Innovative maize brokering services – from distrust to more transparent value chain relations in Kenya

Growing national maize deficit

Maize is a major staple food crop in Kenya and is taken as being synonymous to food security. Maize is produced in almost all parts of the country. Between 2020 and 2022, national maize production was around 3.4 million tonnesper year. Over the years, maize production has fallen short to satisfy domestic demand which stands at 4 million metric tonnes per year. Kenya thus has to important maize, mainly from other countries in the region.

Maize producers and current marketing modalities

Maize is produced by large-scale and smallholder farmers. The large farmers sell their maize mostly to the National Cereal and Produce Board (NCPB) or to maize millers. Smallholder farmers produce maize for home consumption and sell surplus to meet the household cash needs. Smallholder farmers are price takers. Traders, their agents and middlemen use a speculative ‘buy-low-sell-high’ business model that rewards lowest prices to smallholders. Smallholders respond to low prices by cheating, ignoring quality standards, and bagging wet produce with stones and debris. Buyers respond by lowering the costs the price they pay to brokers to cover costs of quality rejection and cleaning. Such ‘coping’ behavior introduces huge risks and lowers product value for the middlemen. The current system is thus full of distrust and risks.

An innovative business model

It is in this context that Ruralnet Trading Services (RTS) developed an innovative business model that has been piloted in Laikipia County. The business model is based on getting a commission for providing transparent brokering services. In the county, RTS has a network of agents, who operate as aggregators in villages. Farmers bring maize to a RTS collection point, where an agent checks quality and takes care of weighing and bagging. Farmers receive ‘Cash on the Bag’. This is essential as farmers will hesitate to give out produce without being paid directly, and it builds trust between the RTS agents and farmers. At the other side of the transaction, the business models releases the pressure on the buyers and traders because RTS model ensures availability and quality, e.g. lower transaction costs (efficient loading of trucks) and no risk of high rejection and cleaning costs.

Preparatory steps for establishing a deal

• Receive, check and condition the supply of maize
• Identify the possible buyers
• Determine the sourcing price and the price offered by the buyer
• Analyze the ‘middle costs’ (costs of control, conditioning, storage), with Excel tool
• Gather information and communicate this to the off-taker

Transparency

The transactions are made transparent by using a simple Excel tool, which captures all required information and calculations. The Excel tool also discloses the prices to the farmers and commissions.

There are different Excel sheets:

• Market chain transparency record: indicating the commodity, the buyer, the seller representative, the volume (in tons or bags), the quality requirements, the collection place and date.
• Network responsibilities: indicating the agent responsible for the collection point, quality control and loading and the agent responsible for managing the buyer side.
• Middle cost calculations: indicating costs of bags, tags, loading, transport, insurance, taxes and CoB requirements
• Price calculations for analyzing the deal before signing: indicating the price offered by the buyer at his point of delivery, minus middle costs and commissions. This is compared with the real price paid to sellers (Cash on Bag). A positive balance

Implementing the deal

After determining the middle costs and collecting and sharing information, the deal is ready for execution. The deal is finalized when all produce has been delivered everything has been recorded as it actually happed (with Excel tool). This is to make sure all has gone well and is transparently communicated (shared online with buyer). A deal is closed when the buyer pays to the clearing account and commissions (and possibly a bonus to farmers) are paid.

Service commission

The service commission that traders pay is based on the price farmers get. It is 10% of the buyer’s price minus middle costs. The RTC thus has an interest that smallholders get the highest possible price in the prevailing market situation. The trader will calculate whether the reduced transaction costs and risks outweigh the cost of the service commission.

A win-win business model

The RTS business model sets out to improve maize marketing in Kenya by: (i) Improving the efficiency of the value chain; (ii) Improving the quality of the products; (iii) reducing the risks of transactions and (iv) introducing fair prices for all. It is furthermore hoped that financial institutions will be more interested to invest in maize value chain financing, because of the trust with farmers, the relations with buyers and availability of data about the transactions

Challenges ahead

The transparent trade must survive in an informal marketing system that is based on distrust and cheating. It is always possible that farmers will continue dealing with traders and middlemen, most probably because of informal loans (which must be repaid in kind).

With the RTS model, buyers would no longer be interested in contract farming with maize farmers, which would deprive farmers from certain benefits like seed and input supply and advance payments. This is why the involvement of financial institutions to provide value chain financing is essential, as farmers have serious cash flow problems during the production season.

Capacity strengthening of the network agents is also a challenge, for a better understanding of the business model, correct and full use of the Excel tool and for training farmers in financial management and governance of their farmer groups and organisations.

For more information you can contact James Kanyi at: jwkanyi@yahoo.com