Sorghum and finger millet flour processors in Kenya, Tanzania and Uganda

Transcription

1 Sorghum and finger millet flour processors in Kenya, Tanzania and Uganda Christin Schipmann-Schwarze Alastair Orr Wellington Mulinge January Mafuru Naomi Nabeta October 2012 International Crops Research Institute for the Semi-Arid Tropics (ICRISAT), PO Box Nairobi, Kenya

2 Contents List of Tables... II Acronyms... IV Executive Summary Introduction Database Country level results Tanzania Company profile, crop portfolio and sorghum and finger millet products Procurement systems for finger millet and sorghum Processing of finger millet and sorghum Marketing of finger millet and sorghum products Quality, grades and prices Market information and sub-sector support Conclusions and project and policy recommendations Kenya Company profile, crop portfolio and sorghum and finger millet products Procurement systems for finger millet and sorghum Processing of finger millet and sorghum Marketing of finger millet and sorghum products Quality, grades and prices Market information and sub-sector support Conclusions and project and policy recommendations Uganda Company profile, crop portfolio and finger millet products Procurement systems of finger millet Processing of finger millet Marketing of finger millet products Quality, grades and prices Market information and sub-sector support Conclusions and project and policy recommendations Conclusions I

3 List of Tables Table 1: Processor sample Table 2: Company profiles Tanzania (N=25) Table 3: Turnover of different crops (N=24) Table 4: Reasons for not working at full capacity (N=20) Table 5: Finger millet and sorghum suppliers Table 6: Business models between suppliers and processors (N=25) Table 7: Procurement challenges and solutions Table 8: Alternative products from finger millet and sorghum Table 9: Processing challenges and solutions (N=25) Table 10: Buyers of finger millet and sorghum flour Table 11: Institutional arrangements between processors and buyers (N=25) Table 12: Marketing challenges and solutions (N=25) Table 13: Quality requirements of processors and buyers Table 14: Grades, seasonality and prices for finger millet and sorghum Table 15: Market information and sources of information (N=25) Table 16: Barriers for a vibrant finger millet and sorghum sector and lessons learned from the maize sector Table 17: Governmental and other support needed for the finger millet and sorghum sector Table 18: Company profiles Kenya (N=13) Table 19: Turnover of different crops Table 20: Reasons for not working at full capacity (N=10) Table 21: Finger millet and sorghum suppliers Table 22: Business models between suppliers and processors (N=13) Table 23: Procurement challenges and solutions Table 24: Buyers of finger millet and sorghum flour Table 25: Institutional arrangements between processors and buyers (N=12) Table 26: Marketing challenges and solutions Table 27: Quality requirements of processors and buyers Table 28: Grades, seasonality and prices for finger millet and sorghum Table 29: Market information and sources of information (N=12) Table 30: Governmental and other support needed for the finger millet and sorghum sector (N=9) Table 31: Company profiles Uganda (N=15) Table 32: Turnover of different crops (N=24) Table 33: Reasons for not working at full capacity (N=14) Table 34: Finger millet supplier Table 35: Business models between suppliers and processors (N=10) Table 36: Procurement challenges and solutions Table 37: Alternative finger millet products Table 38: Processing challenges and solutions II

4 Table 39: Buyers of finger millet flour (N=10) Table 40: Institutional arrangements between processors and buyers (N=10) Table 41: Marketing challenges and solutions Table 42: Quality requirements of processors and buyers Table 43: Grades, seasonality and prices for finger millet Table 44: Market information and sources of information (N=10) Table 45: Barriers for a vibrant finger millet sector and lessons learned from the maize sector Table 46: Governmental and other support needed for the finger millet sector III

5 Acronyms EAGC KARI KBS KSh NARS TBS TSh USh Eastern African Grain Council Kenyan Agricultural Research Institute Kenyan Bureau of Statistics Kenyan Shilling National Agricultural Research Systems Tanzanian Bureau of Statistics Tanzanian Shilling Ugandan Shilling IV

6 Executive Summary Tanzania The finger millet and sorghum processing sector is dominated by small to medium scale processors. They are based in urban centers in Northern Tanzania (Arusha and Moshi) and Eastern Tanzania (Dar es Salaam). In terms of the volume processed, sorghum and finger millet are equally important for the companies we interviewed. Some of the processors were originally established to produce finger millet and sorghum flour. These were often self-help groups or women s associations, who were looking for income sources. Other companies have begun to process the two crops to broaden their product portfolio. Finger millet and sorghum are sourced from traders and only a few processors are supplied directly by farmers. Even though more processors showed an interest to source raw material from farmers, they stressed that it is too time-consuming and expensive in terms of logistics because the production zones are far away and only relatively small quantities are needed. Processors deal with their suppliers through spot market transactions or informal arrangements, where a processor has a couple of permanent suppliers who are called when raw material is needed. Informal arrangements reduce transaction costs and ensure a more reliable supply of raw material. However, seasonal supply fluctuations are still a problem for many processors. The same holds true for prices, which fluctuate according to the season. Moreover, many processors complained about the low quality of the delivered raw material. These problems highlight a need to strengthen supply chains and the potential to link processors directly with farmers. Some processors already pointed out themselves that sourcing directly from farmers could be a solution for some of their problems. However, as most companies are very small and capital constrained, external support is needed to facilitate these linkages. Processors face more regulated arrangements at outlet markets. In particular supermarkets and small retail shops, who are the most important buyers, demand informal arrangements whereby prices are fixed in advance processors are paid a couple of weeks after delivery or only when the product is sold. This is challenging for processors because they cannot adjust prices to changes in the price of raw materials and because they cannot buy raw material on credit. Thus, processors are disadvantaged in their arrangements with buyers as well as with their suppliers. Besides these disadvantages and other problems already mentioned, processors pointed out that lack of capital is a major problem, which affects their business in many ways. It limits their capability to buy raw material at harvest time, when prices are low and restricts investments in their business (e.g. machines or high quality packing material, requested by many buyers). Technical equipment is particularly important as raw material is often dirty and needs to be cleaned by processors. Thus, access to credit becomes a key bottleneck in the expansion of the small-scale processing sector. Many processors stated that they do not know where to apply for credit

7 Cleanliness is the most important quality criteria required by processors and contamination of raw material is repeatedly mentioned as a problem. While direct linkages to farmers could improve communication of quality requirements, training on harvesting and post-harvest handling is also needed. This needs to be provided by third parties. Farmers could benefit from supplying better quality, as 72% of the processors would be willing to pay a price premium for better quality. Due to these quality issues, 32% of the processors already implement grades and pay different prices for the first and second grade. Cleanliness is, however, not always the first grading criteria. Buyers are also concerned with flour quality, but how buyers define quality or how they control for quality was not specified. Even more important than flour quality is attractive packaging, which again causes problems for processors as high quality packaging material is expensive. As many processing problems originate at the farm level, processors stress the need for better support of finger millet and sorghum production by the government (training, input provision, etc.) and research institutes (release of improved varieties). Even though flour from finger millet and sorghum serves a niche market, greater support may be justified by the relevance of finger millet and sorghum for semi-arid areas of the country. Moreover, the processors we interviewed are primarily targeting retail shops and supermarkets. Urbanization and increasing health consciousness among consumers are expected to increase demand for finger millet and sorghum flour in these market outlets. This is confirmed by almost all processors. Most processors reported that demand for finger millet and sorghum increased in the last five years and will increase in the future. Processors also sell flour to rural customers and to areas where these crops are produced. This highlights the potential to decentralize processing, which should be further investigated. Kenya Of the three countries, Kenya has the most advanced processing sector with many medium to large scale flour processors. Most companies are based in Nairobi, but some are also found in other parts of the country, particularly Central and Western Kenya. The processors we interviewed predominantly deal with maize and wheat and added sorghum and finger millet flour to their product portfolio to take advantage of emerging markets, particularly in Nairobi. Supermarkets are the most important market outlet for processors. Finger millet is far more important to processors than sorghum. Finger millet and sorghum are sourced from traders and only two processors are supplied directly by farmers. However, eight processors stated that they have experience of sourcing from farmers. Reasons given for not sourcing from farmers are high transaction costs. Processors explained that farmers need to be continuously monitored to ensure successful production and supply and that transport logistics are more complex than if being supplied by traders. Nevertheless, some processors also stated that sourcing directly from farmers could be a strategy to overcome some of their supply problems

8 The most prevalent supply problems are seasonal supply fluctuations and low raw material quality. Although eight processors have institutional arrangements with their suppliers and two have contracts, these problems still occur. This highlights problems in the supply chain. Even though suppliers know the demand of processors and their quality requirements, they are not able to deliver accordingly. Cleanliness and moisture content are the two most important quality criteria and only around 40% of the processors are satisfied with the delivered quality. Consequently, 75% would be willing to pay a price premium. Still, only a minority of processors have introduced grades. Sourcing directly from farmers could be a win-win situation for both parties. Processors could communicate quality requirements directly and ensure delivery of the desired quality and farmers could benefit from higher farmgate prices. However, farmers might need training on harvesting and post-harvest handling to improve quality, which needs to be provided by external actors. As finger millet and sorghum are not widely cultivated in Kenya and many processors source raw material from Uganda and Tanzania, sourcing raw material directly from farmers in Kenya might still not enable processors to get the desired quantity. Regarding output markets, consumer preferences are the biggest challenge for processors. However, most companies are big enough to invest in advertisement of their products themselves. Nevertheless, general promotion of consumption of finger millet and sorghum by third parties would not also help processors, but also support commercialization efforts of farmers. Nearly all processors reported that their own demand and demand at market outlets increased in the last five years and is expected to increase in the future. As supermarkets are the most important market outlet and their market share will increase with urbanization, these expectations seem reasonable. Uganda Although the finger millet sector is considered relatively more developed in Uganda, processing remains largely semi-industrial and dominated by medium-scale companies. Some are handling finger millet since they were established and others have started to deal with finger millet to broaden their product portfolio and benefit from new market opportunities. All companies are based in Kampala, which is also the main market outlet for finger millet flour. Besides companies, milling shops were included in the sample. The turnover of these shops is far higher than that of processing companies. This suggests that the formal processing sector only serves a niche market for finger millet flour. Indeed, supermarkets, which serve a minority of consumers, are the most important market outlet for processing companies, whereas milling shops have a wider customer base. Sorghum is less important than finger millet and not handled by the formal processing sector. Thus, only finger millet processors were interviewed in Uganda. Finger millet is mostly sourced from traders and none of the processors is directly supplied by farmers. However, three processors have past experience of sourcing finger millet directly from - 3 -

9 farmers. These processors explained that they stopped sourcing from farmers because enforcement is too challenging. Processors that never sourced from farmers stated that farmers are located too far away and sourcing from them would only be efficient if companies handled larger quantities. Processors deal with their suppliers through informal arrangements, where a processor has a couple of permanent suppliers who are called when raw material is needed. Prices are usually fixed when the order is made and need to be paid when the raw material is delivered or picked. Processors reported that the most important aspect of such an arrangement is ensuring delivery of the required quantity. Only two processors mentioned seasonal supply fluctuations as a problem. More prevalent problems include low quality, transport facilities, and transport costs. Only 39% of the processors are satisfied with the delivered raw material quality. Ninety percent are willing to pay a price premium for improved quality. However, only two processors currently apply grades. The most important quality criteria for processors are cleanliness and no contamination with stones. As processors do not see sourcing from farmers as an option to solve quality issues and transport is already now a problem for processors, linking farmers directly to processors might not be an option in Uganda. Quality issues might rather be overcome by training of farmers and traders on harvesting and post-harvest handling and by strengthening supply chains. Nearly all processors complained about high power tariffs and power cuts. However, this problem can neither be solved by processors nor by interventions through third parties. The same holds true for the most prevalent problem in marketing, which is delayed payment of customers. Flour is often sold on credit and customers often delay payments. This problem occurs although many processors have contracts that fix the mode of payment. Another problem is the lack of awareness of consumers about finger millet flour. To solve this, companies need to invest in advertisement. However, if the government is interested to promote the sector, it should also run educational campaigns about the benefits of finger millet consumption. The majority of processors stated that there is enough demand for their finger millet flour. They also stated that demand increased in the last five years and that they expect it to increase in the future. Conclusions In all three countries, the finger millet and sorghum flour sector is separated in two systems. Consumers either buy grain and themselves have it milled in milling shops or they buy ready packed flour, which is mostly sold in retail shops and supermarkets. Flour is supplied by formal processing companies. Even though processors in all three countries reported that market demand for finger millet and sorghum flour increased in the last five years, most finger millet is still processed in milling shops. Supermarkets still serve only a minority of consumers and are found in urban centers. Experience in other developing countries show a trend towards supermarketization, whereby the market share of supermarkets increases. Thus, expecting increasing demand at market outlets of processors is reasonable. Compared to flour from maize and - 4 -

10 wheat, finger millet and sorghum flour will remain niche products. Nevertheless, strategies are needed to overcome constraints to the expansion of the formal processing sector

11 1 Introduction Sorghum and finger millet are important cereal crops for farmers in semi-arid areas in Eastern Africa. They are grown where maize cultivation often fails due to high temperatures and low rainfall. Both crops are traditionally cultivated for home consumption. However, in recent years market demand has grown. Urbanization has created higher demand for pre-processed traditional cereals in urban centers; consumers show an increasing awareness of health benefits of traditional crops; and the flour processing industry wants to diversify their range of products. Moreover, the brewing industry is interested in (partly) substituting barley by sorghum, because of lower costs. These market trends offer new opportunities for smallholder farmers to commercialize their production. The HOPE project aims to support commercialization efforts of smallholder farmers in Eastern Africa. HOPE conducted a processor survey in three countries in Eastern Africa (Kenya, Uganda and Tanzania), where an active processing sector was found. The aim of the study was to get an overview of the processing for sorghum and finger millet, to learn about procurement and marketing arrangements, and to understand processors challenges and future plans for these two crops. Results from the study suggest possible points of intervention for the HOPE project and suggestions for policy. 2 Database The HOPE project takes place in six countries (Ethiopia, Eritrea, Tanzania, Uganda, Southern Sudan and Kenya). However, an active processing sector that is already handling sorghum and millet is only found in Tanzania, Uganda and Kenya. This study therefore focuses on these three countries. The most important product that is currently produced from finger millet and sorghum is flour. Sorghum is also increasingly demanded by the beer brewing industry, but only a few breweries are involved. Thus, the survey focuses on flour processors. There is a large informal processing sector that mainly consists of traders who buy sorghum and finger millet grain, take it to a mill and sell it at open air markets as flour. However, this market channel does not offer any additional benefits for farmers. We therefore focused on small to large scale processors that operate in the formal sector. Because lists of registered processors dealing with either of the crops do not exist in all countries, we applied the following sampling procedure. In the first step, we identified urban consumption hotspots where pre-packed finger millet and sorghum flour from small-to large scale companies is sold in supermarkets, retail shops and open-air markets. In Tanzania, these are Moshi and Arusha in Northern Tanzania, Dar es Salaam in the Coastal Area and Dodoma and Singida in Central Tanzania. In Kenya, we assumed that almost all processors sell flour in Nairobi and selected this as the only urban center. In Uganda, the same holds true for Kampala. In all three countries, supermarkets, open air markets and small retail shops were visited to identify companies that produce finger millet and sorghum flour

12 Additionally, key informants 1 were consulted to identify missing companies. Even though this approach did not lead to a complete list of all available processors, it helped to identify the most prominent. Unfortunately, not all companies agreed to be interviewed. Table 1 shows the sample processors interviewed for this study. Table 1: Processor sample Tanzania Kenya Uganda Total 25 Total 13 Total 15 Moshi 6 Nairobi 7 Kampala 12 Arusha 6 Kisumu 3 Wasiko district 1 Dar Es Salaam 13 Nakuru 2 Eldoret 1 1 Wasiko district borders Kampala district To obtain detailed information about current processing activities on sorghum and finger millet, a standardized questionnaire was developed that contained sections about procurement and marketing systems, quality requirements, processing activities, opportunities and challenges, as well as market information and support needs. Enumerators were trained and the questionnaire was pre-tested in all three countries. The survey was successfully completed in all three countries between May 2011 and January However, some companies refused to answer some of the questions, as information was regarded as sensitive. Thus, not all questionnaires could be filled completely. The data was analyzed using simple descriptive statistics. 3 Country level results 3.1 Tanzania Company profile, crop portfolio and sorghum and finger millet products Even though some large scale flour processors exist in Tanzania, those handling sorghum and finger millet are mostly small- to medium- scale companies. Some are companies that added sorghum and finger millet to their portfolio, others were established purely for the production of sorghum and finger millet flour. The latter are usually self-help groups or women s associations that started the business to support their own livelihood and lack previous experience in flour processing. Nevertheless, their production is professional and they sell attractively packed flour to various retail outlets. Most of these companies were trained by the Small Industry Development Organization (SIDO), which is a parastatal organization under the 1 In Kenya, KARI and EAGC served as key experts. In Uganda and Tanzania, NARS helped to identify missing companies

13 Ministry of Trade, Industry and Marketing, which aims to develop the small-scale industry sector in Tanzania. Table 2 gives an overview of the interviewed companies and their products. All companies are flour processors. All deal with finger millet and 20 (80%) with sorghum. Thus, 20 companies handle both crops. A company has on average 9 employees, ranging from 1 to 30 employees. However, one medium size company denied the information. The companies were on average 8 years in the processing business and had on average 6 years of experiences with finger millet and sorghum processing, respectively. The small difference between years in the business and years of experiences with sorghum and finger millet shows that many companies were deliberately established to process sorghum and finger millet flour. Table 2: Company profiles Tanzania (N=25) No. % Flour processors Mean employees (no) 9 / Mean years business (no) 8 / Finger millet Sorghum No. % No. % Companies dealing with Mean years processing (no) 6 / 6 / Main products 1 Pure flour (%) Lishe 2 (%) Other blended flours 3 (%) / / % here refers to the share of finger millet and sorghum that the respective flour contains. 2 Additional to sorghum/ finger millet, lishe flour contains cereals such as maize, wheat and rice as well as crops like soybeans, carrots and groundnuts. 3 Other flour blends include maize-sorghum flour; cassava-sorghum flour; soybean-sorghum flour; and rice-sorghum flour. The most important flours processed from finger millet and sorghum are lishe and pure flour. Lishe is a nutritious flour that contains a mix of cereals and other crops. There is no standard recipe and the crops added as well as the share of each crop in the mix differs between processors. However, lishe flour always contains finger millet (average 30%) and often sorghum (on average 35%). Table 3 shows the yearly turnover of crops that are handled by the interviewed processors. Wheat and maize have the highest turnover, even though only 4 and 5 companies deal with these crops, respectively. These are large-scale companies, which are in the processing industry - 8 -

14 for a long time and for which sorghum and finger millet are minor crops added to supplement their core business. In total, finger millet and sorghum rank third and fourth with far lower quantities being processed annually. Comparing the mean turnover per company of wheat and maize on the one hand side and finger millet and sorghum on the other hand side demonstrates that finger millet and sorghum processors are rather small-scale businesses. Other crops mentioned by processors are crops that are mostly used to blend flours of the other four cereals and thus have low turnovers. Interestingly, the mean turnover per company is relatively high for cassava, suggesting that cassava is also sold as pure flour. Table 3: Turnover of different crops (N=24) Mt/year (total) MT/year (mean) No. of companies Wheat 8, Maize 4, Finger millet Sorghum Rice Cassava Groundnut Soybean Table 4 shows that 5 companies (20%) stated that they are working at full capacity. The other 20 companies (80%) still have spare capacity or could increase capacity. However, there are some limitations, of which the most important is lack of capital to increase production (14 companies). Capital is needed to buy more raw material or invest in equipment and facilities. However, appropriate machinery also needs to be available. Other limitations are power fluctuations and transport costs and availability. Only five companies stated unreliable demand as a reason for low capacity utilisation, implying strong demand for packaged flour. Table 4: Reasons for not working at full capacity (N=20) No. % Lack of capital Unreliable demand 5 20 Lack of machines 5 20 Power fluctuations 4 16 Transport costs and availability 2 8 Other Procurement systems for finger millet and sorghum Four different types of sorghum and finger millet suppliers exist and processors often source from more than one type. The most important supplier for both sorghum (75%) and finger millet (80%), are traders (Table 5). As expected, direct linkages between farmers and processors are few. Sorghum is directly supplied by farmers in 30% of cases and finger millet in 16% of cases. Other sources are markets and agents

15 Suppliers are usually based in the same urban centers as processors. They act as middlemen between traders in production areas and centers of demand. However, some suppliers also come directly from production areas (Central and Southern Tanzania), particularly in the case of sorghum. This is straightforward to understand as sorghum is more likely to be sourced directly from farmers. The regional sources of supply are in line with the main production areas, Central and Southern Tanzania and to a lesser extent Northern Tanzania. In some cases, sorghum comes from Zambia, because Zambia has large-scale sorghum producers who can supply large volumes. The results suggest that trade takes place directly between production and consumption hotspots as intermediate markets are not mentioned. However, no conclusions can be drawn about the number of traders that are involved in transferring produce from producers to consumers. Table 5: Finger millet and sorghum suppliers Finger millet Sorghum No. % No. % Supplier N=25 N=20 Trader Farmer Market Agent Location of supplier N=25 N=20 Dar Es Salaam Moshi/Arusha Central Southern Tanzania/Zambia Regional sources of suppliers N=24 N=19 Central Southern Tanzania/Zambia Northern Table 6 shows that business models between suppliers and processors are either informal (48%) or spot market transactions (52%). Processors explained that an informal arrangement is organized in the following way. The processor has a supplier whom he calls when he is in need of raw material. The supplier then deposits the raw material until the processor needs it. In some cases, the processor can buy the raw material on credit and pay back in installments; in other cases the processor needs to pay directly. Prices are agreed when the order is made. In one case, the processor checks the quality before accepting the raw material and rejects it if the quality is below requirements. Other processors stated that quality requirements are known by their suppliers and that there is no mechanism to reject the order if the required quality is not

16 met. In the case of spot market transactions, processors visit traders at their usual locations and buy in cash the amount of raw material that is needed. Table 6: Business models between suppliers and processors (N=25) Institutional arrangement Experiences in contracting farmers No. % No. % Informal No Spot market Yes 9 36 Nine processors stated that they have experience of sourcing directly from farmers. Seven of them are still supplied by farmers. Two reported that it is too time consuming and expensive to source directly from farmers. The biggest barrier reported was the physical distance between farmers and processors, which increases transaction costs. Processors face other challenges with procurement (Table 7). Low grain quality is a problem for both crops, but particularly for finger millet (52% compared to 40%). The same holds true for seasonal fluctuations in supply (48% and 40%, respectively) and price increases and fluctuations (48% and 45%, respectively). The slightly higher turnover of finger millet (compare Table 3) might lead to greater gaps in the supply of finger millet compared to sorghum. Moreover, largescale farmers, even though based in Zambia, exist only for sorghum. Although the brewing industry also sources large quantities of sorghum, it does not necessarily compete directly with flour processors as they look for different sorghum varieties. Transportation facilities and costs are other procurement problems. Moreover, lack of capital to buy enough produce at harvest time, when prices are low, is another common problem (24% and 20%, respectively). For sorghum, 20% of the processors also complained about storage pests that affected the crop when being supplied. The most frequent solutions suggested for these challenges are training of farmers on postharvest handling (36% and 40%, respectively); acquiring own transport (24% and 30%, respectively); buying enough at harvest time (20% and 25%, respectively); acquiring loans (24% and 15%, respectively) as well as buying directly from farmers (24% and 15%, respectively). However, only few of these solutions can be implemented by processors themselves. Provision of credit facilities, farmers training and linking farmers with processors, and even facilitating transport are possible intervention points for commercialization of dryland cereals. Despite these challenges, nearly all processors (92% of finger millet and 95% of sorghum processors) stated that their demand for finger millet and sorghum increased in the last 5 years. They also plan to expand their production in future, because they expect an increasing market demand for finger millet and sorghum products. However, processors could not provide precise figures about expected future demand

17 Table 7: Procurement challenges and solutions Finger millet Sorghum No. % No. % Challenges N=25 N=20 Low quality of raw material Seasonal fluctuations of supply Price increases and fluctuations Transportation facilities and costs Lack of capital (to buy produce at once at harvest time) Lack of storage facilities Storage pests Solutions N=25 N=25 Train farmers on post-harvest handling Own vehicle Buy enough at harvest time Loans Buy directly from farmers Government to support production Immediate turnover Strategic grain reserve facilities Other Processing of finger millet and sorghum Table 2 showed that processors produce pure and blended finger millet and sorghum flours. These flours are mostly used to prepare thin porridge, which is often consumed for breakfast. Finger millet and sorghum have a high nutritional value and consumption of these crops is recommended for small children, breast feeding mothers, older and sick people. Alhough all flours can be used for porridge, different flour blends are targeted at different consumer groups. For example, pure finger millet flour is particularly good for people with diabetes. Thus, in the case of short supply, processors cannot easily replace finger millet or sorghum by substituting other crops. Only five processors stated that, in case of scarcity, they could use sorghum instead of finger millet and vice versa or that they could increase the share of other cereals like maize or wheat in blended flours. Besides porridge, there are also other products for which sorghum and finger millet flour could be used by consumers or which could be produced by processors. Interestingly, processors could imagine a wider use of sorghum than of finger millet (Table 8). Moreover, only two sorghum processors (10%) could not imagine any other product for which sorghum could be used whereas it were five processors (24%) in case of finger millet

18 For sorghum, cakes/cookies (90%), and bread (75%) were mentioned most often. Others are chapatti/mandazi (25%) and local brews (15%). The latter ranks first for finger millet (32%), followed by cakes/cookies (28%), and soft drinks (16%) as well as bread (16%). Considering that breweries are interested in sorghum, but not in finger millet, it is interesting that processors see local brews as an important market for finger millet. Processors are not producing these products because they are not interested in alcohol production (42% and 17%, respectively), because of lack of knowledge (26% and 39%, respectively) and lack of capital to make necessary investments (16% and 39%, respectively). Consumer preferences are only mentioned by two processors. Thus at least from a processor point of view, consumers might be interested in using sorghum and finger millet for a wider range of products. Table 8: Alternative products from finger millet and sorghum Finger millet Sorghum No. % No. % Alternative products N=25 N=20 None Cakes & cookies Bread Chapatti/Mandazi Local brew Soft drinks Reasons for non-production N=19 N=18 Not interested (alcohol) Lack of knowledge to produce Lack of capital to invest Consumer preferences All processors pointed out some challenges in flour production (Table 9). Most important was the lack of appropriate machinery and facilities (72%). Processors complained that milling machines are expensive so that they have to use public mills for grinding. Many processors also do not know where to get good machines. Moreover, many processors did not have appropriate facilities due to lack of capital to rent or build a proper production plant. Power cuts are the second most important problem (52%). During the survey period, power cuts were a problem all over Tanzania due to a poor wet season. Most companies cannot afford to buy and operate a generator to overcome this problem. Consequently, lack of capital is another problem that ranks third (16%) together with expensive and/or unavailable packaging (16%) and TBS requirements (16%). Processors complained that the packaging material available in Tanzania is of very low quality and affects the attractiveness and shelf life of their flour. However, customers expect both, nicely packed flour with a long shelf life. Packaging material that can be imported from Kenya is very expensive and often not affordable for small-scale processors. TBS requirements

19 refer to quality standards set by the Tanzanian Bureau of Statistics that must be met to obtain a TBS certificate, which again is a requirement of many buyers, supermarkets in particular. Table 9: Processing challenges and solutions (N=25) Challenges No. % Solutions No. % Lack of machinery/ facilities Invest in machines/facilities Power cuts Attain credit facilities TBS requirements 4 16 Stable power 5 20 Lack of capital 4 16 Governmental support to obtain TBS certificate 3 12 Expensive/unavailable Training on processing 4 16 packaging techniques 1 4 Not enough knowledge about processing 2 8 Other 3 12 Solutions mentioned by processors are to invest in machines (44%), obtain credit facilities (40%) and stabilize power supply (20%). Others, mentioned by only a few processors, are support from the government to obtain a TBS certificate (12%), and training on processing techniques (4%). Again, the possibilities of processors to implement these recommendations themselves are limited and external support would be needed Marketing of finger millet and sorghum products Processors sell flour to various market outlets (Table 10). For both crops, supermarkets are the most important market outlet (88% and 85%, respectively), followed by individuals (76% and 80%, respectively) and small retail shops (75%). As the survey includes only formal processing companies, it is not surprising that retailers are the most important buyers. However, these results also accurately reflect the retail structure in Tanzania. Individual companies, even if only producing one type of product and small quantities, can supply supermarkets and retail shops and door-to-door advertisement still seems possible. The importance of individuals reflects the type of enterprise. Many are self-help groups or women s associations that sell their products on an individual basis, for example at trade fairs or through networks. Schools, hospitals and wholesalers also buy sorghum and finger millet flour, highlighting the importance of sorghum and finger millet for children and sick people

20 Table 10: Buyers of finger millet and sorghum flour Finger millet Sorghum No. % No. % Customers N=25 N=20 Supermarkets Individuals Small retail shops Schools Hospitals Wholesalers Others Location of customer N=25 N=20 Dar Es Salaam/Coastal Area Northern Tanzania Central Tanzania Mwanza All over Tanzania Southern Tanzania All companies have customers in Dar Es Salaam, even if the company is based elsewhere. As the biggest city in Tanzania, Dar Es Salaam offers the largest market opportunities. Northern Tanzania with the urban centers Moshi and Arusha ranks second (88% and 45%, respectively). For sorghum, only a few buyers (10%) are located in other regions. However, 64% of finger millet buyers are located in other regions, where none of the processors is based. Thus finger millet flour is more widely traded. Interestingly, some buyers are located in Central and Southern Tanzania, from where the raw material is sourced. This illustrates the potential to establish processing enterprises in the respective regions. Informal arrangements are the most common business arrangement between processors and buyers (Table 11). Each processor has this kind of arrangement with at least one of their buyers. Spot market transactions rank second (56%). Three processors also have a contract with their buyers. In all three cases, the buyer is a supermarket and there is a written contract. Informal arrangements are most common with supermarkets and small retail shops. There are two kinds of arrangements. The processor deposits their products in the shop and either regularly checks itself if the product is sold out or the shop calls when the product is sold out. In both cases the processor delivers new products and is paid for the products deposited last time. Prices are agreed at the time of deposit. In the second arrangement, the shop makes an order, the processor delivers and is paid a couple of weeks later, even if the products are not yet sold. In this arrangement, too, processors usually check if their product is still available in the shops, as shops sometimes delay new orders

21 Table 11: Institutional arrangements between processors and buyers (N=25) No. % Contract 3 12 Informal arrangement Spot market All finger millet processors and 18 sorghum processors (90%) reported that there is enough demand for their flour. However, with one exception, all processors face challenges marketing their products (Table 12). Most prevalent are payment problems with customers (36%). Processors complained that supermarkets only pay for the product several weeks after they have been sold. Thus, processors need to wait before receiving cash. Small retail shops and other customers also delay payment. Missing market infrastructure and expensive packaging material rank second (28% each). Processors reported that markets for sorghum and finger millet flour are not yet well established because the product is not widely known. Thus, door-todoor advertisement is needed, which is time consuming and costly. Expensive packaging material drives up marketing costs which results in higher retail prices, which buyers and consumers are not willing to pay. High quality packaging is a market requirement, particularly for supermarkets. Other problems are high competition and low and unreliable prices. Sorghum and finger millet processing are regarded as a business opportunity by organizations in the field of small-scale business development like SIDO. Many women s associations and groups are trained to establish such a business, which increases competition. Even though processors complain about high competition and unreliable demand, 100% and 88% stated that there is enough demand for their finger millet and sorghum flours, respectively. Moreover, 95% reported that market demand for sorghum and finger millet flour increased in the last 5 years and all processors expect that market demand will increase in the future. Table 12: Marketing challenges and solutions (N=25) Challenges No. % Solutions No. % None 1 4 None 1 1 Payment problems of customers 9 36 No supply on credit 1 1 Market infrastructure Own transport 2 2 Expensive packaging material 7 28 Increase capital 5 5 High competition Improve quality and 6 24 innovativeness 3 3 Low/unreliable prices 6 24 Written contract 3 3 Costs/procedure of obtaining Governmental support to 4 16 TSB certificate obtain TBS certificate 5 5 Consumers don't know the Promotion of the products 3 12 product 4 4 Storage pests (in supermarkets) 3 12 Supermarkets to control pests 1 1 High tax rate 2 8 Lower tax rate 3 3 Unreliable demand 2 8 Identify alternative markets

22 Not able to meet the demand 1 4 Improve packaging/shelf life Problems of market infrastructure include aspects like transportation, difficulties to approach new customers, unavailable distribution channels, lack of information about markets. Processors offered various solutions to these challenges. One solution that was mentioned most often is to increase capital (5%). Also some of the other proposed solutions, for example, acquire own vehicle, would require capital. Thus, access to capital is a key issue in supporting small-scale enterprises Quality, grades and prices Table 13 shows that cleanliness of the raw material was most important for both crops (96% and 100%, respectively). Colour ranked second (40% and 69%, respectively). However, for finger millet brown was more important whereas for sorghum it was white. Another important quality requirement is that the raw material has to be free from pest damage (28% and 42%). The fact that this is more important for sorghum suggests that sorghum is more affected by pests than finger millet. Sixty percent of finger millet and 65% of sorghum processors are satisfied with the delivered raw material quality. However, this is because they educated their suppliers on their quality expectations. Processors unsatisfied with quality mentioned dirty raw material as the biggest problem. As before, the results emphasise the need to improve post-harvest management. Low raw material quality causes losses for processors. Consequently, 72% of the processors would be willing to pay a higher price for improved quality. Some of the processors already satisfied with quality would also be willing to pay a price premium, which indicates a potential for quality improvement even in these cases. The average price premium that processors are willing to pay is 25%. Some buyers also impose some quality requirement. Thirty two percent of processors stated that their buyer does not provide any specific quality requirements. Results from the others show that packaging of the product is most important (52%). This refers to a package that looks attractive is stable, and contains some product information such as the shelf life. Supermarkets require an attractive package. The same holds true for the TBS certificate, which is mentioned by 20% of the processors. Forty percent also mention that buyers expect good quality flour, which mostly refers to flour without any contamination

23 Table 13: Quality requirements of processors and buyers Finger millet Sorghum No. % No. % Quality requirements of processors N=25 N=19 Cleanliness Brown color White color Free from pest damage Maturity Moisture Satisfaction with crop quality N=25 N=20 No Yes Finger millet and sorghum (N=25) Willingness to pay price premium No. % No 7 28 Yes Price premium (%) / 25 Quality requirements of buyers None 8 32 Nicely packed Good quality flour TBS certificate 5 20 Although processors have quality requirements, less than half (32% and 40%, respectively) apply grades (Table 14). Like quality requirements, grading criteria are cleanliness and colour. Processors usually apply a first and a second grade and pay higher prices for the first grade. Thus, there is a clear price incentive for farmers to supply higher quality raw material. However, this price premium may remain with the trader and not be transferred to farmers. Interviews with farmers in Central Tanzania revealed that they are not aware of a price premium for better quality grain. Instead they stated that prices are determined by the season. The latter was confirmed by processors (see Table 14). Interestingly, in all cases, sorghum raw material prices are lower than those of finger millet. However, sorghum flour, pure and blended, is sold for the same price as finger millet flour. Thus, sorghum offers a higher profit margin that finger millet. Processors stated that consumers are not willing to pay higher prices for finger millet and sorghum flour, thus, they cannot adjust end product prices according to raw material prices

24 Table 14: Grades, seasonality and prices for finger millet and sorghum Finger millet Sorghum No. % No. % Application of grades N=25 N=20 No Yes Grading Criteria Cleanliness Color Other Prices TSh/kg US$/kg TSh/kg US$/kg First grade Second grade Seasonality Month Month Low season December to May December to May High season June to November June to November Mean raw material prices TSh/kg US$/kg TSh/kg US$/kg Low season High season Average Mean flour prices TSh/kg US$/kg TSh/kg US$/kg Pure flour Lishe flour Market information and sub-sector support Our analysis showed that there are a number of problems and challenges that affect the performance of processors. Processors were asked what kind of support and market information they needed to improve their performance. Table 15 shows that information about input (raw material) and output markets (88%) and raw material prices (68%) is most important for processors. They usually access this information from traders and markets (56%), through the radio (52%) and newspapers (44%). Eighteen (72%) of processors reported that other information would be interesting for them, but is currently not available. These include credit facilities (24%), potential alternative suppliers (20%) and regional/international markets (20%). These results again emphasise processors need for credit facilities, or at least information about them. The results also interest in inking directly with farmers

25 Table 15: Market information and sources of information (N=25) No. % No. % Accessed information Sources of information Markets (input output) Market/trader Prices (raw material) Radio Other Newspaper Missing information TV 4 16 None 7 28 Competitor 3 12 Credit facilities 6 24 Other Potential suppliers/ sourcing from farmers 5 20 Regional/international markets 3 12 Exhibitions and trainings 2 8 Suppliers of machines 2 8 Processing technologies Other includes aspects like information about potential suppliers, competitors, packaging material, product quality, need of customers. 2 Other includes information sources like researchers, customers, internet and seminars. Asked about the most important barriers in the sector, 52% of the processors mentioned a lack of knowledge about the crops of farmers as well as of consumers (Table 16). Consumer preferences rank second (28%), followed by lack of governmental support (24%). These three reasons are inter-related. If sorghum and finger millet were more popular, they might receive more government support. On the other hand, this support might make the two crops more popular. Thus, different interventions targeting the same problem might benefit the sector. Lessons learned from the maize sector point in the same direction. Seventy one percent of the interviewed processors attributed success with maize to a functioning market infrastructure, followed by crop promotion (50%). Forty six percent stated input provision which is linked to both other issues, crop promotion and functioning infrastructure. Table 16: Barriers for a vibrant finger millet and sorghum sector and lessons learned from the maize sector Barriers (N=25) No. % Lessons learned (N=24) No. % Lack of knowledge (producer and consumer) Crops need to be promoted Consumer preferences Functioning market 7 28 infrastructure Lack of governmental support 6 24 Input provision Insufficient market infrastructure 4 16 Training of farmers 6 25 Other Other Other include aspects like low crop quality, droughts and pests and few production areas. 2 Other include aspects like mechanization, loan provision, quality standards

26 In line with the barriers and lessons learned, processors expect government support in production and farmer training (80% and 60%, respectively) as well as improvement of market infrastructure (32%). Other aspects mentioned are access to credits (20%) and promotion of the crops (16%). Interestingly, processors put the sector problems (production and infrastructure) first and rank their own needs (credit) second. Support expected from research is foremost the release and provision of improved varieties (72%), followed by market research (36%). Moreover, farmers should be trained (20%) and research results should be better disseminated (20%). These expectations are in line with sorghum and finger millet research priorities of the HOPE project. Table 17: Governmental and other support needed for the finger millet and sorghum sector Governmental support (N=25) No. % Research support (N=25) No. % Support production (inputs, Release/provide improved technologies) varieties Training of farmers (production/ Market research 9 36 post harvest) Make credit available for Training of farmers (quality processors issues) Improve market infrastructure 8 32 Disseminate research results 5 20 Promote sorghum and finger Other millet (production/consumption) Conclusions and project and policy recommendations The finger millet and sorghum processing sector is dominated by small to medium scale processors. They are based in urban centers in Northern (Arusha and Moshi) and Eastern (Dar es Salaam) Tanzania. Some processors explicitly established to produce finger millet and sorghum flour and others started to deal with the two crops to broaden their product portfolio. The former are often some kind of self-help group or women s association that are looking for additional sources of income. Finger millet and sorghum are equally important in terms of the volume processed. However, maize and wheat flour are more popular and sorghum and millet flour still serve a niche market. Nevertheless, finger millet and sorghum flour is already sold in supermarkets like Shoprite. Ongoing urbanization and increasing health-consciousness among consumers are expected to increase demand for finger millet and sorghum flour. This is confirmed by almost all processors. Most stated that their demand for finger millet and sorghum has increased in the last five years and will increase in the future. Consequently, they expect market demand to increase. Markets for finger millet and sorghum flour are found not only in urban centres, where processors are already established. Processors also sell flour to customers in other parts of the country, including production zones where raw material is sourced from. This highlights the potential to decentralize processing, which should be further investigated

27 Processors pointed out several challenges to achieving potential development in the sector. In regard to procurement systems, low raw material quality, the most prevalent problems are seasonal supply and price fluctuations and lack of capital. Only half the processors have institutional arrangements with their suppliers, which can reduce some of these problems. However, arrangements are not so strong that farmers could buy large amounts of raw material on credit or prices could be stabilized throughout the year. Moreover, raw material quality is sometimes an issue. The problems are inter-related. Obviously seasonal supply fluctuations lead to price fluctuations. However, if processors had sufficient capital they could buy bigger volumes at harvest time. If they had more capital they could also pay a price premium for better quality and source directly from farmers or buy appropriate machines to clean the raw material. Thus, access to capital becomes one of their major concerns. Lack of machines and expensive packaging were also mentioned as problems. Concerning marketing, the most important challenge was prompt payment by customers. Again, this highlights the need for capital. Besides payment problems, processors often have arrangements with their buyers, in which the buyer only pays a couple of weeks after the product is delivered or even only after the product is sold in the shop. This further reduced the liquidity of processors, as they usually cannot buy raw material on credit. Many other marketing problems like missing market infrastructure or lack of awareness of consumers relate to the fact that finger millet and sorghum flour is still a niche product. These problems and challenges can only partly be solved by processors. They also require third party interventions and policy support. Training of farmers on post-harvest handling is an important issue. As many processors would be willing to pay a price premium, farmers would also benefit from selling better quality raw material. However, some processors doubt that middlemen would transfer a price premium to farmers and as middlemen themselves might be responsible for contamination of raw material, cutting out middlemen and linking farmers directly to processors could also be a strategy to improve quality. Moreover, farmers would benefit from higher farm gate prices and a reliable output market when supplying processors directly. The latter would benefit, because they could limit seasonal fluctuations and might be able to discuss better payment modes. However, small- to medium scale processors already pointed out that they cannot invest in the necessary logistics to source directly from farmers. Thus, a project like HOPE would need to support processors in establishing contacts, discussing procurement modes and facilitating transport, at least in the beginning. Other support needed by processors is better access to capital. This would enable them to at least solve some of their problems themselves. To support the finger millet and sorghum sector in general, consumers need to be educated about the health benefits of finger millet and sorghum, and consumption of these crops needs to be promoted. Moreover, production of finger millet and sorghum needs to be supported through the provision of improved varieties and other inputs and the training of farmers

28 3.2 Kenya Company profile, crop portfolio and sorghum and finger millet products Of the three countries, Kenya has the most advanced processing sector with many medium to large scale flour processors that predominantly deal with maize and wheat and added sorghum and finger millet flour to their product portfolio to take advantage of emerging markets. These companies mostly sell packed flour to supermarkets in Nairobi. Moreover, there are small to medium scale businesses that produce flour from various crops for sale as loose flour in their own shops, where customers can mix flours to suit their own taste. Table 18: Company profiles Kenya (N=13) No. % Flour processors No. of employees (mean) 56 / Years in business (mean) 21 / Finger millet Sorghum No. % No. % Companies dealing with Years processing (mean) 10 / 10 / Main products 1 Pure flour Uji flour Other blended flours % refers to the share of finger millet and sorghum of the respective flour. 2 Additional to sorghum/ finger millet, uji flour contains cereals such as maize, wheat and rice as well as crops like soybeans, carrots and groundnuts. 3 Other flour blends include finger millet-cassava-sorghum flour; finger millet-amaranth flour; maizesorghum flour; cassava-sorghum flour; soybean-sorghum flour; and rice-sorghum flour. All 13 companies interviewed are flour processors (Table 18). All deal with finger millet and 11 also handle sorghum. Companies have on average 56 employees, showing that processors in Kenya are larger than in Uganda or Tanzania. Kenyan companies also have more experiences in the processing sector (21 years). On average, they have processed finger millet and sorghum for 10 years. For finger millet, pure flour and uji flour are the two most important flours that are produced. Uji flour is a mix of finger millet, sorghum and several other crops and contains on average 30% finger millet. Five processors also produce other flour blends, which have an average finger millet content of 50%. Pure sorghum flour is less often produced (5 processors). Other sorghum products are uji flour and other flour blends with a sorghum content of 30% and 40%, respectively. As in Tanzania and Uganda, standard recipes for uji and other blended flours do not exist, so that the composition as well as the content differs from processor to processor

29 Not all companies in Kenya provided information about their turnover and some provided information only for for finger millet and sorghum. Although this underestimates the total quantity processed, the figures in Table 19 reflect the relevance of different crops. As the most important cereal crop in Kenya, maize has by far the highest turnover. The relative low figure for wheat implies that few wheat processors added sorghum or finger millet to their business. The turnover per company shows that wheat is more important than sorghum and finger millet, but less important than maize. Finger millet has the third highest total turnover as well as per company turnover, followed by sorghum. However, the amount of sorghum that is processed is only 13% of the processed finger millet quantity. The average turnover is also higher for finger millet. Table 19: Turnover of different crops Mt/year (total) MT/year (mean) No. of companies Finger millet 7, Sorghum Maize 107,999 13,500 8 Wheat 8, Amaranth Soybean Barley One company did not make any statement about their potential capacity for finger millet and sorghum processing and two stated that they are working at full capacity. For the remaining 10 companies, unreliable market demand (40%) and insufficient supply (30%) was the major reasons for not operating at full capacity. Table 20: Reasons for not working at full capacity (N=10) No. % Unreliable demand 4 40 Insufficient supply 3 30 Lack of machines 1 10 Lack of capital 1 10 Other Procurement systems for finger millet and sorghum Finger millet is most often sourced from traders (69%) and agents (23%). Interestingly, no company sources directly from farmers, whereas at least two companies source sorghum from farmers (Table 21). Traders (73%) are the most important supplier for sorghum and agents rank second (27%). Most companies stated that their supply of finger millet and sorghum comes from Kenya (9 companies each), followed by Uganda (7 and 5 companies, respectively) and Tanzania (4 and 5 companies, respectively). More companies would be interested to source finger millet from Tanzania, but an export ban restricts imports. The percentage figures refer to the share of raw

30 material that is sourced from the respective country by the companies that source from this country. Thus, for companies sourcing from Kenya, between 72% and 75% of the raw material comes from Kenya, whereas it is between 62% and 67% in case of Uganda and 26% to 29% in case of Tanzania. This additionally demonstrates limitations in trade between Kenya and Tanzania. Within Kenya, Western Kenya ranks first for both crops. This is in line with regional distribution of sorghum and finger millet production. The concentration on Western Kenya highlights the potential to establish local/regional collection centers, which would improve market access for farmers and link them directly to processors. However, the willingness of processors to invest in such collection centers is low. Table 21: Finger millet and sorghum suppliers Finger millet Sorghum No. % No. % Supplier N=13 N=11 Farmer / / 2 18 Trader Agent Market 1 8 / / Sources of raw material N=13 N=11 Kenya Uganda Tanzania Regional sources of raw material in Kenya N=8 N=8 Western Kenya Eastern Kenya / / 3 38 Other A surprisingly high number of companies (62%) have experience with contracting farmers (Table 22). However, the strategy failed. The most important reason given was logistics. Companies complained of the need to be permanently in touch with farmers to ensure successful production and supply. Transport logistics are also more complex than if being supplied by traders. The same reasons were given for never having contacted farmers. In a setting where companies have discontinued sourcing directly from farmers, it may be difficult to re-establish these links. Informal arrangements are the most common business model between processors and their suppliers (62%). In these arrangements, processors have a regular supplier, who knows their requirements and whom they call when they need raw material. Prices are negotiated when raw material is ordered. Some processors collect the raw material themselves, while others have it delivered. The mode of payment is also flexible. Some processors can pay a couple of days or even weeks after delivery, others need to pay immediately

31 Table 22: Business models between suppliers and processors (N=13) Institutional arrangement Experiences in contracting farmers No. % No. % Contract 2 15 No 5 38 Informal 8 62 Yes 8 62 Spot market 3 23 For both crops, seasonal fluctuations of supply (62% in case of finger millet and 55% in case of sorghum) and low raw material quality (54% and 55%, respectively) were the most important challenges in procurement. Proposed solutions are buying directly from farmers (44% and 43%, respectively), support and promotion of production of the two crops (33% and 57%, respectively) and training of farmers in post-harvest handling (33% and 43%, respectively). These results demonstrate the potential to link farmers directly to processors, even though some processors stated earlier that they stopped sourcing from farmers. On the other hand, processors expect third parties to intervene, for example in training farmers. In Kenya, as in the other countries studied, interventions by third parties are needed to improve the performance of the sector. Table 23: Procurement challenges and solutions Finger millet Sorghum No. % No. % Challenges N=13 N=11 Seasonal fluctuations of supply Low quality of raw material Price increases and fluctuations Other Solutions N=9 N=7 Government to support production Buy directly from farmers Training on post harvest handling for farmers Other Nine processors (69%) stated that their demand for finger millet increased in the last five years. Two processors stated constant demand and explained that they prefer to keep their production at a constant level. Two processors who reduced their demand explained that raw material had become too expensive. For sorghum, 7 processors (64%) stated an increasing demand over the last five years. Two stated constant demand due to fluctuating raw material prices. Two processors decreased demand in response to reduced market demand. Nevertheless, almost all processors (12 in case of finger millet and 9 in case of sorghum) plan to increase their demand

32 However, they stressed that their plans might be restricted by the availability of sorghum and finger millet Processing of finger millet and sorghum Table 18 showed that processors produce pure and blended finger millet and sorghum flours. Even though there are no standard recipes for blended flours, processors cannot easily replace finger millet or sorghum by other crops in case of scarcity and only one finger millet and two sorghum processors stated that they could increase the share of other crops (e.g. soya, maize or amaranth) in these flours. Few processors could identify alternative products like cereals and snack bars. They reported that current consumer preferences restricted the development of alternative products. Nevertheless, all processors see a high potential for different kinds of finger millet and sorghum flours as consumers are getting more health-conscious and are turning back to traditional food crops. Some processors (6) also pointed out challenges in the flour production. They referred chiefly to the low quality of the raw material, which makes the cleaning labour intensive as appropriate cleaning machines are not available. The fact that fewer processors mentioned problems and that fewer problems were mentioned suggests that the processing sector is more advanced in Kenya Marketing of finger millet and sorghum products Supermarkets are the most important customer for finger millet (85%) and sorghum (82%) processors (Table 24). Smaller retail shops rank second (23% and 36%, respectively). Wholesalers and schools are also customers, but on a minor scale. For both crops, customers are mainly located in Nairobi (77% and 73%, respectively), since most companies are located there and Nairobi is the biggest city in Kenya. Some companies (five and four, respectively) also supply customers in Central Kenya, although only two are located there. Companies located in Western Kenya supply customers in this area, but some only supply customers in Nairobi. In contrast to Tanzania and Uganda, processing companies are already established in major production areas where they sell ready-processed flour instead of exporting raw material and importing processed goods. Thus, Western Kenya, may be a promising region for linking farmers to processors

33 Table 24: Buyers of finger millet and sorghum flour Finger millet Sorghum No. % No. % Customers N=13 N=11 Supermarkets Small retail shops Wholesalers Individuals Schools Hospitals Others Location of customer N=13 N=11 Nairobi Central Western Coast Countrywide Again, informal arrangements are the most common business arrangement between processors and buyers (83%). Those arrangements are most common when supermarkets or retail shops are supplied. In these cases, the supermarket makes a written purchase order and the processor delivers the requested flour to the supermarket. Prices are fixed once and processors need to inform supermarkets in advance if they want to increase prices. However, supermarkets do not accept monthly price fluctuations. Supermarkets pay for the product a couple of weeks after delivery. Although purchase orders are made by supermarkets and retail shops, some processors visit the shops to check if their flour is still on the shelf and to advertise it again to the supermarket/retail shop. Processors stated that they cannot always trust the automated purchase order system. Larger companies have sometimes written contracts with supermarkets, which in general work in the same way as informal arrangements. Table 25: Institutional arrangements between processors and buyers (N=12) No. % Contract 4 33 Informal arrangement Spot market 4 33 All processors except one reported that there is enough demand for their flour. However, some processors still face challenges in marketing their products (Table 26). Most important were the lack of consumer awareness and preferences for cheaper products (50%). Other problems are payment problems of customers and high competition (20% each). However, compared to the other two countries, processors in Kenya face fewer problems. The most important solution that was recommended by processors was the promotion of sorghum and finger millet flours (88%). Even though the government could educate consumers on the benefits of finger millet and

34 sorghum consumptions, companies in Kenya often have the financial means to invest in advertisements themselves. Table 26: Marketing challenges and solutions Challenges (N=12) No. % Solutions (N=8) No. % None 2 20 Product promotion 7 88 Consumer preferences 6 50 Other 3 38 Payment problems of customers 2 20 High competition 2 20 Other 3 25 Although processors could not provide precise figures, most of them (11) stated that market demand increased in the last five years and almost all of them (12) also expect growing demand for the future. Interestingly, market demand is expected to increase more strongly for finger millet products than for sorghum products Quality, grades and prices As in Tanzania and Uganda, processors have quality requirements for finger millet and sorghum (Table 27). Most important for both crops are cleanliness (85% and 73%, respectively) and moisture content (77% and 82%). Dirty or wet raw material can be used, but requires additional treatment in form of cleaning and drying, which reduces profits for processors. More than half the processors are not satisfied with the quality of the delivered raw material (38% and 45%, respectively). The biggest problem was contamination of raw material. Those who are satisfied stated that they educated their suppliers about their quality standards beforehand to ensure high quality. Most processors (75%) are willing to pay a price premium. However, they stressed that it cannot be much as their profit margins are already low. Moreover, they would only agree on a price premium with selected, trustworthy suppliers. Ten out of 13 processors also stated quality requirements of their buyers. An attractive package is most important (60%), followed by a KEBS certificate, which is required by supermarkets. Good flour quality and colour was also mentioned, but not further specified. Medium to large scale companies should not have problems meeting these requirements. Although many processors have quality requirements, few apply grades (33% and 9%, respectively). Moreover, every processor has own grading criteria (e.g. color, cleanliness). Processors did not provide information in how far prices differ between the first and second grade

35 Table 27: Quality requirements of processors and buyers Finger millet Sorghum No. % No. % Quality requirements of processors N=13 N=11 Cleanliness Moisture Color Free from pest damage Other Satisfaction with crop quality No Yes Finger millet and sorghum Willingness to pay price premium (N=12) No. % No 3 25 Yes 9 75 Quality requirements of buyers (N=10) Nicely packed 6 60 KEBS 5 50 Good quality flour 4 40 Color 2 20 Finger millet and sorghum prices fluctuate according to seasons. On average, processors pay 49 KSh/kg of finger millet and 38 KSh/kg of sorghum. In times of scarcity, prices increase up to 58 KSh/kg and 50 KSh/kg, respectively, whereas prices drop to 49KSh/kg and 38 KSh/kg, respectively. Table 28: Grades, seasonality and prices for finger millet and sorghum Finger millet Sorghum No. % No. % Application of grades N=12 N=11 No Yes Seasonality Month Month Low season December to May December to May High season June to November June to November Mean raw material prices KSh/kg US$/kg KSh/kg US$/kg Low season High season Average Mean flour prices KSh/kg US$/kg KSh/kg US$/kg Pure flour Lishe flour

36 Flour prices differ between pure and blended and also between finger millet and sorghum prices. However, as few processors produce these flours, these figures may not be representative Market information and sub-sector support Potential output markets is the most important information required by processors (75%), followed by raw material prices (50%). Potential suppliers or the nutritional value of finger millet and sorghum are also important. Traders/market (55%) are the most important source of information. Networks and newspaper rank second (33%) and third (25%), respectively. Nearly half the processors stated that they require no additional information that is currently unavailable. Others would be interested in information on output markets and potential suppliers. However, almost every processor had different requirements, which makes it difficult to improve information systems for processors. Table 29: Market information and sources of information (N=12) No. % No. % Relevant information Sources of information Markets (output) 9 75 Market/trader 6 50 Prices (raw material) 6 50 Networks 4 33 Supplier 4 33 Newspaper 3 25 Nutritional value 2 17 Internet 2 17 Other 2 17 TV 2 17 Missing information Other 1 8 No 5 42 Yes 7 58 Not all processors expected support from the government or research institutions. Those that did stressed the need for greater support to finger millet and sorghum production. This included provision of inputs as well as training, particularly on post-harvest management. Two processors also requested that increase access to credit for processors and two processors requested more market research. Table 30: Governmental and other support needed for the finger millet and sorghum sector (N=9) Governmental support No. % Research support No. % Support production (inputs, Support production 7 78 technologies) 6 66 Access to credits for processors 2 22 Market research 2 22 Other 4 44 Other

37 3.2.7 Conclusions and project and policy recommendations Of the three countries, Kenya has the most advanced processing sector with many medium to large scale flour processors that have added sorghum and finger millet flour to their portfolio to take advantage of emerging markets. Finger millet is far more important than sorghum in regard to the total amount processed by the interviewed enterprises. Flour from both crops still serves a niche market, but is found in all supermarkets. Ongoing urbanization and increasing health-consciousness among consumers are expected to drive demand for finger millet and sorghum flour. This is confirmed by almost all processors, who reported that their demand for finger millet and sorghum had increased in the last five years and was expected to increase in the future. Expectations are higher for finger millet than for sorghum. The most important market for finger millet and sorghum flour is Nairobi, but also in Central and Western Kenya, where finger millet and sorghum is produced and also some processors are based. Kenya s relatively good infrastructure and the short distance from Nairobi to other markets may spur a concentration of processing and hinder decentralization. New companies may also be unable to compete with established companies. However, established companies also face challenges in the finger millet and sorghum sector. Seasonal supply fluctuations and low raw material quality are the most prevalent problems, although more than two-thirds of the processors have formal contracts or informal arrangements with their suppliers. Finger millet and sorghum are not widely grown in Kenya and are sourced from neighboring countries like Uganda and Tanzania. Periodic export bans reduce the availability of imports. Moreover, Kenyan companies must compete for finger millet in Uganda with local buyers. Consumer preferences are the most important challenge for processors. Although processors reported there was sufficient demand for finger millet and sorghum flour and expect demand to increase, they pointed out that demand could be higher, if consumers would be more aware about finger millet and sorghum products, their utilization and health benefits. Some of these challenges could be solved by processors themselves. Medium and large scale companies are not capital constrained and could invest more in procurement and marketing. Currently, none of the companies is directly sourcing from farmers, although this could help reduce seasonal fluctuations and supply shortages. Regional branches to monitor production may be one solution. Another possibility would be to establish local or regional collection centers, which would enable farmers to supply their raw material directly. Whereas some processors pointed out an interest in these interventions, others stated that their responsibility is to provide markets and production needs to be promoted and supported by the government. Companies that see finger millet and sorghum flour as niche products lack the incentive to invest in procurement. Thus, intervention is needed to promote production and link farmers in Kenya to outlet markets in Nairobi. The same holds true for grain quality. Companies will not invest in farmer training, so training in post-harvest management must be provided by the extension service or projects like HOPE. Companies may also invest in advertising to increase consumer awareness of their products

38 3.3 Uganda Company profile, crop portfolio and finger millet products Although the finger millet sector is relatively more developed in Uganda, utilization and processing of finger millet is still largely semi-industrial and flour processing is dominated by medium-scale companies. Some have processed finger millet since they were established while others started to deal with finger millet to benefit from new market opportunities. Sorghum is far less important than finger millet and not handled by the formal processing sector. Thus, only finger millet processors were interviewed in Uganda. In Uganda, 10 of the 15 interviewed enterprises are flour processors. The other 5 are millers (Table 31). While flour processors buy grain, process it in-house and sell it as flour, millers have a store where they offer milling services for several crops. Customers bring their own grain, pay for the milling service and take the flour home. On average, processors have 16 employees and have been in the business for 14 years, and in the finger millet business for 9 years. Pure finger millet flour (9 out of 10 companies) and milletsoya flour (all processors) are the two most important products. Unlike Tanzania and Kenya, the nutritious blended flour Lishe/Uji does not exist in Uganda. As in the other two countries, blended finger millet flours do not always contain the same amount of finger millet, indicating that there are no product standards. Table 31: Company profiles Uganda (N=15) No. % Companies being flour processors Companies being millers 5 33 Companies dealing with finger millet No. of employees (mean) 16 / Years in business (mean) 14 / Years processing finger millet (mean) 9 / Main finger millet products 1 No. % fm Pure flour Millet soya flour Millet cassava flour 4 50 Other blended flours % here refers to the share of finger millet and sorghum that the respective flour contains. 2 Other flour blends include finger millet-rice flour and finger millet-amaranth flour. Finger millet has the highest turnover. However, all millers as well as one processor whose main business is maize and wheat only stated their turnover of finger millet, so that the figure for maize underestimates their real turnover. If companies had provided full information, maize would rank first. Although fewer millers were interviewed they have a higher total turnover and thus also a higher turnover per enterprise. Hence, formal flour processing companies account for only a small share of the flour market. Soya is another important crop with a lower total

39 turnover, but a higher turnover per company than finger millet. As soya accounts for only 20% in finger millet-soya flour, other soya flours must also be produced. Table 32: Turnover of different crops (N=24) Mt/year (total) MT/year (mean) No. of companies Finger millet total 1, Processors Millers 1, Maize Soya Rice Sorghum Cassava Plantain Only one processor reported working at full capacity. Other processors and millers are not working at full capacity, chiefly because of unreliable demand (54%), lack of capital (31%) and insufficient supply (31%). Thus input as well as output markets constrain finger millet processing. Table 33: Reasons for not working at full capacity (N=14) No. % Companies working at full capacity 1 0 Reasons for not working at full capacity N=13 Lack of capital 4 31 Unreliable demand 7 54 Lack of machines 2 15 Power fluctuations 1 8 Insufficient supply 4 31 Transport costs and availability 2 15 Other Procurement systems of finger millet Traders are the most important supplier of finger millet (87%). Three millers as well as all processors deal with them. Individuals rank second, but only for millers. In addition, two processors source from markets, and one company run by Asians also sources from a company that imports finger millet from India. The company supplies the Asian community which values finger millet from India. As milling shops exist all over the country, customers of the shops in Kampala come from Kampala or nearby towns and villages. Suppliers come mostly from Kampala (78%). Four processors source from suppliers in other parts of the country (Western and Northern Uganda), and one sources from a supplier in India

40 Of the 15 enterprises, 11 knew where in Uganda their supplier/customer sourced finger millet. Most suppliers sourced from Western Uganda (82%), followed by Northern Uganda (64%). Other regions mentioned are Eastern (36%) and Central Uganda (18%). The main production areas are Northern, Eastern and South-Western Uganda. However, finger millet is sourced from these regions because of the good quality of the raw material and not because the regions are the main production areas. Table 34: Finger millet supplier Supplier (N=15) Location of supplier (N=9) Regional source (N=11) No. % No. % No. % Trader Kampala 7 78 Eastern Uganda 4 36 Individual 4 27 Western Uganda 2 22 Western Uganda 9 82 Import company 1 7 Northern Uganda 2 22 Northern Uganda 7 64 Market 2 13 India 1 11 Central 2 18 Obviously, all millers have spot market transactions with their customers. The latter pass by the milling shops, pay for the milling service per kg of grain that is milled and take the flour home. For processors, however, informal arrangements rank first (70%), only one processor deals with his supplier through spot market transactions, and two processors have formal contracts. In informal arrangements, processors call their regular supplier to make an order that is either delivered or collected by the processor. Prices are usually fixed when the order is made and only in one case are prices are fixed for several months. Processors have to pay when the raw material is delivered or collected. Some can also buy raw material on credit. Processors explained that it is most important for them to have an arrangement that ensures delivery of the required quantity. Conducive payment terms rank second. Only 30% of the processors have experience of sourcing directly from farmers. However, none of them is still supplied by farmers. Processors explained that the enforcement of an arrangement with a farmers is too challenging. Processors that never sourced from farmers stated that farmers are located too far away, it is too time consuming to source directly from them, and that ir would only be efficient if companies handled larger quantities. Table 35: Business models between suppliers and processors (N=10) Institutional arrangement Experiences in contracting farmers No. % No. % Informal 8 80 No 7 70 Spot market 1 10 Yes 3 30 Contract 2 20 Ugandan processors face several challenges in procurement. Most prominent is low raw material quality (80%), while lack of transportation facilities and transport costs rank second (60%). Only 20% mention seasonal fluctuations of supply as a problem. Bearing in mind that

41 processors stated that getting the required quantity is an advantage of their respective business model indicates that availability is a problem, but it seems that most processors have already found a solution. For the other problems, eight processors recommended solutions. The most important was training of farmers on post-harvest-handling (50%). Table 36: Procurement challenges and solutions Challenges Solutions N=10 No. % N=8 No. % Low quality of raw material 8 80 Training on post harvest handling for farmers 4 50 Transportation facilities and costs 6 60 Own vehicle 1 13 Seasonal fluctuations of supply 2 20 Identify alternative suppliers 2 25 Lack of capital (to buy enough Government to support 1 10 produce at harvest time) production 2 25 Other 4 40 Other 3 38 Besides existing challenges, all processors stated that their demand for finger millet increased in the last 5 years. They also plan to expand their production in the future, because they expect increasing market demand for finger millet products Processing of finger millet Table 31 showed that processors produce pure and blended finger millet flours. As in Kenya and Tanzania, different flours suit the needs of different customers and finger millet cannot easily be replaced by other crops in case of scarcity. Consequently, only one finger millet processor stated that he could use other crops (sorghum and cassava). Another said that he would sell more rice and soya-maize flour instead to keep his business running. We also asked processors and millers about alternative products could be produced from finger millet. Surprisingly, four could not identify any. For others, the most popular one was bread (47%), followed by animal feed (33%) and soft drinks (27%). Production of these products is restricted by consumer preferences (40%) and lack of knowledge about how to produce them (40%). Table 37: Alternative finger millet products Alternative products (N=15) Reasons for non-production (N=10) No. % No. % None 4 27 Consumer preferences 4 40 Bread 7 47 Lack of knowledge about production 4 40 Animal feed 5 33 Low innovation level 3 30 Soft drinks 4 27 Millet shortage in the future 1 10 Cakes & cookies 2 13 Oats 2 13 Local brew

42 Interestingly, one processor did not mention any challenge in the processing sector. However, all others as well as all millers face some challenges. Most important were high power tariffs (64%), followed by power cuts (36%). Expensive/unavailable packaging (21%), high losses due to low raw material quality (21%) and lack of capital (21%) rank third. Only 10 processors could suggest solutions to their challenges. Stable power was mentioned most often (40%), followed by approaching credit facilities (30%) and training on processing techniques (30%). As in the case of Tanzania, most problems are difficult to solve by processors themselves and external support would be needed. Table 38: Processing challenges and solutions Challenges (N=14) No. % Solutions (N=10) No. % High power tariffs 9 64 Stable power 4 40 Power cuts 5 36 Lack of capital 3 21 Approach credit facilities 3 30 Expensive/unavailable packaging Training on processing 3 21 techniques 3 30 High losses due to dirty raw material 3 21 Buy a generator 1 10 Lack of machinery/ facilities 2 14 Buy own machines 2 20 Other 3 21 Other Marketing of finger millet products Customers of millers are the same as their suppliers, namely traders and individuals. The most important customers for processors are supermarkets (90%), followed by small retail shops (70%). Others are schools, hospitals and NGOs (50%), individuals (40%) as well as wholesalers (30%). On average, processors have two to three different types of customers. Results also show that there are a number of customers besides retailers. All processors have at least one customer in Kampala. In addition, two sell their products countrywide and two sell them in Eastern Uganda. One processor sells flour in Western and Central Uganda, respectively. Thus, there is a relatively small return of processed flour to production areas where finger millet grain was originally sourced. We assume that, in other parts of the country, flour is mostly sourced from millers or ground at home. Table 39: Buyers of finger millet flour (N=10) Buyer Location of buyer No. % No. % Supermarkets 9 90 Kampala Small retail shops 7 70 Countrywide 2 20 Schools/Hospitals/ NGOs 5 50 Eastern Uganda 2 20 Individuals 4 40 Western Uganda 1 10 Wholesalers 3 30 Central Uganda

43 As suppliers and buyers are the same in case of millers, institutional arrangements between millers and buyers are again only spot market transactions. In contrast, only 40% of the processors deal with their buyers through spot market transactions. Another 40% have informal arrangements with their buyers. Contracts rank first (70%). They are primarily found between processors and supermarkets. Contracts are made in form of local purchase order which are placed by the supermarket. When the supermarket runs out of finger millet it sends a new order. The payment mode is also fixed in this order and is usually on a monthly basis. Prices are fixed once and a processor needs to discuss with the supermarket in advance if he plans to change the price. Table 40: Institutional arrangements between processors and buyers (N=10) No. % Contract 7 70 Informal arrangement 4 40 Spot market 4 40 Challenges also exist in the marketing of finger millet flour. Payment problems with customers rank first (60%). Flour is often sold on credit, in particular to supermarkets and retail shops and only pay when the product is sold. Even then, many retailers delay payment. Low demand/lack of awareness of finger millet flour was mentioned by 40%. Other problems were only mentioned by one or two processors. Only seven processors could propose solutions for their problems. Promotion of finger millet products was most often mentioned (40%), followed by support from the government (20%). One processor each thought about improving the packaging material and identifying alternative markets. The low number of responses demonstrates that it is difficult for processors to find solutions for their problems themselves. Table 41: Marketing challenges and solutions Challenges (N=10) No. % Solutions (N=7) No. % Payment problems of customers 6 60 Promotion of products 4 40 Low demand/lack of awareness 4 40 Support from government 2 20 Low/unreliable prices 2 20 Improve packaging material 1 10 High competition 1 10 Identify alternative markets 1 10 Expensive adverts 1 10 Other 1 10 High transport costs 1 10 Others 2 20 Although four processor reported low demand as a challenge, the majority of processors stated that there is enough demand for their flour, that demand increased in the last five years and that they expect a positive demand trend in the future

44 3.3.5 Quality, grades and prices All processors and three millers stated that they have specific quality requirements for their suppliers/customers. Eighty-five percent mentioned cleanliness as a quality requirement, meaning that the raw material is not contaminated with sand and dust. Fifty four percent explicitly stated that the raw material should not contain stones. Colour (red/brown) ranks third (46%). Only four processors/millers (31%) were satisfied with quality. In case of the processors, 90% were willing to pay a price premium. Thus even processors who stated to be satisfied with the delivered quality, would still be willing to pay a price premium. As in the other two countries, quality of finger millet is a major issue in the processing sector. Besides specific quality requirements, 80% of the processors stated that they prefer a certain variety. However, rather than being able to name the variety, they refer to a region where it is produced or a trait of the variety. Thus, answers rather reflect processors preference for finger millet from a certain region. Quality requirements are also imposed by markets, even though three processors stated that their buyers do not have any. For the others, clean flour ranked first (40%), followed by pure (instead of blended) finger millet flour (20%) and flour with a good smell and taste (20%). Good packaging, which was important in Tanzania, was only mentioned by one processor in Uganda. Table 42: Quality requirements of processors and buyers No. % No. % Quality requirements of processors (N=13) Quality requirements of buyers (N=10) Cleanliness None 3 30 No stones 7 54 Clean flour 4 40 Brown/red color 6 46 Pure millet flour 2 20 Size of grains 3 23 Smell and taste 2 20 Maturity 2 15 Nicely packed 1 10 Other 6 46 Satisfied with delivered quality (N=13) No 9 69 Yes 4 31 Willingness to pay price premium (N=10) No 1 10 Yes 9 90 Preference for certain varieties (N=10) No 2 20 Yes 8 80 Although all processors have quality requirements, only two apply grades. Moreover, these do not refer to the above mentioned quality criteria, but to the region, where finger millet comes from. Processors did not provide price information for grades. However, prices fluctuate according to the season. When finger millet is scarce, prices increase up to 2,000 USh/kg. In the

45 high season, processors pay on average 1,650USh/kg. On average, processors stated to pay 1700 USh/kg. The selling price of one kg of finger millet flour is 2500 USh/kg, which is lower than the price of finger millet soya flour. The latter is sold for 2750 USh/kg. However, raw material prices for cassava might be higher than those for sorghum. Compared to Tanzania, the profit margin of processors in Uganda is very low. Table 43: Grades, seasonality and prices for finger millet Grades and seasons No. % Prices USh/kg US$/kg Application of grades (N=10) Mean raw material prices No 8 80 Low season (N=6) 2, Yes 2 20 High season (N=6) 1, Grading criteria (N=2) Average (N=10) 1, Region of supply 2 / Seasonality Month Mean flour prices Low season May to August Pure flour (N=9) 2, High season August to January Millet-soya flour (N= 7) 2, Market information and sub-sector support All ten processors accessed market information (Table 44). Most important was information about input prices (60%), output markets (40%) and potential suppliers (20%). Processors access information mostly through traders and markets (60%). Other relevant sources of information include radio (40%) and newspapers (40%). However, six processors mentioned that there is some kind of information that would be relevant, but is not accessible for them. Most important was information about regional/international markets (30%) and information about farmers (30%). The latter indicates a potential to link some processors directly with farmers. Table 44: Market information and sources of information (N=10) No. % No. % Accessed information Sources of information Prices 6 60 Market/trader 6 60 Markets 4 40 Radio 4 40 Potential suppliers 2 20 Newspaper 4 40 Other TV 1 10 Missing information Competitor 1 10 None 4 40 Other Regional/intern. markets 3 30 Information about farmers 3 30 Finger millet varieties 2 20 Packaging Other includes aspects like information about packaging material, millet varieties and production seasons. 2 Other includes information sources like customers, internet and seminars

46 Barriers for a vibrant finger millet sector are seen by processors and millers in the low demand and reputation of finger millet (67%). In some regions, finger millet is not consumed at all, and in others it is seen as a poor man s crop. Production problems are mentioned by 50% of the respondents. Among other barriers they refer to too little output and harsh production conditions. Another 42% mentioned the low raw material quality as a barrier. Lessons that could be learned from the more vibrant maize sector were for 78% of the respondents the promotion and support of production by the government. Promotion of consumption ranked second (67%). This can be understood as a request to the government to get more involved in the finger millet sector. Table 45: Barriers for a vibrant finger millet sector and lessons learned from the maize sector Barriers (N=12) No. % Lessons learned (N=9) No. % Low demand/reputation 8 67 Promote/support production 7 78 Production problems 6 50 Promote consumption 6 67 Low quality 5 42 Mechanization 2 22 Other 1 8 Other 1 11 In line with lessons learned from the maize sector, processors and millers mentioned several areas where the government could support the millet sector. Fifty four percent mentioned training farmers and access to credit (for farmers and processors), respectively. Availability of machines for both farmers and processors was mentioned by 46%. Other topics included the promotion of millet consumption (23%) as well as production (15%). Support expected by researchers was foremost the development and provision of improved finger millet varieties (50%). Table 46: Governmental and other support needed for the finger millet sector Governmental support (N= 13) No. % Research support (N=12) No. % Training of farmers (production/ Release/provide improved 7 54 post harvest) varieties 6 50 Make credit available 7 54 Training of farmers (quality and production) 3 25 Make machines available 6 46 Other Promote consumption 3 23 Support production (inputs, technologies) 2 15 Other Others include aspects like millet preservation, alternative millet products, mechanization of production Conclusions and project and policy recommendations Although the finger millet sector is considered relatively more developed in Uganda, processing of finger millet is still largely semi-industrial and the sector is dominated by medium-scale companies. Some have processed finger millet since they were established while others have

47 started to deal with finger millet to broaden their product portfolio. Sorghum is not handled by the formal processing sector. Besides processors, milling shops were interviewed in Uganda. Most finger millet is still processed by milling shops. Processors mainly supply supermarkets and small retail shops, which still seem to be minor market outlets. However, it is expected that more consumers will start to buy in retail shops and supermarkets. The majority of processors stated that market demand increased in the last five years and that they expect a positive demand trend for the future. However, to explore the potential of finger millet flour in supermarkets and retail shops, consumer preferences and the interest of supermarkets would need to be further explored. Currently, markets for finger millet flour are primarily in Kampala and only few processors sell their products in other parts of the country. Thus, the potential to expand to other areas seems to be limited. In regard to procurement systems, low raw material quality and lack of transportation facilities/high transport costs are the most prevalent problems. Seventy percent of the processors have informal arrangements with their suppliers, but these do not help overcome the quality problem. Transportation remains a problem, because most processors need to collect the raw material from their suppliers. Linking processors directly with farmers to enable exchange about quality requirements and improve raw material quality seems to be difficult. Only three processors have experience of sourcing from farmers but have discontinued this. Processors both with and without previous experiences with farmers state that it is too much effort to directly source from farmers as production zones are far away from Kampala and processors handle only small quantities. Sourcing directly from farmers is also not mentioned by processors themselves as a possible solution. Seasonal supply fluctuations are a problem for only a few processors, because finger millet is widely cultivated in Uganda. Regarding processing, high power tariffs and power cuts are the biggest concern of processors. However, this is a structural problem that occurs also for other sectors. Concerning marketing, payment problems of customers and lack of awareness of consumers are the most important challenges for processors. Processors complain that many customers only pay once they have sold the product themselves and others delay payments. As finger millet flour is a niche product for many customers, processors are not in a strong position to demand better modes of payment. Although lack of consumer awareness is a challenge, most processors stated that there is enough demand for their finger millet flour and processors also expect an increasing market demand in the future. Only some of these problems can be solved by processors themselves. Most companies are not big enough to invest in direct supply systems with farmers to improve raw material quality. One solution could be to strengthen horizontal linkages between processors to source together from farmers. This would reduce transaction costs of the individual processor. However, given the relatively small quantities handled by processors, this option might also not be attractive. Moreover, it is not known in how far additional training of farmers or even equipment is needed to improve raw material quality. Thus, third party intervention in form of training of farmers and

48 traders of post-harvest handling would be needed to solve the quality problem. In regard to marketing problems, processors and also farmers would benefit from a better promotion of finger millet flour. This can partly be done through advertising, but should also be in the interest of small retail shops and supermarkets. 4 Conclusions In all three countries, the finger millet and sorghum flour sector is separated in two systems. Either consumers buy grain and have it milled in milling shops themselves or consumers buy ready-packed flour, which is mostly sold in retail shops and supermarkets. The latter are supplied by formal processing companies, of which a sample was interviewed for this study. Even though processors in all three countries stated that market demand for finger millet and sorghum flour increased in the last five years and is expected to also increase in the future, the example of Uganda shows that most finger millet is still processed in milling shops. This is easy to understand. First of all, supermarkets still serve only a minority of consumers, even for other products. Second, supermarkets are mostly found in urban centers, so that many consumers do not have the choice to buy flour in a supermarket. However, experiences from other developing countries show a trend towards super-marketization, whereby the market share of supermarkets increases continuously. Thus, expecting increasing demand at market outlets of processors is reasonable. Nevertheless, compared to flour from other crops like maize and wheat, finger millet and sorghum flour are likely to remain niche products. Although the company profile of finger millet and sorghum processors differs between the three countries, some of the challenges they face are similar. Most prevalent is the problem of low raw material quality. Direct linkages between processors and farmers could help to better communicate quality requirements and could reduce contaminations that occur when many people are involved in a supply chain. At the same time, farmers would benefit from direct linkages because it opens new markets for them. However, communication of quality requirements is only one side of the coin. Training of farmers on harvesting and post-harvest handling as well as equipment with appropriate tools is also necessary. This, however, cannot be done by processors and needs third party intervention. Sourcing directly from farmer can also overcome some other problems like seasonal supply fluctuation. However, processors, in particular small and medium scale companies, do not have the capacity to establish linkages with farmers themselves. This also requires third party interventions in regard to getting processors and farmers in touch with each other and facilitate arrangements, in particular transport issues, at least in the beginning. In Kenya, where some companies already process relatively high quantities of finger millet and sorghum and large scale companies exist, regional collection centers of these companies could be a strategy to enable farmers access to markets in Nairobi. However, if companies are not interested in investing in

49 new procurement systems, third party intervention is again needed to support farmers commercialization of finger millet and sorghum. Another challenge that is found in all three countries is a lack of consumer awareness. It is partly the responsibility of companies to advertise their products. However, as there is a general interest in supporting the finger millet and sorghum sector, consumption of these crops should also be promoted by external actors and consumers should be educated about the health benefits of finger millet and sorghum. There are also other, more country specific problems, which are discussed in the respective section of the report. In general, we can conclude that the formal finger millet and sorghum processing sector has the potential to grow. Farmers would benefit from this, in particular if they would be better linked to processors. However, external support of farmers is needed to increase production and solve quality problems. Moreover, processors, particularly small- to medium scale ones, need to be supported. Improving their access to capital is one of the most promising strategies to solve some of their problems and increase and improve their processing business