On the ground for TruTrade’s first deals
TruTrade is now doing its first deals. In Uganda one of the founding franchisees’ AgriNet Ltd is sourcing sorghum and barley from small-scale producers to supply East African Breweries (EABL) in Kampala.
Our Transaction Security Services (TSS) provides a transparent and secure way to link farmers who grow sorghum with the buyer. But how does this work in practice? I was in Lira, in northern Uganda where AgriNet are bulking sorghum and saw TSS in action.
In the morning network manager, Jacinta Namubiru, was overseeing the unloading of a small truck that had been picking up sorghum from the area west of the Labwor Hills in Pader District, about 100 to 150km from the town of Lira. They were off-loading 9,653Kg of sorghum which had come from 47 farmers and been aggregated at different four collection points. Farmers can bring whatever they have to our TSS agents, who weigh and check the quality of the produce and pay the agreed price – what we call ‘Cash-on-the-Bag’. In this case the smallest volume a farmer brought was 5kg and the largest 1020kg. Farmers were paid 650UgSh per Kg.
TruTrade encourages farmers to receive payment through mobile money as this is more secure and easy for us to track. In this case 10 farmers had accepted to be paid in this new way, while the rest received cash. TruTrade covers the withdrawal charges and farmers who are paid in this way are also eligible for a bonus.
This is a key feature of our business model. TruTrade is working to give farmers the best deal possible, we earn commissions on each transaction linked to the price the farmer receives. We are completely transparent, so farmers know the price the buyer is paying and all the different costs that are involved in getting the produce from the farm-gate to the end buyer. In this case the buyer pays 1100/kg of cleaned sorghum. The ‘middle costs’ are quite high – broken down per kg it works out as follows:
|Farmer||650 (collection points on main road pay 700)|
|Crop to Lira||50|
|Local storage||30 (incl rent/fumigate)|
|Transport Lira – Kampala||90|
|Cleaning/grading||90 (fixed price deducted by EABL)|
|Commissions||65 (TruTrade, network manager, agents = 10%)|
|Process loss||6% of the total volume delivered|
If a deal goes well - so the logistics all work out, trucks all full, produce all accepted by the buyer and a timely payment made then TruTrade will pass any profit back to farmers. In this case the profit would be 85UgSh per Kg, so 76.5 to farmers and 8.5 is additional commission (as that’s linked to farmer price).
Our approach gives farmers a good understanding of costs, which helps them to negotiate better with other buyers or market their other crops. It also helps the networks (managers and agents) to accurately define and analyse the costs before deciding to engage or not in a specific deal.
Once the truck was empty we set off for the next collection point, a small trading centre called Jinja in Inomo subcounty of Apac District. This was only about 30km, but still took about an hour on the dirt road. The network in Apac is managed by Tonny Oketch and he has two agents in the area, Nelson Okello and Tom Ebong. At the collection points sacks were weighed, the name of the agent and Kg were written on each as they were loaded onto the truck. The TSS agent is responsible for checking that grain is clean and dry when they pay the COB. TruTrade systems mean that we can trace any problems back to a specific collection point and the agent responsible.
As the bags were loaded I spoke to some of the farmers who had brought their sorghum. Tonny Okwir had 7 sacks, James Okello 10 sacks and Lonjino Okello 5 sacks - generally a sack will weigh 100-120Kg, and they had earned between 325,000-660,000UgSh (110-230US$) each. In Uganda they can harvest sorghum twice a year, farmers are excited that they now have a reliable market and will be planting more sorghum in April so that they can have a larger harvest and earn more money after the long rainy season.
The networks will carry on collecting sorghum from across the region to be able to deliver to the brewery the specific volumes in appointed time slots. It’s a complex logistical effort, especially as we don’t have our own large trucks. Trucks that go north from Kampala to supply South Sudan come back empty and using one of these to carry sorghum south from Lira is the most cost effective option at the moment.
TruTrade is working to increase the price farmers receive through local value addition. When AgriNet does the cleaning and grading they can do it for 45UgSH/kg, providing a saving of the same that goes back to farmers. At the moment the brewery is insisting on doing its own cleaning but this is an area we hope to change through improving the quality of the output and building buyer confidence.
In 2015, TruTrade is starting to work with trader networks across the region to use TSS to provide produce to a whole range of buyers, from large scaled processors like the breweries and to small BOP consumer outlets. The key constraints for the networks, i.e. working capital, finding and dealing with buyers, technology solutions and capacity building will be handled by TruTrade so the networks can focus on sourcing.