Tag Archives: Food Supply Chain

G8 Shift Away From Food Aid Towards Agriculture Investment

Today’s biggest news appears to be the shift in G8 food security policy reported by the Financial Times. It seems that the “L’Aquilla Food Security Initiative” at the forthcoming G8 summit will take forward an international policy move away from food aid and towards support for agriculture. It is expected that later this week the G8 (with the US and Japan providing the bulk of the funding) will announce more than $12bn for long-term agricultural development, particularly in Africa.

The background to the story includes the impacts on food security of the 2007 food crisis, the 2008 petrol price hikes and the ongoing international financial crisis.

The world’s first reaction to the 2007 food crisis, which saw record prices for crops such as wheat and rice triggering food riots from Haiti to Senegal, was to increase food aid. The UN’s World Food Programme doubled its budget to more than $5bn. The thinking since then has shifted, with Japan and the US leading the way in talking about helping poor countries, particularly in Africa, to feed themselves.

Mr Nwanze, a Nigerian national, says, “The financial crisis is worsening food security in many developing countries,” he says. “Wholesale food prices had been falling but prices remain very high in developing countries.” He commments on the policy shift by saying,  “Too much of the first [food aid] could flood African domestic agricultural commodities markets, starving local agriculture. Too little and the farmers who are supposed to produce the local food could perish before their first crop.”

Revised approach to fighting hunger. Photo: EPA, Telegraph

I think that Mr Nwanze’s statement sums up the need for food price monitoring and market information systems in Africa. I hope that the revised international approach to fighting hunger will reduce the emphasis on response (often too little too late) and will focus on monitoring food stocks, aleviation of chronic food insufficiency and prevention of shocks.

I think that affordability and therefore access to food is a bigger problem than its availability. When food security is conceptualised as a long-term, local issue, it is significant to monitor the prices of agriculture inputs (food, fertilizers, seeds etc.) in food producing regions and the prices of agriculture outputs at local, as well as national and international commodity markets. When farmers are provided with information about the prices of the commodities produced by them, they can use that information in making their seeding, planting and harvesting decisions. Conversely, the provision of information at markets and commodity exchanges about the stock availability of farming produce and the direction of its flow, can significantly improve the resilience of the food supply chain and avoid bottlenecks.

via FT.com / In depth – Poor nations look for help to feed themselves.

via G8 countries shift from food aid to investing in agriculture – Telegraph.

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Warehouse Receipt Systems

Here is a very informative educational documentary on Warehouse Receipt Systems produced by the Technical Centre for Agricultural and Rural Cooperation ACO-EU (CTA), Agence Français de Développementé (AFD) and the Natural Resources Institute (NRI).

The film documents a study visit to Tanzania and South Africa. Even though the film provides plenty of useful information, its authors make sure to note:

“The examples presented in these two countries are typified by particular experiments and contexts and cannot simply be transposed to other cases. Nonetheless there are a great number of lessons to be learnt and which could provide guidancefor certain aspects of orientation and initiatives in your respective countries.”

I personally think that the documentary illustrates theoretical issues which are encountered the world over, and are not specific to any particular context. The film raises questions regarding trust, confidence, contractual completeness, regulation, product quality and standardisation. Even though in this documentary the issues emerge with regards to warehouse receipt systems, they are intrinsic characteristics of any market negotiations (and eventual transactions) taking place without the double coincidence of time and place. The film focuses on futures markets i.e. transactions without coinsidence in time. Conversely, market negotiations carried out via mobile phones, or other ICTs exemplify transactions without coinsidene in place.


Warehouse receipt systems were developed in the 1990s as a response to farmers’ income instability due to price fluctuations resulting from liberalisation. Since prices tend to be low during harvest periods and to subsequently rise, warehouse reeipt systems provide a solution by storing commodities for the suration of the low price season. Price volatility and lack of quality standards are attributed to market liberalisation in the agricultural sector.

Warehouse receipt systems operationalise the food supply chain and involve the following stakehoders:

  • farmers (individuals or cooperatives)
  • warehouse operators
  • financial institutions
  • exporters, traders

Tanzania

The warehouse receipt system was introduced in Tanzania in 2005 with the pilot crops of coffee and cotton. It enables farmers to receive loans and assure the quality of their produce. The system allows coffee producers (individuals or cooperatives) to store their coffee in a silo. Upon the receipt of the coffee the producers are issued with 2 certificates: certificate of title for them to keep and certificate of pledge to provide to third parties. These are normally cooperative or commercial banks participating in the system. The certificates of deposit allow farmers to induce confidence in the financial institutions. They also enable the banks to reach a new set of customers for financial services.

The warehouses also ensure the transparency of the commodity marketing system. Commodities are classified according to quality and offered for sale at regional and sub-regional markets. For example, coffee is graded and offered for sale at auctions administered by a public organisation.

Producers in other sectors, such as the Chawampu rice growers cooperative, have followed suit. Representatives of the cooperative introduce a model whereby they are able to offer 70% of market value of deposited quantities of rice. Subsequently, after selling the crop and substracting the administrative costs the cooperative, they provide a second payment to the members of the cooperative. Farmers use any additional income in order to buy seeds, fertilizer and to develop off-season activities.

The warehouse receipt systems functions well due to the high price differentials between the post-harvest season and the hungry season. The main challenges to the warehouse receipt system remain:

  • providing adequate infrastructure
  • ensuring warehouse security
  • reinforcing producers’ organisations
  • increasing the number of quality control specialists
  • reducing operating costs

South Africa

South Africa presents an advanced example based on the warehouse weceipt system because it has a functioning futures market in agricultural commodities. The SAFEX was established in the 1990s during an intense period of market liberalisation.

The advantages of South Africa include its good financial infrastructure for the settlement of deals and the quality of  its physical infrastructure enabling the trading, warehousing and transportation of the commodities. Critical is the legal enforcability of contractual rights and of legal receipt rights. Thereby, people are able to take the necessary steps and to manage their post-harvest risk well in advance.

SAGIS acts as an information intermediary for the South African commodity markets. It collects and distributes local consumption and up-to-date market information. The agricultural marketing giant SENWES provides mobile phone access to hourly prices of grain via SMS. Even though it is not typical of Africa in favouring large scale farmers, the South African warehouse receipt experience provides a useful benchmark for implementations elsewhere.

Follow-up on Liberian Markets Parts 1 & 2

After my recent posts with regards to quantity measures, scales, weights, packaging etc. I have been alterted to the article by Kiringai Kamau in the recent issue of Information Technology in Developing Countries, Volume 18, No. 3, October 2008. Kiringai Kamau describes the impact of an electronic measurement system at a milk procurement station in Githunguri, Kenya. The author also mentions many concerns, vested interests and conflicts which influence the actions of both farmers (sellers) and procurers (buyers) in the absence of an indisputable measurement system.

“As you may agree, farmers’ earnings are not always proportionate to what is paid to them by the processors to whom they sell their produce. The processor is normally paid more and can at his whim inflate prices to suit his financial appetite, thereby creating inflation that affects those outside the processing arena. To make matters even worse, the poor farmer normally delivers more produce but the records are falsified by middlemen or intermediaries who collect the produce from farmers, and then deliver or sell whatever they have collected from the farmer to the processors. Unfortunately, the farmer is hostage to this system and has nowhere to take his produce besides to the same unscrupulous clerk or middleman who steals from him with impunity.

When the clerks from procuring intermediaries weigh the produce, they traditionally record a farmer’s delivery on a manual delivery ticket. If we take the case of milk which is our latest sector as a company to focus automation on, an illiterate farmer will lose milk:

  • At the weighing point where the scale may be deliberately mis-calibrated, and is always rounded downwards, and
  • At the produce delivery transcription level.

This inefficiency and resultant loss of effective weights against which payment is made, is repeated at every transcription point where there are clerks, before the actual final record against which payment is made has been captured. When the organization procuring the produce is a farmer cooperative as happens in the cases we have been dealing with, the managers may know that there is a problem of this nature but they too are held hostage by the clerks and their system of operating.

The challenge lies in the fact that most farmers are illiterate and may not be able to tell when clerks cheat on the reading of the scale or if they transcribe the wrong reading from the scale for their records. Indeed, even when they can read or write, the clerk can choose to take the wrong weight against which the literate farmer may have no recourse. Unfortunately, whatever the error, farmers have nowhere to turn to and are forced to develop some blind faith in the representative of the organization that procures their agricultural produce out of which they get their payment. Otherwise they will not be able to sell to anyone at all! Smallholder farmers may not complain, and when they do, they will not let the fraudulent clerk know in order to avert being blacklisted.

Even when the clerk is honest, the common analog scale normally used by the procuring institutions is calibrated to the nearest 0.5 of a kilogram. This means that in the case where the analog scale is used, clerks still have room to either round the readings downwards or upwards depending on their own whim. At times, records are lost by the farmers so that whatever is finally paid to them may not necessarily be what is due to them but rather what the clerks in the purchasing organization may decide is the correct rounded approximation.

Everything therefore relies on a procurement-payment system that is controlled by people other than the resource owner – the farmer. The extra weighed produce deliveries (derived from the aggregation of rounded readings or deliberate transcription errors) is then transferred through records so that payments are made to a rogue collaborating farmer who in the end oils the chain of thieving clerks, based on whatever may be their agreed formula. Though the farmers and managers in the procuring organization know that this scenario holds, they normally have no way of catching the thieves. Promoting more productivity at the farm level does not help in empowering poor rural communities, where wealth is most needed. And no matter what effort is made, poor rural farmers continue being poor. The process based technology that we evolved addresses this.

Our technology innovation, which is a digital handheld scale, weighs to the closest 0.01 of a kilogram of agricultural produce. Using electronic storage that downloads the data to a centralized database, and linking the scale memory to an electronic load cell, the scale is able to:

  • Weigh accurately to the nearest 0.01 of a Kilogram
  • Store farmer records in a Read Only Memory
  • Get powered through stored-electrical-power to make the scale memory/storage operate away from grid power
  • Through the power of a customized firmware designed to mimic the operations of the activities being addressed, automatically capture farmer records and their weighments
  • Capture and transfer farmer records on a farmer smartcard that can be used in input stores and retail outlets with credit arrangements with the produce buying institution/cooperative

Interfacing this scale with a computer enables the data from the scale to be transferred to an application that then updates records pertaining to payrolls for farmers and the procuring company’s internal staff. Farmer records are captured into the scale at the beginning of a field activity so that only real and authentic farmers can weigh their produce using the custom digital scale. This then removes the need for manual records and the control that has hitherto been in the hands of clerks that sell excess milk or tea in their own names or jointly with others.

This is then followed by data encryption so that data is not intelligible to the office clerks within the procuring institution. This forestalls any potential for data manipulation through manual effort. Electronic data capture then ensures that the processing of the farmers’ produce deliveries is done and records updated on a daily basis. A portable thermal printer that is strapped on the weighing clerk’s belt allows records that a farmer who needs a printed delivery ticket (a receipt of his milk delivery) to be printed. Data so collected and downloaded into a centralized server makes it available for remote querying by other parties such as the farm owner or management so long as such parties have the necessary authentication. Where the futures price is known, a farmer can take credit based on his produce delivery or obtain credit from a collaborating store using the farmer smartcard.

The above model has been under implementation for the last eight years in one of the dairy smallholder cooperatives, Githunguri Dairy, which started in year 2000 when they could only pay their farmers Ksh. 5,000,000 a month. Today they pay their farmers in excess of Ksh. 120,000,000 a month with an average monthly income of Ksh. 8,500 a farmer, an income that is close the basic salary of a teacher. The impact of this effort has been that the chairman of this cooperative was rewarded in the last general election with a vote to represent the constituency where the cooperative is based. The campaign story was the exemplary leadership that he has demonstrated through his strengthening of income generation ability that the smallholder farming community enjoys. They laud the transparent handling of milk records and payment which we know is associated more with the technology than the man. But indeed it is his far sighted thinking and the desire for an impact that he allowed technology to be tried in a rural area.”