In my last blog, I mentioned that Nuru Kenya has three income-generation activities: agribusiness, a dairy farm, and health commodities sales. In this blog, I will give you more details about agribusiness, including what challenges we face and how the business benefits the communities and Nuru.
Our agribusiness unit buys and sells maize. Each year we buy maize from local farmers early in the year, and again around mid-year, periods which correspond respectively to the short-rains and the long-rains harvests. We then sell the maize about a month or two after each buying period. In this way, we hope to earn enough from the differentials and from trading in high volumes to contribute significantly to the bottom line of the organization.
All of this may sound simple. But, as they say, the devil is in the details.
The first challenge is that many small-scale farmers in Kuria practice rain-fed agriculture, for the simple reason that they cannot afford to invest in mechanical irrigation. Thus we never know each year how much maize we can buy. Yet our financial model is dependent in part upon our being able to buy and sell large quantities of maize. One way that we are trying to offset this external variable is to try to have as many farmers in our project as possible, since these farmers will be more likely to have better yields which they can then sell to us.
The second challenge is the inefficiency of the commodities market. With no readily accessible futures market, prices fluctuate greatly throughout the year – indeed from week to week – and from region to region within the country. This year, for example, there was a shortage of maize at harvest time due to drought, which drove up the purchase price of maize. Then the government intervened, importing large quantities of maize into the country, which drove down the selling price of maize. This led to maize traders like us facing very low differentials. Thus when we buy maize, we cannot be sure that when it comes time to sell, we will be able to get a big enough differential to earn sufficient net profit that is needed to fund our entire organization.
The third challenge is internal. We have high operating costs, due to the need to build at least three granaries and run up to twenty buying centers by 2014. This is necessary in order to reach the farmers and to compete with other buyers. We are studying how to reduce costs without sacrificing effectiveness, but the reality is that a certain level of infrastructure is needed.
This is because, as a social-enterprise, we have to make money and help the farmers at the same time. One benefit we provide is that we pay cash up-front, and we buy at the going market rate. Many buyers pay lower than the market rate, since most farmers are in hard-to-access areas. Thus we also have several buying centers, which make it easier and cheaper for farmers to bring their maize to market. This combination should give farmers more money for their maize than they would otherwise receive from the usual buyers.
That’s it for this blog. Next time I’ll go into some details about our dairy farm business. Kwaheri.