Food Part 10: Traders

(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: the value chain break in the maize food process is identified as being connected to negative incentives for traders.)

We’re on a mission to solve an important puzzle: unlocking the mysteries of hunger in Africa. There’s not a shortage of food but people are hungry. To understand, we’re drilling into one part of the value chain of maize in one region of Tanzania.

So we’ve looked briefly at the maize farmers, traders, and mills. We see that nobody
trusts anybody. That’s very counterproductive to making a value chain work and clearly part of the problem. We also see that the farmers can’t sell their product and the mill can’t buy enough.

(Pictured: the shelling of maize by beating it with a stick on a table of open branches.)


There is enough dysfunction that everyone has some blame in the problem. But notice that the farmers are growing enough and would like to sell more. Also notice that the factories are big enough to buy more and have excess demand. So the farmers and the factories are doing their job at least beyond the capacity of the current system. Therefore, at least for the moment the heaviest part of the blame needs to be placed at the feet of the traders. So let’s take a more careful look at traders.

Traders fill valuable links in value chains in nearly every industry. It’s kind of neat that as a factory you can open your doors and not worry about sourcing your inputs or distributing your products. Hundreds of traders will show up with baskets, bicycles and trucks filled with the inputs you need and ready to distribute your product. The factory doesn’t have to lift a finger and invest in these solutions.

There are thousands of traders and they are often operating in the informal sector of the economy as unregistered businesses not paying any taxes. Many people want to be traders because many traders are wealthy.

Without traders, the economy wouldn’t work at all. They are a vital part of how things get done.

On the other hand, we see that trader model doesn’t work to meet the needs of the value chain, at least in the case of this maize value chain in the Iringa area.

It isn’t that the traders aren’t doing their job, even though I implied that. Actually, they are doing their job very well. They are responding to the incentives that are at work in the system.

It turns out that the trader is maximizing their profit. As good capitalists, they want to buy at the lowest price and sell at the highest possible. Here’s some of their strategy:

#1: Buying Low

The trader can buy at the lowest price if the farmer is also a borrower. As we have discussed elsewhere in this blog, these money lending schemes are common across the developing world. In this maize example, the trader loans to the farmer either the seeds or the capital to purchase seeds. The terms of the loan require the farmer to sell their crop to the trader – at a very low price. The trader wins three ways: they have a pre-negotiated right-to-purchase, they have a lower price, and they make money on interest on the loan.

And they win a fourth way: they keep the borrower poor enough that they never break the cycle and so they are trapped indefinitely.

Clearly the trader benefits substantially from such an arrangement. Why would a farmer ever agree to such an arrangement?

Easy answer: they don’t have a choice.

Life in the developing world is much more precarious than in the developed world. For example, even a small illness can wipe out one’s life savings to buy medicine. One’s saving includes next year’s seeds. And illness and death are not uncommon.


(Pictured: a maize farm in front of the mountains.)


All a trader need do is find someone who has suffered a setback and requires a loan to continue. As you can imagine, needy people are common in the poorest nations on earth.

(This is one of the reasons why microfinance is so needed in the developing world. Microfinance can help to prevent these endless cycles of poverty.)

There are important things to notice about this situation:
· The trader has an added incentive to buy low – extra low. Farmers that are well off are much less likely to be caught in such a cycle of money lending.
· In more helpful value chains, buyers want their sellers to be productive and healthy. This gives them a supply side that they can count on. This is not true in this value chain.
· It is not surprising that there is strong distrust between traders and farmers. Indeed, many farmers hate traders because they have been caught in a money lending cycle or their neighbors have.
· Since the trader is buying at such a low price, the farmer has added incentive NOT to sell. Of course the negotiations are long. Of course the farmer doesn’t like the buyer – doesn’t even want to sell to them. How can there be a successful negotiation when the parties dislike and distrust each other?

#2: Selling High

How does a trader sell at a high price? Another easy answer: supply and demand. If the factories had all (or close to all) the input they needed then the price would fall. Traders keep the factories desperate for input because that keeps the price at its highest. This explains why factories are operating consistently at 20-40% of capacity. This is the line of desperation where the price will be highest. They are still in business and can buy the product. Any lower and they fail (many do). Any higher and they become more independent, more profitable, and the price falls.

There is no need to have a conspiracy to set prices among traders. The numbers will speak for themselves.


Why are maize mills unable to source their maize from the nearby farmers? Puzzle solved!

This is an example of a broken value chain. It isn’t a lack of food that is causing hunger; it is broken value chains.


Next: The Invisible Hand


To continue this series go here: http://cheetahdevelopment.blogspot.com/2009/07/food-part-11-the-invisible-%20hand.html

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

Food Part 8: Resources without Resuls

(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: Tanzania and much of Africa is blessed with significant resources. The potential of this opportunity is often unrealized. We drill into the value chains and find an example: food grown in a village is not available to be used only 25 Km away even though both buyer and seller want to link up.)

In our last installment we laid out our basic business strategies to address the broken food value chain in Africa. There are three basic concepts: Unite Farmers, Preserve Food, Add Value.

These three are built upon a common strategy: find places in the value chain that are broken. This is where the opportunity lies.

One of the questions I most often hear from locals is, “What do you think of Tanzania?” They want to know what a westerner sees – what is our point of view. As a business person, what I notice first is business. I can’t help it; it’s what my eyes are trained to see. In the case of Tanzania, what I have noticed most is the lack of businesses. Things we take for granted are missing from the landscape.

For example, although there is instant coffee it is very difficult to find a cup of fresh brewed; this in a country that grows some of the best coffee in the world. If you are a Starbucks or Caribou addict you would notice this immediately. (I’m not because I’m sensitive to caffeine.) Missing businesses may mean there is opportunity. To continue the example, a carefully located coffee shop might do very well.

More accurately, need usually equals opportunity. (This is the basic reason why there is a link between business and helping people.)

When Tanzanians ask me what I think of their country, I tell them that there is opportunity everywhere.
This is not a polite way to say a hard thing. It’s the truth. Tanzania is blessed with substantial resources:
· Perhaps 6% of the fresh water on earth, including large amounts of hydroelectric power, and lakes to rival the US Great Lakes.
· Enormous mineral reserves.
· Coal was recently discovered.
· It is rumored that oil was just discovered.
· Some of the most beautiful areas on earth including the Serengeti, Mt. Kilimanjaro, Goro Goro Crater, wildlife in abundance, etc.
· Huge tracts of arable land and eco-diversity that can support the raising of nearly any agricultural crop.
· A peaceful, hardworking people that have lived in a stable democracy since 1961.

Tanzania is not alone. Africa is blessed with abundant resources across the continent. The problem is that the value chains across nearly every industry are broken. Three notable exceptions: soda pop like Coke and Pepsi, beer, and cellular phones. These three are available everywhere – even remote villages. Soda, beer, and cell phones are not exactly life’s key staples. It’s ironic that sometimes the only clean drinking water you can get is a bottle of pop. However, it’s proof that given a focused effort, things really can work. You can get a bottle of orange Fanta® even in a remote village!

As a business person, what I see is business; in this case, broken value chains. Opportunity is created when you can serve a need. That’s why “necessity is the mother of invention.” The most important needs are in the middle of value chains because they serve so many people by connecting products from source to user. Therefore, when you follow the value chain and see where it doesn’t work it’s like following the rainbow to a pot of gold. These are the real key business opportunities. And this is where you can really change a lot of lives.

(Picture: meeting with a maize mill owner in Iringa.)

When I went to Tanzania, I started by speaking to a number of factories, including food factories in the first few weeks. The food factories I visited were running at about 20-30% of capacity. (Actually, this was common in factories of every type.) Without exception, food producers said that there number one problem is getting enough input. Everything that they make they sell that day. I sat with the CEO of a leading food producer while she took call after call from people wondering why they aren’t receiving the orders they have placed. The problem isn’t lack of market; its lack of input. Management often puts a majority of their effort into sourcing their raw food stuffs.

As I explored the country, this problem replayed itself over and over for every type of food. The caterer at Tumaini University in Iringa is struggling to feed students and staff because she can’t source enough chicken, eggs, vegetables, etc. She is now opening her own truck farm to grow her own vegetables. Chickens were such a problem that she wanted me to invest in a chicken farm for her. In fact, the 2nd largest chicken farm in the country is owned by a caterer in Dar es Salaam. Sourcing food is incredibly difficult and one of the value chains that is most broken.

Because hunger is such a terrible problem, I kept digging.

The Iringa area is one of the four largest maize growing regions in Tanzania. Iringa town is surrounded by hundreds of villages where fields of maize are ubiquitous. I have been in many, many of these villages and literally met with hundreds of farmers. The farmer’s number one problem: they can’t sell what they produce. In the village of Ilambilole, we spent time quantifying the maize production. This village of 1000 families probably produces about 2000 tons of maize per year.

Back in Iringa town I met with four simple operations whose primary business was to purchase maize and mill it into flour. Each of these businesses had the same number one problem: they couldn’t get enough maize!

And they are in the heart of maize country! 25 kilometers away, one village could supply much of their needs. One of these mills was sending trucks 600 kilometers to get their supply!

I like cross word and other puzzles. Getting my head wrapped around this problem was one of the most compelling challenges of my life. Not because it is so tricky but because it is so important. We are talking about the heart of the hunger problem in Africa. Remember, there is no shortage of food production and 40% of what is produced rots. Although not that complex, it took me about a week to see what was happening.

Getting to the ‘aha’, ‘eureka!’ moment is really satisfying. I think it will be for you, too.

To continue this series go here: http://cheetahdevelopment.blogspot.com/2009/07/food-part-9-the-hunger-puzzle.html

Food Part 7: From Subsistence to Substance

(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

In the last installment of this series, we talked about how complex the problem of hunger is – and that source of hunger is not the lack of production. The source is a broken value chain. In this installment we will present straightforward concrete steps that can address many of these problems. Is it easy to accomplish? No, and it’s definitely harder than just giving away food. But it can make a lasting change.

(Pictured: a village farm.)

Cheetah uses an innovative model of micro-venture capital. This model combines micro-finance and venture capitalism by way of university partnership. As a result, the cost of investing is lowered and we are able to provide investments in small businesses in the developing world. (To learn more about this approach and its many benefits, please visit our website at http://www.cheetahdevelopment.com/ )

We are now working on applying this model to the food value chain.

As we have previously said, business is the only successful model for economic development in the history of the world. The vast majority of the problems of hunger in Africa do not stem from lack of production, they stem from lack of an effective food value chain: purchasing, transportation, storage, processing, preservation, etc. These are all businesses! The solutions do not lie in giving away food. They lie in creating businesses. How do you do that? You invest and mentor and you do it strategically. You invest in agribusiness.

What does strategic investment look like?

Well let me first say what it doesn’t look like because I think there are some myths that have been created by western perceptions:

• It’s not bringing western farming methods with big tractors, plows, etc. Remember, the core problem is not production; it’s value chain. African countries are 70-90% subsistence farmers; they cannot proceed in one fell swoop to the western model of 3%. No one would have a job and dependency would be worse than ever.
  
• It’s not rushing to build gigantic western style food factories. The local value chain is too fractured for that. Neither enough commodity inputs nor the effective distribution to receive and sell all of the production is currently unavailable. No, the economy must grow from the ground up just like economies always have. And just like Brazil, Russia, India and China, it can happen quickly. But that means economic investment not drowning in donations.

(Pictured: rice waiting to be milled.)

• I think a desire for western style production has caused too much emphasis on exportable commodities like coffee, tea, sugar, chocolate, and vanilla. How much coffee, tea and sugar can the world really use? (Though in my opinion, it can always use more chocolate – ha!) And notice two other things: with this approach local people are not fed and local value chains are not fixed. One good thing: some local people have a successful business and income though they are very interlocked with western economic swings.
  
• Finally, to the disappointment of many locals, it does not involve investing in any individual farmers. That’s picking winners and losers and the value chain is still broken. Rather it is finding businesses that can benefit many, many farmers and many, many consumers and demonstrating that the value chain can work.

On the positive side of the coin, what is Cheetah’s agribusiness investment strategy? It’s deceptively simple. It’s finding agribusinesses to invest in that primarily fall in the following three categories:

1. Unite Farmers: Bring farm production from many farmers together to increase value and provide reliable, consistent food processing inputs

2. Preserve Food: including in large volumes and not just flavoring sauces and jams, which are common.

3. Add Value: move from food commodities to products through improved quality, unique characteristics, processing, etc.

Stop.

Don’t jump over this list. It is the heart of our discussion. This is how Cheetah will work to address hunger through small businesses.

(Pictured: brooms made from maize stalks and sunflower oil.)

In the previous blog on this subject, I listed at least 14 ways the food value chain is broken in Africa. It is a complex and interwoven subject.

However, the three investment strategies laid out directly address all of these problems but a few: drought, government disincentives like inappropriate taxes, and corruption. But even these three are partly solved by our strategies and our micro-venture capital model of investment:

1. Drought: widespread drought and famine are one type of problem and relatively rare. The more common problem is localized droughts. Here the solution is to have a working food value chain so one region’s production can serve another. However at this time, production in the rural area is not even effectively reaching the nearby town.

2. Government disincentives: governments in Africa are becoming far more open to being supportive of investments and are commonly creating agreements to protect and support investors and even expedited processes to do so. Governments are slowly waking up to the fact that aid tends to kill their economy and investment builds it. We are working to structure our investments with these protections.

3. Corruption: the micro venture capital model from Cheetah involves strong university involvement. This assistance helps to shield the businesses from government corruption on the outside and root out business corruption on the inside.

(Pictured: food coming to market.)

So, three straightforward BUSINESS investment strategies: unite farmers, preserve food, and add value.

I emphasize ‘business’ because without this approach it will fail. For example, a farmer’s cooperative for its own sake is a club. A cooperative for business will be a holistic solution that makes sure that production is hooked successfully to the market.

In this context ‘business’ can mean sustainable, transparent, and results oriented: the way to change people’s lives. People really can move from subsistence to substance.

There is a way to end hunger.

We will start by making a dent:
Though small, it will be sustainable.
Though small, it will bring lasting change to the people involved.
Though small, it will be replicable.
Though small, it is designed to grow.

We will emulate the mustard seed and spread like a weed.

This is an innovative but difficult project. We need the help of thousands to succeed. Won’t you join us? Go here to learn how: http://www.cheetahdevelopment.org/How_to_help.htm

Next: the Model Village Project. To continue this series, go here: (Not yet posted).

Food Part 6: Chained by Broken Chains

(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

Many people care about the fact that so many are hungry in the developing world. We are shown pictures on TV of emaciated people and are asked to take action by donating. But what we know about the root causes of hunger is usually very limited. In this blog, I will not show any pictures. For right now, I want you to think hard.

If you care about the problem of hunger, I ask you to be patient and walk with me in the muck and mire where this problem is stuck. If there were easy answers, it would have been solved long ago, because many people genuinely care and much money has been spent.

In Tanzania and most of Africa, the problem is not lack of production. Tanzania produces more food than it needs and 40% of it rots every year. I saw a study that claimed that Uganda could by itself feed much of Africa.

(IMPORTANT!) Therefore, when you talk about hunger, you’re talking not about growing more. You’re talking about better delivery of what is there: what is often called the ‘value chain’.

The problems in the food value chain are many and varied in Tanzania and are shared in various forms across much of Africa. The example of this that I have been providing in the previous blogs might be viewed as overly generalized and simplified. However, there are some common threads to these stories and hundreds more that I have seen. Here are some of the aspects we frequently see:

• The incentives for production efficiency are often missing or negative. For example, farmers don’t see any point in growing more because almost half of the food they grow rots. Middlemen benefit from keeping farmers poor (more dependency by farmers) and supplies to factories low (higher prices when delivered). Animal feed companies are few in number or hiding because of a high and inappropriate VAT tax.
  
  
• Food production tends to come to market all at once and receive low prices.
  
  
• There is very little food preservation. Even simple technologies like hot-water-bath canning, smoked meats, drying are rarely known or used.
  
  
• Most of the sourcing and transportation of food is done by very large numbers of middlemen. Their incentives are counterproductive (see above) and there is no reliable source or movement of food in any consistent fashion. They often make a significant portion of their income through money-lending schemes that keep farmers as bond-servants.
  
  
• The price of trucking is often based on the value of what is moved not weight/volume/distance. This takes advantage of the producers and is a tax on the high value products.
  
  
• The process of sourcing food usually involves negotiating with very large numbers of individually small farmers (thousands). A negotiation may end without a purchase.
  
  
• There is very little trust by members of the value chain for each other. This is exacerbated by the middlemen (currently the key value chain link) who are the least trusted of all.
  
  
• In the past, farmer cooperatives have failed numerous times and were sources of corruption that stole from the poorest of the poor. They are not trusted today.
  
  
• Erratic weather patterns create local droughts and unreliable production.
  
  
• Because of the challenges of sourcing local food (and because of national selfishness) famine relief is purchased within the donor nation (say, in the USA) rather than within nearby countries. This practice keeps local farmers poor by flooding local markets with free food.
  
  
• Famine relief and aid organizations often keep giving when the problem has ended. Ethiopia used to be a food exporting nation. In the west we don’t know that it is a green, verdant and beautiful place because we see pictures on our TV from the deserts in one corner. After a famine more than a decade ago, aid organizations continued to ship ‘relief’ food from the west because for a variety of reasons, none of them very good. After a few years of unneeded aid, most of the local farmers were put out of business. Now Ethiopia really does need the aid and so that’s why they are still on our TVs.
  
  
• The approaches to change are usually not holistic. Many aid and government organizations are focused on ‘dollars of giving’ as the key measure of success rather than ‘income change (profit)’. Development usually fails to address a sufficiently wide part of the value chain to bring change.
  
  
• Big business development tends to fail because it is not prepared to deal with the highly fractured nature of local producers or local markets. It also usually leaves most of the most needy out of the value chain.
  
  
• Because these problems are so complex, it’s easier to just give donations than to make lasting change.
  
  

These are just some of the problems. I want to make it clear that our view of this situation is not simplistic.

But remember where we began: when you talk about the problem of hunger, you’re talking not about growing more. You’re talking about better delivery of what is there: what we call the ‘value chain’.

I will not show you pictures of starving people like you see on TV.

It is degrading. It misses the point. I have even heard it called ‘poverty pornography’. We feel guilty and send $10 and then feel better. But nothing really changes.

In your mind’s eye I want you to see that these people are like you.

They are hopeful. They work hard. They have families. They are smart and resourceful – creating something from seemingly nothing. But they bury too many of their children and too often fail to see their children grow up. No matter how hard they work, fathers too often can’t take care of their families. I think that this is why many abandon their families: out of despair and a sense of failure.

And they are often hungry.

It doesn’t have to be this way. Truly.



Well, OK, here’s one picture.

Next: making a lasting difference. To continue this series go here: http://cheetahdevelopment.blogspot.com/2009/06/food-part-7-from-subsistence-to.html

Food Part 5: A Full Pot of Honey

(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

In our last installment on food, I made the case that it is better to invest than to donate. Here’s a story from the other side of that fence.

I made trip to a village called Kiwere. It is a small village south of Iringa kind of out in the bush. There are 13 producers of honey in this village and another 10 in outlying areas. Oddly, I kept bees for a few years myself when I was in university so I know a fair bit about the craft.

(Pictured: meeting in the beekeeper's house.)

An NGO (non-governmental organization) had come to their village and taught them how to keep safe bees, produce honey and beeswax, and donated the basic equipment to do this. The man who took me to visit Kiwere did so to show me the amazing value of honey because he wanted me to invest in his own creation of a beekeeping operation. A pastor who accompanied me said, ‘It is a treasure hiding among us that we just never even noticed.’

I was noticing something completely different.

The largest producer of the village hosted us, showing his operation from top to bottom. He had enormous volumes of honey, including four each 55 gallon drums full and a couple of 30 gallon drums. By African standards, the sanitary conditions were less than ideal.

(Pictured: a local hive of 'safe' bees.)

When I asked to purchase 20 liters (so I could share with students from Tumaini and the hostel I was staying at) we waited more than an hour for them to prepare it. It turns out that they were searching for a container to put the honey in. When we finally learned of this, we took a water bottle from the car, broke the seal, poured out our drinking water. I purchased a liter and a half. It was the only container we had.

The organization that donated the equipment and provided the training was well meaning but gets nearly a failing grade for results. They might give themselves an A+ because there is honey in production. But the point is that they missed the point.

(Pictured: some of the high quality stainless equipment provided.)

They were thinking like a typical aid organization that gives things away. This is the model that they follow.

…Warning: I’m stepping on a soapbox: It is easier to give away $100 million than to start a dozen successful small businesses. Chosen carefully, these small businesses can have an even wider impact than the $100 million and keep delivering that impact in increasing measure year after year. For a lot less money. And the money is paid back so it can be invested again. To take $100 million and invest it wisely is really hard to do. If you were given that much money in the US or Europe, you would be held to a very high standard.

(Pictured: drums full of honey that remains unsold.)


As was described to me, if you go to a conference of aid organizations, you are likely to hear the keynote speakers’ accomplishments in terms of how much they gave away and how fast. Not end results. Not sustainability.

I’ve been cautioned by people in the aid industry that to say or write this will probably get me in trouble with a lot of NGO aid organizations. And I do want to say, there is a lot of good being done by many organizations. But also a lot of dependency is being created and there is a lot of waste.

(Pictured: a solar powered separator that melts the honey comb wax and filters it.)

Back to the honey.

The NGO that did beekeeping work thought about honey but didn’t think holistically. In a business structure, you are forced to think holistically – the value chain from end-to-end or you fail. And when you failed, it would be clear because there is no profit. That is the built in discipline of business.

If the NGO had been helping to start a business, they would have been forced to deal with a much wider set of issues. Where will the honey be sold? How will it be packaged? What standards for processing will the buyer have?

(Pictured: the recovered bars of beeswax.)

Instead, poor farmers were moved from one crop that they were unable to sell like maize to another, slightly more glamorous one, honey. The poverty persists.


I have told the man that wants me to invest in a new beekeeping operation that he is missing the boat. Instead, of competing with beekeepers, he should find a way to organize the hundreds that dot the landscape. He could solve the core issues: food standards, packaging and marketing. That’s where the money is. And that’s how he could help hundreds of families.


(Pictured: the beekeeper is a leader in his village. You can tell because he flies a flag over his house, albeit tattered.)

But at Cheetah we are left with an understanding gap. When many well-meaning people hear that Cheetah Development is doing business development in the 3rd world, they often react as if we’re polluted by money. That somehow the drive for profit is a sign of an inferior model.

In this case profit equals sustainable.

It is widely agreed that the most important need in impoverished nations is for economic development. The lack of development is at the root of every problem (the reverse of ‘money is the root of all evil’ – which by the way is not in the bible.) Check some more facts: there has only been one successful model for economic development in the history of the world: business.

(Pictured: the local market we visited while they searched for a container to fill with honey.)

Business is a model that provides:

• discipline for success,
• built-in results-measurement and accountability,
• sustainability,
• and a sense of achievement for participants rather than emptiness.

People really don’t want to be given what they need.

At Cheetah, we use business as the model to help people. They respond joyfully. Energetically. They want to engage.

In the developed world we say to each other that ‘it is better to teach someone to fish than to give them fish.’ But we still feel somehow more self-righteous when we are giving the fish. Let’s stop this. And let’s go one better: let’s teach them to sell fish so that they can eat steak if they want – and afford to send their kids to school! Let’s help people get beyond subsistence. Together we can go beyond hunger, beyond barely enough food, to agribusiness. It really can be done.

(Pictured: women filling their buckets at the local well.)


Next: Cheetah’s agribusiness strategy. To continue this series on food, go here: http://cheetahdevelopment.blogspot.com/2009/06/food-part-6-chained-by-broken-chains.html

Food Part 4: Working Together Works

(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

How can a tea truck save the lives of babies? Let’s continue our trip to the tea farm in Tanzania.

The tea that the farmers pick must be transported from the farm to the factory. Its value deteriorates quickly with time – in a matter of hours. The tea must be retrieved from 28 collection points spread over 30 kilometers and then taken another 30 kilometers to the factory. The roads are very rough, winding and narrow. The peak season is when it is raining so they are filled with mud and slippery besides.

The delivery is provided by a contractor hired by MTC that operates around two trucks to their benefit. The contractor is paid by MTC 20 shillings per kilogram or almost 15% of the value of the tea. The contractor does not have an incentive to deliver the tea quickly because their payment is nearly assured. As a result, the tea is often delivered in poor condition affecting the ability of Mkonge to negotiate a good price for their tea. At peak tea production time, the contractor has their attention diverted by high demand of other farms and may fail to even pick up tea in time for delivery.

What the Mkonge family farmers need are a couple of trucks to deliver the tea themselves. We calculate that the trucks will be paid for in about 18 months and then incomes will rise almost 10% per family just to receive the difference in shipping. But this improvement should afford Mkonge farmers the ability to negotiate a better price for their tea, as well. Here’s a picture of the type of truck that they need (it has a 7 metric ton capacity):




You may see this as a truck. It is so much more.

It is documented that a 10% rise in income = a 6% decrease in infant mortality. This is the index of human health that describes the relative health of the entire community. There is a direct relationship between income and health among the world’s poor. Consider that in Tanzania about 11% of babies fail to make it to age 1. Or that a woman’s chance of dying in child birth makes every child born a risk to the entire family.

Do not get lost in the numbers and statistics. I spoke today to a young man at Tumaini University who has become my friend over the last year, Hosea Mpogole. He just lost his six month old baby. These are real people with real losses. There are many who have lost multiple children.


Infant mortality is the index to all human health. Babies don’t survive when human health conditions are poor. For example, yesterday, I met a woman suffering with malaria and still trying to keep her job at an office. When you ask people if they have ever had it, most have survived it multiple times. But it is a constant threat to life. One woman said, ‘It is the prayer of the day.’

And it isn’t just health that is affected. Increased income is directly correlated to a variety of factors. Consider that increased incomes…
= lower birthrates
= higher education rates
= less child oppression
= less domestic violence & more stable families
= more rights for women

OK, back to Mkonge: It is tempting to think that maybe we should donate a couple of trucks. This is the wrong approach for a variety of reasons:

1. It has been demonstrated that economic growth saves more lives than income redistribution. This is economist-speak for saying that investment is better than donations. Here is why:

2. The biggest opportunity for Mkonge is not the trucks. These trucks will have a limited life and need to be replaced. The biggest opportunity is to teach this association how to save and invest. Then they will be able to replace their trucks as needed and invest in a variety of other things that will continue to raise their income. To this end, Tumaini University will be engaging with us and assisting in teaching these skills and monitoring the maintenance and usage of the trucks.

3. Donating the trucks is not sustainable. They will need to be replaced. Who is prepared to make this kind of indefinite commitment? No one.

4. Donating the trucks fails to teach Mkonge how to profit on their investments. By requiring repayment, discipline is built in that teaches this important skill that will reap benefits for many generations. Again, Tumaini University will engage with us to assist in this.

5. If Mkonge demonstrates success in purchasing and paying for trucks the model can be replicated among many other tea associations in the area, across Tanzania and perhaps elsewhere. Based on Mkonge’s history of joint commitment and the fact that MTC is willing to pay Cheetah directly for the contractor’s value, repayment seems very secure. Literally, thousands of lives might be saved and the quality of life could rise for tens of thousands. Mkonge represents around 3000 people just in their association.

Mkonge is a living example of how bringing farmers together can change lives. It also shows how investments in the food value chain can raise incomes and do so more effectively than by donation. This is why Cheetah is looking for agri-business investments that achieve these kinds of objectives.

Next time you have a cup of hot tea or a glass of ice tea, think of the people of Mkonge and their babies. And perhaps to appreciate what a blessing you have – just look at the fact you have ice in the glass and that you don’t have to worry about the water or ice making you sick.

As we made the journey back to Iringa town, the sunset was spectacular as it sank among the mountains in the region.

To continue this series go here: http://cheetahdevelopment.blogspot.com/2009/06/food-part-5-full-pot-of-honey.html

Food Part 3: What's in a Cup of Tea?

(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



How can a tea truck save the lives of babies? Come with me on a trip within Tanzania.

I left the relatively dry mesas around Iringa town and headed south into the highlands of Mfinga. It was about a one hour drive on a tarred road and we stopped and viewed some pottery on the way. One potter in particular really caught my eye as having some very beautiful work. I purchased two of his pieces.

When we left the tarred road we continued the ascent slowly by dirt lanes into the cool and moist hills. In another hour we were in the heart of tea country. The emerald green tea bushes were brilliant and seemed to sparkle even on the cloudy day.







The tea value chain has three main components. The tea is raised and picked primarily by small farmers who are organized into cooperative associations. It is bought from them by a processer, in this area a company called Mfindi Tea Company (MTC). MTC processes the green leaf and sells it to packers: in Tanzania, this includes the locally famous Chai Bora and in the rest of the world, Lipton, Tetley, Twinings and many other brand names. 95% of the tea grown in Tanzania goes for export. This is one of the relative successes of the local economy.

Lets start with the processor, MTC. In the picture below you can see the tea go from rough chop to fine chop to fermented brown. Although the line is moving very fast, there are containers that hold the tea for a while so that the tea moves down the line in a few hours.






Grades of tea are automatically sorted by machines and are picture here. The best is top left and the poorest is top right:

Heating requirements for the factory is supplied by wood, mostly eucalyptus trees, that are forested in the same area and is a renewable resource. One kilogram of tea requires 2.5 kilograms of wood:

Referred by the African Development Foundation, I met with Mkonge Tea Block Association. This is a group of 523 small farm families that together are one of the major suppliers to MTC.

Jointly they have accomplished much including establishing their own micro-finance cooperative, their own pharmacy, their own kindergarten, and their own tea nursery where we saw 1,200,000 tea plants growing! They are preparing to expand the area that they are cultivating and their joint effort has achieved this. Below you can see a picture from inside one of the nurseries. It is covered loosely with dried ferns to create a semi-shaded area. The high altitude makes for a cool climate so the business student from Tumaini is wearing my jacket.

Not only that, the members negotiate as a group to get a higher price from MTC. You can see the results of their efforts in the history of growing production and market value in the chart from their office bulletin board pictured below (notice the trends in the bottom two rows with both the negotiated price and production more in a dozen years):

Let’s put this success into clear perspective. They negotiate prices as a group from MTC. Starting July first, they will receive 145 shillings per kilogram (about $0.05 per pound!). This year they should exceed 2 million kilograms, at their highest price ever. This bumper income will equal about $425 per family per year. This just takes them from among the poorest of the world’s poor earning less than $1 per day to the next level earning less than $2 per day. The average family will make about $1.16 per day.

But this is more impressive when you take into account that this is the income before other commitments are paid like building the microfinance bank, planting the tea nursery or paying for fertilizer. This group’s ability to marshal its resources to benefit its future is amazing when you consider how small their income is to begin with.

To achieve this they work back-breaking hard bent over 18 inch bushes for long hours in their tea farms. At its peak season, they are often hand picking leaves until after midnight. The average family will pick almost 4.5 (American) tons of leaves per year. This is picking just the tips of each branch (as shown below). It takes a lot of leaves to make a pound, much less a ton. The leaves with an extended branch (as shown below) are of poor quality and too many of these can cause a load to be rejected. That’s Mr. Nyanzali (manager of Mkonge) on the left, a manager from the tea factory in the center, and a student from Tumaini University on the right. Behind them are tea leaves spread out for the first quick drying.

We still haven’t shown you how a tea truck can save the lives of babies. For that you’ll have to keep on reading. In our next installment we’ll also show you how a small investment can save babies, change the lives of 3000 people, and be sustainable.

To continue this series go here: http://cheetahdevelopment.blogspot.com/2009/06/food-part-4-working-together-works.html

Food Part 2: Filling Shelves

(If you haven’t read previous installments of this series, please start here http://cheetahdevelopment.blogspot.com/2009/06/food-part-1-farmers-markets.html.)

We're tracing food production in Tanzania.

So let’s jump from the small rural farmer to the food producer. I have now met many of these people in different regions of Tanzania, sized from very small to modestly large (by local standards). They were in a variety of food production areas including, peanut butter, snack foods, cereals, flour, dried flavorings, garlic paste, sauces, jams, sunflower oil, soy milk, catering, fish distribution, ice making, and others. Their stories are almost always inspirational! So far, I have only really told the story of Anna Temu and there are many others like Anna Temu in Tanzania (see related blogs). The odds they have overcome, the courage they have applied, and work that they are doing are all remarkable. About half of these people are women.

(Pictured below are products of a small Indian owned canning factory.)



Without exception, every continuously producing operation I met had the same #1 problem:

• they can’t get enough farm input
• to keep the factory running
• to keep up with demand
• to fill store shelves.

(Pictured below is the sales room of a maize flower milling company.)

Thus, factories are typically running at 20-33% of capacity. Everything they make they sell and ship that day. Every manufacturer says that market demand far outstrips their ability to produce. And I have seen the shipping rooms – the food is moving out.

But if you back up to the previous story, you will see that this doesn’t make sense. Farmers are having difficulty finding markets. 40% of the food they produce just rots.

How could farmers be over producing and literally 30 kilometers away a factory can’t keep its machines humming? When you come to grips with this, you see just how broken the value chain is in food production.

(Pictured below is a sunflower seed press that produces sunflower oil.)

There is a lack of large food processing because there is a lack of sources of large quantities of food inputs – not to mention that are of quality and reliable. On the other side of the coin, part of the reason that the large sources of food inputs don’t exist is because there are few large buyers.
(Pictured below: a peanut butter and snack foods operation.)

It is a chicken and egg problem (appropriate in a company where the majority of people keep at least a few chickens.) But even with chickens this problem exists. The caterer at Tumaini University struggles to find the 40 chickens she needs every day. Meanwhile, chickens (kuku – what a great name) are walking around the houses of every home surrounding the university. One chicken producer explained that she could supply part of the contract to supply the 3 store Dar es Salaam portion of the chain of Shoprite grocery stores if she could supply 5 tons of chicken per week. She can’t. (There is a long list of reasons because the food value chain is broken in so many ways. For example, there are problems with getting chicks, animal feed, and then packing the final product. She hasn’t managed to fill her own capacity even to 50% of the space she has for 4,000 chickens.) Therefore, Shoprite continues to import chickens, probably from Brazil, which is a long way to go for chicken. Moreover, there is strong demand for the locally grown variety of chicken, which has a completely different taste. Shoprite naturally wants them.

In this case, the chicken and egg dilemma resolves itself. It is clear where to start the solution…with farmers. They are input. By aggregating farm output from many farmers a reliable source of food can begin to be assembled to sustain factories. And the farmers benefit in return – they are provided with a reliable market, higher value for their crops and an opportunity/reason to increase output. In a future installment we’ll talk about a planned effort we have to make this happen within an actual village.

Next installment in this series: a successful example of farmers aggregating their production. To continue, go here: http://cheetahdevelopment.blogspot.com/2009/06/food-part-3-whats-in-cup-of-tea.html

(Pictured below: a small scale cereal factory.)

Food Part 1: Farmer's Markets

(Note: I share in this blog a variety of topics ranging from stories of human struggle, spiritual thoughts, and business topics. If you care about hunger in the developing world, I think you’ll like this series on Food. Although we will have to wander into some areas of economics, we’ll keep it very practical. Won’t you join me?)

For the next several days, I’m going to focus mostly on food production in Tanzania, from the perspective of small business. There is some complexity to this issue but we will try to break it down into manageable pieces. This first one is a bit longer than our typical writing but you’ll have a little appreciation of what it means to be a subsistence farmer when you get to the end.

Food production is important for a variety of reasons:

• 70-90% of the African population is subsistence farmers – for most nation’s this is their economic base.
• Weather is irregular with localized frequent droughts but also many good years.
• Hunger is a common problem although outright famines seem to be in decline across Africa over the past decades. They are not gone – for example there is currently a terrible drought in Kenya.
• The success of local farmers would allow them to stay in rural areas rather than migrating to cities in search of opportunity. What they often find in cities is worse, with slums where shelter is poor, disease is widespread, infant mortality is high, and personal danger is a frequent problem. In essence, rural poverty is at the root of much urban poverty. This is how men are often separated from their families and drives the spread of AIDS.

To try to explain the situation, we will work our way from the grower to the table.

In the west, “Farmer’s Markets” are an appreciated luxury, where one can meet directly with the grower to obtain high quality produce. Although this has many benefits, I think that it is overly romanticized as a food solution. (Maybe taking this controversial position will get more comments on my blog!)


In Tanzania, by definition the delivery model is predominantly a farmer’s market. To start with, 70-80% of country is subsistence farmers: they grow first for their own needs and second for that of their village. What is their incentive to work harder and grow more? To sell the excess food to create a resource for expenses requiring cash, the most commonly described to me are school fees and medical expenses.

How do you sell your excess? Here are the four basic methods I have seen:

1. You take your food to the side of the road nearest your shamba (farm) and sell it to passing people. What do you find when you bring your onions, tomatoes, fruits, vegetables, or grains to roadside? -A lot of other people selling exactly the same thing. What happens if you fail to sell quickly? –It rots. So what do you do? You sell at any price just so you get something.

2. You sell your food to a middleman who takes it to the city and resells to shops, stores and factories. There are hundreds of these middlemen who aggregate a truck full of food. Are they trustworthy? Rarely. Can you count on them to return next year? Rarely. Will they give you a fair price? Almost never. Your problem is still the same – everyone is selling at once. You must sell low or food rots so you sell. There are also areas along highways where middlemen and local farmers congregate to sell. It’s quite an experience to stop and get some oranges, tomatoes, green peppers, and bananas as I recently did. You are almost tackled by the press of sellers. Only one seller turned down a low offer.


3. Imagine you have a more durable product like a dried grain such as rice, maize or millet. You decide to hold on to it to wait for the harvest volume to subside. For some of these crops, market values in the city rise by a factor of 6 over the course of the year. So the middle man comes and you refuse to sell. (If you ask the middlemen, they say that you can’t trust the farmers to sell when they want to buy, so the distrust is mutual.) But your strategy has weakness. As time passes, moisture, bacteria, rats, and other pests deteriorate the value and quantity of your harvest. If you wait it out, you can get a 30% increase in value but you might have lost 30% of the harvest. Not a fun game of chicken. And the middlemen control the game because you have no transportation. I’ve met with these people, as well.

4. Finally, imagine you have suffered a crop loss or health calamity that forced you to sell (or eat) even next year’s seeds. You are completely broke. In order to plant again, you sign an agreement with the middlemen that if they provide the seeds, then you will guarantee them the crops. The price you are given for your crops will keep you locked in this cycle indefinitely because they will take all the profit. This money lending process is widespread in the developing world and creates a type of indentured servant. I have met these poor and I wish you could, too. Many of them are young widows. (You can also find this in the story of Edgar Nkunda: http://cheetahdevelopment.blogspot.com/2009/06/edgar-nkunda-chapter-one-lacking-bus.html)

If you are a farmer, you are left bewildered by food production. You hear the government talk about the need to increase food production. NGOs (Non-Government Organizations, usually donation supported) from the west come to your village to teach you how to raise more crops and use modern farming methods. These generally require more work and more expense, like fertilizer.

But what do you see? You see that crops you raised last year lacked a market. You watched as your hard work literally rotted in harvested mounds or in the field. Why would you work harder or spend more to grow more? So you try to assure that your staple such as maize or rice is in good supply for your own family and you don’t worry too much about growing more. (I have met with some of these NGOs and they report that even with demonstration plots, farmers are slow to adopt these more productive methods.)

But notice, maize and rice, even when supplanted with legumes, provide nominal nutrition at best. But these are the crops that naturally dry on the stalk.

Yes, there are farmer’s markets everywhere. But the food value chain is completely broken.

40% of the food in Tanzania is never is eaten because it rots. And this while hunger problems and malnutrition persist and are widespread. Farmer’s markets may sound great in theory, but when it is all you have, it doesn’t connect people to the food they need.

Although there is plenty of production, beyond that the value chain is broken. The businesses that would fill this chain are almost non-existent. However, this problem can be viewed as an opportunity. By creating small businesses, the value chain can be fixed, people can find jobs, incomes can rise, and hunger can be abated. And because the solution is business-based, profitability can drive sustainability and end the cycle of dependency.

In upcoming installments: the missing links in the value chain.

Continue here: http://cheetahdevelopment.blogspot.com/2009/06/food-part-2-filling-shelves.html