Firms and farmers: the long way to loyalty

Written by Baba Togola, Cluster Advisoy for 2SCALE in Mali and facilitator of the sesame partnership in Mali. 

Amadou Hampâté Bâ, the Malian writer and ethnologist from Bandiagara, once said: “There is my truth and there is your truth, and those will never meet. The truth is in the middle. To approach it, each one must take a step towards the other, and then dialogue becomes possible.” This idea of mutual understanding (and empathy) turned into reality when the different actors in the maize partnership came together in Sikasso in January 2017 and joined the Business Development Forum (BDF) that was facilitated by 2SCALE.

The forum brought together SONAF (Société Nama et Frères – supplier of maize to the markets of Mali, Senegal and Niger), and its various partners such as representatives of farmers’ organizations (POs) who supply SONAF with raw material, agricultural inputs vendors and collectors, or middle men.

At the heart of the forum, the burning question was: how to build a loyal business relationship between SONAF and the producers? As a reminder: in 2015, following the objective of building loyal relationships between producers and SONAF, 2SCALE facilitated the establishment of an access to credit facility for inputs based on an off-take contract by SONAF. The agreement was facilitated by Youssouf Traoré, partnership adviser for 2SCALE. It stipulated that the partnering POs would deliver the equivalent of their inputs credit in kind of yellow maize to SONAF. The volume each farmer engaged to deliver should at least be equivalent to the cost of the input credit he received, at the agreed price of 90 CFA/EUR 0,14 per kilogram. This scheme enabled 4 POs comprising 1,279 producers (including 240 women) to benefit from an input credit volume of 127.9 million CFA (EUR 194,408), in particular from the Banque Nationale de Développement Agriocole (BNDA) and two microfinance institutions, namely: Soro Yiriwa and Nyèsigiso. At the time of the assessment, this system has enabled to collect only about 200 tons of maize out of a total volume of 27,898 tons collected by SONAF. The remaining quantity was collected through the collectors and the POs, without any link with the credit scheme in place.

Up to December 2016, the rate of reimbursement of credit remained below 60%. However, this default payment can be put into perspective given the fact that the two out of four POs that did not fulfil their obligations were also the largest borrowers.

During the marketing season, the price for maize unexpectedly inflamed, and most of the 1,279 producers – mostly the two largest borrowers – decided to sell their product on the open market. What is even worse, is that after the sale of maize, most of these indebted producers did not repay their cash credit. Non-compliance? Unfair practice? Infidelity? None of these words can solve SONAF’s problem. The question now, besides the repayment of the credit remaining due, is how to deal with such situations in the future? We wanted to learn from this experience, together with SONAF’s CEO, Adama Dissa, and all his partnering producers.

Findings and Lessons Learned

Input credit is not a guarantee for loyalty

We believed that in order to increase the loyalty of producers supplying SONAF with yellow maize, we should concentrate our efforts on a contractual arrangement that would solve a major producer concern (input credit) and seek to engage producers in this type of arrangement. Practice has shown that if actors do not prepare for it, they fail, however big the need for inputs is. From participatory analysis we discovered that there is no single general measure, not even within a single partnership, which can be systematically applied to all POs. SONAF can only secure its supply in the long term through several types of contractual arrangements, each of which with its own specifications, requirements, advantages and limitations.

Before the forum started, a question struck me: did we start with the most complex contractual arrangements? After two days of reflection and questioning, I realized that this was not the right question and that in view of such a wide variety of situations, we must offer a variety of solutions.

The forum participants identified four types of contractual arrangements that are all valid and can evolve in parallel within a single multi-stakeholder partnership. The question would then be: what conditions must be fulfilled by the stakeholders to make a contractual arrangement work better per particular zone, PO, village, time of year, etc.?

There is no point in shooting a fly with a rifle

In some types of arrangements, SONAF and a third-party collector/middle men agree on the price of kg of maize on a day-to-day basis. In this case, the only condition to be fulfilled is the availability of funds at the collector. There is no need for paperwork and a formal agreement. It’s one shot and everyone is happy.

Collective sale is not an end

This type of arrangement (one shot) necessarily betrays the so-called “collective sales” ideal, where a written contract is signed before the crop year. Many projects rightly support this option, in particular because it a) enables buyers to reduce transaction costs (such as those related to collecting and transporting maize), b) increases the bargaining power of producers, and c) makes it possible to reach the target volume and to control quality, a necessary step towards traceably. But collective sale is not an end in itself, at least not so long as the PO that is encouraged to engage in this option is not ready for this exercise from an organizational point of view. It sometimes happens that we forget this. Loyal relationships can take place in less complicated contractual arrangements.

Clearly, if one is not at a certain level of organization, one must limit oneself to the direct purchase of the product through a collecting intermediary, without any other form of contractualization. The only requirement for SONAF – or any other company – is to create the conditions for the collector not to have funding shortages.

Inputs credit is an ultimate remedy

The contract model tested in 2015 required both parties to organize and commit to several conditions, ranging from a fixed price to the involvement of other actors such as input suppliers and banks. This model has its advantages, such as better planning opportunities for the company, but it also presents requirements that must be fulfilled on both sides: a certain credibility of the POs and the banks involved, a certain ability of POs to mobilize their members and a certain  level of professionalism at both sides. Hence the relevance of capacity building on technical issues (how to grow maize, smart fertilization, post-harvest techniques) and many other organizational issues.

This microscopic look, through the Business Development Forum, appeared to be a fundamental step towards “loyalty”, a word I find difficult to use without putting in quotation marks. I wonder if we should use this word to describe the relation between firms and farmers. Simply because this word carries a certain moral burden, and risks to enclose reflection in the vicious circle of values. However, values are relative concepts, subject to different interpretations. Everything depends on the point of view of the observer, and the point of view of the producer is not that of the company, and vice versa.

• This blog is part of a series on what’s new in inclusive agribusiness from April 2017. Hear from more contributors in part one of the series- digging into the details of inclusive business programmes around the world.  In part two contributors share how long-standing perspectives on cooperative, corporate strategies, value chain partnerships, market system change, rural livelihoods support, financing, and innovation adoption are beginning to blend, and why. 
• Read more on key topics in inclusive agribusiness in the series of six theme papers.
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