Lessons from Cereal Banking in Western Kenya Sustainable Agriculture Centre for Research Extension and Development in Africa Eusebius J.Mukhwana, Vitalis Ogemah and Johnstone Odera SACRED Africa P.O. Box 8771-00200 Nairobi, Kenya Email: director@sti.co.ke
Background Smallhold farmers trapped in good season-poor market dilemma Discourages technology transfer and reduces surplus production Opportunistic middlemen too often dictate gate prices Inadequate storage aggravates post-harvest loss, especially with the rapid invasion by the larger grain borer (losses est to be 30-40%). Fertilizer and seed costs are high, resulting in higher costs of production. Problems associated with the liberalization of the grain sub-sector in 1992.
Operating within a newly-liberalized economy is proving difficult for smallholders Farmers used to producing only half job done. Liberalization farmers ill-prepared. Lack of capital, capacity, business acumen, stronger producer associations, transport and market information. They needed to confront the situation found it difficult to play as individuals. Several studies show how liberalization has led to plummeting of commodity prices and increased the exploitation of small holder farmers.
In western Kenya, CBs were intended to help farmers deal with certain constraints Notably the low level and difficulties of home storage Over-selling of grain due to financial constraints and buying back at higher prices Seasonal price variations Enable farmers to exploit certain opportunities, i.e. to improve the quality of food consumed in the home, to add value to the grain they marketed and support their efforts to intensify production.
SACRED Africa with other NGOs worked with 32 farmers groups in western Kenya to improve Marketing
MMM: Maize Marketing Movement Overall Objective: to design, evaluate and refine a pilot maize marketing system suitable for smallhold farmers in western Kenya Activities Assess and improve post-harvest handling operations Establish and train members of local cereal banks to form profitable community cereal banks that market maize Identify constraints to farmer participation in collecting marketing activities.
CBs were created to address a range of constraints and opportunities facing farmers in western Kenya, as follows: High seasonal price fluctuations for maize Inaccurate weights and measures Farmers limited storage of grain for home consumption, and linked to this, their over-selling grain at low prices and buying back at high prices Difficulties of home storage - many farmers would like to store for their own consumption, or to sell when prices are high, often fail to do so because of the hazards they face when tying to store at home Sellers can add value, by: o Improving grain quality
The Maize Marketing Movement relies upon farmers working together to aggregate large volumes and volunteer labor to improve quality
mix 2 kg sample 200 g sub-sample inspect moisture content 13.5% broken grains 2% foreign matter 1% diseased and discolored 3% insect damaged 3% other color grain 1% prevent (improve shelling and drying) Poor markets., little volumes or poor quality? screen re-inspect re-bag (in 90 kg sisal bags for fumigation) dry
The typical structure and responsibilities Of a Maize Marketing Movement Public relations and Marketing Grain Quality Expertise: Established laboratory and develop grain processing protocols & stds Overall supervision and community liaison Research Extension Marketing Accounting & record Keeping Legal services Cereal Bank Management and Training. Established cereal banks and trained their members Socio-economics: Establish socio-economic baseline, design marketing strategy,monitor & Evaluate project progress Central Bukembe Chwele Mayanja Nalondo Sirisia
farmer farmer farmer farmer farmer farmer farmer Local CB 1 Local CB 2 Central CB miller wholesaler exporter Maize marketing structure retailer consumer
Group Organization and Capacity Building Established local marketing associations with elected officials and audited records. Tasks assigned among members for processing, storage and marketing. Training provided in marketing, grain quality, group management, leadership, and recordkeeping. Criteria established for calculating transaction costs and sharing benefits and losses.
Participants received a certificate and badge of membership during the final ceremony of the training program.
Nalondo 101 members 63 tons Mayanja 56 members 53 tons 38 t 31 t $6630 $5483 Sirisia 40 members 49.8 tons 32 t $5672 38 t Main bank 120 members 92.7 tons $6551 Chwele 88 members 63 tons 21t $3629 Bukembe 48 members 45 tons Assembler Local $102 ton higher prices NCPB Bungoma $154 ton -$21392 -$8289 252 t $47097 Unga Millers Nairobi $202 ton
TABLE 1: MEAN MONTHLY WHOLESALE BUYING PRICES FOR MAIZE IN BUNGOMA - Ksh / bag Month 2001 2002 2003 2004 2005 January - 592 912 1,123 1,394 February 1,240 612 1,026 1,297 1,413 March 1,227 666 1,097 1,466 1,480 April 1,239 575 1,167 1,531 1,478 May 1,221 746 1,330 1,562 1,547 June 1,136 869 1,521 1,531 1,615 July 987 997 1,801 1,552 1,542 August 653 801 1,619 1,412 1,043 September 544 718 1,000 1,189 816 October 524 955 925 1,185 760 November 545 920 1,051 1,270 780 December - 1,000 959 1,320 840 Source: KACE - not available TABLE 2: MEAN MONTHLY WHOLESALE BUYING PRICES FOR MAIZE IN KISUMU - KSh/bag Ksh / bag 2001 2002 2003 2004 2005 January - 720 1,044 1,290 1,536 February 1,233-1,202 1,466 1,541 March 1,280-1,213 1,630 1,469 April 1,197 801 1,409 1,646 1,530 May 1,188 952 1,559 1,709 1,595 June 1,159 999 1,751 1,616 1,600 July 951 936 1,928 1,689 1,530 August 923 900 1,654 1,521 1,347 September 780 928 1,395 1,536 1,188 October 711 960 1,202 1,535 1,170 November 711 1,040 1,281 1,562 1,170 December - 1,040 1,195 1,562 1,182 Source: KACE - not available
TABLE 3: ESTIMATE OF PROFITABILITY FOR INTRA-SEASONAL MAIZE STORAGE IN BUNGOMA, (A) USING NCPB WAREHOUSE, AND (B) AT CEREAL BANK - in KSh/bag Averag Month 2001 2002 2003 2004 2005 e January - 592 912 1,123 1,394 - February 1,240 612 1,026 1,297 1,413 - Average 1,240 602 969 1,210 1,404 1,085 - - - - - - June 1,136 869 1,521 1,531 1,615 - July 987 997 1,801 1,552 1,542 - Average 1,062 933 1,661 1,542 1,579 - - - - - - - Gross profit (179) 331 692 332 175 - a) Computation for NCPB store - - - - - - Capital cost (2%/month) 124 60 97 121 140 - Storage cost 50 50 50 50 50 Shrinkage (2%) 28 14 22 28 32 Total 202 124 169 199 222 Net profit (381) 207 523 133 (48) 87
b) Computation for cereal bank* Capital cost (2%/month) 124 60 97 121 140 - Rental 40 40 40 40 40 Storage insecticide 20 20 20 20 20 Salaries 93 93 93 93 93 Licenses 5 5 5 5 5 Shrinkage (2%) 28 14 22 28 32 - Amortisation of equipment 18 18 18 18 18 Total 329 251 295 325 348 Net profit (508) 80 397 7 (173) (39) * Assumptions: store capacity 400 bags, average capacity utilisation 75%, rental 2,000/= per month; labour cost - organisating secretary 2,500/= per month, security 1,000/= per month, handling labour 100 days @ 70/= per day; licenses 3,000/= per annum; equipment costs 33,000/=, has 5 years life and uses capital with opportunity cost of 20% pa. Allocation of these costs: 50% to seasonal storage; 50% for regular buying & selling. Note: cost of empty bags are not included on the grounds that they would be necessary even if the goods were not stored.
CBs contributed towards seasonal price stabilisation in the villages concerned CBs trained farmers about grain quality and running a business. CBs for the main part traded entities, mostly selling grain produced by non-members The level of profitability on the main product (maize grain) was generally low There was a high level of external supervision (un-sustainable) Despite the introduction of rigorous accounting, it was difficult to prevent fraud. There was a general expectation of continued assistance by donors/ngos And in most cases a reluctance to make them self-sustaining in the near future
Some findings Many households produce too little surpluses to take part in the movement. The availability of maize surpluses depends in part upon household eating habits and use of alternative staples (banana, millet, sweet potato, cassava, etc.) Self-help groups are usually too small to become marketing associations but may be combined, and then trained in quality control, storage and marketing. Good record keeping and accounting as well as auditing is important for instilling confidence in the system. Outsider support is important. Regular sharing of information about the project as well as profits/losses is crucial. With good quality maize marketing is not a problem, inability to efficiently handle large volumes is more important
What this Project accomplished! Improved the quality of marketable maize Facilitated the transformation of producer associations into marketing associations?. Helped to stabilize the prices of maize in the local areas. Improved the business acumen of farmers. Provided market information and build the capacity of farmer groups to carry out market intelligence. Enabled farmers to sell maize to large scale millers Empowered farmers to take charge of the market of their maize. Provided small-scale credit for maize purchases and improved farm input supply. Need to think about value adding!!!!!
SACRED Africa s Maize Marketing Centre in Bungoma town, Kenya Test and correct grain quality during cereal bulking Store up to 250 t grain during poor market intervals
Conclusions Registered farmers benefit more through the business of buying and selling than enjoying a better pay for surplus sales The success of the cereal banks as profit making enterprises depends on efficiency in maize stock turnover and cost reduction through the usual maize selling season More efforts are needed in establishing maize surplus farmers Facilitate farmers to enjoy long distance and/or organized markets that may provide better prices. The services by the cereal banks served to reduce post harvest losses.
The poor performance of CBs was attributed to a failure in four different areas: Spatial arbitrage, i.e. trading between geographic locations. SACRED Africa had not anticipated the highly competitive nature of private trade, and that net margins were thin. In this environment, CBs found it difficult to compete with private traders and for the most part had lost money. However collaborating NGOs mitigated the problem by subsidising transport. Temporal arbitrage, i.e. speculative storage. Some CBs were successful at this activity but these cases were rare. Generally speaking NGOs had over-estimated the gains to be made through speculative storage of grain, and some years such activities resulted in losses Lending of grain to local people in the lean season. In this case the result was generally disastrous, and members who borrowed frequently felt little obligation to repay. The effect of outside monitoring and support by sponsoring organisations. While the support continues, CBs experience problems but continue in business, but when it ends, they generally decapitalise and cease operations. Supervision was moreover deficient on the side of formal accounting measures;
CBs having difficulty competing on spatial arbitrage. It is hard to envisage them prospering in this role without the subsidised or free transport services and contacts with NGOs supporting CBs in other districts. CBs buying at above market rates and selling at below market rates lending of grain in contravention of established rules, and poor attitudes of members to repayment of debts slow collective decision-making corruption and insider loans decapitalisation where the NGO does not establish a tight and unsustainable system of supervision. For the most part, this seems to be the required condition for preventing corruption Incomplete accounting data and consequently less than desirable transparency for members and outside financiers
Acknowledgement The Rockefeller Foundation for funding the maize marketing movement Farmers SACRED Africa staff The Ministry of agriculture