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1.
Introduction .............................................................................................................. 1
2.
Background information ............................................................................................ 2
2.1
Business model ............................................................................................................. 2
2.2
Problem/ target constraint being addressed ................................................................ 2
2.3
Opportunity to address problem identified ................................................................. 3
2.4
Expected benefits ......................................................................................................... 3
2.5
Sustainability and replicability ...................................................................................... 3
3.
Results of the Linkage pilot scheme ........................................................................... 4
4.
Lessons learnt ........................................................................................................... 4
4.1
The problem ................................................................................................................. 4
4.2
Transport ...................................................................................................................... 4
4.3
Technology .................................................................................................................... 4
4.4
Target buyers ................................................................................................................ 5
4.5
Recruitment of farmers ................................................................................................ 6
4.6
Unpredictability ............................................................................................................ 6
5.
Conditions for Linkage to succeed .............................................................................. 6 ii

Linkage Africa (Linkage) is an early stage social enterprise aiming to improve market access for smallholder farmers in Nakuru County, Kenya by acting as a broker between smallholder farmers, transport providers and purchasers in local and wholesale markets.
In the initiation of its activities, Linkage implemented a pilot scheme between July and
December 2014. This involved:

July–September 2014: Market scoping, surveying and building relationships with smallholder farmers, transport providers and buyers.

October–December 2014: Pilot project with 50 smallholder farmers, including enacting trades of more than 30 tonnes of vegetables.
Following the implementation of this pilot, and subject to its results, it was intended for
Enterprise for Development (EfD) to provide financial and technical support to Linkage to roll out their services to at least 300 smallholder farmers, and develop and roll out a mobile communications platform to aide Linkage’s operations. However, while the pilot allowed
Linkage to successfully demonstrate its ability to connect smallholder farmers to market, it also demonstrated that Linkage were unable to create the innovative and scalable business model that had been envisaged. As such, it was mutually agreed that it would not make sense to scale the business as originally envisaged. To allow Linkage to continue operations on a smaller scale, the international leadership team stepped down from their day-to-day management roles and handed over operations to a local team.
The rest of this paper is structured as follows:

Section 2 provides background information.

Section 3 sets out Linkage’s achievements over the pilot period.

Section 4 presents the lessons learnt.

Section 5 details the market dynamics required for Linkage and other brokerage models to succeed.
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2.1
Business model
An overview of Linkage’s brokerage model is provided in Figure 1 below. To facilitate the effective implementation of this model, and demonstrate an improvement over the status quo, Linkage intended to:

Develop a mobile technology platform that will allow instant communication and payment between stakeholders, thereby reducing transaction costs of face-to-face meetings.

Aggregate produce from a large network of smallholder farmers, thereby reducing the transactions costs associated with transporting many small quantities of vegetables to market.
Figure 1: Overview of Linkage brokerage model
Linkage agrees a price and quantity of produce with smallholder farmer
Linkage engages a transport provider to collect the produce, and check the weight/ quality
Transport provider delivers produce to
Linkage
Linkage check and aggregate produce
Linkage sell produce through local and wholesale markets
Linkage release payment to smallholder farmer
2.2
Problem/ target constraint being addressed
Linkage release payment to transport provider
Purchasers release payment to Linkage
Figure 2: The road to market
Smallholder farmers in Nakuru, as well as in many other parts of Kenya and Africa, face significant barriers to accessing markets for the sale of their produce. This is primarily due to a lack of efficient options for transporting goods to market, in part due to poor road networks that become impassable in wet weather (see right). As a result, smallholder farmers often rely on middlemen who arrive at the farm gate infrequently (leading to high levels of wastage; up to
60% for some vegetables) and offer low prices in the knowledge that farmers often have no storage facilities and/ or alternative route to market.
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2.3
Opportunity to address problem identified
Linkage’s activities are designed to:

Improve pricing transparency: Linkage offer smallholder farmers a fair price for their produce, and agree on a quantity to purchase in advance.
1 This allows smallholder farmers to plan for the sale of produce and make informed decisions on whether to sell through Linkage or alternative routes.

Increase transportation speed and frequency: Linkage communicate with a network of existing independent transport providers (including motorbikes and minivans) to pick up and deliver produce more quickly and reliably than the current fragmented and informal transportation system. By organising transportation dates with farmers in advance, wastage can be reduced.

Ensure payment accountability: Linkage pays farmers and transport providers using the M-Pesa instant mobile money tool. This overcomes multiple problems with cash transactions (e.g. risk of robbery) and provides farmers and drivers with transaction records that can support applications for loans/ grants.
2.4
Expected benefits
Figure 2.3: Kenyan smallholder farmer
Linkage aims to achieve a sustainable increase in incomes for smallholder farmers that will contribute to greater resilience and improved livelihoods for smallholder communities.
2
Prior to the implementation of the pilot, Linkage anticipated being able to increase incomes for typical smallholder farmers with ½ acre of land by around 50%. This was based on a reduction in produce wastage and the cost of transporting goods to market, as well as returning a fair price from those achieved at market.
2.5
Sustainability and replicability
Subject to the brokerage model being proven as a concept, Linkage anticipated scaling up their operations to around 4,000 farmers in Kenya with a 24-month period. This scale up would be financed through a combination of grant and equity funding. At this point the business would be financially sustainable, generating sufficient revenues to further replicate its operations in other areas using its own resources.
1 Prices offered will be based on current market prices, less a fee for Linkage’s services and a transportation cost.
2 http://www.foodsecurity.ac.uk/blog/index.php/2013/06/linking-african-smallholder-farmers-tomarkets/
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Between July and December, Linkage:

Built a strong team of five staff from the local community, with expertise in a range of disciplines that facilitated Linkage’s operations.

Met with over 150 smallholder farmers in the locality.

Purchased vegetables from 52 individual farmers, and a cooperative of 15 farmers.

Traded over 32 tonnes of vegetables, including sukuma and spinach, peas, onions and cabbages into ten regional markets.

Returned 180,856ksh (£1,281) to smallholder farmers, with anecdotal evidence to suggest that this increased farmer incomes relative to previous years.
This section documents the lessons Linkage has learnt during the pilot.
4.1
The problem
The initial problem that Linkage set out to tackle has been validated; that vegetable supply chains in Kenya are fragmented and informal, resulting in high transactions costs and low prices paid to smallholder farmers.
4.2
Transport
Motorbikes were proposed as a cost-effective solution to transporting up to 150kgs of produce at any one time. However, it was found that motorbike drivers:

Would charge a relatively high amount for long distances.

Would often be unreliable, taking any job that arose rather than committing to an agreed date and time for collection/ delivery.
The condition of roads was also problematic in terms of being both muddy and dangerous.
4.3
Technology
Linkage intended to be a technology intensive business, where prices would be sent to farmers before harvest, payments would be made through M-Pesa, and transport would be arranged through mobile phones. However:

Despite initial survey findings suggesting the opposite, many farmers do not know how to send text messages (farmers were reportedly embarrassed to admit this).

Many farmers that were able to use texts felt uncomfortable doing so to arrange trades, preferring face-to-face or phone communication.

The fee charged by M-Pesa for cashing in credit led farmers to prefer to be paid in cash.
As such, Linkage was not able to utilise mobile technology in the way envisaged. Linkage did however persevere with M-Pesa by agreeing to pay the withdrawal fee to farmers, in addition to the agreed price for produce. M-Pesa was found to have four main benefits:
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
There was no need to pay farmers in person, reducing transactions costs.

The risk associated with carrying cash around is mitigated.

The records of M-Pesa transactions make accounting easier.

The opportunity for fraud amongst staff is reduced.
4.4
Target buyers
Linkage intended to buy the same products as the middlemen that already transport goods to market, and sell into the same markets. Linkage’s value add arises from its ability to reduce transactions costs, thereby allowing for Linkage to make a margin while returning higher prices to farmers. However, it became clear that Linkage were not able to reduce transactions costs sufficiently. This was mainly due to prices for vegetables being low around Nakuru, which is one of the best vegetable growing regions in Kenya, and farmers requiring more time and faceto-face engagement than expected to agree to trade with Linkage.
Figure 4.1: Vegetable market
Linkage did find greater opportunity to add value to farmers by linking them to markets where prices were higher, and that farmers couldn’t otherwise access. However, prices were found to be highly volatile in these markets, and it became clear that new entrants to the market were not able to achieve the best prices.
Linkage also had issues with distinguishing between trustworthy and non-trustworthy buyers. Following an experience where some new buyers purchased on credit and did not willingly make repayment, Linkage adopted a policy not to sell on credit to first time buyers.
In addition, very few buyers have the working capital or retailing capacity to buy large quantities of vegetables. This affected Linkage in two main ways. Firstly, dealing with multiple buyers for each trade increased the staff time required to arrange sales and collect money, thereby further increasing transactions costs. Secondly, the sheer number of trades increased the opportunity for Linkage’s staff to operate fraudulently.
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4.5
Recruitment of farmers
Figure 4.2: Planting time
Linkage’s approach to recruiting farmers initially involved phoning contacts of staff members to request meetings. However, it became clear that only the farmers with spare time were able to meet with the team, who did not have vegetables ready to harvest/ sell.
More business-minded farmers were often too busy to meet with the team and required more time to convince to sell to Linkage. However, to make regular trades Linkage had to prioritise these farmers. It was also noted that these farmers were relatively wealthy, and as a result, Linkage was often not dealing with the poorest and most in need farmers.
4.6
Unpredictability
Linkage encountered issues with both the unpredictability of supply and demand:

Supply side: Issues were encountered with farmers who would agree to a trade, before pulling out. In addition, farmer’s estimates of their available produce were often inaccurate.

Demand side: After buying produce from farmers, the markets were often found to be flooded, meaning the market price for vegetables was very low.
For Linkage to succeed as an innovative technology based trading platform in the way envisaged, it was felt the following conditions would need to be met:

Concentrated demand for vegetables from a few large buyers: While supermarkets are attempting to expand their presence in horticultural markets, the vast majority of people in Kenya buy their vegetables from informal traders. With more concentrated demand from supermarkets or other large purchasers, there would be a greater need for formal aggregation companies, where long-term contracts could be negotiated to supply produce on a regular basis.

Widespread mobile network coverage: With many farmers living in areas with poor network coverage, regular communication via telephone is difficult. This means communication often has to be done face-to-face which increases transactions costs.

Sufficient levels of skill with text messaging: Many farmers were found not to be able to send text messages, which can serve as a quick and efficient mechanism for communication.
If you would like more information, please contact EfD at info@entperprisefordevelopment.org
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