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The Potato Trade: From the middle-man’s perspective

Potatoes are the second most important crop in Kenya, after maize. They are grown by approximately 800,000 farmers, 98% of whom are smallholders and are mostly women.  Smallholders grow on less than 1 hectare and produce 83% of the countries production, according to the National Potato Council of Kenya.  Smallholders sell approximately 80% of their potatoes to mostly urban markets, and 70% of potatoes sold are chipped and served as French fries or chips at hotels and restaurants.

The Potato value chain is largely unstructured and disaggregated, and farmers access markets through a network of middlemen. Potatoes are sold at farm-gate to rural village brokers who sell them to traders that supply the transportation and payment of the potatoes.  Potatoes are then transported to wholesale urban markets, where they are disaggregated and delivered by another layer of brokers to hotels, restaurants and super markets.

The middleman has often been vilified for seemingly exploiting farmers, yet they do provide a necessary service of bringing produce from the farm to the market that enables farmers to get paid quickly without cost of transportation. This blog explores the role and experience of a farm produce trader told from the trader’s perspectives. The Trader operates from Wakulima Market, Nairobi which is the busiest farm produce wholesale market in Kenya. The article explores the role, relationships in the trade, risks and challenges faced by traders as they go about their business.

The Farmers

The trader interacts with three types of farmers.

Small-holder Farmers:

small-holder-farmersSmallholders make up 98% of the 800,000 potato farmers, and comprise 83% of the total Kenya potato production.  They are traditionally resource poor women, growing on less than 1 acre (0.4ha) of land.  They typically do not invest in inputs such as certified seed, sufficient soil fertility management and crop protection.  As a result, production is very low at approximately 10 tonnes per hectare, compared to optimal yields of 40 tonnes per hectare.  In addition the quality of potatoes may be compromised due to pest and disease attack, bruising and cutting due to poor harvest techniques, resulting in lower prices for the potatoes or outright rejection by buyers.

These farmers are considered a risk to work with due to their low quality potatoes and tendency to pack small potatoes into the bottom of sack, according to our trader source.

Medium Scale Farmers:

medium-scale-farmersMedium scale farmers are a mix of men and women and grow on an average of a two hectare plot.  These farmers usually are better educated and may also have an off-farm job. Production is higher due to better use of inputs.  Most are using seed that has been reproduced from certified seed and invest in fertilizers and crop protection.  As a result, yields are higher, up to 20 tonnes per hectare, and the quality of outputs are good.  Medium scale farmers make up less than 2% of the total potato farmers or approximately 16,000 farmers, according to the National Potato Council of Kenya.  Medium scale farmers may sell to Rural Brokers or directly to Traders.  Some may hire trucks and transport outputs directly to wholesale markets.

These are the best farmers to work with, according to our trader source.

Large Scale Farmers:

large-scale-farmersThere are approximately 250 large scale potato farmers, growing on an average of 10 hectares of land.  They are mostly men and use optimal inputs with only certified seed.  Their outputs are highest at 25 to 60 tonnes per hectare, with the highest quality of potatoes.  Large scale farmers have direct relationships with buyers or exporters and use their own transportation and financing.

The Rural Broker:

the-rural-brokerRural or village brokers are mostly men who aggregate farmers at the village level and operate in up to a 25km radius.  They work with Traders to source potatoes based on orders given by the Traders.  They provide a vital service in logistics of post-harvest such as grading, packing and loading of the potatoes.  They are paid KES 200 per bag as a broker fee. Traders may pay the rural or village broker upfront to source for potatoes. In such scenarios, in addition to their broker fees, they often also take a percentage of the payment to the farmers, therefore denying them a fair income.

The Trader:
the-traderTraders are one of the most important functions in the value chain.  Mostly men, they place orders with Rural Brokers with the number of bags they need, the quality, and the price they are willing to pay.  The Traders finance the entire value chain by paying upfront for the potatoes, usually using own or borrowings from banks, but sell potatoes to retail markets on credit of up to 60 days.  The Trader also provides the transport function to move potatoes from rural areas to urban markets.  Our trader here, owns trucks, and therefore does not have any challenges accessing finance, in which he needs approximately KES 1.5m per week to finance his operations.  Besides payment to the Rural Broker and Farmer, the Trader must also pay labour expenses for packing and loading of bags, fuel, vehicle maintenance and roadside bribes.

On the road to the marker, the trader faces a number of risks. The potatoes must arrive in the Nairobi wholesale market within 24 hours of harvest, and any vehicle breakdowns or accidents will cost the trader dearly. Other challenges include having to pay county government fees and dealing with the police. For example, between Molo and Nairobi, there are seven traffic police stops. If the trader does not want trouble with the police, he has to prepare to pay the police for hassle free passage.

It is noteworthy that the trader bears the biggest risk in the potato trade. He borrows or sinks large amounts of money to purchase potatoes, transports them to market without the certainty of a stable and assured market.

The Market Broker:

the-market-brokerThe Market Brokers are hired by the Trader to represent them at the wholesale markets.  There is one Market Broker for each truck at the market but they can handle different types of crops.  They hold the relationship with the Market Women (who buy and supply potatoes) and arrange sale and payment on behalf of the Trader.  The Market Broker is paid KES 50 per bag for each bag they sell. The Market broker sells the potatoes and pays the Trader within 24 hours.

The market broker is also a source of market intelligence. He knows the market in and out and acts as advisor for the trader. For example, prices at the wholesale market are very dynamic. While the Trader is away purchasing from the farmer, the market broker can advise on the prevailing market price which in turn guides the trader on what to pay farmers. He can notify him on sources and scarcity of potatoes, or any unusual happenings at the market that may affect price or movement of produce.

The Market Women:

the-market-womenThe Market Women buy potatoes off the back of the trucks on the outskirts of the city and arranging delivery to their buyers.  In essence they are the “last mile” delivery system. There are three groups of Market Women:  those that arrive first thing in the morning at 4 am and buy the best quality, those that come around 6 am, and those that come around 11 am to buy that worst quality, for the worst price.  They buy potatoes by the bag, but sell by the kilogram.  They only pay for the cost of the bag ‘tail’, and the ‘head’ is their profit.  Potatoes are packed in an extended bag with smaller potatoes in the body and the large high quality potatoes on top, forming a large head.  According to the trader, these women are the most powerful element in the supply chain and determine the quality and movement of potatoes. They pay within 12 hours (sometimes longer) of picking up their potatoes, and sometimes may refuse to pay, if the quality of potatoes is not acceptable to the end buyer.

The Buyers:

the-buyersThe buyers are made up of restaurants, hotels, supermarkets and processors that turn the potatoes into chips and French fries.  Seventy percent of potatoes sold in wholesale markets are for fast food, and only 30% are sold as whole potatoes in supermarkets, retail shops and roadside stalls.  The buyers source their potatoes through relationships with the Market Women.  They are mostly concerned with quality and reliability of suppliers, than with price.

Role of digital financial and non-financial services in the potato Value Chain

Payments

Our trader has tried in the past to pay farmers using mobile money in an attempt to give a fair price and mitigate risks associated with handling and transportation of cash. He quickly learnt that the village broker was against this because it denies him the extra income from under paying farmers. The village broker would only readily work for traders who pay cash. In addition, farmers would ask to be compensated for any transactional fees associated with mobile money. Further, some farmers would have to travel and incur travel expenses to look for mobile money agents to withdraw cash.

Credit

In his perspective, our trader sees financing the disaggregated farmer as a challenge. If there is no closed loop system the financier will find it hard to recover his money.

One of the opportunities he sees is developing a product for the last mile distribution system. If the market women could be financed to buy potatoes, it would help build trade and reduce risks borne by the trader.

E-Commerce

The trader appreciates the potential role a potato e-commerce platform where buyers and sellers will be listed and matched with each other, and make payments without his having to take ownership of the commodity or bear all market risks.

Blog by Lucy Kioko, the Agricultural Product Manager, Mercy Corps AgriFin Accelerate Program.

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