Geoffrey Kamadi was awarded a Zimeo “Excellence in Media” Award for this article, first published in July 2015.
New initiatives that give farmers access to warehouse facilities are rebalancing negotiating power back in their favour.
Catherine Maina is a typical small-scale farmer in Kenya in many ways. A mother of two, Maina cultivates maize on her two-acre plot of land. Some of her produce is consumed domestically while the rest is sold in the nearby village of Wamuini, in Trans Nzoia County, around 400km northwest of Nairobi.
The margins are low, though Maina gets by. But until recently, one shortcoming that cut even further into her modest profits came down to the simple problem of storage. Like many other small-scale farmers, Maina’s lack of facilities to store her produce meant that she was often forced to sell her maize at throwaway prices or risk losing it completely.
However, Maina is now part of a growing band of smallholder farmers using a new grain trading system that allows them access to storage facilities. This way, they do not have to sell immediately after harvest, which means that they can potentially hold out for better prices.
“I now harvest nearly twice what I used to get from my two-acre plot,” says Maina, who now makes a profit of around 50,000 shillings ($500) each season. Previously around 900kg of her harvest would go to waste but now that figure is at just 45kg.
How it works
The so-called Warehouse Receipt System (WRS) that Maina uses relies on the cooperation between warehouse operators, a financial institution and a regulator. In Maina’s case, Chase Bank Kenya has partnered with the Eastern Africa Grain Council (EAGC), which regulates and promotes the system.
The initiative works by allowing farmers to store their goods but also get immediate access to money even as they await a buyer for the produce. The way it works is that farmers take their grain to a village aggregation centre, where it is tested for moisture content before grading and transportation to the warehouse. The farmer is issued with a receipt.
This document can then be used to access short-term credit from the bank, which can advance a loan of up to 65% of the prevailing market value of the stored grain to the farmer. Once a buyer for the stored produce is found, the purchase is made through the bank, which hands this payment on to the farmer, minus the loan, a 1% monthly interest on the loan and the warehouse operator’s fees.
Chase Bank began financing farmers under this system in January 2014. And since then, the programme has grown rapidly, with the bank approving 140m shillings ($1.5m) of warehouse receipt loans from August to October 2014.
“This is almost twice what we did over the entire previous season. And we expect to do more before the season peaks and dips again,” says Samuel Ndonga, Senior Agribusiness Manager at Chase Bank.
Part of WRS includes help and training from the warehouses. “We conduct soil analysis for farmers and train them on good agricultural practices,” says Isaac Chege Njuguna, Managing Director of Nafics Grain Trading Warehouse.
The hope is that being able to store produce gives farmers greater autonomy in deciding when, and for how much, to sell. This often means that farmers can get higher prices, but the reverse can also be the case. However, the bank has mechanisms to protect itself.
“If the price falls by 20% below the receipt value, we trigger a sale since it will eat into the farmer’s remaining 35% margin and on the loan that had been advanced,” says Ndonga.
Many farmers are now benefiting from the WRS. Elizabeth Sang, a maize farmer from Wareng sub-county in Kenya’s Rift Valley, is one of the over 5,000 farmers that uses the Nafics Grain Trading Warehouse. She says solving the problem of storage has had huge effects: “Now I have enough time to budget for the maize stored in the warehouse and buy inputs at the right time, something which I never used to do.”
The system has also helped her make more money. In one harvest, she recalls, the prevailing market price for maize at the time of storage was 2,700 shillings ($28) per bag. But after waiting four months, the price had risen to 3,300 shillings ($35).
But Sang is not entirely typical of most farmers in the region. Last season, she stored 424 bags of maize, which is several times more than most smallholders would harvest.
This is significant because warehouse systems typically require a minimum amount of grain to be eligible, usually 10 metric tonnes for maize or wheat and five metric tonnes for legumes and pulses – a threshold that cannot be met by the vast majority of farmers.
This is a real source of criticism of WRS, and it is why some smallholders have had to band together to take advantage of the initiative. Wamuini Soko Huru in Trans Nzoia County, for example, now has around 400 members, including Catherine Maina, each of whom deposits about 20-40 bags of maize each season.
Creating this group has enabled the farmers to access WRS and also helped farmers find buyers. For instance, the group sold 1,310 bags of maize to the World Food Programme (WFP) and another 80 bags to Kitale Industries last season.
Some NGOs such as the Alliance for a Green Revolution in Africa (AGRA) are now trying to help small-scale farmers mobilise in these ways too.
“We have a special programme that works to organise small-scale farmers into farmer organisations or groups, so that they can benefit from the services of Chase Bank and EAGC,” says Sylvia Mwichuli, the Director of Communications at AGRA.
More say is being put back in the hands of smallholders, and with this simple but transformative innovation, Maina, like many others, feels that she is becoming a new type of farmer.