wanyera for 1800ksh per 90kg bag, increasing their revenue by nearly 40 percent. Model is sustainable without donor funding and replicable across the region The AGMARK model, because it is built around private sector agro dealers who are already integrated into the formal marketing chain and who supply inputs to farmers in their catchment zones, has some natural sustainable advantages. The fact that the agro dealers have invested their own money in the businesses is an excellent signal of their commitment and ensures they are motivated by the need to protect and grow that investment. The success of the agro dealer model depends on the kind of relationships that the specific dealer has with their farmer customers and the linkages they develop with downstream traders and 18

25 processors. This building of long term trusting relationships is critical to the sustainability of this model. Agro dealers have intimate knowledge of their farmers. They know who is reliable and who is not. They also know who is producing the highest quality product. Based on this knowledge, they can extend credit to those who will use it appropriately. This helps streamline their cash flows and lower their default rates. Ms. Wanyera has many buyer connections in the Chwele area, a town in Western Province of Kenya that is a mere 20 kilometers from the Uganda border. Another key element of the AGMARK model is its concentration in strategically placed border areas which allows the agro dealers to take advantage of regional surpluses, e.g. in eastern Uganda, to satisfy demand in deficit areas. Access to finance is also critical to the success of the AGMARK model as agro dealers often have to extend credit to their customers for inputs such as seeds and fertilizers. Evelyn Wanyera has developed strong relationships with a number of regional banks. These banks provide lend her the money she requires to access working capital for the inputs side of her business as well as the output marketing side. Recently, Ms. Wanyera received a one million Kenya Shilling loan from Equity bank to finance inventory. She also applied for a 3.5 million Kenya Shilling loan from Ecobank to fulfil a WFP P4P order, which involved paying farmers and securing commodities for the WFP P4P contract. Last year she received a 4.3 million Kenya Shilling loan from Ecobank, secured by a contract with the Ministry of Agriculture to supply inputs to 2000 farmers. Financing has helped and continues to help Wanyera expand her business and maintain the relationships she has developed with both her farmers and buyers. Challenges AGMARK s model includes a matching investment program that is funded by donors and while it has some positive features: it provides an incentive to agro dealers to improve their businesses and invest in farmer training it also has experienced some problems in implementation. One of the problems is the time it takes for the agro dealers to raise their share of the matching investment, which often includes the renovation/expansion of the agro dealer s existing storage facilities. These delays have forced AGMARK to hold up the procurement and delivery of equipment while the agro dealers fulfil their commitment. Another shortcoming of both the matching investment program and AGMARK s model overall is the fact that sustainability is largely dependent on continued donor support. AGMARK needs to evaluate other, more sustainable, options to spur investment by agro dealers. Lessons Learned Among the four models, AGMARK s SSMATI agro dealer model stands out for both its sustainability and ability to operate further along the value chain, connecting a greater number of people and countries. The SSMATI agro-dealer model also promises to be 19

26 replicable across the region, given the number of relationships AGMARK agro dealers already have already secured with Ugandan and Kenyan farmers and Ugandan, Rwandan, Kenyan and Sudanese traders. After on a year, AGMARK had linked 14,000 farmers to 21 agro dealers. These agro dealers have traded nearly 6,000 MT of commodities with six traders. The agro dealer model succeeds by creating a local community of trust and efficiency leading to long term relationships and sustainable business. Agro dealers establish relationships with local smallholder farmers by selling them agricultural inputs: fertilizer, equipment, seeds etc. Once the relationship is established, smallholder farmers feel comfortable selling their outputs to the same dealers who sold them their inputs. This circular process cuts down on transportation and logistical costs. Additionally, agro dealers will often store a farmers product until prices go up (further from harvest). The farmer receives the high price at point of sale, which means that smallholder farmers are seeing a significant increase in earnings and thus food security. The agro dealers add value through bulk aggregation, quality improvement and, in some cases, milling, selling the end product to large buyers. The model has demonstrated that by leveraging existing formal, private sector value chain structures which had previously been disconnected, thousands of smallholder farmers can now access formal markets that move grain from surplus countries to deficit countries. As mentioned above, the sustainability of the model needs to be addressed. It would be interesting to see if the AGMARK model could be promoted with and through local micro finance institutions (MFIs) so that it is not dependent on donor support 20

27 Case Study No 4: Rural Urban Development Initiative (RUDI) RUDI supports smallholder rice and maize farmers in three southern districts of Tanzania: Kilombero, Iringa and Handeni. While the land is fertile, these areas are very remote and do not have reliable road and electricity infrastructure. Farmers in these areas lack appropriate agronomy skills, post harvest handling education, storage facilities, and inputs. Like most smallholders, they sell their produce in its rawest form, as paddy, to the first buyer immediately after harvest, ensuring the lowest possible price. RUDI s model is built on several key areas: farmer training, farmer group development, group aggregation/warehouse receipts and value addition. The goal is to install rice mills at central location in the targeted districts of Kilombero and Iringa, allowing farmers to add value to their product by converting paddy to milled rice, which typically sells for more than triple the farm gate value of paddy. Ultimately, RUDI would like to install packaging lines at each mill, which would enable the farmer groups to bag and brand their product for direct sale to retailers and make them more competitive across the region. Progress The challenges of changing mindsets and transitioning smallholders from suppliers of raw commodities to suppliers of processed rice. Due to capacity issues, weak management and inertia on the part of key partners on the ground such as the apex rice association in Ifikara, which was supposed to develop business plans for the rice mills and ensure that the necessary infrastructure was put in place to house the milling equipment, the value addition piece of RUDI s model has not been tested. In an effort to create a sense of ownership in the mills, RUDI asked the farmer groups to provide the land (secured with a legal title), build a suitable structure to house the milling equipment and ensure that the site had electricity. As of the beginning of May 2011, two farmer groups: one in Mangala and the other in Ifakara had installed the milling machines and a third group was making final preparations The plan is to have all three of these groups ready for milling in June, which is the middle of the harvest period. The RUDI model provides comprehensive services to farmer based organizations Farmer training on use of inputs and collective marketing has seen significant returns for smallholders. While RUDI s progress toward promoting value addition among farmer groups has been slower than expected, there have been other successes. All of RUDI s groups have been trained in the use of crop inputs, collective marketing and warehouse receipt systems RUDI, through its grant from COMPETE, renovated five warehouses. An advantage to the RUDI model is that they are using already existing warehouses. Storage has been developed over the years by the communities, donors and the Government of Tanzania. Thus, RUDI was able to quickly mobilize their FBOs and concentrate on WRS and financing instead of on building warehouses. 21

28 The renovated warehouses, which are certified by the Tanzania Warehouse Licensing Board, have enabled the farmer groups under RUDI to secure financing from NMB and Stanbic banks. Farmers accessed a total of $40,000 USD from both banks. This amount was equivalent to the volume of commodity that the farmers had deposited in the certified warehouses. Financing has allowed farmers to store their commodities for longer periods and avoid having to sell at harvest. Last season, the price for paddy at harvest was Tshs 200/kg. After storing their rice in secured warehouses for four months, farmers were able to sell their paddy for Tshs 450/kg, earning more than double the harvest farm gate. RUDI smallholder farmers have already experienced the benefits of a formal trading system. RUDI demonstrations, trainings and agro dealer linkages introduced farmers to the benefits of hybrid seeds and other inputs, which greatly increased farmer paddy yield. One of these introduced agro dealers extended inputs to farmers on credit. Farmers from Mbingu have boasted an increase in yield from 8-10 bags (90kg) per acre to 20 bags per acre for the 2010 harvest. Hilda Kuweta shows off community bulked paddy rice at the Mbingu store Setting up organizational structures within the farmer groups to manage the warehouse facilities has been quite successful. It empowers smallholders, generates ownership among the group and provides a number of necessary checks to ensure proper management. RUDI has helped organize the farmer groups into specialized committees: warehouse, marketing, operations, and overall management to better coordinate and manage the operations of the warehouses. Mbingu treasurer and day to day manager, Hilda Kuweta, praises the strong farmer organization because of RUDI. The end result as Kuweta notes is that Mbingu is selling what they produce together. As mentioned in both the CGA and FCI sections, selling together enables farmers to attract better prices and develop relationships with buyers further downstream in the value chain. Producers able to access credit and capacity to deliver on commitments Without COMPETE/RUDI supported warehouse renovations, input and output loans may not have been possible. The TZ banks used the product stored in the refurbished warehouses as collateral for the input loans. RUDI also helped farmer groups present business plans to the bank, an educational experience for the farmers that furthered their case for the loans they received. RUDI then taught their farmer groups a warehouse receipt system to both keep track of the amount each farmer deposited and secure their faith in the system, i.e. that it was possible to continue their agricultural practices with loans while waiting for prices 22

29 to improve on their securely stored product. With warehouse receipts, RUDI farmer groups are entering a more formal trade network which will hopefully lead to greater market access and increased food security in the future. Builds strong reputations with traders and other buyers Similar to the Trans Mara region of Kenya, many of RUDI s farmer groups reside on secondary roads that are not convenient for trade. If they are to lure traders, the RUDI groups need to have consistent high quality product. The Ifakara region is known for its high quality surplus rice, but to justify transport, RUDI farmer groups need to mill their paddy. It is hugely inefficient to transport paddy over great distances as 40% of paddy is waste. RUDI was able to facilitate several discussions with Smart Logistics, a grain buyer out of Kenya. Smart Logistics is interested in sourcing rice from Tanzania and even suggested that they might be able to help manage the farmer associations milling machines. Ideally, the farmer associations would manage their own milling to capitalize on value added revenue. Smart Logistics may still materialize as a potential buyer once RUDI farmer groups begin milling. Lessons Learned Sustainability is a serious concern for the RUDI model as it relies almost exclusively on donor funding to support key components, specifically warehouse renovation and procurement of processing equipment. RUDI may need to channel its efforts into linking farmer groups with existing milling infrastructure. While the push for upstream value addition is an excellent aim and processing product on-site would benefit farmer groups, the practical application is wrought with challenges that make long-term sustainability questionable. For one, farmer groups and leading partners such as the apex rice association have failed to meet their cost sharing obligations which has delayed installation of milling equipment. For groups of cash strapped farmers, it may be unrealistic to expect them to provide the funds to erect/renovate structures for warehousing and/or processing. As grant funding comes to an end, RUDI and its farmer groups will need to look for alternative sources of funding to expand storage infrastructure and milling equipment. Another area, which is slowing the value addition component of RUDI s model and is likely the more challenging to overcome, is related to the mindset of RUDI s farmer partners. Traditionally, these farmers have sold their paddy immediately after harvest to local traders and government and do not have much experience with the broader rice value chain. Understandably, as a result, they have been reluctant to 23

30 engage in more commercial activities which they have no experience with and which they perceive to be more risky, in particular the processing of paddy into milled rice. While RUDI has had tremendous success in getting farmers to think more commercially about their production and aggregation/storage, they have met some resistance when it comes to processing. Farmers are reluctant to assume the additional costs to transport their paddy to have it milled, despite the greater returns for milled rice. While this is not insurmountable, and will likely be easily overcome once the farmers see the benefit to selling milled rice, it is critical as there will not always be grant funding that provides milling equipment to every farmer group. RUDI needs to focus its attention on convincing a critical mass of its more commercially oriented farmers within its farmer groups to try to process their product and work with them to find buyers and ensure that the transaction runs smoothly. This will demonstrate the benefits to the more risk adverse farmers. As mentioned above, the RUDI model has had some good successes. Specifically, RUDI has been very effective working with farmers to adopt yield enhancing technologies and aggregate their product. It has also created, within these groups, the systems and structures that have enabled them to implement a cost effective warehouse receipt system and link farmer groups with financial institutions and input suppliers to access credit. All of this is helping the process of commercializing smallholder production and are critical first steps in the process to greater value addition. 24

31 Reflection The aim of the COMPETE Staple Foods component is to increase regional trade of staple commodities and enhance food security by creating the systems and policies necessary to build/strengthen the regional value chain. The informal and disconnected nature of the regional staple foods value chain negatively affects the sector s competitiveness and the challenge that COMPETE and all the region s stakeholders face is how to more effectively link and integrate all value chain players while streamlining the marketing chain to create greater efficiencies. To address this, COMPETE has aligned its work with the region s three strategic priorities: Structured Trade, Market Information and Policy and Standards. COMPETE s engagement with its FBO partners and its evaluation of the various models is central to its efforts to develop structured trading systems (STS) across the region as it has addressed critical STS issues such as: FBO capacity building, warehouse receipts, storage, collateral management, warehouse operations, contract enforcement and quality control (grades and standards). By integrating smallholders into national and regional value chains and increasing their access to more formal markets, COMPETE s FBO partners are ensuring that food can flow from areas of surplus to areas of deficit thus enhancing regional food security. Also, by helping producers see the benefits that result from aggregation, quality management and collective marketing, the FBOs are helping transform smallholders into more commercially oriented producers that will be more likely to invest in production, which will again pay dividends in terms of regional food availability and food security.. Based on the lessons learned from the analysis of the four models, COMPETE developed a set of requirements that will help guide FBOs as they work to integrate themselves in the formal marketing chain.. The model would need to have or facilitate: Strong FBO management structures, monitoring and evaluation, and trainings o Well organized and managed FBOs are attractive to larger buyers. There should be a gate keeper that oversees quality management and organized aggregation This is critical for upholding contracts with customers like WFP P4P. o Trainings should also facilitate a good understanding of business ethics Access to finance, which would provide liquidity for farmers while they wait for prices to increase o Capacity building in finance (business plans) and insurance Provide insurance all along the value chain from field to floor. Until this widely available for smallholder farmers, the model needs to have storage insurance producing safe insured collateral for access to finance 25

32 A warehouse operator needs to be able to provide cost effective collateral management, storage fees, and insurance cover Quality assurance that adheres to EAC quality standards and uses appropriate level technologies Extension services embedded community/government members who support production and by extension the value chain Diversification of commodities for a good staple foods mix that provides a mix of nutrition, and crop rotation. Year round selling for consistent income that reduces seasonality and risk Ideal model needs to include linkages all along the value chain. FBOs, agro dealers, and traders should be able to exist in the same model o Work to form strong, long-term relationships with the whole value chain: buyers, input suppliers, traders, o Shorten the value chain where possible thereby reducing transaction costs by building linkages between farmers and downstream processors and buyers Farmers need to be willing to invest in the resources necessary to aggregate and sell their product Farmers should be encouraged to seek out cost effective value addition. Management needs to be able to demonstrate the benefits of value addition and introduce farmers to the value chain Model should include an accessible market information platform that is relevant and timely for farmers An ideal model should have a baseline assessment for the region which informs the structure of their model Whoever is implementing the model should be able to draw from other models to strengthen their system. For example a traditional FBO aggregating model could look to link with an agro dealer COMPETE can now share the lessons learned and the recommendations with the four grantees and other national and regional FBOs to replicate the successful elements of the existing models and build stronger and more effective FBOs across the region that can become an integral component of the regional value chain. 26

33 Annex Production flow analysis The diagram below shows a typical Staple Food trade flow scenario on either side of a border. Numerous collection, aggregation and bulking points exist, some for the formal cross border trade route, and some for the informal channels where product crosses at multiple porous points on either side of official crossings. Increasing Regional Staple Foods Trade: The Current Challenges LOCAL MARKETS BUYER AGENTS INFORMAL TRADERS CROSS BORDER TRANSPORTERS INFORMAL BORDER TRADE FORMAL BORDER TRADE TRADERS and AGENTS TRADERS and AGENTS TRANSPORTERS HIGH VOLUME GRAIN TRADERS LOCAL PRODUCTION STAPLE FOOD PROCESSORS STAPLE FOOD PROCESSORS Small Holder Producers BORD ER TRAD ERS HIGH VOLUME GRAIN IMPORTERS The four models in this white paper each fit into the above trade flows. Some take one or two steps to reach commercial markets, which reduces transaction costs and increases traceability. Other models use multiple steps, which increases transaction costs, reduces traceability and compromises quality control. USAID COMPETE would like to see more models that reduce steps and thus increase net returns for farmers. 27