Brochure - Local Sourcing

SUCCESSFUL SUSTAINABLE LOCAL SOURCING INCREASES
PROFITABILITY AND IMPROVES FARMERS’ LIVELIHOODS.
HIGHER PROFITS ARE THE RESULT OF BETTER SUPPLY (MORE
STABLE, HIGHER QUALITY) AND LOWER SUPPLY COSTS. THE
LOCAL FARMERS GAIN THROUGH:
Increased incomes: A competitive price and assistance to increase
productivity and grow higher quality products enhance farmers’
revenues. A higher income in turn improves farmers’ quality of life:
access to better medicine, schooling for children, housing, etc.
Stabilized incomes: Long term sourcing commitments provide
farmers with certainty of revenues. This makes them more resilient.
It enables farmers to plan longer term investments in their farms
(e.g. a tractor) and to take loans from banks. It also increases
food security.
Increased farming and business capacity: Local sourcing allows
farmers to acquire new knowledge through training and interaction
with other farmers, service suppliers and banks. This knowledge
can be crop specific or related to cultivation practices or farming
as a business.
Social capital: When small scale farmers start working in a
collective, they strengthen their position. They can scale up their
supplies, access cheaper inputs and negotiate as one business
partner with the buying company.
Want to know more?
Visit our website: local-sourcing.com
or send an email to Marije Boomsma: m.boomsma@kit.nl
Design and production: www.tmdesign.ca
TANZANIA
Multiflower is a Tanzania based
vegetable seeds company. Since
2005 it has sourced locally. As such
it taps into the local market by
offering a product that fits the local
ecological conditions as well as
local tastes.
NAMIBIA
CoolFresh is a trader of fruit. The
main product from Namibia is
grapes for export, but due to
investments made in farmers’
livelihood, CoolFresh has been able
to expand into vegetables for local
markets. By offering farmers a year
round income, CoolFresh has
secured their commitment.
Starting up Sustainable
Local Sourcing (continued)
Committed farmers
To secure their commitment, companies need
to offer farmers incentives that respond to
their livelihood needs for instance:
• A competitive price;
• Guaranteed markets to provide
a secure income;
• Financing, including crop financing
and cash payments, needed to cover
operational costs and household expenses.
It also helps prevent side selling;
• Training in business and organizational
skills, in addition to technical training;
• Providing quality production inputs helps
reduce costs and increase productivity;
• Certification;
• Business and market information.
Public capital
Compared to regular sourcing, Sustainable
Local Sourcing in Africa often requires extra
investments. Supply chains are typically
undeveloped and many farmers operate on
a small scale, have little education and do
not apply modern farm practices. Addressing
these issues is not the sole responsibility
of individual companies. It requires a total
system approach that includes collaboration
with and investments by local government
and not for profit organizations.
Costs
IN SUMMARY EXTRA COSTS FOR SETTING UP SUSTAINABLE
LOCAL SOURCING ARE TYPICALLY RELATED TO:
1. Research into ecological possibilities for local sourcing:
developing, testing and introducing the food ingredient and
production technologies locally in pilot plots.
2. Awareness creation and promotion to commit farmers to your
supply chain: field visits, meetings, etc.
3. Training in pre- and post-harvesting techniques, quality
management and (if needed) certification as well as business
skills and organizational training for cooperatives, associations,
marketing groups, community groups, etc.
4. Developing a system for collecting produce: installing collection
points including hardware (storage, simple processing
equipment) and training collectors.
5. Financing schemes: timely payments and pre-financing. This
means managing cash flow differently or setting up new financial
arrangements with local financial service providers.
6. Local transportation costs: Despite reducing international freight
and import costs, local transportation costs from the farmers and
their collection points need to be covered.
7. Training service suppliers: such as seeds suppliers, transporters
and local banks in quality requirements, improved logistics and
so on.
8. Personnel costs: extra staff to manage local procurement (field
visits), organize meetings and contract collectors and farmers.
ZAMBIA
YamBEEji Honey and Rice Products Ltd. is a Zambian
company engaged in local rice and honey production.
To set up local sourcing, it needed to hire a number
of field agents to monitor and control production
practices. The producers also needed training to grow
the quality rice required. These were costs that had
not been encountered before.
COSTS
INGREDIENTS FOR SETTING UP A SUSTAINABLE
BUSINESS THAT IS PROFITABLE AND SUPPORTS
LOCAL FARMERS
SUSTAINABLE
LOCAL SOURCING
IN AFRICA
local-sourcing.com

WITH THE EARTH’S POPULATION GROWING, OUR CURRENT
FOOD SUPPLIES WILL SOON BE INSUFFICIENT TO FEED ALL
IN THIS CONTEXT OF GROWING SCARCITY, AFRICA OFFERS
BOTH MARKET AND PRODUCTION OPPORTUNITIES.
The largest population growth will occur in Africa, where at the
moment only 20% of total food production capacity is used.
In a context of scarce supply, short term commodity trade is no
longer the right business model. Companies have discovered that
long term relations are needed to secure the commitment of
supplying farmers. To build successful long term relationships,
companies must address farmers’ needs.
In other words, companies must aim both for profitability and
improving farmers’ livelihoods. This is what Sustainable Local
Sourcing is all about!
With Sustainable Local Sourcing, a company creates a sustainable
business for its own enterprise as well as local farmers by buying,
processing and marketing products locally or regionally. A sustainable
business for farmers is a long term business that provides incentives
that go beyond a competitive price. Incentives include improved power
distribution in the supply chain through collaboration, building mutual
trust, sharing information and joint investments.
Sustainable Local Sourcing in Africa does not happen overnight. This
brochure explains the drivers for starting Sustainable Local Sourcing
and the ingredients needed to make it successful.
This brochure is written for companies that want to do
sustainable business in Africa through local sourcing from
local farmers. Written by KIT with support from Agri-ProFocus,
When to do Sustainable Local Sourcing?
FOR SUCCESSFUL SUSTAINABLE LOCAL SOURCING, COMPANIES
NEED TO BE DRIVEN BY A COMBINATION OF COMMERCIAL AND
SOCIAL OBJECTIVES.
Commercial drivers
Commercial drivers are broadly related to reducing supply chain risks
and to cutting costs.
Securing supply
Being close to the source enables a company to monitor supply and
enhance flexibility with regard to changing orders. For instance when you
need more or different orders, this is more easily and rapidly organized
with suppliers that are located nearby. Moreover close relationships
support mutual trust and discourages the producer from side selling.
Cutting input costs
For companies that are currently importing, local sourcing eliminates
import related costs including:
• International freight costs;
• Clearance costs;
• Currency exchange costs;
• Costs related to time delays in global sourcing;
• Costs due to theft which occurs frequently in cross border trade.
Controlling quality
Direct relationships with producers enable you to better monitor quality
in the supply chain, identify bottlenecks creating quality inconsistencies
and collaborate closely to improve quality. Freight transport in many
African countries is risky in terms of quality consistency, especially with
perishables. The less distance travelled the better.
National policies
National governments in Africa increasingly promote use of local inputs.
These policies are created to stimulate the local economy. In countries
such as in Nigeria, these policies have been translated into national laws.
WHEN TO DO SUSTAINABLE
LOCAL SOURCING?
SIERRA LEONE
Sierra Leone Breweries Limited,
owned by Heineken, has a number of
social drivers to source locally. First,
its goal is to support local social and
economic development by involving
local farmers. A second social driver is
to show goodwill towards the national
government and the third one is to
enhance Heineken’s global reputation.
ZAMBIA
Frontier Milling, a rice milling
company in Zambia that is supported
by various Agri-ProFocus members,
sources its rice from the Chambeshi
Flood Plains located 100 km from the
company. Although imported rice is
still cheaper, direct contact with
producers has led to greater certainty
and predictably of supply.
Social drivers: contributing
to poverty reduction
Contributing to the economic development
of your suppliers is a social driver of
successful Sustainable Local Sourcing.
This social driver can be triggered by
both a sense of human responsibility
as well as corporate image building.
Contributing to poverty reduction helps
companies improve their image among
local farmers, agri-food suppliers and
potential local consumers. This
demonstration of corporate social
responsibility also appeals to consumers
in global markets, local policy makers
and civil society organizations.
SUPPORT
The case studies all received
financial or in-kind support to set
up local sourcing.
Sierra Leone Breweries Limited was
supported by a fund from CFC. The
NGO EU-cord was responsible for
the implementation of the program
to train the farmers.
Both YamBEEji and Frontier Milling
were supported by Agri-ProFocus
including SNV, a development NGO,
to assist farmers in upgrading
rice production.
CoolFresh Namibia received a fund
Starting up Sustainable Local Sourcing
THE DRIVERS AND AMBITIONS ARE CLEAR, BUT WHAT SUCCESS
FACTORS ARE NEEDED TO ACHIEVE THESE AMBITIONS?
General conditions
Market demand
As with all business models, Sustainable
Local Sourcing starts with a sufficient
local market demand. This is true for
companies seeking to start up a business
or to replace imported ingredients
with locally sourced produce (import
substitution) which is generally
considerably less expensive.
Suitable ecological conditions
Before being able to change your
business model to local sourcing, the
food products should be compatible
with local ecological conditions, or
should be substitutable by locally grown
crops. Introducing a new crop requires
sound ecological research, testing and
promotion among local farmers.
Supporting policy environment
A supportive local government and a
politically stable context make it easier and
less risky to set up new business activities.
Basic physical conditions
Basic physical conditions need to be
available: for instance energy and water
supply, roads and telecommunication.
Private capital
Commercial capital is required for
investing in a suppliers’ network,
setting up logistics and quality
management. Examples of costs are
storage and processing facilities,
pre- and post-harvest techniques,
training and transportation.
Sustainability conditions
Deep cultural knowledge and
local networks
Sustainable Local Sourcing requires
strong relations between the farmer
and your company. This takes time, but
also mutual understanding of each
other’s culture and way of working.
Having local knowledge and networks
before starting up Sustainable Local
Sourcing is a distinct advantage.
IMPACT ON
LIVELIHOODS
The following companies
improved livelihoods by
creating additional income
for farming families:
CoolFresh Namibia (20),
Frontier Milling (33),
Multiflower (300), Sierra
STARTING UP SUSTAINABLE
LOCAL SOURCING
Agentschap NL and SNV, the brochure is based on research
from the Dutch government program
Leone Breweries Limited
consisting of five business cases throughout Africa. More
to support private sector investment
(5,000), YamBEEji Honey and
information can be found at www.local-sourcing.com
(PSI) in developing countries.
Rice Products Ltd. (1,500).