What do we really mean with loyalty?
Some time ago, I (Arno Maatman) participated in a workshop – facilitated by consortium partner ICRA – on the supply chain relationships between Shalem, a medium-scale aggregator of and trader in sorghum (and other commodities, but I will stick here to the sorghum), the farmers, and everybody in-between. Shalem is a lead partner of 2SCALE, and in many ways a partner to be proud of. Ruth Kinoti, Shalem’s Founder and charismatic Managing Director, has built her company from scratch; with simple beginnings, she started to collect sorghum from the farmers in the Meru region, to sell to East Africa Breweries. Ruth goes the extra mile to develop strong relationships with farmers. Over the past years, she has set up a series of farmer field schools to introduce new sorghum varieties and crop management practices to farmers, she has supported farmers to develop producer groups, women to develop leadership skills and play key roles in local-level aggregation, and is leveraging resources of farmers to access seeds and materials (e.g., tarpaulins, bags) for post-harvest handling. A solid network of agents that supply Shalem, in addition to direct purchases from farmer groups, which also continue, was established as well.
Ruth sees herself as a social entrepreneur. While social entrepreneurship is often claimed, Ruth has been able to “show” Shalem’s commitment, on several occasions. For example, when the Kenyan government launched a tax on the sorghum supplies to the breweries, Shalem continued to buy the sorghum of the farmers, despite high risks to be left without a market, and scarce resources to pay for the sorghum. Farmers, as a result, feel connected with Shalem.
Nonetheless, farmers are not always selling all the sorghum they produce to Shalem; and even the agents sometimes sell part of their stock to others, including to passers-by with ready cash on hand. This happens in many of our partnerships and is commonly referred to as “side-selling”. Ruth sees side-selling as a risk. The higher the incidence and levels of side selling, the more difficult (and costly) it is for her to collect the required volumes. Companies that themselves go the extra mile, like Shalem, often use the term loyal; farmers are seen as loyal, when in return of services delivered and relations built, they sell all – or at least a very large part of – the sorghum they produced to Shalem, either directly, or through their agents; the agents, in turn, are loyal when, in return of training and other, often financial, support, they sell the sorghum that they were able to collect within their area to Shalem. Loyalty guarantees maximum supplies; it also ensures that the costs of inputs and service provided can be deducted from the amounts paid to either the agents or the farmers.
In the 2SCALE partnerships we are experimenting with contractual arrangements (formal/ informal) that are less absolute and leave more room for maneuver for farmers and agents. Loyalty then does not need to imply that all the sorghum is being sold to the lead partner, but a reasonable – on beforehand negotiated – quantity. The arguments are the following:
- Most enterprises that we are partnering with serve different markets and use different distribution channels to optimize their revenues, and to reduce dependency on one channel. The farmers in our inclusive value chains are also managing a business (at least that is what we want to achieve); as a result, they should enjoy the same freedoms and opportunities to supply as many markets as they want and feel comfortable with.
- Connectedness has value. Farmers that get sustained support from companies to invest in and strengthen their farming system benefit; companies that develop long-term relations with farmers, through which they can ensure reliable quantities of the raw materials they need, benefit. There is only one condition, the terms of the relationship (i.e., “what do I do, what do you do”) need to be fair and robust. In fact, two value propositions need to be matched: one from the company to the farmer(s); the other, from the farmer to the company.
So far, the results are encouraging (for instance with SONAF, in the maize sector in Mali, I will come back on this partnership in another blog next time). Reasonable terms of inclusion overall seems to induce farmers to respect these terms. Connectedness and loyalty are matters of proportion.
From the workshop, one clear message emerged for Shalem, i.e., that it could improve its value proposition to smallholder farmers and to agents through timely payment – in cash. The agents in particular indicated that they sometimes sell part of their stock because they are in need of cash. Shalem in turn only collects the sorghum from the agents when they have a certain amount in stock; only after their truck has loaded the sorghum, these agents are being paid. At the workshop some ideas were discussed to solve, or at least partially solve, this problem. There might be opportunities, for instance, to advance some cash to (certified/ trusted) agents, based on actual stock levels, even if these stocks are not immediately collected by the trucks of Shalem.
Ruth has developed a business to be proud of. She now aims to set up her own processing line, to supply sorghum-based flour products to local, including Base-of-the-Pyramid, markets. A new challenging adventure that will take time and effort. Probably a good moment to fine-tune the relations within the supply chain systems a little further, focusing on clear value propositions for Shalem, the agents, and the farmers (and as the workshop participants pointed out, for the facilitators of the farmer field schools, the coaches involved in training and local networking, and the farmer group leaders as well, who all seemed to aspire to become an agent). Clear roles and fair terms of inclusion will certainly help Shalem to focus on its new business, and – as a result – others to assume and (partially) take over responsibilities in the supply chain and to advance together in this new adventure.