A Tale of Two Traders

Transcription

1 A Tale of Two Traders Monitoring and Evaluation Activities P4P Malawi, December 2011 On the 5th July 2011, P4P Malawi held a soft tender workshop with small traders who were registered on the P4P supplier s roster. The purpose of the workshop was to hold a selective BVO (Bid-volume only) session, in order to try soft tendering in an open and transparent manner and familiarizes participants with the WFP procurement system, as well as Agricultural commodity exchange (ACE) trading platform. 9 Participants were invited to tender for a total amount of 200 MT of pulses, of which 50 Mt was destined for the WFP warehouse in Lilongwe and 150 MT for Blantyre. Traders were offered a choice of submitting an offer based on either delivery at place (DAP) or Free Carrier (FCA) delivery terms. The following table is a summary of the trading that took place DAP 6 traders submitted offers FCA 6 traders submitted offers Average offer : 95MK Average offer : 73.7 MK Min offer: 81.5 MK Max offer: 120 MK Min offer: 69 MK Max offer: 85 MK Considering the purpose of the selective BVO session, a general principle of ACE-BVO to award on a first come, lowest offer basis was applied and therefore the BVO was awarded to Rabson Maize Mills, Mapira trading and Dindi chemicals and general suppliers. Name Rabson Maize mills Amount contracted for Price received 100 MT 69 MK per Kg Delivery date Aug 2011 Actual Delivery completion date 5 Sept 2011 Mapira trading Dindi Chemicals and general suppliers 85 MT 70 Mk per Kg 15 MT 70 MK per kg Aug Aug Sept Sept 2011 Mapira trading and Rabson maize mills are both based in Phalombe (Southern Malawi) and the two traders have a

2 friendly relationship. In light of the fact that both traders were awarded a contract with WFP for the first time, they decided independently to work together to ensure a smooth fulfillment of their individual contracts. They provided each other with support during the cleaning and bagging process and went together to negotiate the price and procurement of bags from Blantyre netting company. The following is an account of how a WFP contract was experienced by two traders, as well as the unintended impact this contract had on others and how this in turn was perceived from a gender perspective. By looking at these two cases together we can directly trace examples of the potential benefit of the by contract on local community members. Both sides of the story Wellington Nasagwe is 36 years old and works as a partner in the family trading business started by his elder brother Rabson Nasangwe (48). The brothers trade in Maize, pigeon peas, cow peas, sunflower seeds and padi rice. The brothers also own a small filling station, which adds to their client base and income. The BVO session was the first time that Rabson maize mills participated in this type of procurement modality having lost out on a soft tender the previous year Last year [2010] we were there, we did the tender but we failed, because my prices were high I think. In 2011 during a BVO session Rabson maize mills secured a contract for 100 MT (2000 bags) of pigeon peas. During the bidding process I put 85Mk but then someone else put 75MK, then 72Mk, then 70MK. So I had to put 69. My price was not to be lower than 75MK, but I saw someone put 72Mk so I put 69Mk and that was lucky for me 1 The contract with WFP proved to be a profitable exercise for Rabson maize mills as Wellington explained that in the past five years, competition amongst traders has increased while markets have been limited and prices low. Large traders with their purchasing power are able to buy more and sell for less, effectively pushing small traders out of their normal market areas. This suggests that the market may be developing into an oligopoly with a few significant suppliers controlling the market. This is underpinned by a number of barriers which limit the ease of entering the trading sphere such as access to financing, political connection and geographical location. The contract, it picked us much higher, it was a very good transaction, and we did a very good business. Commodities were a little bit lower for farmers, so WFP bought us on a good price. At that time I didn t know the buying price here [in Phalombe district] I just had to decide the price on the spot Over the last three years, P4P Malawi has learnt that small/medium scale traders provide a sustainable and efficient procurement strategy for Malawi. Purchasing from these traders has a trickledown effect to both farmers and the local community and represents an important element in improving market access for small-scale farmers in Malawi. Wellington explained that at the time when he was purchasing the crops following his successful bid, 1 At time of sale the international price (including transport) for the commodity was at $ per MT as opposed to $ MT (Rabson maize mills) and $ (Mapira trading)

3 the average price being offered by traders in Phalombe market for a Kilogramme of pigeon peas was 35MK. As he had a guaranteed sale and established price from WFP of 69 MK a kg, he was able to immediately offer above the market price for the commodity. Wellington instructed his buyers to offer 40 MK a Kg in order to secure the stock. When other traders saw what he was doing they raised their prices in turn to 42MK. so we picked up the price to 45MK in order to get much more. This strategy paid off and farmers chose to sell their produce to Rabson maize mills. As Wellingtons case represents, having a guaranteed contract and price with WFP translated into an ability and an incentive to offer higher prices on the market for the commodity, directly benefiting local farmers. The price offered by Rabson maize mills represented a 77.7% increase of the market price being offered. Rabson maize mills through their market access and procurement capacity procure directly from farmers and indirectly provide farmers with improved access to the market. The market access of traders can also be linked with existing P4P farmer s organisations, as Wellington stated a desire to have direct contact with FOs in other districts There is no such thing [FOs] here. I think it can help to be connected, since it will only be at one place where I can collect the commodity, therefore I will not spend a lot on transport. For example it took me a day to find only 500 bags and I found it in different places. So how much time and transport did I spend? One of the greatest benefits of working with traders is their existing capacity, including transport and cash reserves. This provides buyers such as WFP with an increased confidence when working with these entities as they are ensured that the traders have access to significant warehousing and commodity handling infrastructure. Traders also display an advanced business ethic and contractual understanding which separates them from FOs, as the later entity has shown that contractual understanding and obligation is seriously lacking As traders of this nature also in most cases have access to credit or cash reserves, it is also possible for them to secure performance bonds thus removing the risk for buyers should a default occur, a benefit which the majority of P4P registered FOs cannot offer. The significant infrastructure capacity of traders also translates into increased quality and control ability, improving the speed and effectiveness of the procurement process. This capacity could in some cases be linked to farmers who may for various reasons choose not to collectively aggregate, but wish to have access to markets outside their own location. Linking small traders to farmers and farmers organisations provides an opportunity for farmers and FOs who do not have existing supply capacity to secure a WFP contract, to still benefit from the market created. As demonstrated by the Rabson maize mills contract, the traders while still acting as middle men, were able to offer better prices to farmers than their competitors, which in all likelihood had a direct impact on the livelihoods of those farmers who benefited from the sale. While Rabson maize mills were satisfied with the price they received for sale to WFP (and had a definite impact on the prices offered to farmers), the same cannot be said for Mapira trading who also received a contract at the same time for the same commodity, but was less enthusiastic about the result. Mapira trading is a medium sized shop on the corner of Phalombe main market area. Next door to the shop, queues of people line up to receive their fertilizer subsidy from ADMARC. The heat of the Malawi summer, dust from the unpaved main road and the waiting crowd mean that Mapira trading, which amongst others products sells cold soft drinks, does a steady business for most of the day. Mapira Trading trades in maize, pigeon peas, sunflower seeds and masala. It is a family business run by Ms. Grace Mapira (sister) and Mr. Emanuel Mapira (brother). In July 2011 Mapira trading, was awarded a contract for 85 MT (1700 bags) of pigeon peas. If we had known, we would not have done the contract, it was very hard work and the prices were not good.

4 Grace explains that while initially the price of 70Mk a kilogram was above the market price in Phalombe for the commodity at that time, when the price was negotiated the men failed to take into account an unforeseen and increased demand for the same commodity from Asian traders. At that time Asians started buying and people didn't know that prices would go up. You, [WFP] you should have paid more because of the labour. You have made us to suffer from this price. Grace tells us that for one month she supervised the winnowing process and oversaw the women employed to do this job. It is not easy; it is hard and takes too much time. During the same period as the WFP contract, Mapira trading also sold to Asian traders for the same price as WFP (70MK a kg), but Grace feels this was a better business deal because there was no hard labor involved. The strict quality standards required by WFP meant that Mapira trading needed to invest time and money into the sorting, cleaning and moisture checking process, which they normally do not do when selling to other buyers. Grace attributes this difference to the fact that Men do not think about these things [added expenses] when negotiating a contract because they do not have to do the work. In Malawi, like many developing nations, work is divided by gender. Women s work is usually seen as less important than men s work and is typically equated with cleaning, cooking, child raising and food production while men s work is seen as more important and is related to decision making especially with regards to selling crops and deciding how money is spent. With this in mind the monitoring team asked Grace how she deals with being a female trader in a largely male dominated profession. Women have been oppressed; we are taken as if we are not able, that we cannot deliver so they are not given responsibility. It is not easy [being a female trader], I have to be careful how I deal with these boy s who buy for us. They have our money so they could steal it, so I have to watch all the time, but I cannot treat them hard in case they run away. Both traders experienced the contract with WFP in two different ways, which was affected by their gender perspective as well as business strategy. Prices were almost the same and in fact Mapira supplied less tonnage at a higher per kilogram price. Notwithstanding this, the experience and satisfaction with the WFP contract are markedly different. Mapira trading repeatedly mentioned that the added expense linked to the WFP quality control standards was not worth the opportunity created by the contract. On the other hand, even though Rabson had to go through the same process with the same expenses, they were largely satisfied with the profit margin they made. The difference may lie in the approach of the two businesses towards business opportunities and creating long term market opportunities. As Wellington stated WFP is a good organisation to do business with and you must also have good knowledge of how to do business. You must make sure that you are always available as a supplier. The case highlights an opportunity for P4P Malawi to target female traders in the future The side benefit Procuring from the two traders had other benefits besides from the increase of prices for farmers and includes the transferred benefit that this has on local communities and farmers. P4P registered farmers organisations are not present in all surplus districts and the contract with the two small scale traders in these Phalombe district improved the chances of farmers to access the market created by WFP. These two traders also indirectly created opportunities for employment of the local community to help with bagging, cleaning and sorting of commodities. An example of this is Esnet Chilipu who is 74 years old; at least she thinks she is. She doesn t know exactly when she was born, but her voter s registration card says 1938, so she uses this as her official age. She lives with her husband (who is blind) and her orphaned grandchild, in a small sun baked brick and thatch house on the outskirts of Phalombe Boma in Southern Malawi. In the blazing sun and 41 degree heat, Esnet tells us about her work with Mapira Trading on the P4P contract where she was employed along with ten other women to winnow maize in order to meet the required WFP

5 quality standards. They (Grace Mapira) told me that there was an opportunity and asked if I wanted to come to winnow. I used to assist the late Mrs Mapira that is how they knew me Winnowing is an extremely labour intensive process of separating unwanted plant parts from the desired food product or seed. It involves vigorously shaking a basket, so that the chaff rises to the surface and can be blown away. For 250 Mk ($1.51) a day, Esnet winnowed five bags of pigeon peas (250Kg a day) for a period of one week. She used 800Mk of this to pay someone to prepare and till her land, as her and her husband are unable to do this work anymore themselves and the rest she used to pay for daily consumption needs. Esnet usually relies on handouts from the community and says the opportunity to do some work gave her a feeling of self-reliance and independence. It is better than begging because you receive something yourself. 250Mk can buy: 28 g Usipa- small dried fish: 58kcal Soap for one week 1kg of milled maize: 2900 Kcal Tomatoes- 3 medium: 33kcal 2 Tbs Oil: 251 kcal Total: Kcal Some perspective # of Calories burned during winnowing: kcal per hour # of calories a Malawian adult needs to consume: 2100 Kcal a day The average Malawian income is: 45 MK per day ( $27 cents) or $100 a year The average Malawian lifespan is: 51.7 years In Malawi older people are amongst the poorest and most vulnerable and frail older people living alone are most at risk from malnutrition. With the increasing socio-economic difficulties being experienced in the country, children are unable to look after their ageing parents and the community fails to provide for the needs of the elderly, especially as elderly women still constitute the group most frequently accused of witchcraft. The plight of the elderly is worsened by the direct and indirect effects of HIV/AIDS and many elderly people are forced to take on the added burden of looking after orphans. We [elderly women] don t have many opportunities for work, so if there are opportunities we are happy to do the work. Now we are just staying here, that work is finished. The opportunity created through Mapira trading, while physically taxing, provided a situation where women like Esnet were able to find work and provide much needed income to the family. An unintended consequence of P4P contracts could relate to the creation of short term jobs for the local community especially vulnerable women and the elderly. Mapira trading is by no means the only example of such transferred benefit to the local community and so procuring from small scale traders provides a significant entry point for WFP contracts to benefit farmers and local communities outside of the districts that participating FOs are located. Lessons learnt/conclusions In conclusion, the WFP contract in the case study was experienced very differently for the two traders involved. While the concerns raised by Mapira trading on the added expense of WFPs quality control standards signify an area that should be investigated in terms of how this could impact on FOs participation on WFP contracts, the more interesting points raised by these case studies relate to the secondary impact that the contracts had. Not only did the contracts benefit the two traders and their immediate businesses and families, they also had a large impact on surrounding farmers and local community members. While obviously, it is not P4Ps intention to significantly impact local market prices over the long term, higher more realistic prices on the market, offered by traders who have a WFP contract positively impact the livelihoods of local farmers. They also create competition amongst traders and vendors for the commodity in question, allowing the farmer to choose who he sells to in order to get the best possible price. Nevertheless, as a caveat to this it is important for P4P to monitor such market prices to ensure that these increases don t negatively affect market participation by other buyers and conversely limit access to market opportunities for farmers.

6 Secondly, the gender roles illustrated through this case study represent an interesting research agenda for P4P Malawi in the future. Gender roles and their impact on the participation of women in market opportunities, is an important constraint on how P4P improves the livelihoods of farmers. This case study highlights an alternative source of income for women involved in agriculture (through cleaning, sorting etc) which could be investigated. However, this also needs to be looked at in terms of how these women are paid in relation to their male counterparts to ensure that this is fair and that women are not being taken advantage of. Lastly in order to access the extent of the possible impact that buying from traders can have on the larger community, it is important in future contracts with traders to conduct a more in-depth monitoring activity. Staring from the commencement of the contract, prices in the local market need to be analysed against those prevailing in the previous weeks. This also needs to be compared to how the market functions following the conclusion of the contract. Wherever possible, information on exactly how many farmers are selling to the traders involved should be captured, in order to show the reach of the impact. Discussions with women and community members involved in the handling of the commodity should also be held in order to get a more detailed understanding of the experience of all beneficiaries to the contract. Issues for follow up Number of farmers that Rabson or Mapira buys from specifically for the fulfillment of a WFP contract. What types of farmers contribute to sales to the two traders? Capacity and infrastructure of the two traders. Warehousing facilities, equipment etc. Quantity of produce sold by individual farmers Market prices in markets used by Mapira & Rabson prior to WFP contract, during aggregation for contract and after contract. Has participation on the BVO changed the way that traders do business? Are traders utilizing the ETAS system for opportunities outside of WFP contracts? Number of community members employed for labour during cleaning and sorting process for WFP contract. Subsequent secondary employment of Esnet Chilipu during contracts for WFP. What is the relationship between traders and farmers? Do traders try to improve the capacity of farmers to deliver high quality commodities?