IMPACT AND ROLE OF SUPERMARKETS AS OUTLETS FRESH FARM PRODUCE AND PROCUREMENT

In summary

Supermarkets are becoming popular outlets of fresh fruits and vegetables because of their quality and safety measures and growing middle class that are ready to spend more.

A farmer who is targeting to sell his produce in a supermarket must understand its’ procurement procedures.

Huge chain supermarkets have contracted companies or have specialist procurement departments that source the produce on their behalf and are less likely to buy direct from farmers.

A farmer intending to sell to the big chains supermarkets may have challenges in assuring them consistency and quality.

Smaller supermarkets require small volumes of produce have less restrictions to direct purchase from farmers.

Procurement of fresh fruits and vegetables depends on size of supermarket, volume of demand, and its organizational structure.

Small supermarkets purchase their requirement from farmers (both contract and non contract or wholesale or retail markets.

OUTLETS OF FRESH FRUITS AND VEGETABLES

Fruits and vegetables are consumed in Kenya when fresh; processing is restricted to the extraction of fresh juice and the drying of fruits and vegetables.

This means that a small fraction of the total production of fresh fruits and vegetables in the country is sold to processing industries.

A huge fraction is sold in traditional outlets i.e. Kiosks and open air markets which account for 80% of sales.

Some of the fresh produce is sold in supermarkets like Uchumi, Nakumatt, Tuskeys, Naivas, Kamindi, Cleanshelf, among others.

Open air markets/wet wholesale and retail markets provide competition to supermarkets as a substantial consumer base patronizes them for their convenient price and variety available.

Open air markets/wet wholesale and retail markets offer competitive prices, but are characterized by lower quality products and unhygienic conditions.

They thrive by serving the poor in the urban areas who visit them for their competitive prices and variety of produce available.

Changing quality and safety requirement of customers has made some of the big chain supermarket to shift to more specialization suppliers for their procurement needs and this has implications that will directly or indirectly affect final points at the farm level.

The highest consumption of processed fresh fruits and vegetables is in urban areas where incomes are higher and presence of tourists gives a drive for consumption.

Wakulima market is the main wholesale market in Nairobi serving retail markets in Nairobi like Kawangware, Gikomba, Toi, Kangemi, City Park and Korogocho.

HOW SUPERMARKETS SOURCE FOR FRESH FRUITS AND VEGETABLES

1. THROUGH IMPORTATION

The financial muscle of supermarkets enables them to import produce from South Africa and other east African countries when some fruits and vegetables are off season in Kenya.

Though some produce is imported from Uganda and Tanzania by traders in open air markets during off seasons, it does not take long before the off season sets in them.

That so as, Tanzania and Uganda lie in close proximity with Kenya; the equator passes though Uganda and Tanzania is a few degrees away from it.

Supermarkets have an edge in the business of importation as they can access distant markets and have highly trained procurement departments.

2. PROCUREMENT FROM LOCAL MARKET

Small and independent supermarkets account for 25% of the supermarket share of fresh fruits and vegetables buy from brokers who get their goods from open or wet markets or directly from rural farms.

Large supermarkets prefer suppliers who guarantee quality, traceability, a steady supply of expected volume all year and consistent delivery times.

The aforesaid needs have made Fresh And Juici ltd wholly owned by Nakumatt to supply all its branches.

Nakumatt has a centralized procurement system for its Nairobi network with one supplier for horticultural produce who sources the produce from large to medium farms near Nairobi, 10% from small holder farmers.

Uchumi has a centralized purchasing for its branches in Nairobi. After purchasing, the vegetables are distributed to the branches within Nairobi. For some of its stores, especially those in small towns they purchase directly from farmers and traders.

There are 4 large institutional suppliers and 10 small ones who have emerged due to more stringent demand on quality by supermarkets. They include Mugoya grocers, Zucchini vegetables shop and Fresh and Juici

IMPACT OF SUPERMARKETS IN FRESH PRODUCE SUPPLY CHAIN

A large percentage of the households in the Nairobi and other towns purchase fruits and vegetables from retail markets like kiosks and kibandas around their homes.

This is soon changing as more and more people are buying fresh fruits and vegetables from supermarkets.

This is so as supermarkets are quality conscious, have a variety of fruits and vegetables throughout the year and the growing middle class in the country prefers to shop in them rather can visit grimy and overcrowded markets.

Supermarkets have started laying stringent safety and quality standards for foodstuff with some of the produce being labeled with producer identification for purposes of traceability.

Supermarkets as outlets of produce are likely to causing fundamental structural changes in the produce supply chains as they taking away market share from kiosks, open air markets and kibandas.

Though Wholesale and open markets still remains the most important outlet for fruits and vegetables in Kenya, the supermarkets are becoming vicious competitors.

Supermarkets emphasize on quality, variety and reliability, traceability and consistent supply of produce.

These conditions can’t be met when purchases are made at Wholesale and open markets.

There is real fear that direct supplies from small holder farmers may dwindle due to these stringent demands and also spatial scattered nature of these producers that raise transactions costs especially transport and time.

HOW TO EVALUATE FARM PROFITABILITY

 A farmer invests time, money and labor in his farm with the aim of making profit and personal satisfaction.

His assumption is, if the weather is conducive and pests don’t destroy his crops or diseases kill his animals he will recover his input and make profit.

He has a basket of options to choose from— crops or animals that he will plant or keep so as to minimize his risk and maximize his profit.

He must undertake a detailed examination of the profitability of individual enterprises and of the farm system as a whole in the evaluation process.

‘There are no quick fixes available to improved farm profitability every item must be carefully considered if it’s worth keeping’

This process of evaluation involves the under mentioned process

1. BENCHMARKING

It is not easy to assess the efficiency and profitability of an enterprise without comparing it to available standards.

Since extension services unavailable in Kenya, the only starting point for comparison of is the best practice norms or benchmarks.

As you compare your farms enterprises with those from other farms you will know whether you are utilizing the full potential of your farm or not.

For example, if you own dairy cattle, you may compare their productivity those from a research center.

2. OPPORTUNITY COST OR PRODUCTION COST?

The prices of farm produce are unpredictable resulting to uncertainty about the correct price to use for most produce.

During accounting, items are valued at production cost. A milk producer will therefore record the price of fuel, fertilizer and seed as being a maize production cost in his accounting system.

If he wants to determine the profitability of his dairy enterprise he will use the price he can get for the maize less marketing cost.

In other words, the maize enterprise sells maize to the dairy enterprise at market related price.

This principle widely used where related companies sell services to each other at market related values.

3. LOOKING AT THE BOTTOM LINE

A good financial record keeping system is a pre-requisite for profitability.

A profitable farm system should be evaluated by looking at the bottom line or net disposable income which is the amount of money a farmer can put in his pocket.

To increase the net disposable income, first step is to increase the gross margin, that achieved by looking at all the enterprises to save on variable expenses.

Variable expenses are those that vary with the quantity produced such as seed and fertilizer, however, reducing them normally results in lower production and earnings.

Secondly, a farmer should increase his technical efficiency. His decisions will be important in the efficient and correct use of variable inputs to result in the maximum gross margin.

Finally, prices vary between suppliers so, efficient purchasing management is necessary.

4. LOWERING OVERHEAD COSTS

Re-evaluate all overhead costs and get new quotations for services.

Labor should therefore be managed efficiently as possible. It is possible to save by negotiating interest rates with credit suppliers.

Careful management of creditor accounts can also save interest and ensure you use the full interest free period provided by suppliers.

The purchase of capital equipment should be limit to what you can afford.

5. NONFARM INCOME AND TAXES

Nonfarm income plays an important role in balancing the books. During good years, invest money off the farm and build a sizable investment portfolio that will provide necessary income especially during bad farming.

Always keep household expenses under control. Improved fiscal performance is the result of detailed analysis of farm business both on the level of a single enterprise and the farms overall performance.