This series on Inclusive Innovations explores business models that improve the lives of those living in extreme poverty. Editors are Elaine Tinsley and Natalia Agapitova. Researched and developed by Intellecap. HIGHLIGHTS • Post-harvest service providers perform value-adding activities, such as sorting, packaging, labeling, and branding farmers’ produce, which enhances the market price of the produce. • Some enterprises use cluster farming to address meager smallholder margins on produce and post-harvest losses. • Post-harvest service providers often make upfront payments to the farmers at the farmgate, which helps the farmers maintain financial sustainability and invest in better inputs and equipment. INCLUSIVE INNOVATIONS Post-Harvest Service Providers Improving smallholder incomes by grading and increasing the shelf-life of their produce A'Melody Lee / World Bank Summary In the post-harvest phase, smallholder farmers typically off-load their produce to middlemen at the earliest. Given the reduced shelf life of produce that is not stored appropriately and the lack of standard assessment or grading, they are forced to accept prices that are offered to them. The middlemen and subsequently, the agribusinesses that procure from the supply chain, unlock the true value of the produce by undertaking value addition activities like sorting and grading, packaging and processing before they sell at best market prices. Smallholder farmers do not get a share of these profits, and continue to engage in the cycle of low investment-low productivity-low income farming. In a bid to address this market gap, social enterprises (SEs) have developed solutions to include farmers in reaping the benefits of value addition services such as processing, packaging, quality assessments, and market linkages. The enterprises help increase the price realization of agricultural outputs by collectivizing farm produce, and adding value through sorting, packaging, labeling and branding. The enterprises either connect the smallholder farmers directly with large corporate buyers, supermarkets, and other such customers, or sell to these customers on the farmers’ behalf. Development Challenge Smallholder farmers are forced to sell quickly after harvest as they lack storage facilities that will retain the quality of their produce. As they sell small quantities and in unpacked, mixed grade lots, they are unable to negotiate higher prices or wait for better market conditions. Challenges such as short shelf life of some agricultural produce, risk of spoilage, pest attacks, and quality deterioration, lead to distress sales and lower prices for farmers. In the absence of pricing information and standard quality assessment tools, smallholder farmers often accept lower prices because they do not know whether they deserve better, based on the quality or grade of their produce. An MIT study across 72 villages among potato farmers in West Bengal, India found that average middlemen margins averaged 50-60 percent of farm gate prices in
SummaryInthepost-harvestphase,smallholderfarmerstypicallyoff-loadtheirproducetomiddlemenattheearliest. Given the reduced shelf life of produce that is not stored appropriately and the lack ofstandard assessment or grading, they are forced to accept prices that are offered to them. Themiddlemen and subsequently, the agribusinesses that procure from the supply chain, unlock thetruevalueoftheproducebyundertakingvalueadditionactivitieslikesortingandgrading,packagingand processing before they sell at bestmarket prices. Smallholder farmers do not get a share oftheseprofits, and continue toengage in the cycleof low investment-lowproductivity-low incomefarming.In a bid to address this market gap, social enterprises (SEs) have developed solutions to includefarmers in reaping the benefits of value addition services such as processing, packaging, qualityassessments,andmarketlinkages.Theenterpriseshelpincreasethepricerealizationofagriculturaloutputs by collectivizing farm produce, and adding value through sorting, packaging, labeling andbranding. The enterprises either connect the smallholder farmers directly with large corporatebuyers,supermarkets,andothersuchcustomers,orselltothesecustomersonthefarmers’behalf.DevelopmentChallengeSmallholder farmers are forced to sell quickly after harvest as they lack storage facilities thatwillretainthequalityoftheirproduce.Astheysellsmallquantitiesandinunpacked,mixedgradelots,theyareunabletonegotiatehigherpricesorwaitforbettermarketconditions.Challengessuchasshortshelflifeofsomeagriculturalproduce,riskofspoilage,pestattacks,andqualitydeterioration,leadtodistresssalesandlowerpricesforfarmers.In the absence of pricing information and standard quality assessment tools, smallholder farmersoften accept lower prices because they do not knowwhether they deserve better, based on thequality or gradeof their produce.AnMIT study across 72 villages amongpotato farmers inWestBengal,Indiafoundthataveragemiddlemenmarginsaveraged50-60percentoffarmgatepricesin
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2008.Whatwasevenmoreworryingwas the fact that access toprice informationwasunable toimprovethesituationwhenfarmerswerelockedintorelationshipswiththetradersorwhereothermarket imperfections existed. Access to information, however, did increase the likelihood thatfarmerswouldattempttodealwithwholesalersorretailersdirectly.1Inadequate linkageswith value chainplayers, likeprocessors, limit thevalueaddition farmers canbringtothebasicfarmproduce.Byturningfarmproducetofood,farmerscanincreasetheirshareofeverydollarthatendconsumersspendonfood.AsperUSDA’sEconomicResearchService,only16centsfromeverydollarspentonfoodgoestothefarms.Therestaccruestovalueaddingactivities.2Smallholder farmers can only increase their share of food dollars by participating in the valueadditionprocess.BusinessModelComponentsoftheModelInanattempttoaddressthisgapintheagriculturalvaluechain,SEsofferprocessingandpackagingsolutions to increase the shelf lifeof agricultural produce. They share thehighermarketpricesofprocessed and packaged agricultural productswith smallholder farmers by paying them premiumprocurement rates at the farm gate. Quality assessment conducted by these enterprises alsocontributestotransparentandoften, improvedpricesforfarmers,whichmotivatesthemtoinvestinbetterqualityinputssothattheygrowbetterproduce,qualifyforhigherqualitybenchmarks,andreapthebenefitsofpremiumprices.Figure1.Componentsofthemodel
ProcessingProcessing is an activity which arguably, adds the maximum value to fresh agricultural produce,therebyimprovesfarmerincomes.Thisisparticularlysoforperishableswithshortshelflivessuchasfruit and milk. Processing not only ensures longer shelf life, but also higher valued output thatfetchesbetterprices.TanzaniabasedBrooksideDairycollectsandprocessesmilkfromsmallholderfarmers. It markets value added milk and dairy products such as cheese, butter, ice cream, andflavoredmilkathigherprices. Itdistributes thedairyproducts throughdistributiondepots,agents
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and sub-agents to retail outlets, passing on market prices to farmers. Tanzania based ClaphijoEnterprisespecializes inprocessingof fruitsandvegetables toprolongtheir shelf lifeusingasolardryingmechanismwhichitdevelopedin-house.Otherenterprises,likeeKutir,organizefarmersintocollectives and provides them with decentralized processing equipment, thereby increasing thecapacityofthefarmersandgivesagreatershareofthevaluetothemupfront.PackagingSEssupportfarmerswithsortingandpacking,whichimprovestheshelflifeofagriculturalproduce.The process also involves branding that guarantees a certain quality for a certain premium.Indonesia based PT. Bimandiri Sedaya Agro supplies a range of fresh fruits and vegetables tosupermarkets in the country. It selects and grades the freshproduce from the farmers andpacksthemindifferentsizesbeforesellingthemtothesupermarkets.Anothersocialenterprise in India,Parvata Foods is dedicated tobuilding integrated value chains for theorganicproduceof farmersresiding in the hilly areas of Northeast India. The enterprise packs and brands organic fruits,vegetables and spices collected from the smallholder farmers and supplies at premium prices toleadingretailchainsinurbanareas.QualityAssessmentSEsalsoaddsignificantvaluetofarmproducebyundertakingqualityassessmentandcertification.Thisallowsforsignificanttransparencyinthequality(forexample,percentageoffat inmilk,gradeandsizeoffruit)whichdeterminesfairmarketpricesoftheproduce. Itnotonlyallowsfarmerstonegotiatebetterprices,butalsomotivatesthemtofocusonenhancingproductivityandqualityasthey see incomegains improvewithbetter quality. By eliminating about ten layersofmiddlemenandofferingdifferentiatedpackaging,brandingandmarketingofcertifiedorganicproducts,ParvataFoods pays 70 percent of its receipts from retails chains to farmers at the farm gate duringcollection.3KenyabasedNuBreeDairydeliverspasteurizedmilktoretailcustomersandbusinessesin the country. The stringent quality assessment undertaken by the enterprise ensures that itsnetworkofdairyfarmersconsistentlyreceivepremiumpricesforthemilktheysupply.Figure2.Processofthemodel
CostFactorsPost-harvestserviceproviders incurfixedcostsonrentoftheestablishment,equipmentexpenses,utilities, management salaries, insurance and cost of interest on borrowed funds. Variable cost
includes cost of raw materials, packaging material, transportation, contract labor/ seasonalemployees,andmarketing.Table1showsthetypicalprojectcostincurredtoestablishasmall-scalefruitprocessingunit.4Table1.Typicalprojectcostforafruitprocessingunit
S.No. Particulars Amount(USD)1 Land 3,7502 Landdevelopment 7,5003 Civilwork 34,6504 Plantandmachinery 60,3455 Miscellaneousfixedassets 3,0006 PreliminaryandPreoperativeExpenses 2,925 TOTAL 112,170
Milk, fruit and vegetable processing enterprises haveto make significant investments in establishing theplant (including processing and quality assuranceequipment), and in collection& distribution vehicles.Kenya based Nu Bree made an initial capitalinvestmentofapproximatelyUSD250,000fortheprocessingplant,andspentUSD550,000tobuycollectionanddistributiontrucks.It incurredaninitialexpenseofUSD5,000inmarketingactivitiesto create demand for its solution. Its operational expenses include the maintenance of themachineryandequipmentandpaymenttofarmers.Indiabasedpost-harvestdairyenterpriseShreeKamdhenu Electronics Private Limited (SKEPL) also incurred similar capital expenses in buyingmachinery and development of technology. Human resource costs are a major operational costcomponent for SKEPL. Tanzania based food processing enterprise Claphijo incurred initial capitalexpenditure in developing and manufacturing of solar driers. Its major operational costs includebuying produce (fruits and vegetables) for processing, and transportation cost to transfer theprocessedfoodtoitstargetcustomersincludingsupermarketsandboardingschools.Other variable costs include packing material and transportation. Enterprises also need to makeupfront payments to farmers and laborers, while their clients that include big corporates deferpayments. The enterprises need to maintain high working capital and liquidity that add to theircosts.RevenueStreamsGrocery wholesalers, supermarkets and convenience stores are some of the major customers ofpost-harvest service providers.5 The end-consumers for post-harvest service providers includeupper-middle income to high-income populations that are able andwilling to pay a premium forqualityproductsandservices.Some enterprises clean and sort the grains obtained from smallholder farmers and charge apremium for the productwhen they on-sell to otherwholesalers and retailers. Other enterprisesprocessthegrains intoflourandsell ittoFastMovingConsumerGoods(FMCG)companiesthat inturneitherbrand theproductsand retail them,oruse theproduceas rawmaterial forproducingotherprocessedreadytoeatfoodproductssuchasbiscuits.Anumberofotherpost-harvestservicecompaniesprocess fruitsandvegetables into juices, jams, jellies,andpickles,andsell these in thelocalandinternationalmarkets.Milk processing enterprises earn revenues by direct sale of milk and higher valuemilk products.Brandingallowstheseenterprisestoearnhigherrevenuesaswellasbuildcustomerloyaltyfornewproducts.IndiabasedMilkMantracollectsthemilkfromsmalldairyfarmers,apartofwhichissolddirectly. The enterprise earns additional revenues from value added products such as buttermilk,
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yoghurtandmilkshakesthatitsellsundertheMilkyMoobrand.Itusesinnovativepackaging,whichincreasestheshelflifeofmilkbyuptofourdaysandpackagedpaneerupto21days.6Governments in developing countries are supporting small scale and micro food processingbusinesses by farmer families (particularlywomen) through aggregatormodels, such as eKutir.7 Afew enterprises however, engage in sale of small scale food-processing solutions to farmers.TanzaniabasedClaphijoEnterprise, for instance,earnsrevenuesbysellingsolardriers thatreducepostharvest lossesanddomestic foodwaste.Thedrierbringsdown themoisturecontentof freshproduce from60percent to less than10percent and arepriced at aboutUSD400,making themaffordabletosmallholderfarmersgiventhereductioninpost-harvestlosses.Thesolardriersrequireminimumtechnicalexpertiseforoperation.8FinancialViabilityTheprofitmarginsoftheinterviewedpost-harvestserviceenterprisesrangefrom10percentto70percent.9Anindicativesetoffoodprocessingindustryprofitabilityratiosglobally10isshowninTable2.Table2.Foodprocessingindustryprofitabilityratios
According to Model Project Report on Fruit and Vegetable Processing Unit by National Bank forAgricultureandRuralDevelopment(NABARD),India11,theprofitafterdepreciation,interestandtaxgenerallyincreasesyear-on-yearasindicatedinTable3.Table3.Profityear-on-year
Anumberofenterprisesinthisbusinessmodelhavebeenabletoattractequityfundingintheearlystages.SKEPLreceivedearlystageinvestmentfromtwoimpactinvestors,AavishkaarandGrassrootsBusinessFund.AnotherIndianmilk-processingenterpriseMilkMantrahasattractedmultipleroundsofinvestments.In2014,itsecuredaninvestmentforthefourthtimefromAavishkaar,andhasalsoattractedtheinterestofmainstreamprivateequityinvestorsincludingFidelity.Securinginvestmentfrombiginvestors,inadditiontocontinuedsupportfromexistinginvestorsendorsesMilkMantra’sgrowthpotentialandstrategyoffocusedfunctionalinnovationandits‘ethicalsourcing’initiative.13.Interestingly,notallpost-harvestenterprisesbenefitfrombrandingandsellingtoretailcustomers.Often, the costs outweigh the returns. Enterprises that have adopted a business-to-businessapproach have found it easier to achieve financial viability. This approach reduces the need forinvestmentsinbrandingandmarketing,andalsoensuresthemstablecontractsforlongerdurations.For instance, Kenya based Nu Bree shifted from a business to customer model to a business tobusinessmodel. Currently, the enterprise sourcesmilk from small dairy farmers; it processes andpackagesthemilk,andsellsthemilktocommercialcustomerssuchashotels,restaurants,schools,universities,hospitalsandcorporates.Theenterprisehasalsochangeditsengagementmodelwithfarmers. Insteadof sourcingmilk fromdispersed farmers, theenterprise operatesunder a clustercontractfarmmodel.Inthismodel,NuBreeownsonelargescalefarmclusterwithanetworkof100small farmers. The farmers pay 2.5 million KES (USD 24,750) for a contract, against which theenterpriseprovides10cows, cattle feedandadequate fodder toeachdairy farmer.NuBree thenbuysmilk from thesedairy farmers atmarketprices.With this innovative strategy, theenterpriseachievedbreak-evenwithinthreemonthsofitsoperations.Otherenterprisesfocusonmaintaininghighqualitystandardsandadoptedinnovativetechnologiesto ensure financial viability. Tanzania based Brookside Dairy has developed key performanceindicators to ensure consistent high quality production. Thehigh quality ensuresminimum reject,hence reducing the losses for the non-salable items, thereby ensuring financial viability. Theenterpriseisnotonlyfocusedonthevolumeofmilkproducedandsold,butalsocloselymonitorsitsproducts for fat content and bacteria levels. It works closely with its farmers to ensure that thequalityandquantityofthemilkdeliveredtoitscollectioncentersremainconsistent.Likewise,DutchAgriculturalDevelopment&TradingCompany(DADTCO)hasdevelopedapatented‘split’processingtechnology thathelpson-farmprocessingof fresh cassava, insteadof attempting to transport theperishablecropoverlongdistancestoacentralprocessingplant.14Thelossfigureestimatesrangedbetween10percent-12percentinIndia,6.2percentinJava,and5.3percentinIndonesia.15PartnershipsPost-harvestenterprisesengageindifferentpartnershipmodelstomaximizeindividualandcommonfinancial benefits. A number of them establish partnerships for business development and otherassociated activities, especially when replicating their model in a different market. For instance,SKEPLpartnerswithmilk co-operatives for itsbusinessdevelopment inNepal. Theenterprisealsoforgedanalliancewith the internationalNGO,Winrock International,whichhelped it in runningapilotinNepal.16Afewenterprisesestablishpartnershipsforfinancialsupportwhileothersseektechnicalknowledgeand training support as these are not skills they can recruit in-house. Some enterprises leveragethesepartnerships to startup thebusiness. For instance,Claphijo Enterprisepartnerswith variousstakeholders including business associations for information exchange, and donors for funding,trainings, workshops, and exchange visits. The enterprise also partners with the University ofAgriculture,Tanzaniaforitssupportinthetestingandanalysisofitssolardrier.Similarly,initsearlystages, Milk Mantra was established in collaboration with global processing and packagingtechnology experts, Tetra Pak,Multivac and DeLaval. The enterprise leveraged the association todevelopitsreadytodrinkpackagedmilkundertheMilkMoolabel.17ArushaWomenEntrepreneurtogetherwithitspartnerWorldVision,providestechnicalandmanagementskillstrainingtowomen
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farmers. It trains themon various topics includingmicroenterprise development,marketing skills,conflictresolution,andfoodprocessingskills.Enterprises form partnerships with forward and backward value chain stakeholders to increasebusiness profitability. For instance,NuBreepartnerswithdairymealmanufacturers to get betterpricesondairymeals. Themanufacturers providedairymeal at subsidized rateof KES1800 (USD17.82)fora90kgbagofdairymeal.Anumberofenterprisesinthisbusinessmodelaggregatefarmproduce,sort,gradeandpackageit,anddeliverinbulkquantities,therebysavingtransportationandtransaction costs. Normin Veggies, an association of various vegetable industry stakeholdersincluding independent and small farmers, development foundations, corporate farms, input andservice providers and local government units, performs these activities. The enterprise then shipsthe aggregated cluster produce to institutional buyers such as supermarkets, hotels, restaurants,andfastfoodchains.Implementation:DeliveringValuetothePoorAwarenessSmallholder farmers in most developing countries are unaware about the benefits of packaging,processingandqualitycertification.Eveniftheyunderstandanyofthesebenefits,theydonotknowhowtoavail thebenefits for theirownfinancialbetterment.Anumberofenterprisessupport thesmallholder farmers by providing requisite training and guidance. For instance, Cameroon basedGuidingHopebuilds capacity amongst the rural communities by providing technical training in allaspects of honey collection, storage, and processing, to improve product quality. Likewise, SKEPLconductspracticaltrainingsshowcasingandcomparingboththetraditionalandelectronicmethodsofmeasurementandqualityassessment.Enterprises adopt innovative strategies and build innovative partnerships to build awareness.Claphijo Enterprise takes help from local women self-help groups (SHGs) that create awarenessaboutitssolardrier.MilkMantraconductsdemonstrationsatparks,schoolsandtenniscourtsacrossthe state, and sampling at temples such as Lingaraj Temple in Bhubaneswar regarding theimportanceofappropriatepackagingtopreventspoilageofperishableitemssuchasmilkandmilkproducts.18AcceptanceSmallholder farmers find it easier to go through the middlemen route, as they have been doinghistorically.Itisaparadigmshiftforsomeofthemtomoveawayfromtheserelationshipsoradoptdifferentapproachestopackagingandprocessingtoincreasethevalueoftheirproduceandreachthemarketdirectly.Enterprisesadoptdifferentstrategiestomakeiteasierforthefarmerstomakethisshift.SKEPLallowsmilkcooperativememberstotesttheproductfor2months.Thistrialperiodallowsthecustomerstotestthemachinesandgetfamiliarwithmodernmethodsofcalibrationofmilkqualityandquantity.A number of enterprises leverage local connections to understand customer requirements. Thishelpsthemdesignappropriatesolutionsandalsoengagewithfarmersmoreclosely.NuBreeworkswith farmer leaders in rural communities to increase acceptance of the enterprise's model. Thefarmer leaders educate fellow farmers on the benefits of working with the enterprise under theclustercontractmodel,underwhichthefarmerscan increasetheir incomebyafactorof10timesvis-à-visbeingastand-alonesupplier.AccessibilityPost-harvestserviceproviderseliminatemiddlemenandfacilitatedirectaccesstomarkets.Inordertodothis,theyneedtobuildororganizethesupplychainfromfarmtoprocessingunit,andfinallyto buyers. Often, the ease that they provide encourages farmers to shift from transactingwith a
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knowntrader.ParvataFoods,forinstance,isbuildingintegratedvaluechainsfortheorganicfarmersinSikkim,byprovidingmarketlinkagesalongwithpackagingandbrandingoftheproductsobtainedfrom them. The enterprise collects produce from farmers directly from the farms, where it isweighedandassessedforquality.Theproduceisthentransportedtoacentralprocessingplantforprocessing,packaginganddistribution.Theenterprisesuppliesorganicagriculturalproductssuchasfruits,vegetablesandspices19,sourcedfromfarmerslocatedinhillyandinaccessibleareastoretailoutlets.AffordabilityThebusinessmodelhelps tobuild financial sustainabilityof thesmallholder farmers.Anumberofenterprisesmakepayments for theagriculturalproduceat the farmgate,providingmuchneededliquidityandworkingcapital.ParvataFoodspays70percentofthetotalvalueoftheproduceatthefarmgateoftheorganicfarmersinSikkim.20Likewise,SKEPL’ssolutionsensurepaymenttothedairyfarmersassoonastheysupplymilktothemilk-co-operatives.Afewenterprisesprovidevalue-addedfoodproductsataffordablepricestothefinanciallyweakersections of the society. These organizations aim to fightmalnutrition and poverty, in addition tohelpingfarmersearnbetterincomes.ProsoyaKenya,forinstance,buysmaize,sorghum,soyabeansand finger millet from smallholder farmers, extrudes the composite, fortifies the extrudate withvitamins and minerals and sells it at affordable prices to the people living below poverty line.Similarly,Mali based enterpriseMalo Traders sells locally grown fortified rice to consumers at anaffordable price. It trains farmers to improve the production process and reduce ricewastage. Itfortifiesthericewithnutrientstoprovideaffordablefoodtothepoor.ResultsandCostEffectivenessScaleandReachThe post-harvest services serve as a link between the agriculture and industrial segments of theeconomies ofmost developing countries. Enterprises in this businessmodel tap into growing andlucrativecommercialdemandevenastheyensurefairandequitabledistributionofthebenefitstosmallholder farmers.Given that itsendcustomersaremainstream,andoftenglobal, thisbusinessmodelhassignificantpotentialforscale.Thisbusinessmodelisalsomature,withmanyenterprisesthatareoveradecadeold.Theirreachandengagementwithcommunitiesandend-buyermarketsistherefore, significantlystronger thanenterprises in lessmaturebusinessmodels.Mostof themilkprocessing enterprises have created innumerable impacts while providing financial upliftment tosmalldairyfarmers.SKEPLworkswithnearly7000partners,eachimpactingatleast300farmers.Theenterprisehasdirectly impactednearly2.1millionsmalldairyfarmers in India.Geographically,theenterprisehas reachedover8750villages located in72districts in17statesof thecountry.21MilkMantra,sourcesmilkfromover40,000smalldairyfarmers,andhasresultedinfinancialinclusionofthe community.22 Brookside Dairy has impacted nearly 45,000 Kenyan and 55,000 Ugandan dairyfarmers,andhastogetherprovidedthemaboutUSD100millionformilkdeliveredtotheenterprise.
Other enterprises have also created commendable impacts on the lives of smallholder farmers inremoteruralareas.ParvataFoodssupports livelihoodofnearly300organicfarmersinthestateofSikkim. 23 Another Indian enterprise, Moksha Yug Access (MYA) works with over 15,000 farmersacross 1,110 villages in the state of Karnataka. Enterprises operating in Africa, Guiding Hope andDADTCOhavealsosignificantimpactonthelivesoftheruralsmallholderfarmersinCameroonandMozambique. Guiding Hope has impacted 1,000 beekeepers and their families, totaling to nearly10,000individuals.In2011,DADTCOenteredinpartnershipwithSABMillertoproducecassavabeer,‘Implala’, which has created a sustainable source of income for 4500 smallholder farmers inMozambique. Mobile processing units in Mozambique have benefited nearly 6000 smallholderfarmerswithaverage1.2hectareoffarmland.
The business model is readily adaptable, that a number of enterprises that provide post-harvestservicesreportthattheyhaveorplantoexpandgeographically.SKEPLbuiltastrategicpartnershipwithWinrock International to foray intoNepal.Theabsenceofcompetitionandpresenceofdairyfarmer cooperatives alsomadeNepal a favorable destination.24 KenyabasedBrooksideDairy, hasbecomethelargestproducerandsupplierofmilkandmilkproductsinthecountry,planstoexpandto countries in West Africa. Another Kenya based enterprise Prosoya Kenya plans to expand itsoperations to East and Central Africa. Likewise, India based Parvata Foods aspires to expand intoexporting processed spices to Europe and US. Likewise, Nu Bree plans to leverage technology tostrengthen linkages between farmers and finance providers aswell as end-customers. It is in theprocess of developing ‘Lima Soko’, an e-commerce platform to connect farmers to buyers indomestic and export markets, ‘Lima Lending’ to connect farmers to finance partners, ‘LimaInsurance’wherefarmerscanaccessaffordableinsurancepoliciesthanthereareinthemarket,and‘LimaLogistics’toconnectitstransportationpartnerswithfarmers.The dairy sector iswell developed in several countries,with successful national and local brands.Given the extremely local context in milk consumption, there is room for small enterprises todevelopnichemarkets.InIndia,maturevaluechainenterprisessuchasParagMilkFoodsareseekingtobuild localbrands forvalue-addedproducts suchas cheese, ice creams,varietiesof yogurtandmilk-basedbeverages.Likewise,forPrabhat(Dairy),only18percentofitstotalrevenueofINR1,440crore(USD216million)comesfromliquidmilk,whiletherestisfromvalue-addedproductssuchascheese,milkbeveragesandyogurtsundertheGObrand.25ImprovingOutcomesThepost-harvestservicesmodelhasdirectandindirectimpactsonthelivesofsmallholderfarmersthatwereotherwisedelinkedfromthevaluechain.Giventhelaborintensivenatureofthebusinessmodel, post-harvest enterprises also provide employment to women and youth from ruralcommunities, thereby improving smallholder household incomes and training them for non-farmlivelihoods.26 Tanzania based Arusha Women Entrepreneur, for instance deals in processing ofpeanut butter made from locally grown groundnut. The enterprise employs low-income womenfromperi-urbanArusha.Likewise,KenyabasedStawiFoodscreatesjobsforyouthandsmallholderfarmers inKenya. Inaddition, itprovideswomenaccessto improvedseeds,bettertechniquesandtechnology,therebycontributingtoincreaseinincomeswithinpoorfamilies.Several interventions have led to direct increase in the incomes of smallholder farmers, althoughmostoftheseimpactfiguresareself-reportedbytheenterprises.NuBree,forinstance,hashelpedincrease the income of small dairy farmers by a factor of 10. Likewise, Normin Veggies secures
increasedpricepremiumof10percent-20percentforsmallholderfarmerscomparedtotraditionalsupply chains.ParvataFoods creates value for the farmerby increasing incomesandbyprovidingthe necessary market linkage and a brand to sell their organic produce in larger markets. Theenterprisepays farmers70percentof the totalpayableamountat farm-gate,which isoneof thehighestinfruitandvegetablecategoryinIndia.TheenterpriseensuresthatfarmersgetaboutUSD0.08toUSD0.15moreperkilogramthanthatpaidbymiddlemenandunorganizedprocurers.
CostEffectivenessIn the absence of post-harvest services, smallholder farmers willcontinue to sell their agricultural produce, mostly throughmiddlemen. The post-harvest services business model is cost-effective as most enterprises procure inputs from smallholderfarmers in large quantities, add value to the inputs by processing,packaging, branding and labeling, and sell the same at higher prices in local and internationalmarkets.Theend-customersforthesevalue-addedproductsarewillingtopayapremiumforgoodqualityproduce,organiccertificationsandpackagedandprocessedmilk.Forinstance,MilkMantramarksupthepriceofitsproductby10percent-20percentasagainstthepriceofferedbythestatecooperatives, and is still financially sustainable.27 Claphijo Enterprises has a profit margin of 60percent-70percentonitssolardrier,whichispricedataboutUSD400.28Theenterprisestrategizesits financing in such a manner that even after earning this high profit margin, the driers areaffordabletofarmers.TakingittoScaleChallengesPost-harvest value addition enterprises facemarket challenges, farmer challenges, and enterprisechallenges.MarketchallengesincludethedominanceofmiddlemenandlargecorporatesthatinhibitthescalingofSEs.Despitethelowpricesofferedtothem,farmersfinditeasiertoselltheirproducetomiddlemenratherthanreachingouttothepost-harvestserviceproviders.Giventhelargescaleoftheir operations, large corporates can cross-subsidize their products and services, therebychallengingthepricingstrategyofpost-harvestserviceproviders.Farmer challenges include the need for farmer education, the inadequate access of farmers tofinance to improve cropquality.Milk processing enterpriseNuBreeunderscores the challengeofinconsistencies inquality andquantityofmilk supply that impacted its overall quality. To addressthis, theenterprise introducedclustercontractingmodel,where farmersenter intocontractswithNuBreeandareprovidedcows, feedand fodder requirements.Theyare required to sell themilkback to the enterprise thereby ensuring consistent quality and supply of milk. Other specificchallengeslinkedtomilkprocessingincludeinappropriatecollectionsystemofrawmilkthatleadstodelayinthecollectionprocessandoftenresultsinspoilingofmilkbeforeitisprocessed.Therefore,enterprisesneedtoestablishcollectionpointswitharobustcollectioninfrastructure.Enterprise challenges include the need for investments in equipment, quality assurance, workingcapital andmanpower.Working capital is needed as farmers need to be paid upfront, while thelarger companies that buy the products have longer credit periods. SKEPL highlights that skilledmanpowerisakeychallenge,giventhatruralsemi-skilledlaborismigratingtoperi-urbanandurbanareas to work inmalls and quick service restaurants. SKEPL tackles this issue by offeringmarketbasedcompensationtotheworkers.RoleofGovernmentandPolicyGovernments have been very supportive of the small scale food processing industry in mostdevelopingcountries.Differentagricultural-supportprogramshaveconnectedsmallholder farmerstomainstreamprocessing,packagingandexportingpartners;providedthemfacilitieseitherdirectly
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or in partnership with other stakeholders in the system, such as finance providers and FMCGcompanies;andsupportedthemwithincentivesandsubsidies.Several governments collaborate with development finance institutions for financial support. Forinstance, in Kenya, the government is executing a project commissioned by the German FederalMinistry for Economic Cooperation and Development (BMZ) for private sector development inagriculture.Oneoftheoutcomesincludesprovisionfortraininginhygienicbutcherytechniquessuchasprocessing,andpackagingaspernationalstandards.Thissimplepracticehasbroughta5percentreduction in meat wastage per day.29 General improvements in the business climate can beconducive to growth of the these enterprises. Kenya-based Nu Bree indicated that governmentsupport to startups in the country has improved; licensing used to be a challenge earlier (theenterpriserequiresatradinglicenseanddistributionlicenseforitsoperations)butiseasiernow.InPeru,indirectgovernmentsupportandbenefitssuchasincentives,50percentrebateontax,andpermission toemployworkerson flexible contracts,helps theagribusiness firmsbenefit.Peruvianenterprises seek general assistance from the government such as access to finance, betterinfrastructure,andadequateresearchanddevelopmentinmoderntechnologytoboostpost-harvestvalue-chain activities in the sector.30 Tanzania based enterprise Claphijo highlights the promisingprospects of government industrialization policy in the country. The policy emphasizes ontechnology innovation in the agriculture sector, andmore specifically post-harvest value-additioncomponent.31The Government of India has supported the food processing industry for several decades – theNational Dairy Development Board and Nagpur Orange Grower’s Association are examples ofgovernment-run processing establishments that positively impact the lives of several smallholderfarmers,whileaddingtothecountry’sGDP.Inaddition,theGovernmentpermits100percentFDIinthissector,andhasdevelopedagriexportzones.Thecentralgovernmenthasestablished3.2milliontonsoffoodprocessingcapacitywithaninvestmentofaboutUSD300millioninthelasttwoyears.32Itfurtherplanstoestablish250smallagro-processingclustersatanestimatedcostofoverUSD750million.Theclusterswillreducepost-harvestwastages,worthUSD1.35billionperannum,willhelpincrease farmers’ incomeandwill also keep thepricesof perishables under check.33AnumberofstatesincludingJharkhand34,Odisha35andBihar36havealsolaunchedfoodprocessingpolicies.ConclusionThe success of this business model depends on critical factors such as access to good qualityagricultural produce to ensure end-product quality; supply contracts for key produce tomitigatepricevolatility;strongforwardcontractswithbuyersforon-sellingprocessedandpackagedproduce,andsufficientstabilityindemandtobeabletochargepricesthatprovidereasonablemargins.37Themodel has adequate regulatory support in a number of developing countries but faces liquiditychallenges as itmust pay farmers upfront at the farm gate. On the other hand, enterprises facepayment delays from its end-customers, who are large corporates and supermarket chains. Thismodelishighlyscalableconsideringtheindispensablerequirementofpost-harvestservicesinmostdeveloping economies to leverage their agricultural potential and augment GDP through value-addedagriculturalexports.*INRtoUSDrateconversion:1INR=0.015USD*KEStoUSDrateconversion:1KES=0.0099USD*TZStoUSDrateconversion:1TZS=0.0005USD
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Table6:SEs:Post-HarvestServiceProvidersCompany Country SolutionDescriptionArushaWomenEntreprenuer
Tanzania ArushaWomenEntrepreneurstrainsandemployswomenintheproductionand marketing of peanut butter. Smallholder farmers supply the peanutswhich are processed into peanut butter and sold in bulk to a largewholesaleraswellastosupermarketsandkiosks,andthroughdoor-to-doorsales.
BrooksideDairy Kenya,Tanzania,Uganda
Brookside Dairy Limited is a dairy processing enterprise that produces,processes,andmarketsmilkanddairyproducts.Theenterpriseoffersfreshpasteurizedmilk,cream,butter,yogurt,ghee,andlonglifemilkproductsinIndianOcean Islands, East Africa, Rwanda, Burundi, Egypt, and theMiddleEast.
DADTCO together with its partners covers the whole cassava value chain,from agricultural production with smallholder farmers, input supplies,processingandthemarketingofthefinalproduct in localandinternationalmarkets.
eKutir India eKutir uses an entrepreneurship model combined with ICT to deliversolutionstoBoPcommunities.Themodelinvolvespartnershipswithdomainexperts, service providers, and market players, who provide a suite ofproducts and services through a distribution network of local, village-levelentrepreneurs. These entrepreneurs connect suppliers, aggregators anddistributorstothisnetworkofsmallholderfarmers.
Kilimo Markets is an outgrower engaged in trading of grains and pulses,sesame, groundnuts, beans and maize. It exports to different marketsincludingSouthAfricaandKenyaformaize;SouthAsia,AfricaandEuropeforbeans;andIndiaforpulses.
Malo Mali MaloTraderssellslocallygrownfortifiedricetoconsumersatanaffordableprice. The organization aims to fight malnutrition and poverty in Mali byhelpingfarmerstoincreasetheirincomesthroughimprovingtheproductionprocesstoreducericewastageandbyenrichingthericetheyproducewithnutrients.
MilkMantra India MilkMantrafocusesonthedairysupplychainacrossurbansupermarketsinEasternIndia,particularlyOdisha.ItsstrategiesincludedevelopingproductswithalongershelflifetocatertoconsumersinmajorIndiancities.
MokshaYugAccess
India MokshaYugAccessprovidesmarket linkagetosmalldairy farmersthroughitssupplychainnetwork.MYAalsoprovidestechnologicalsupportthatseekstoimprovethequalityofmilkanddairyproductssoldinthenetwork.
NorminVeggies Philippines NorthernMindanaoVegetableProducersAssociation Incorporated(NorminVeggies) is an association of various vegetable industry stakeholders thatfacilitate cluster farming, thus saving transportation and transaction costsforthesmallholderfarmers.
NuBree Kenya NuBree sources milk from small-holder dairy farmers, processes andpackagesthemilkanddistributesittoconsumersinNairobiandneighboringregions. The enterprise distributes milk to hotels, restaurants, schools,universities,hospitalsandcorporates.
ParvataFoods India Parvata Foods supplies organic produce like fruits, vegetables and spicessourcedfromfarmers in inaccessibleareastoretailoutletsthroughafarm-to-store model. It supplies the produce to organized retailers such asReliance,andMotherDairy.Italsosellsdirectlytoexporters.
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ParagMilkFoods India Parag Milk Foods holds a diverse portfolio in over 15 consumer centricproduct categories. The enterprisemanufactures andpromotes cow’smilkandmilkproducts,underbrandnamessuchasGowardhan,Go,ToppUpandPrideofCows. Itsproductportfolio includesghee, freshmilk,milkpowder,milk powder, processed and natural cheese, butter, dairy whitener andgulabjamunmix.
PrabhatDairy India Prabhat Dairy provides a range of products in the ingredient businesscategory(suchassweetenedcondensedmilk,dairywhitener),andconsumerbusiness category (such as flavoredmilk, yoghurt, cheese). The enterprisehasover450milkcollectioncentres,over15milkchillingplantsandover80bulkmilkcoolers.
ProsoyaKenya Kenya ProsoyaKenyabuysmaize,sorghum,soyabeansandfingermilletfromsmallscalefarmers,extrudesthecomposite,fortifiestheextrudatewithvitaminsandmineralsandsellsitataffordableprices.
ShreeKamdhenuElectronicsPrivateLimited(SKEPL)
India,Nepal SKEPLhasconceptualizedtheneedofanAutomaticMilkCollectionSystem(AMCS)inearly1990forensuringtransparency,mutualfaithanderror-freeoperationsofMilkCollection. It alsomanufacturesElectronicsWeighScalewith Quality testing equipment (EMT or Milk Analyzer). SKEPL sells itsproductsunderthebrandnameofAkashganga.
StawiFoodsandFruits
Kenya StawiFoodsandFruitsisafoodprocessingbusinessthatinvolvesmillingofnutritiousporridgeflours,soldintheKenyanmarket.
T’ikapapa Peru The T’ikapapa model links small operation farmers, who preserve andproduce hundreds of native Andean potatoes varieties, with other potatochain partners to take advantage of high-value niche markets in urbancenters.
TheBimandiricompany
Indonesia PT. Bimandiri Sedaya Agro supplies various kinds of fresh fruits andvegetables to modern market or super market. It selects and grades thefreshproducefromthefarmersandpacksitindifferentsizesbeforesellingittosupermarkets.
OperatingModelShree Kamdhenu Electronics Private Limited (SKEPL) recognized the need of an Automatic MilkCollection System (AMCS) in early 1995 in order to ensure transparency, trust and error-freeoperations in themilk collection process. The enterprise provides dairy equipment and electronicweighingscalestodairyfarmersthroughdairyco-operativesandmilkunions.ItisanISO9001:2008certifiedenterprisethatintegratestheelectronicweighingscalewithqualitytestingequipmentsuchaselectronicmilktesterormilkanalyzer,anddataprocessororcomputer.SKEPLdeliversproductsandservicesunderthebrandnameofAKASHGANGA.SKEPL leverages technology to provide customized solutions for milk collection. Some of theproductsandservicesincludenano-based(handhelddevice)milkcollectionsystems,solaroperatedmilk collection systems, daily SMS-based milk quality reports, USB drive-based data transfer forintegratingwithpaymentgateway,financialaccountingsoftware(withregionallanguagesupport)todraw up to balance sheet. General Packet Radio System (GPRS) and File Transfer Protocol (FTP)baseddatatransferfromcollectionpointtochillingplantsorbulkmilkcoolersordairyplants.SKEPLallowsmilkcooperativememberstotesttheproductfor2months. This trial period allows the customers to test themachines and get familiar with the modern methods ofcalibration of milk quality and quantity. The milk co-operativesthat are interested in adopting the technology on a permanentbasiscanpurchasethemachinesafterthistestphase.Farmerstesttheproductandsharefeedbackwith other farmers – and SKEPL leverages this word-of-mouth marketing to increase sales of itsproduct. The enterprise has also explored other avenues for business development, such as
CASESTUDY:SKEPL
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participationingovernmenttenders.ItengageswithlocalcommunitiessuchasmilkunionsinNepalforbusinessdevelopmentactivitiesinthecountry.Theenterpriseeducatesitscustomersregardingthesignificanceanduseoftheelectronicmachines.Itprovidespracticaltrainingtocustomersandallowsthemtoexperiencethedifferencebetweenthetraditional and electronic method. This helps in building trust with the customers. SKEPL alsocustomizesthesolutionasperfarmers’requirements.For instance,qualityreportingrequirementsaredifferentacrossIndianstatessuchasGujaratandMaharashtra;thereforethesolutionsprovidedarealsodifferent.Theenterprisesupportsitscustomersregardingthebestuseoftheproduct,andaccordingtotheenterprise,customerscanrecoverthecostoftheproductwithin6-7monthsiftheyfollowthesuggestionsofSKEPL.FinancialsustainabilitySKEPLincursmostofitsoperationalcostsinhumanresourcemanagement,andmostofthecapitalcosts in technology development. Its sources of revenue include annual contracts with the milkunions,andfeesobtainedforafter-salesservicesupport.Theenterprisehasraisedmoneyfromtwoinvestors-AavishkaarandGrassrootsBusinessFund.ThepricerangeofthesolutionrangesbetweenUSD 1050 and USD 1800, based on the configuration, with the enterprise making a gross profitmarginofaround20percentoneachAMCS.ImpactSKEPL works with nearly 7000 partners, each impacting at least 300 farmers. Therefore, theenterprisehasdirectlyimpactednearly2.1millionsmalldairyfarmersinIndia.Theinterventionhaseliminatedlowpaymenttofarmersandadulterationofmilk,therebyincreasingfarmers’income.TheenterprisewastheimplementationpartnerinaprojectfundedbyDepartmentforInternationalDevelopment (DFID) through a Poorest Area Civil Society (PACS) program. SKEPL providedmanufacturing, installationandmaintenanceservices forAutomaticMilkCollectionUnits (AMCUs)installed at village cooperative societies as part of the project. Themodel demonstrated that theinvestmentmadethroughtheprogramensured26percentincreaseinincomeforthedairyfarmers,reducedtheirchallengesinsellingthemilkandincreasedtransparencyatthecollectionpoint.DairyfarmersusedtoreceiveanaverageofINR3114(USD47)permonthbypouringmilkintotheDairyCo-operativeSocieties(DCS).Withthisintervention,theamountincreasedtoINR3981(USD60)permonth.Therewasalsoanaverage20percentincrementintheamountofmilkpouredintotheDCSby an individual dairy farmer, and around 6 percent increase in the rate of milk because of theimprovementinthequalityofmilkandgooddairypractices.ChallengesandLessonsSkilledmanpowerisakeychallengeforSKEPL,giventhatruralsemi-skilledlaborismigratingtoperi-urbanandurbanareastoworkinmallsandquickservicerestaurants.Anotherimportantchallengeiscapitalandmanagementofitsfunds.SKEPLlackscollateralsecuritiesandfindsitdifficulttoavailworkingcapitalloansforitsbusiness.Tomanagefundsandraiseworkingcapital,SKEPL’spromotershave had to provide personal assets as a collateral security. SKEPL addresses the issue of humanresource management by providing appropriate compensation and growth opportunities to itspeople.
OperatingModelKilimoMarkets engages in trading of grains and pulses, sesame, groundnuts, beans andmaize. Itexports to different markets including South Africa and Kenya for maize; South Asia, Africa andEuropeforbeans;and India forpulses. Itprocuresrawproducefromsmallholder farmersthroughbuyback arrangements at fixed prices, and exports it through forward contracts. It thus connectsfarmerstobettermarketopportunities.Inaddition,KilimoMarketsprovidesextensionservices.Kilimo Markets has several subsidiaries, one of which is KilimoMarkets Limited Market Brokerage Service (KMB), which islicensed as awarehouse operator that provides both, access toaffordable finance and efficient warehousing for smallholderfarmers. It brokers contracts with smallholder farmers and alsomanages grain as collateral. KMB operates in the Tanzaniawarehouse receipt system inpartnershipwitha leadingnationalbank. Thebankprovides finance to the entire value chainof this business unit. This arrangementhelpssmallholderfarmershaveaccesstoeasyandaffordablefinancebydepositingtheiragriculturalproduceintheKilimoMarketswarehouse.Another subsidiary,KilimoMarketsSeedGrowersServices (KMSG) facilitatesproductionofqualitycertifiedseedsbycreatingseedbusinessfranchisesownedandmanagedbytheFarmerMarketingAssociations (FMAs) and the parent company Kilimo Markets. Kilimo Markets also providesconsultingservicestosmallholderfarmercommunitiesorganizedintoFMAs.Itprovidestrainingonvarious topics including savings-led microfinance, farmer financing solutions, agriculture best
practices, productivity, and resource management. The enterprise also provides training tosmallholder farmers inenterprisedevelopmentandmanagement,agribusiness registration, supplychainmanagement,andentrepreneurship.KilimoMarketsleveragespartnershipswithgovernmentextension agencies and research institutes to ensure sustainability. It is actively developingpartnershipswithprivateandNGOpartners.
FinancialSustainabilityKilimoMarketsensuresfinancialsustainabilityusingitsstrategyofaggregatingsmallholderproducein large quantities, and maintaining low inventory through efficient matching of contracts. Theenterprisebuysproducefromthesmallholderfarmersatmarketpricesandsellsitwithinoneortwodays.Thehighvolumesaffordeconomiesofscalewhichhelpstheenterprisenegotiatebetterpricesfrom the buyers. In 2015, it sold nearly 300-500 tons in single contracts. The primary source ofrevenuesfortheenterpriseisincomefromthesaleofexports.Othersourcesincludefeefortrainingandadvisoryservices,andrentforwarehousingfacilities.Someofthetopcostcomponentsfortheenterpriseincludetransportationofproduce,paymenttofarmers.Anotherimportantcostcomponentisthecostoffinanceloanedfrombanks.Someoftheinitial funding sources of Kilimo Markets include finance from a bank that the enterprise hadpartneredwith in the first two years of operation, and grantmoney from a challenge. The bankprovidedUSD 90,000 to KilimoMarkets over a period of two years. It also receivedUSD150,000from African Enterprise Challenge Award in 2011. KilimoMarkets achieved break-even last year;howeveritisnotyetprofitable.ImpactKilimo Markets has already served over 25,000smallholder farmers, and has paid them over USD 3million in premiums for their agricultural produce. Intheabsenceof theenterprise, thesmallholder farmerswouldreceiveat least30percent lowerprice fromthelocal buyers. The enterprise promotes sustainabledevelopment in its areas of operation by providingsmallholder farmers confirmed linkage tomarkets to sell theiragriculturalproduce.This results inincreasedagriculturalproductionandincreasedincomeofsmallholderfarmers.ChallengesandLessonsKilimoMarketsfacesadearthofqualifiedpersonnel,whocouldsupportbusinessactivitiesinseveralways including the operational activities and specific activities such as keeping a note of thesubsidies permitted for the business model. The enterprise also mentions inadequate access tocapital and infrastructure, bureaucratic struggles, and policies at regional level as other criticalchallenges.The enterprise is planning its expansion, especially in South Asian countries including India.However, it has been facing several roadblocks. The enterprise has limited understanding ofgovernment policies, taxation rules and regulatory framework in India. It also faces challengesbecauseofbureaucratic inefficiencies,and instability inpricesduetotradercartel.KilimoMarketshasalsogonethroughextremesituationswhereintheenterpriseencountered,non-adherenceandbreachofcontractualagreementsbybuyers,includinglargeprocessorfirms.
