Hortinet, creating a fair and transparent horticulture market in Malawi

As the SEED 2016 Symposium took place in Nairobi in September, the Hub caught up with a previous award winner, Hortinet.

What prompted you to start your business?

The high and alarming poverty levels of the rural people in Malawi coupled with great opportunity that exists to commercialise the horticulture sector influenced Hortinet to start a social enterprise. For the majority of smallholder farmers in Malawi, the most accessible markets are informal and full of middlemen. Typically, these markets have no formal grades, no traceability, they rarely use standard measures, and prices are set through arbitrary combinations of supply and demand, subjecting poor farmers to high exploitation. Our inclusive business model presents an opportunity of having a formal market characterised by a functional value chain.

What does your business offer to your clients? What is the core value proposition?

The fruit and vegetable urban market in Malawi is highly characterized by imports from other countries; this situation gives Hortinet a big comparative advantage in such way that local production of products with the same quality as those imported costs less to a consumer. The inclusive business model in the commercialization of the fruit and vegetable production was built on the value proposition of consumer assurance in-line with, high standards of fresh food quality, low prices and reliability of supply.

What stage of operation have you reached?

Up-Scaling

Tell us about your impact – social/environmental/economic.

Social impact
• Creating new market opportunities and increased income for mainly female smallholder horticulture farmers.
• Supporting young entrepreneurs involved in the collection process.

Environmental impact
• Increasing sustainable water usage for irrigation purposes.
• Reducing fuel use and carbon emissions by introducing small scale gravity-fed irrigation systems.
• Mitigating the effects of Climate Change by sharing Conservation Agriculture practices, which aim at minimising soil disturbance and conserving its composition and natural bio-diversity.

Economic impact
• Creating more employment opportunities for youth and women in Malawi.
• Stimulating the local economy with agricultural products to substitute a substantial amount of imported fresh produce.
• Reducing consumer expenditures on fruit and vegetables by up to 30%.

Do you have partners and how do they work with you? Do you regard partnerships with other actors as a key route to scale or do you prefer to go it alone?

Hortinet has partnered with World Vision one of the biggest NGOs in the world. Hortinet regards partnering as a great growth technique. It is important to understand that most of the developing world has been penetrated by NGOs for two decades or more. They have presence, have already organized 100s of millions of people, and are looking for change that is sustainable. Not only are NGO organizations able to short cut the work of expansion, they are often willing to fund part or even take care of all expenses for an activity. What more could a growth organisation ask for?

What challenges have been encountered during implementation? How are you overcoming these challenges?

Despite significant opportunities, Malawi as a country is still confronted with numerous challenges which could hamper the success of inclusive businesses. These include: unclear regulatory and policy environments, lack of infrastructure, high levels of illiteracy, and a lack of knowledge and skills. Regulatory reform and government support are crucial for enabling low-income people to participate in the formal economy and to be integrated into value chains, as many of them do not have legal documentation for their informal businesses. Similarly, improving market infrastructure for low-income producers makes it easier for them to access markets beyond the local level, by ensuring price transparency and reducing transaction costs.

How has the social enterprise landscape changed since you first started your business? What has improved and where do you think improvement is still necessary?

Inclusive businesses have slowly been gaining ground in Malawi but many entrepreneurs are struggling to scale up their innovative products and services due to significant gaps in the financial landscape (the missing middle) that continue to create barriers to inclusive business and value chain development.

In your opinion, what are the key factors that your business has or is seeking that will enable it to reach scale? How important is reaching scale for your business?

1. Use of technological and innovation capabilities to expand our core businesses.

The key results areas here are innovation and high quality fruit and vegetable products. e.g. The use of Improved Solar Drying technology will assist in achieving this as Hortinet will be the first enterprise to commercialise the use of Modern Solar Fruit and Vegetable driers in Malawi.

2. Proper use of resources

Core competencies and competitive capabilities will help to widen new market segments. These will give the business a competitive advantage over the competitors. The business will commit its resources in the key operation areas for better results.

3. Development of marketing skills to take advantage of the of the fast market growth.

This strategy will lead to market growth, and hence, more customers, increased profit and value creation, which will lead to increased rate of return to all those involved in the value chain

Can you tell us a bit about what support you’ve received from the SEED accelerator programme and what has had the most impact on your business?

Regarding the Seed Accelerator Support we are currently receiving one on one advising on financial management and access to finance. On top of that we have also received a financial contribution of USD 30,000. A good social business foundation has been built with all the support Hortinet has received from both the Seed Catalyser and Accelerator programs and we are Good To Go.

Where do you see your business ten years from now?

• Scale-up production in order to reach minimum annual sales revenues of USD 1.5m.
• Enrol 10,000 producers under out-grower programme.
• Substitute 60% of imported horticultural produce in Malawi by expanding out-grower schemes.
• Expand product portfolio from fresh raw produce to value-added horticultural products.

What is the one piece of advice you would give to aspiring social entrepreneurs looking to start an inclusive business?

Inclusive business is a powerful model that the private sector can use to contribute to development and alleviate poverty, whilst simultaneously creating competitiveness and economic success for their business. Upstream and downstream partners in value chains can derive significant economic benefits from value chain transactions in comparison to more conventional business arrangements. Value chains allow producers and buyers alike to participate in coordinated marketing and distribution activities that maximize product value through strategic responsiveness to buyer demand and consumer preferences and to enjoy the transportation savings.