A cautionary tale of Chinese and coconuts
A bitter dispute between Chinese investors and Ivorian coconut farmers shows how to (not) maintain relations with farmers.
A couple months ago, I met with a potential client about a food crop project.
A staggering amount (estimated at 40%) of Sub-Saharan Africa’s total agricultural produce goes to waste because farmers are disconnected from markets.
Dotting the roadside in the countryside, rotting tomatoes, eggplants, and courgettes are abandoned in mass when farmers cannot find ready buyers.
The high percentage of wasted produce, which is highly perishable, is also exacerbated by a lack of cold storage, i.e. refrigerators.
This client’s idea was to purchase produce directly from farmers for delivery to consumers in the city, linking abundant supply to demand.
Not exactly. This is a deceptively simple project, riddled with complications.
A bitter standoff over coconut shells
One of the biggest concerns is a constant flow of supply.
What if farmers, hearing of rising retail prices in the city, refuse to sell at the negotiated price? How do you adapt your business model to accommodate for fluctuating costs?
My client had a cautionary tale. A decade ago, a group of Chinese investors were testing a biomass energy project that used coconut shells as the plant’s feedstock.
For the shells, they paid farmers a piddling sum for the shells, XOF 10/kg (US$ 0.02/kg), since the coconut waste had no other commercial use.
After the farmers discovered that their shells were powering an industrial project, they became infuriated at the trifling sum.
They abruptly halted all sales, triggering a bitter standoff with the Chinese investors.
Recounting the episode, my client described the farmers’ complaints to the government.
“We’re not selling to the Chinese,” the farmers had exclaimed, pulling at the corner of their eyes in a derogatory reference to the perceived exploitative buyers.
But, the Chinese were upset too. They dug in their heels, rejecting adamantly to grant a tiny increase.
After much government cajoling, the Chinese caved in to the farmers’ demands, upping prices to XOF 15/kg.
So, how do agribusinesses shore up supplier loyalty?
For starters, rapid payments are a no-brainer solution.
You’d be surprised by how many companies slip up on farmers’ payments, falling into arrears for months.
Agribusiness companies will frequently cite fast payments as a key reason for their excellent relations with farmers.
Overall, there is no short-term solution in securing your raw materials from farmers.
Winning the trust of farmers is underpinned by long-term commercial relationships that are characterized by respect, transparency and consistent prices.
Oh, and end-of-season bonuses help too.