New Business Model Project Goal:

to demonstrate a new business model that enables small holders to participate in sustainable trading relationships with international businesses and thereby increase incomes and stability of small-scale farmers in Ethiopia.

Project Partners: 

ACOS, Premier Foods, IIED, CRS, CIAT, SFL

Project Timeline:

2007-2011

Publications about this Project:

• Pea Beans In Ethiopia: Challenges of Creating New Business Models for Sustainable Livelihoods.  Seville, Systems Thinker, Vol. 19, April 2008.
• New Business Models for Sustainable Trade:  A White Paper.  Chris Anstey, July 2008.
• Linking worlds: New Business Models for Sustainable Trading Relations between Smallholders and Formalized Markets.  Vorley, Ferris, Seville, Lundy, February 4, 2009.
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Project Specifics:

Dried beans in Ethiopia set out to increase the incomes and stability of small-scale farmers in Ethiopia through the implementation of a new business model that capitalizes on new market opportunities. In 2009 the project secured 2,000 tonnes of pea beans for a UK canner and has helped ACOS, the project’s exporting partner, to secure their full 11,000 tonne order. The two thousand tonnes for the UK were produced by about 4,000 farmers each supplying an average of 0.5 tonnes from 0.5 hectares of production. The benefits trickle down to for a further 24,000 family members. Profits ranged from US$144-187 per household. Bean incomes per 100 kilogram bag represents a doubling of income compared with sorghum, the staple food that is typically intercropped with beans.

Increased demand for a wide range of higher-value food products has opened new opportunities for some farmers in sub-Saharan Africa at the domestic, regional and international markets.  Although more exacting, a new range of export products are being procured in Africa, from those farming communities with suitable soils and climate, low labor costs, having basic organization or historical export links and proximity to European markets.  

In eastern Africa, the dried bean market, which is second only to maize in commercial value, showed promise in both the regional and export markets as consumers in major urban centers and industrialized countries sought ever-more competitive suppliers. For the major processing companies, Ethiopia is a relatively new source of supply and 2009 investments by a number of international companies from Italy, UK and Turkey indicated that prospects to supply higher-quality markets were good. The advantage of Ethiopia in this market is that the farmers have been producing white bean for export to lower value markets in the region for some 25 years, their costs are lower than competitors in Canada and the United States, the quality is higher than China and they are closer to market. It takes nine weeks for sea shipment of beans from China to EU markets whereas it only takes three weeks from Ethiopia, trends in China are focusing more on domestic than international bean markets and the combination of comparable quality, low cost and time-to-market confers an advantage for Ethiopia, but only as long as supply is consistent and costs remain low and stable.

Ethiopia’s estimated 450,000 smallholder bean producers are growing a range of different bean types supply a growing domestic market and an emerging export market.  Up until four years ago, the bean markets were stable but relatively low value.  However a combination of increased competition from new investors, the global financial crisis and the chronic drought situation in Ethiopia made all agricultural produce markets volatile and insecure.  Links to export markets were particularly hard hit as procurement systems took little account of the  growers.  Buying decisions made in Europe can have severely adverse effects on small-scale farmers that may not be intended or realized, leaving efficient small-scale producers excluded from lucrative market opportunities.

Catholic Relief Services (CRS), the Sustainable Food Lab and ACOS, a major commodity wholesaler, are working with Government and other local partners to increase production and income stability for growers. ACOS is a growing industrial processor that supplies a range of products including beans from the USA, Canada and China into the European market.  ACOS is also building capacity to supply from Argentina, Russia and China and is seeking to diversify into new world locations, such as Ethiopia, through a joint venture company. 

The export of white pea beans, through a professionally managed supply chain and exporting infrastructure such as that offered by ACOS, offers a route to market for smallholder farmers to the more lucrative European markets, which were previously beyond their reach.  This market option will increase the value of the production, enable them to improve their food, and provide financial security.  Sales of white pea beans have the potential to reach thousands of smallholders with short duration cash crop that comes to maturity at the time when cash and food is most limiting in the year. ACOS and their main client in the UK have committed to embark on a process to build a new business model to procure beans in a way that is fair, transparent and contributes to the overall development of the Ethiopia agricultural sector.  However, this business model is new in that it will not be confined to traditional purchase through cooperatives, but will be operated through a more competitive and fluid arrangement of buying with traders, farmers unions and cooperatives.

The project carried out an initial market chain assessment in March 2008 to identify key players, product flows and bottlenecks.  This information along with supplementary chain studies has been used to define the parameters and actions the project needed to undertake to affect the new business model and monitor its efficacy.

The chain assessment in 2008 showed that white pea beans prices were increasing rapidly but that the basic conditions of the market in terms of growth and quality opportunities were attractive.  The study identified a number of areas that required upgrading, these included:

• Better coordination between varieties being developed by research and market needs.
• Greater access of a limited number of new varieties by producers.
• Better collection and storage.
• Better communication about market standards.
• Greater access to market prices.
• Improved communication between actors along the market chain.
• Better trading relations.

There has been a continued dialogue between research, producers and buyers which has led to a better understanding of the need for seed purity and seed quality and also for improved access to seed.

One of the enduring problems in the system is access to high-quality seed, which will produce higher yields of purer grain.  Because access to information and technical assistance is critical to small-scale farmers successfully participating in value chains, ACOS has developed clear production and post harvest standards that are directly accessible to farmers, helping them improve quality, increase yields, and maximize benefits from this crop. ACOS and CRS are working in partnership to improve the supply chain to meet these standards through investments in varieties and agronomic practices that improve yield and quality.  Additional investments are also being made to improve small-scale storage facilitates and find ways to decrease the time from farm to factory.  A complementary electronic communication system provides farmer associations with the latest market knowledge and access to best practices. All of these improvements are being made so that production can be scaled up through a more effective and durable business model.  

As commodity prices are notoriously volatile, as highlighted by price movements in the past two years, and smallholders typically lack access to basic market information, ACOS is working with CRS to monitor both production and market prices to develop a more transparent pricing system. This pricing system will provide a means to monitor the prices and pricing structure offered by the market and ACOS to traders and cooperatives.  

The aim is to ensure that prices can be accessed along the market chain, and that prices meet or exceed an annually calculated “fair floor price” based on cost of production.  

Through this system, ACOS and CRS can operate with a greater confidence that white pea beans from Ethiopia are contributing to development, are lifting families out of poverty, and are supporting the modernization of the smallholder agricultural sector.

It is worth noting that since the initial value chain assessment, which showed that although annual prices of white pea beans were increasing by approximately US$10/100kg per year each year from 2005, prices in the 2008/9 season fell dramatically. 

The fall of 2009 was in alignment with the crash in global soft commodity prices, which was precipitated in the bean markets by futures falls of 40 per cent in September 2009.  It took more than three months for this price signal to come to Ethiopia, where traders and farmers were shocked by the sudden price fall.  Even though costs in Ethiopia were much closer to US and Canadian prices than normal, the European buyers have decided to continue to buy beans through ACOS Ethiopia. The first Corporate Social Responsibility (CSR) market case for buying from Africa has been built and a first 2,000 tonne purchase under the proposed equitable trade model from a UK canner has been secured.  The partnership further helped ACOS secure their full 11,000 tonne order.  This is a major new order for Ethiopia and lays the foundations for a route to market that can be strengthened through the new business models work.

In 2009, the programme worked with ACOS and networks of traders to:

• Survey farmers each season to assess the impact of the programme on livelihoods – ensuring that food security and environmental sustainability are not weakened as an adverse impact of the programme.
• Ensure the average farm gate prices meet or exceed a minimum fair price.
• Create clear and transparent quality standards.
• Promoted training on quality practices for traders and farmers.
• Provide access to high quality seed and appropriate storage.

2010 Project Update

In 2009, the CRS – ACOS team agreed to focus on developing a single variety, Awash Melka, for single upgrading the quality and traceability of supply from farm to factory.  Three shocks to this business model have meant that priorities have changed and that a new approach needs to be formulated.  The shocks were (i) a devastating drought, which significantly reduced production of the new variety and access to seed, (ii) the market recession combined with a food emergency in Ethiopia, which led to reductions in both ability to supply and procurement from Ethiopia, and (iii) the Government of Ethiopia has recently mandated that white beans, being an export commodity, should be sold through the recently established commodity exchange.

Strategy change in reaching the market

To adapt to this the trading environment with the Ethiopian Commodity Exchange, we have commissioned a study to look at the performance of commodity exchanges in Africa and offer recommendations for how the project could work with the exchange to increase the chance of benefits reaching smallscale producers.  In general, the experience has shown that few smallholders benefit as anticipated because the investments have never been made in the smaller scale distributed warehouse and management structures that would allow direct access for most growers.  The project will work with the Ethiopian Commodity Exchange to see how to best invest in improving trading relationships given the trade flowing through the exchange.

The project will continue to work on farmer to trader relationships through the workshops that have been so successful to date.  We will prioritize working with traders and cooperatives that have registered with the ECX (which may or may not be the ones that have been identified by ACOS that we have been working with to date). 

Value chain improvement activities

The bulk of the navy bean value chain is through small-scale informal traders.  The project is promoting a package of upgraded bean technologies such as (i) improved varieties, (ii) agronomic practices, (ii) threshing on canvass. The new dried bean variety is higher yielding and more disease resistant than the local varieties farmers are planting.

To upgrade the seed systems we purchased and distributed seeds, trained farmers, established new seed growing groups, and built some stores for seed storage. 

In 2010 the project purchased and distributed:

• A total of 65 qts basic seeds for use by seed growing groups
• A total of 2032 qts of clean seed was purchased to deliver to farmers to improve productivity and quality. Out of these seeds 1971 qts of seed is distributed for a total of 5492 number of farmers through primarily cooperatives till to date this year. This is addition to the 4000 beneficiaries in 2009 and 2000 in 2008. 
• 200 hermetic grain storage bags were provided to test this method of storage/pest control