Bad brokers, bad business: a story of conniving brokers at githurai 45 market

If you want to get more sales and more profit selling vegetables...
Then beware of the underhand dealings of brokers in fresh produce markets.
Let me teach you how to sell in fresh produce markets through brokers to the right clients, at the right price. What these customers need...
And the steps you need to take every day to succeed in selling fresh produce in markets around the Kenya.

Interested?
Continue reading...
Dear hardworking farmer,
Do you often find the prices offered for your produce being too low, for you to recover the costs of production?
You want to earn more from your hard work, so you desire to sell to the right people and at the right price.
But, you find yourself surrounded by fresh produce market brokers, who gang up to buy your produce at a low price.
However, how do you find the right people who are willing to pay you the true value of your produce?
Should you avoid selling in open-air markets like Gikomba, Marigiti, Wakulima, Githurai, Korogocho market, and focus on selling to supermarkets?
Here is what research institutions found out, on the purchasing habits of consumers in Nairobi and other parts of the country.

Consumers in Nairobi follow a shopping pattern that is highly diversified across food groups. When asked where they shopped for food during the previous month, over 90% indicated that they had purchased at least one food item in three or more types of retail outlets. This pattern is quite stable across income groups. Between 80-90% of households visited an open-air market, a traditional duka, or a shop. Focusing on fresh produce, 72% visited an open-air market, and 56% a kiosk. Only 6% made fresh produce purchases in a supermarket chain. Working paper 16- Tegemeo institute of Agricultural policy and development

Small-scale vendors (Mama Mboga) control 97 per cent of the highly profitable fruit and vegetable business. Supermarkets only control three per cent of the sales, mainly because of supply problems. Anna Mutahi, Director TNS RMS East Africa

Fact: you cannot avoid selling your produce in the open-air markets because that’s where the buyers are. Unfortunately, these markets are under the control of brokers, and that’s why you need to know how to handle the brokers.
So how will you win this struggle? In a bid to find answers to farmers complaints, many universities, Ngo’s and community-based organizations, have recommended this solution...

“Grow what the market wants, not what you think they want.”

Growing what the market wants means that you are in control, and the market will be willing to buy at your price. Today I’ll tell you of how I did just that, and made sizzling profit. I want to sharpen you so that you may be a knowledgeable farmer.
Let’s start with the first thing that you need to know.
The best time to get your produce the market is when there is a biting shortage.
How do you do that?
You should research on the best time to produce. Remember this important point, “the changes of season affect the production of every crop, either positively or negatively.”
Aim to produce when the season has negatively affected the production of a crop.

Here is a little story of what my market research yielded

Having done research on the selling price of kale and spinach in various markets around the country, I found out, the veggies would sell at a profit in the months of September through November.
Therefore, I planted kale and spinach at the beginning of August 2013 with the intent of selling the produce during the said months.
“My timing was perfect,” because the research pointed to a pattern of scarcity of the vegetables during the said months for the last 10 years.
Thus, the likelihood of making profit, selling the vegetables in the said months was sky-high.

Impact of unexpected change of weather

Kenya always has cool weather in the months of June to August. The cool weather, favors the production of vegetables of the Brassica family like kale, cauliflower, cabbage, Brussels sprouts among others.
The cool weather extended to the month of October. The unexpected weather change helped other farmers, and I who were growing brassicas.
The cool weather meant that I would do less irrigation than originally planned. The change of weather resulted in an unanticipated boom harvest of kale, cabbage and spinach during the months of September to November.
The usual dry weather from September to November was a trump card that I hoped to draw to make more sales, and I was very successful.
This meant my customers could not but everything my farm produced, because of the bumper crop. “I had to go back to the drawing board, and think of a better way of selling the excess veggies.”

Here’s the plan of selling the excess vegetables

“To sell, the excess vegetables at Githurai 45 market,” was my plan. I had never taken any produce to the market, but I convinced myself the market is a free market, where the freedom of entry and exit exists.
I consulted some traders who informed me, “All you need to sell in the market, to pack the vegetables in gunnysacks, put them in a pick-up and arrive there by 5:00 am.”

Meeting face to face with brokers

When I got to the market, some people, whom I thought were customers, surrounded me. They asked me inquiringly, “How much do you sell a kilo of the vegetables?”
They offered to pay 10/= shillings per kilo of kale or spinach, a price that was two times lower, than what my regular customers offer me.
I did a quick calculation and realized that, I would earn 10,000 shillings, enough to recover all my costs but would make no profit.
A choice had to be made. To sell at the price, and I leave the market early for home, or stay put, and wait for better paying customers.
I chose the latter.
I came to understand later, the people who wanted to buy my veggies were brokers, looking for a quick buck.

A big mistake by a newbie

One thing you need to know, most brokers spend a lot of time in the market daily as they looking for business. It is easy to know farmers who are new to the market.
In my naivety, I committed a terrible blunder of forgetting my weighing scales at home. “How would I confirm the weight of kale or spinach that I sold to customers?” that was my agony.
My lack of weighing scales gave brokers an opportunity to fleece me. Some brokers offered to buy my vegetables, at the price of Shs. 25/= per kilo, but they insisted that I use their weighing scales.
I was relieved...
Little did I know the scales were, thieving scales! Every time a kilo I weighed a kilo of vegetables, another kilo was lost. The scales would weigh 2 kilos instead of one. Though I was suspicious of the amount weighed, there was no way I could verify my suspicions.
That brings me to the big question of business ethics in the fresh produce marketing in Kenya. It is apparent that, the city and municipal councils have abdicated their authority to brokers who conspire to trick hard working farmers and genuine traders.
Back to my story, by the time I finished selling, it had made a modest profit of Kshs. 7,000/= I could have made more were it not for the thieving weighing scales.

Here’s a summary on how to beat market brokers

Aim to produce crops at times of scarcity.
Try selling directly to kiosk owners and mama mbogas and restaurants/hotels.
Conduct a pre visit to the market, a week before taking your produce to the market so that you find out the price trends of the produce you intend to sell.
Always carry a weighing scale for your produce, one that you can rely on.

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.

Handling agricultural produce correctly will make you have an edge in agribusiness

If you visit Wakulima, Korokocho or any other market in Kenya, you will see Lorries loaded with hundreds if not, thousands of fruits or vegetables.

If not, hardworking women-trying to eke a living will be seated in the hot sun; their produce placed on gunny-bags lined on the ground, just next to them is slurry from yesterdays’ rain.

-----------------------------------------------------------------------------

As the fruits or vegetables are piled on each other in the Lorries cabins, they bruise each other, those at the bottom squashed.

To crown it all, two or more brokers are sitting on them as they haggle with customers.

By the end of a single day, 10% of the produce will go bad. If it takes 3 days to sell all the produce, over 30% of the produce is destroyed.

Let’s get back to the women. If some of the produce they were selling remained at the end of the day, can’t be sold the following day as the sun will have wilted it.

It has been observed; over 40% of agricultural produce is destroyed at the post harvest stage.

This loss would have led to higher incomes and changed the fortunes of farmers and those product supply chain.

At times a total loss can occur if the produce is highly perishable; for example vegetables and fruits.

We must understand that seeds, vegetable or fruits are living commodities that continue to respire long after they have been detached from the mother plant.

Seeds respire slowly therefore can handle rough treatment and still be viable years later.

This is not the case for vegetables and fruits for they respire and deteriorate very fast after suffering wounds from rough treatment.

Who is the loser at the end of the day? – The farmer. The broker would have made their cut, the city council theirs- the farmer crying all the way to his wife!

When Kenyans are selling produce to the international markets, it is well packaged, handled and inspected by our best graduates who work for KEPHIS [Kenya plant health inspectorate service]

What happens when we want to sell produce locally? Nobody cares! - The produce is loaded and ferried in a dirty pickup that probably ferried a corpse the other day.

When the produce gets to the market who handles it? Your guess is right- it is that ‘fella’ who is water phobic.

The last time he had a shower was when he was rained on as he was caring a 100 kilo sack of potatoes.

The logic behind this article is- you can earn more if you mind how you handle produce as you will reduce wastes due to rotting.

Have a careful day! Will you?

LiveJournal Tags: Conditions in Horticultural markets in Kenya

Overcoming failure in agribusiness needs one to resolve to work hard, technical knowledge on crop production and financial literacy skills.

Farming is an enterprise where you can double or even triple your investment in 6 months to one year but it is laden with huge risks.

In my previous blog posts, I have provided technical information on different crops for those who wish to start a farming enterprise; but this one is unique, for the focus is success in agribusiness.

A farming business is the easiest business to start; all you need is a piece of land. If you don’t have any, there are people, always ready to lease their land.

Secondly; you must have the resolve to work hard, equipped with technical knowledge on the crop you wish grow and be abreast to the ever changing crop or farm operations and financial literacy skills.

Most of us assume that capital is the paramount factor in agricultural production, this is not true. In my opinion, managerial skills reign supreme- they determine success or failure.

A knowledgeable agricultural investor/farmer will view farming as a production line. The factory is the soil, where inputs are necessary in sufficient quantities for flourishing crop growth.

Most farmers do not supply the requisite inputs in the desired quantities. They either, oversupply or undersupply them; two conditions having a considerable influence on the quality of and price at which to sell the product.

Farmers all over lament that the costs of production have sky rocketed while the commodity prices have remained low; even in this condition, there are those who are smiling all the way to the bank.

For instance, during the rainy season, grass sprouts all over even on public land. Those with foresight harvest the grass aggressively; store it for the dry season or replenish their barns.

An Agro-based business thrives during seasons of biting shortage or during seasons of high demand like Easter and Christmas; successful farmers position their resources for such occasions.

All we need to succeed in any business including agriculture is the ability to forecast and lay plans that will shape the business/firm in the present term, medium term and in the future.

HOW FINANCIAL LITERACY AFFECTS AN AGRIBUSINESS

Success in business is the wish of every businessman or lady in Kenya; unfortunately only a handful makes it. A discussion on a popular web forum www.wazua.com attributed this failure to lack of financial literacy.

“The...biggest handicap to most people achieving financial freedom is the lack of financial education. We have people all over who are keen to invest and start business, but the truth of the matter is that 90% of the businesses started fail within the first 5 years of operation.”

The question is; which financial education is needed to succeed in business? Must you arm yourself with complex accounting formulas or equations to calculate profit or loss, sales projections or turnover?

We have witnessed people, who’ve had suboptimal education succeeding in business; some of whom are billionaires! This proves to succeed; only a basic education is necessary.

All we need to understand is; what is capital, what are sales, when do you make a profit or loss and how to deal with and regulate expenses, and, recognize that every decision taken, has a financial implication to the business.

Many people have bright business ideas. Once they take the bold step to implement them, they fail to differentiate capital from sales, profit from sales, and fail to monitor expenses to peril of the business.

Successful businessmen whether learned or not, have learned by experience and practice the role of capital in business, the tricks of increasing sales, the ways of increasing profits while reducing losses and the effect of ballooning expenses on a business.

Of course there are other ‘accounting calculations or concepts’ [if implemented] assist a businessman to accurately determine if his business is doing well.

I believe the most basic accounting concepts constitute the foundation of any business; other accounting formulas evolve from them.

Customarily, we are quick to leap into opportunities without seriously analyzing them. We consequently finish up missing the bigger picture.

We are rash to engage in business because of the greed of achievement. A business is like a seed; there are preparations that must be put in place before planting the seed.

You don’t expect to harvest immediately after planting, the seed must be natured; the bountifulness of the harvest is determined by how we natured the seed.

At times, regardless of the effort done, we miss a harvest because of reasons beyond us; the same applies to business.

When we critically analyze ourselves and the business, we will be able to understand our limitations and how they affect the business so that adjustments can be made.

There exists a very big gap and the same must be addressed if we want to progress as a country and get out of the shackles of poverty and of course the middle class mentality.