Food Part 9: The Hunger Puzzle

July 7, Tuesday
Food Part 9: The Hunger Puzzle
(Food, Agri-business)

Pictures, Agriculture, 6/18 –Maize mill 2

(Note: this is a continuation of a series. To start at the beginning go here: http://cheetahdevelopment.blogspot.com/2009/06/food-part-1-farmers-markets.html

(Summary: a review of the maize value chain including farmers, traders, and maize mills raises the question of why doesn’t the food value chain work.)

So in our last installment we were talking about broken value chains and how solving them is not only a good business opportunity, it’s also the way to change thousands of lives. We were taking a look at the food value chain in particular because it is the source of many of the problems of hunger and poverty in Africa. The core problem isn’t a lack of food because 40% of the food goes to waste. The core problem is that the value chain doesn’t work.

As an example, we were drilling into one part of the value chain that is broken. Maize is a key staple in many parts of Africa. In the Iringa area, which is one of the largest maize producing areas of Tanzania, the maize mills producing flour struggle to get enough maize to run their operations. This seems strange because Iringa is surrounded by fields of maize in every direction.

Understanding this puzzle helps to unlock part of the mystery of why there is a problem with hunger when there is plenty of production.



(Pictured: maize farms in the village.)

The Maize Value Chain
Each of the maize mills tries to source their maize in the surrounding villages. They either buy from traders or act as their own trader to purchase the maize. A ‘trader’ is a type business person that is common in everywhere in the developing world. The traders are middlemen that buy and sell throughout value chains in nearly every type of industry. Indeed, they are often the only links between many parts of the value chain.

Drilling into this small segment of the maize value chain provides an example of the roles that traders fill. I took the time to meet with traders, too. In Iringa, the maize traders (often trading in a variety of agricultural products) go into the villages and negotiate with villagers to purchase their farm goods. This can be a frustrating experience for a trader. In time honored African tradition, the trader has to go through a negotiation that may last a half hour and result in no purchase. They do this from shamba (farm) to shamba, slowly acquiring the goods they are seeking to trade. I’ve been told that may take a whole week to fill one truck. The traders say that this is a frustrating process and you can’t trust the farmers. Makes you feel bad for the traders, right?

Why does it take so long for traders to fill their truck? Remember that in just one village, Ilambilole, there is 2000 tons of maize production.

So let’s take a look at the farmers. In the negotiation the farmer is likewise frustrated. They find that the trader is trying to buy their crop at about or below cost. If they are selling a crop that might have a little shelf life like maize or rice, the farmer knows that the lowest price is right at harvest when there is abundance and as time passes the price will rise. The farmer has the crop, thus is eating, they are selling their excess and therefore can afford to wait. Why sell your crop if you’re not going to make much on it?

Over the course of the year, the farmer can see an increase in maize prices of about 30%. The food factory will see an increase of about 100%. The trader enjoys the spread. The farmer still loses because without proper storage the maize crop will deteriorate about 30% - or about as fast as the price goes up.

By the way, the farmers say the same thing about the traders: “You can’t trust them.” For some the hatred of traders is intense. We’ll take a look at this in a bit.



(Pictured: a maize mill store front.)

So let’s take a look at the mill owners. They say their number one problem is getting enough input. Clearly, the traders are not delivering enough. The mill owners have a few choices. I have seen all of the following tactics used:
1. The mills can buy from the traders. Some larger mills are dealing with hundreds of traders.
2. The mills can become their own trader and go direct to the farmers. This is a huge project but some undertake it. It doesn’t provide big dividends because they become just one more trader wandering through villages. Anna Temu of Power Foods (featured elsewhere in these blogs) is considered an expert on farmer relations because she is dealing with thousands of them. Even when she tries to create enduring, helpful relationships with farmers, traders may step in take the crops out from under her. Proof that it’s not working: she could double her sales instantly if she could get more input.
3. The mills can go elsewhere and buy from a source that has a large supply. This is why one small mill in Iringa is going 600 killometers to Sangea to get maize.
4. The mills can go overseas for supply. I am told that the large grain elevators in the port city of Dar es Salaam are filled with grain from the USA, Canada and elsewhere. The need to find an aggregated source explains this importation of grain in a country that has an excess.

(There does seem to be inadequate production of soybeans, millet, and wheat. Actually, this failure in the value chain explains that, as well. Farmers that grow these ‘exotic’ crops are even more frustrated, often selling nothing.)

By the way, the mill owners generally don’t trust the farmers or the traders, either. How could they when they can’t keep their factories running?

This value chain puzzle remains unsolved.

I guess you’ll just have to read another installment of this series to find out why the value chain is broken.

To continue this series go here: http://cheetahdevelopment.blogspot.com/2009/07/food-part-10-traders.html