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 39063-00623 Nairobi, Kenya
Contents List of Tables... II Acronyms... IV Executive Summary... - 1-1 Introduction... - 6-2 Database... - 6-3 Country level results... - 7-3.1 Tanzania... - 7-3.1.1 Company profile, crop portfolio and sorghum and finger millet products... - 7-3.1.2 Procurement systems for finger millet and sorghum... - 9-3.1.3 Processing of finger millet and sorghum... - 12-3.1.4 Marketing of finger millet and sorghum products... - 14-3.1.5 Quality, grades and prices... - 17-3.1.6 Market information and sub-sector support... - 19-3.1.7 Conclusions and project and policy recommendations... - 21-3.2 Kenya... - 23-3.2.1 Company profile, crop portfolio and sorghum and finger millet products... - 23-3.2.2 Procurement systems for finger millet and sorghum... - 24-3.2.3 Processing of finger millet and sorghum... - 27-3.2.4 Marketing of finger millet and sorghum products... - 27-3.2.5 Quality, grades and prices... - 29-3.2.6 Market information and sub-sector support... - 31-3.2.7 Conclusions and project and policy recommendations... - 32-3.3 Uganda... - 33-3.3.1 Company profile, crop portfolio and finger millet products... - 33-3.3.2 Procurement systems of finger millet... - 34-3.3.3 Processing of finger millet... - 36-3.3.4 Marketing of finger millet products... - 37-3.3.5 Quality, grades and prices... - 39-3.3.6 Market information and sub-sector support... - 40-3.3.7 Conclusions and project and policy recommendations... - 41-4 Conclusions... - 43 - I
List of Tables Table 1: Processor sample... - 7 - Table 2: Company profiles Tanzania (N=25)... - 8 - Table 3: Turnover of different crops (N=24)... - 9 - Table 4: Reasons for not working at full capacity (N=20)... - 9 - Table 5: Finger millet and sorghum suppliers... - 10 - Table 6: Business models between suppliers and processors (N=25)... - 11 - Table 7: Procurement challenges and solutions... - 11 - Table 8: Alternative products from finger millet and sorghum... - 13 - Table 9: Processing challenges and solutions (N=25)... - 14 - Table 10: Buyers of finger millet and sorghum flour... - 15 - Table 11: Institutional arrangements between processors and buyers (N=25)... - 16 - Table 12: Marketing challenges and solutions (N=25)... - 16 - Table 13: Quality requirements of processors and buyers... - 18 - Table 14: Grades, seasonality and prices for finger millet and sorghum... - 19 - Table 15: Market information and sources of information (N=25)... - 20 - Table 16: Barriers for a vibrant finger millet and sorghum sector and lessons learned from the maize sector... - 20 - Table 17: Governmental and other support needed for the finger millet and sorghum sector- 21 - Table 18: Company profiles Kenya (N=13)... - 23 - Table 19: Turnover of different crops... - 24 - Table 20: Reasons for not working at full capacity (N=10)... - 24 - Table 21: Finger millet and sorghum suppliers... - 25 - Table 22: Business models between suppliers and processors (N=13)... - 26 - Table 23: Procurement challenges and solutions... - 26 - Table 24: Buyers of finger millet and sorghum flour... - 28 - Table 25: Institutional arrangements between processors and buyers (N=12)... - 28 - Table 26: Marketing challenges and solutions... - 29 - Table 27: Quality requirements of processors and buyers... - 29 - Table 28: Grades, seasonality and prices for finger millet and sorghum... - 30 - Table 29: Market information and sources of information (N=12)... - 31 - Table 30: Governmental and other support needed for the finger millet and sorghum sector (N=9)... - 31 - Table 31: Company profiles Uganda (N=15)... - 33 - Table 32: Turnover of different crops (N=24)... - 34 - Table 33: Reasons for not working at full capacity (N=14)... - 34 - Table 34: Finger millet supplier... - 35 - Table 35: Business models between suppliers and processors (N=10)... - 35 - Table 36: Procurement challenges and solutions... - 36 - Table 37: Alternative finger millet products... - 36 - Table 38: Processing challenges and solutions... - 37 - II
Table 39: Buyers of finger millet flour (N=10)... - 37 - Table 40: Institutional arrangements between processors and buyers (N=10)... - 38 - Table 41: Marketing challenges and solutions... - 38 - Table 42: Quality requirements of processors and buyers... - 39 - Table 43: Grades, seasonality and prices for finger millet... - 40 - Table 44: Market information and sources of information (N=10)... - 40 - Table 45: Barriers for a vibrant finger millet sector and lessons learned from the maize sector- 41 - Table 46: Governmental and other support needed for the finger millet sector... - 41 - III
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
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. - 1 -
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. - 2 -
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 -
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 -
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. - 5 -
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. - 6 -
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 2012. 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 3.1.1 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. - 7 -
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 25 100 Mean employees (no) 9 / Mean years business (no) 8 / Finger millet Sorghum No. % No. % Companies dealing with 25 100 20 80 Mean years processing (no) 6 / 6 / Main products 1 Pure flour (%) 12 100 11 100 Lishe 2 (%) 23 30 13 35 Other blended flours 3 (%) / / 4 20-30 1 % 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 -
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 8,009 2002 4 Maize 4,760 925 5 Finger millet 771 32 24 Sorghum 678 36 19 Rice 278 21 13 Cassava 182 91 2 Groundnut 143 11 13 Soybean 36 3 14 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 14 56 Unreliable demand 5 20 Lack of machines 5 20 Power fluctuations 4 16 Transport costs and availability 2 8 Other 3 12 3.1.2 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. - 9 -
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 20 80 15 75 Farmer 4 16 6 30 Market 3 12 2 10 Agent 2 8 2 10 Location of supplier N=25 N=20 Dar Es Salaam 15 60 11 55 Moshi/Arusha 12 50 9 45 Central 5 20 5 25 Southern Tanzania/Zambia 2 8 4 20 Regional sources of suppliers N=24 N=19 Central 24 100 19 100 Southern Tanzania/Zambia 12 50 12 63 Northern 6 25 1 5 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 - 10 -
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 12 48 No 16 64 Spot market 13 52 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.. - 11 -
Table 7: Procurement challenges and solutions Finger millet Sorghum No. % No. % Challenges N=25 N=20 Low quality of raw material 13 52 8 40 Seasonal fluctuations of supply 12 48 8 40 Price increases and fluctuations 12 48 9 45 Transportation facilities and costs 6 24 7 35 Lack of capital (to buy produce at once at harvest time) 6 24 4 20 Lack of storage facilities 2 8 2 10 Storage pests 0 0 4 20 Solutions N=25 N=25 Train farmers on post-harvest 9 36 8 40 handling Own vehicle 6 24 6 30 Buy enough at harvest time 5 20 5 25 Loans 6 24 3 15 Buy directly from farmers 5 20 3 15 Government to support 2 8 2 10 production Immediate turnover 1 4 2 10 Strategic grain reserve facilities 1 4 1 5 Other 2 8 1 5 3.1.3 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. - 12 -
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 6 24 2 10 Cakes & cookies 7 28 18 90 Bread 4 16 15 75 Chapatti/Mandazi 1 4 5 25 Local brew 8 32 3 15 Soft drinks 4 16 1 5 Reasons for non-production N=19 N=18 Not interested (alcohol) 8 42 3 17 Lack of knowledge to produce 5 26 7 39 Lack of capital to invest 3 16 7 39 Consumer preferences 2 11 2 11 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 - 13 -
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 18 72 Invest in machines/facilities 11 44 Power cuts 13 52 Attain credit facilities 10 40 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. 3.1.4 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. - 14 -
Table 10: Buyers of finger millet and sorghum flour Finger millet Sorghum No. % No. % Customers N=25 N=20 Supermarkets 22 88 17 85 Individuals 19 76 16 80 Small retail shops 19 76 15 75 Schools 5 20 4 20 Hospitals 5 20 3 15 Wholesalers 3 12 3 15 Others 3 12 3 15 Location of customer N=25 N=20 Dar Es Salaam/Coastal Area 25 100 20 100 Northern Tanzania 22 88 9 45 Central Tanzania 6 24 3 15 Mwanza 7 28 0 0 All over Tanzania 2 8 2 10 Southern Tanzania. 1 4 0 0 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. - 15 -
Table 11: Institutional arrangements between processors and buyers (N=25) No. % Contract 3 12 Informal arrangement 25 100 Spot market 14 56 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 1 7 28 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 2 2-16 -
Not able to meet the demand 1 4 Improve packaging/shelf life 4 4 1 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. 3.1.5 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. - 17 -
Table 13: Quality requirements of processors and buyers Finger millet Sorghum No. % No. % Quality requirements of processors N=25 N=19 Cleanliness 24 96 19 100 Brown color 9 36 2 11 White color 1 4 11 58 Free from pest damage 7 28 8 42 Maturity 3 12 3 16 Moisture 2 8 2 11 Satisfaction with crop quality N=25 N=20 No 10 40 7 35 Yes 15 60 13 65 Finger millet and sorghum (N=25) Willingness to pay price premium No. % No 7 28 Yes 18 72 Price premium (%) / 25 Quality requirements of buyers None 8 32 Nicely packed 13 52 Good quality flour 10 40 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. - 18 -
Table 14: Grades, seasonality and prices for finger millet and sorghum Finger millet Sorghum No. % No. % Application of grades N=25 N=20 No 17 68 12 60 Yes 8 32 8 40 Grading Criteria Cleanliness 5 63 5 63 Color 2 25 2 25 Other 1 12 1 12 Prices TSh/kg US$/kg TSh/kg US$/kg First grade 1000 730 Second grade 800 570 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 960 0.60 820 0.5 High season 680 0.42 550 0.3 Average 800 0.50 650 0.4 Mean flour prices TSh/kg US$/kg TSh/kg US$/kg Pure flour 1800 1.12 1800 1.12 Lishe flour 2100 1.30 2100 1.30 3.1.6 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. - 19 -