African Farmers – migrating from subsistence to commercial
One of the challenges in Africa is to turn subsistence farmer into a viable commercial farmer.
Farming in livestock will be used as an example, but the same basic principles can be applied to grain or any other farming operation.
The experience of one company, LOCAL PODUCERS TRUST will be used, but the principles and challenges are so pervasive in Africa that the solution serves as a viable model for sustainable development in Africa and upgrading the farmer from subsistence to small-scale commercial.
Creating small scale commercial farmers results in:
- a dramatic increase of income for the farmer;
- African Farmers changing farming operations from environmentally destructive to environmentally acceptable practices; and
- African Farmers increasing their productivity and thereby lowering food production cost in a region of the world where food production is under constant pressure;
- Generally subsistence farmers have problems of access to markets, unproductive farming techniques, scale restrictions (i.e. a lack of economy of scale) and a lack of capital to funds cash flow and growth.
Overcoming these problems seems like a daunting task.
DE KOMPER ENTERPRISES is a Minneapolis based IT, Brand Development and Supply Management Company, working in Africa through a South African company, DE KOMPER TRUST.
Part of the brand value that DEKOMPER TRUST associated with all its retail brands is the fact that even though brands are nationally and regionally managed, produce sold under the brands are LOCALLY produced under a stringent set of “best practice-norms” most appropriate for each market and LOCALLY sold.
This allowed DE KOMPER TRUST to offer access to large formal markets to subsistence farmers and for consumers to purchase food products that have been produced LOCALLY.
DE KOMPER’S first approach was to try and organize a number of subsistence farmers into “production units” to produce food at consistently high quality and quantity. It saw its role in terms of production, primarily as that of “coordinator of production” according to a set of minimum standards and “coordinate supply” from subsistence farmers.
It thought that by offering market access to subsistence farmers, it could dictate production standards to farmers and that farmers would support the venture based on the opportunity to grow its output considerably by its access to large, lucrative LOCAL markets.
The vehicle, set up to achieve this is the LOCAL PRODUCERS TRUST or LPT, which was set up to manage supply quality and quantity.
LPT is responsible to organize local subsistence farmers to supply local commercial processing operations that would in turn process the livestock and sell it to the formal retail industry under DE KOMPER TRUST brands.
By creating a separate entity in LPT to focus on the food production, DE KOMPER TRUST would be freed up to focus on marketing the brands and for building the brand value under the umbrella of “LOCALLY produced food, produced according to “best practices”, sold LOCALLY”.
LPT is tasked to deal with food production problems and had its work cut out for it!
The problem that LPT ran into was the fact that subsistence farmers is not primarily “subsistence” due to their lack of farming expertise (even though this is a problem), but the biggest challenge of the subsistence farmer is its lack of cash flow and the fact that the farmer lives from-hand-to-mouth.
The subsistence farmer is under constant pressure to sell or use their produce prematurely to provide cash for food for them to survive day-by-day.
LPT signed contracts with subsistence farmers to supply a certain quality and quantity of animals at a certain date that would be sold to local food processing plants. Before the animals reach the desired weight (at a certain fat to mussel ratio) the subsistence farmer would need some cash for itself and would sell its animals prematurely to their traditional customers at reduced income levels to itself or would simply slaughter some of the animals for private consumption.
There was under contract a certain minimum number of animals that LPT had to supply to local food processors in order to make LPT viable as a new production channel.
(The problem relates to a requirement to at least fill trucks with animal carcasses and that the number of carcasses had to be enough to fill up production capacity at processing plants for at least a certain number of production shifts. Failure to do so made the local subsistence farmers products simply to expensive for the formal food industry.)
The problem was so pervasive that LPT was unable to supply any stock to local food processors.
LPT realized that the fundamental problem with the subsistence farmer in Africa is not in the first place a problem of farming expertise, or even a lack of economy of scale advantages (although these are real and daunting challenges in and off themselves), but a problem of capital.
Capital (as in money in the bank) would stop the subsistence farmer from selling its livestock prematurely. If they are able to hang on to their livestock until the right time, they will be able to supply contracts according to large, formal market-requirements and they will be able to get a better price for their animals due to the fact that when they sell their livestock prematurely, they generally worsen their position by not just failing to supply according to contract-requirements on quality and quantity, but also by discounting their animals.
LPT’s role evolved into managing the cash flow requirements of local subsistence farmers in a way that would provide security for investors and cash to subsistence farmers when they need it.
These cash flow requirements are distinctly different from commercial farmers and the legal and infrastructural frameworks had to be created to manage this in a 3rd world context.
These frameworks were created by an integration of the principles of capitalism and social responsibility.
Capitalism:
Investors are given a fixed annual return on investment at a rate that reflects the inherent risk involved in the investment.
Management of the investment is done by LPT who operates under legal supervision from formal structures in the South African judicial system as well as local government agencies.
LPT and DE KOMPER TRUST jointly negotiate and manage supply contracts with lucrative formal local markets.
LPT not just manages the contracts, but also physically manages the logistics and day to day execution of these contracts. This allows LPT to provide investors with a detailed income statement on a weekly basis of the commercial trading activities.
Social responsibility:
Subsistence farmers contribute livestock according to contracts to LPT. This allows for a dramatic increase in revenue to the farmer.
Each active supplier is also appointed as a beneficiary of the trust (LPT). As such they are formally “members of the trust” and in addition to income from their sale of livestock to the trust, they also receive a profit share, thereby further increasing their income position.
Their profit share is offset against cooperative ventures with suppliers of farming inputs such as veterinarian services, lease on land and equipment, etc.
LPT assists the subsistence farmer in their relationship with local government and Non-Governmental Agencies who are essential partners in any social context in Africa.
The net result is that subsistence farmers are changed into small-scale commercial famers by providing cash flow in accordance with the needs of someone who lives “from-hand-to-mouth” and by providing a safe investment opportunity for investors who seek solid investment opportunities and not just investors who want to make a social-investment.
This model is currently being implemented in one region in South Africa. If successful, it can provide a workable model for development across Africa.

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