Why We Invested: East Africa Fruits
Smallholders in sub-Saharan Africa rarely reap the full fruits of their labor. Across a region where agriculture is the primary food and livelihood source for 70 percent of the population, farmers face familiar challenges: sub-optimal yields, food losses and waste, and unfair market returns. Crop yields, the lowest in the world, reflect a dearth of quality inputs and poor agronomic practices. After harvest, up to a fifth of produce is lost on account of storage, cooling and transportation constraints, with fruits and vegetables most prone to spoilage. For the produce that does make it to market, farmers receive only a fraction of the final price due to layers of middlemen along the way.
To compound matters, informal market vendors dominate the last-mile sales landscape throughout the region. Reliant on middlemen and often inefficient wholesale markets, these vendors have little control over the quality, quantity and regularity of the produce they sell to consumers. Yet, food buyers in rapidly developing cities increasingly demand higher quality, better value and consistent supply. Ultimately, it is not only smallholder farmers, but vendors and their customers that pay the high price for these market inefficiencies.
Disrupting Value Chain Inefficiencies
With food demand growing as populations and cities rapidly expand in sub-Saharan Africa — by 2050, the population will have doubled from the current 1.1 billion, with 80 percent of that growth occurring in cities — the time is ripe for bold disruptors. That is why FINCA Ventures invested in East Africa Fruits (EAF), a Tanzania-based food distributor that is formalizing the informal farm-to-market value chain by providing a stable, fair market for horticulture crops to improve productivity and incomes for smallholders and informal vendors.
EAF links smallholder farmers across the country to hundreds of informal market vendors, and more formal hotels, restaurants and supermarkets in Tanzania’s commercial capital and largest city, Dar es Salaam. The company has built the infrastructure that enables it to collect produce directly from farmers and deliver it straight to these customers. That infrastructure includes collection and aggregation centers for produce in areas close to smallholders, and cold chain logistics such as refrigerated trucks and warehouses that increase produce shelf-life. In effect, EAF replaces multiple middlemen, allowing them to reduce wastage, ensure quality, pass more of the final price back to farmers and reduce costs for vendors. That, in turn, is breeding more confidence for farmers in an offtake market, with EAF expected to grow its farmer supplier network more than five-fold, from the current 1,300 to 7,000, by 2023. Due to market demand, by 2023 EAF expects to purchase an average of 4,800 kilograms of produce annually from each farmer, up from the current 2,000 kilograms.
Improving Farmer Yields and Decreasing Post-Harvest Losses to Reduce Import Dependence
Increased confidence and certainty about sales, coupled with agronomic support and group trainings that EAF offers farmers, could create up to 35 percent growth in yields and eventually earn farmers up to triple their current incomes. At the same time, EAF expects to reduce post-harvest losses among its farmer supply base from 40 percent to 20 percent as a result of immediate aggregation activities at the collection centers upon harvest. Further reductions to 15 percent or lower are expected from increases in operational efficiencies and proper handling and storage throughout the transportation process. EAF is also considering future opportunities to further boost production through direct provision of inputs and assets to farmers. By more efficiently and reliably connecting quality produce to retailers and consumers, EAF is aligned with a recent Tanzanian government strategy that encourages local production of horticultural products by increasing tariffs on imports.
Diversifying Farmer Supply and Customer Segments
The sustainability of EAF’s model ultimately depends on its ability to serve various customer segments, offset farmer and offtaker risk and provide farmers around the country with a service that they value. By diversifying its farmer supply and customer bases, EAF ensures that it is relevant and reliable in a tailored way to both segments. It collects and sells different grades of produce sourced from farmers located throughout Tanzania, reducing seasonality in purchase as different regions support different growing seasons, and the risk associated with more localized extreme weather events. EAF then targets varied customer segments, selling higher quality produce to a more regulated and stringent, historically import-reliant hospitality industry — high-end hotels and restaurants — and large quantities of the rest to informal vendors scattered throughout Dar es Salaam. This diversification allows EAF to get maximum margins from each grade of products, while still being able to serve informal vendors who are the main source of produce for most people in the city.
Growing with an Enterprising Team
At the root of EAF’s momentum is a young but sturdy team of employees determined to deliver results. Founder Elia Timotheo was born and raised in a Tanzanian family of food entrepreneurs, with his mother running a chain of restaurants in the Kilimanjaro region since the early 1980s. That firsthand experience plus his inspirational leadership, coupled with the traction he and his team have gained with very limited working capital in a challenging business environment, are powerful indicators of a great entrepreneur out to create real impact.
Reaping Financial Inclusion
That impact has the potential to extend to financial inclusion for the farmers — and vendors — that EAF engages, many of whom are currently unbanked. Financial service providers (FSPs) have struggled to serve smallholder farmers and informal SMEs, who are often deemed too risky, even for microfinance institutions. By raising income levels and providing predictable and well-documented cashflows, EAF can de-risk an important population segment and help smallholder farmers and market vendors become more financeable. This opens up the possibility for partnerships with FSPs, like FINCA Impact Finance and its Tanzania subsidiary, to reach unbanked and underbanked populations. In fact, FINCA Microfinance Bank (FINCA Tanzania) is already in conversation with EAF to provide their farmer network with financial services. Not only can FINCA Tanzania offer responsible finance to an underserved segment, but also deliver those services through mobile and agent banking networks to reach farmers in remote areas.
Streamlining the food supply chain, building a reliable and productive offtake market, and catalyzing inclusion for farmers on the margins of the financial system make EAF an investment we are confident will bear fruit (and produce!) for years to come.
Read it here: https://fincaventures.com/why-we-invested-east-africa-fruits/
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