Sourcing from smallholders

The Africa Agribusiness Academy

Case study

HILLSIDE GREEN GROWERS AND EXPORTERS Eunice Mwongera

Company Background • Hillside Green is a family export company that was founded in 1998 with a clear mission; to farm and export fresh and healthy fruits & vegetables to the global market. • Hillside specializes in three product segments: o Exotic vegetables o Fruits o Asian Vegetables • Hillside is a leading exporter to Dubai, Kuwait and Qatar, and also exports into UK, Holland and, Norway UK. Currently the company is targeting the COMESA regional market. • Hillside Green produces 30% (of all its products) on its own farm, 50% goes through smallholder farmers, 10% is through individual contract farmers and 10% through middlemen/ brokers.

Sourcing of raw materials /best agriculture practices

There are four strategies that majority of exporters employ to source raw materials. Ordinarily most of will use the four concurrently in a bid to ascertain quality, quantity and consistency of the raw materials given that horticulture is a highly time conscious type of business.

1) Firms own grown 2) Contracted large scale farmers/growers 3) Smallholder farmers, organised in farmers groups 4) Brokers/agents/suppliers

1. A. Smallholder farmers  

Characteristics • Composition is about 40-55 farmers leaving within a given geographical zone with similarity in ecological conditions • Usually have common interest that bring them together, which is sourcing for markets • They also come together to be able to consolidate wares • To benefit from price negotiations and bargains to chemical supplies • May also be sharing water source or other facility like centralised delivery depot

Sourcing from smallholders

The Africa Agribusiness Academy

• • More developed groups cover three or more groups to form a Sacco e.g. sagreens ltd

Prevailing conditions :( challenges)

• • Lack of adequate extension services by government • Lack of affordable certified seeds • Lack of government aided trainings • Lack of government supported marketing structures • Competition • Reliance on rained agriculture • Small parcels of land • Threats from consumer demanded standards

How Hillside has overcome the challenges

• • Implementing a MOU through contract farming • Identify serous enterprising group with structures • Assigning regional managers (agronomists in charge of groups) • Training of farmers, couching on good agriculture practice • Networking with chemical suppliers and seed providers for original seeds • Enhancing close supervision • Identifying with farmers needs e.g. we zero on an existing group • Embraced and negotiated mutually agreeable policies on prices, picking days, spraying programmes, quality, quantity , mode and schedule of payments, how to deal with errant members and contract relationship etc • Encouraging corporate governance within the groups (officials, bank accounts and accountability systems) • Networking with industry stakeholders e.g. PIP, techno serve, KHDP to address issues of quality, training, certifications • Partnering with microfinance, e.g. equity, Faulu to source affordable funds to smallholders and offer business development business services • Identifying with women led groups as they are trustworthy and reliant dressing the business perspective from another angle, sourcing from smallholders remains the cheapest source even if one takes into account all the costs.

Key success factors- farming with farmers groups

• • Smallholder farming is more cost effective

Sourcing from smallholders

The Africa Agribusiness Academy

• • There is marked transformation of life style in the rural areas where horticulture farming is practiced – eradication of rural poverty • Farmers groups farming has an effect of addressing food shortages in the rural areas as farmers have access to easily disposable incomes • This strategy works to mintage food security challenges as farmers are trained on crop rotation • There is evidence of mentorship taking place as young energetic farmers are taking the challenge and indeed commercializing farming

B, Individual (contract) Farmers • Characteristics of the individual contract farmers are that the individual component as opposed to being organized into groups. These farmers also tend to have a larger size of land of approx. 10-50 ha. However, there are few farmers in Kenya with 50 ha that are not already exporting them. • Generally speaking, these growers are easier to manage as compared to smallholders and they require less training. Hillside has a written contract with them which includes provision of seeds, agronomical training, and transport for the produce, payment procedure (monthly payment and higher price as compared to smallholders). • According to Hillside, the advantage of working with them is that they are very consistent, deliver high quality, more honest, less supervision costs, more professional and business minded.

1. C. Brokers • The contractual relationship with the broker is based on Local Purchase Order (LPO). Hillside also offers credit support to bind them. Credit support involves prepayment so that the brokers meet the order. At the start of the season, Hillside holds meetings with the top 8 brokers and agrees on calendar/dates of supply, price, and delivery period and payment mode. These agreements are often verbal agreements and based on trust. As long as you stick to the prices, mode of payment and the calendar, these agreements often work. • Hillside also works with an Accounts Payment System, whereby Hillside collaborates with Equity Bank. The procedure is that the company ensures that the broker opens an account with the bank in question, so that there are no financial problems with prepayment, payment, and booking. This cycle should be smoothly operating. The reason Hillside operates in this way and in particular with Equity Bank is for security purposes to trace back the money flow. If there are any payment issues

Sourcing from smallholders

The Africa Agribusiness Academy

Equity will support Hillside in finding solutions. Another benefit of using Equity is that it has branches in rural areas.

Breach of agreements/Best Practices

1. A. Smallholder farmers   • In some cases, the smallholders do breach contracts. They might under produce, overproduce, shift prices, fail to implement the Good Agricultural Practices (GAP). These are real challenges. At Hillside Green, this is where contract farming comes in. • Through signed contract farming (not to be confused with the larger individual contract farmers listed above) so better say contract documents, Hillsides binds itself to the farmer groups, using different clauses o 1) we shall not breach the contracts o 2) we shall not sell to anybody else o 3) we shall not take anybody else’s products o 4)we shall adhere to the price listed in the agreement • According to Hillside, clause nr 4 is frequently causing problems. If the price agreed upon with Hillside appears to be lower than the actual market price, the farmers may side-sell to an external company. These external companies may also be the same brokers that also supply to Hillside. This is market behaviour and proves almost impossible to prevent. • However, the farmers are morally bound, they are well aware that they need Hillside in the future, hence they will still supply to Hillside but produce for example only the half of what they agreed upon. The other half may be secretly sold to the external companies/brokers.  

• • Hillside identified six ways to either prevent or deal with breach of agreements: 1) The company collaborates with FPEAK (Fresh Produce Exporters Association of Kenya). This association of all exporters has laid out specific rules regarding fresh produce production and thereby protecting the exporter. FPEAK lists the farmer groups of its exporters and circulates this information to all members of its Association. By circulating this information, other exporters ideally do not use the same groups. Implying that if companies are morally consistent they would not touch these farmer groups.

Sourcing from smallholders

The Africa Agribusiness Academy

2) Allocate a permanent officer at the farmer groups, who will monitor/ supervise/ align with the officials. However costs are inclined with continuous supervision. 3) Consequent and frequent payment to the smallholder farmers. Farmers want payments to be prompt/immediate, so if you pay them consequently, e.g. every 2 weeks, the farmer will not see the need to go to other buyers. In some instances, Hillside even pays weekly or even daily. In this farm you bind the farmer. 4) Forcing the contracts by using farmer group officials. The officials deal with the penalties for those who misbehave. Hillside may also intervene itself by not buying the ‘misbehaving’ farmers’ produce for a week. Hence, when farmers refuse to deliver the agreed quantity in an off-season, Hillside punishes by not purchasing their produce in the real season. This serves as another motivator for farmers to live up to the agreements. 5) Increasing prices. Farmers know the market prices, so sometimes Hillside has to higher the prices to keep up with the competition of other buyers.   6) Working through a stakeholder’s network. In this network all relevant stakeholders are present: the exporter, the trainer (USAID/Techno serve), the farmer, the bank (Equity Bank) and the chemical inputs person. The exporter provides for the market, the bank provides for the credit, the farmer provides the produce, the chemical inputs person provides the chemicals and the trainer provides training modules. Hillside is very much in favour of this approach since constraints are jointly discussed and opportunities identified.

Contact details: Hillside Green Growers and Exporters Eunice Mwongera Kindaruma Road P.O. Box 73485 – 00200 Nairobi, Kenya

Tel: +254 (0) 20 239 7353; Cell: +254 722 514 375 Email