The DrumNet Supply Chain System and Risk Mitigation
Managing Risk in Financing Agriculture
Johannesburg, South Africa
April 1-3, 2009
Background

70% of Africa’s population is rural and depends on
agriculture

Decline in agricultural productivity 36% to 23% in 2008

Africa has 20 percent of world’s arable land but only 5% is
productive

Population has tripled in 30 years, pressure on productivity
and farm size

The system of finance, production, marketing, and
distribution of produce from small farms is inefficient,
leeching away income and profits from all participants in
the transaction chain, particularly from the small holder
farmer.
DrumNet – linking Markets, Finance and Information
• Inspired by the Supply Chain model to build a transaction
based membership platform for rapid scale and replication
• DrumNet is a bridging mechanism to facilitate interaction
between buyers, sellers and financiers to add value to their
business transactions
• DrumNet links commercial banks, smallholder farmers, and
retail providers of farm inputs through a cashless credit system
DrumNet
 DrumNet provides an ICT platform through which all financial
transactions and the communications take place using mobile
phones and SMS and email.
 DrumNet acts as the intermediary between producers and
buyers to negotiate contracts and, through the TAs, ensures
that farmers grow in accordance with the requirements of the
buyers.
 All payments from buyers pass through DrumNet accounts at
the bank, thus mitigating risk and enabling buyers to focus
on their core business.
 The DrumNet platform links large-scale buyers, farmers,
transporters, and field agents through an integrated
marketing and payment system.
The model creates efficiencies and allows participants to enter markets
Stockist
 Farmer Input Suppliers
alerted to upcoming Farmer
demand for products
 Full transparency and market
BUYER
 Buyers access predictable
supplies of produce without
significant field mobilization
 Disintermediation of traditional
brokers, resellers, and traders
data for all participants
Farmer Groups
 Farmers grow under structured
contracts with Buyers
 All financial transaction occur on
cashless basis
Bank
 Banks shielded from complexity of
managing large number of farm input
loans
 Repayment risks reduced with connection
to produce payments
DrumNet Flow
Partnerships
 Buyer
 Farmer Intermediary
Organizations (FIOs)
 Farmer Groups (FGs)
 Banks
 Agro Suppliers
Membership
FGs become DrumNet
members
 Fill Membership form
 Pay DrumNet
Membership fee
Training
FGs get trained on
 DrumNet model
 Crop Agronomy
Planting
FGs plants & takes care of their plots
based of the Crop Agronomy
training received
System Input
• Partner & FG data get
input in the system
• SMS generated by the
system acknowledging
receipt of fee
E-Token: 382764
Seed:10kg
DAP:500kg
System E-Token
• System sends E-token to FGs
to pick inputs from agrodealers
FGs pick inputs from Stockist
• Stockist uses DrumNet
procedures/tools
• Stockist gets paid cash or by
Bank transfer against FGs
loans
DrumNet Flow
Harvest Projections
• Buyer gets projections on
expected yields
Field Audit
• Pre-scheduled messages to
FGs from DrumNet system
Produce Collection
• Produce aggregated from FGs
and collected at DrumNet
Collection Points
Buyer Receives produce
• Buyer receives produce,
weighs and grades
• Buyer makes payment to
DrumNet Lockbox
Deductions & Payment
• Deduct Principal & Interest
• Deduct DrumNet Fees
• Net payments transferred to
FG bank accounts
DrumNet Credit risk mitigating measures
•Buyer-Seller-Agro Dealer- must have bank accounts
•with same financial institution for cashless transactions
•Farmer Groups must be existing legal entities
•Formal Buyer-Group contract confirming price quality
and quantity
Farmer Group solidarity guarantee
•FG Transaction Insurance Fund TIF 25%
•Group Bank account with Bank credit approval
•Tripartite Line of Credit agreement- FG-Bank-Buyer
DrumNet Credit risk mitigating measures
Supply chain relationships further reduce risk
Farmers are offered a guaranteed market and a guaranteed price
Cost savings to the buyer allow for a higher price than that offered by
local brokers
Cashless transaction between FGs and Agro dealer
•Planting, Scouting, pre harvest SMS’ track crop status
•Collection Point produce grading and weighing plus bagging and
tagging at CP
•Buyer takes title at Collection Point , notifies Buyer confirmed by FG
•Money paid to groups through transfer from Buyer to Bank Lockbox and
automatic payment of principal and interest, DN fee and farmer transfers.
Other Risk Issues
Weather risk – unpredictable rain patterns
Weather insurance?
Seed availability – erratic supply of seeds and fertilizer
Participation of certified stockists
Foreign exchange risk for horticulture export. Price volatility.
Political Risks – Tribal clashes and aftermath
DrumNet vision
The vision for DrumNet is a wide-spread, distributed network
of partners, sharing and improving the DrumNet platform.
The goal is facilitating financial, marketing, and information
transactions which directly stimulate wealth creation and
economic integration of small farmers in Africa.