Transforming Agribusiness
The Grain Bulking Centre, Machakos Rd
+254 20 2644533 / +254 702 644 921
04 May 2016
smart-logistics

What sets Smart Logistics apart from many other traders

In the beginning, Rose’s small-scale business mainly bought sorghum from farmers and then sold it to a brewery. Over time, she found more buyers and diversified the commodities that Smart Logistics deals with. Currently, the company trades in maize, cowpeas, soya beans, chili and passion fruits.

In addition to 11 permanent employees, 17 mobilizers work for the company in various locations in Kenya’s Eastern Province. The mobilizers are paid on commission basis based on the volume of commodities they buy from smallholders.

Storage.

Through a grant from the Market Linkages Initiative (MLI), Smart Logistics has managed to build seven village aggregation centers (VAC) each with a capacity of 200 tons. The aggregation centers will be used by smallholders to bulk their produce and shall be managed by village committees. Each village aggregation center is equipped with a moisture meter, pallets and weighing machines. Three out of the seven centers also have stitching machines, collapsible drier bags and sieves. Smart Logistics has also constructed a grain bulking center with a capacity of 10,000 tons, and plans to establish a laboratory within the center for quality testing

Marketing

In 2010, 3,000 farmers from 135 farmer organizations sold their sorghum to Smart Logistics. To ensure quality, the company sensitizes farmers on quality issues together with the Ministry of Agriculture and other partners. Smart Logistics sells all commodities bought from farmers as soon as they are aggregated. The company currently has four major buyers namely East Africa Breweries for sorghum, Promasidor and Bidco for soya beans and WFP for sorghum, beans and maize.

Smart Logistics secures long term contracts over two to five years with its buyers. Based on these contracts, it enters into an agreement with organized farmers to produce the required commodities. The hired mobilizers discuss the price to be proposed to buyers together with the farmers: they project what it will take the farmers to produce and prepare the commodity for the market, add profit for the farmer, then add 1.50 Shillings per kg for Smart Logistics’ profit.

Smart Logistics therefore makes its profit on volumes – and this is why long term contracts with buyers are so important to Rose, as they allow her company to plan ahead. Another unique feature of Smart Logistics is that unlike other traders, Rose’s earnings are based on commission rather than on market speculation.

04 May 2016
sorgum-farmers

Sorghum farmers struggle to satisfy increased demand

Farmers contracted to supply sorghum for beer making are struggling to meet high demand for the crop from the region’s biggest brewer, presenting an investment opportunity for producers in areas where the crop is planted.
Rose Mutuku, the managing director of Smart Logistics Solution— which is contracted by East Africa’s biggest brewer, EABL, to supply sorghum— said even increased acreage of the crop by farmers in semi-arid areas has not helped to meet demand.

“We are currently working to improve our production that is about a third of the demand of about 32,000 tonnes. We have producers in Eastern and Nyanza provinces and we are recruiting more by the day,” said Ms Mutuku.
Supply source.

East African Breweries (EABL) is currently scouting for farmers to produce the commodity on contract to reduce its reliance on the more costly barley to produce its non malted beer brand Senator Keg.

The brewer has said that it is keen to replicate the success of Senator brand by rolling out another low-cost brand, making reliable source of supply of sorghum critical.

In addition to Eastern Province, EABL has widened its contract offers to sorghum farmers in Narok, Baringo and Nakuru.

“The rush to produce sorghum is particularly catching on in the dryland areas where other crops such as maize have failed to perform well. Because of its fairly high tolerance to dry conditions, farmers in dry regions are now finding better use for their land,” said Ms Mutuku.

The firm argues that the cheaper sorghum-based beer will also allow it to capture a huge chunk of the bottom end of the market that has remained in the hands of illicit brewers.

This coincides with the new alcohol law has legalised traditional liquors that will now be subject to health standard controls.

“This new sorghum growing initiative in semi-arid areas is expected to impact the livelihood of farmers while providing us with affordable raw material,” Peter Ndegwa, the finance director at EABL told the Business Daily in an interview last month.

“Barley is a commercial crop and it tends to be influenced by international market dynamics as opposed to Sorghum which is more of a food crop,” he added.

Good rains over much of 2010 helped shield the brewer from the volatility of international prices thanks to a bumper barley harvest.

Ms Mutuku said a shift towards healthy foods was also driving demand for sorghum in the country.
Lack of a ready market for the crop has seen sorghum production in Kenya drop from 220 metric tonnes per year in 1980 to 130 metric tonnes in 2009, according to data by United States Department of Agriculture.

04 May 2016
rose-mutuku

How I built a cereal empire

Rose Mutuku is the type of person who never looks back once she has made a decision.
This trait is what made her quit her cozy job as the logistics manager at the East African Breweries Limited (EABL) to go into agribusiness.

“While working for EABL, I saw a gap in demand for quality raw material. The industry was looking for raw material, which local farmers were not providing.”
Sorghum, for instance, was imported from Tanzania.

Armed with this idea of the existing gap, Rose left EABL in 2009 and started Smart Logistics Solutions, a company that creates partnerships with farmers, providing them with, not just a market for their produce, but also technical support.

Her business model was simple: she would buy sorghum from farmers then sell it to EABL at a profit.
“I started operations from my house. My first task was convincing farmers to start growing sorghum as a cash crop, as opposed to maize, which they had grown for generations.”

This was not an easy task, particularly, for farmers in Ukambani, whom she first targeted. Even though they were getting very little yield from maize, they were reluctant to adopt a new crop.

“I told them that with sorghum, they could comfortably get enough money to buy food for their families. By the time the first season’s harvest ended, I had managed to contract 800 farmers to plant sorghum for Smart Logistics,” Rose says.
However, there was a problem. She did not have enough money to pay for the tonnes of sorghum the farmers harvested. She had exhausted all her savings traversing the vast Ukambani area visiting farmers and convincing them to plant sorghum.

“Most of the time I would just present myself at a farm and ask the farmer to give me the sorghum in return for a receipt and a promise of payment in a week’s time. I don’t know who between the two of us was more shocked when I left with the produce.”

Surprisingly, on her first day, Rose collected over 30 tonnes of sorghum from farmers who were willing to wait a few days for payment.

“I was very lucky. An acquaintance of mine had a fleet of lorries traversing the Kitui-Nairobi route. He agreed to carry my sorghum to the factory because he had to make the trip to Nairobi. And that is how Smart Logistics made its first delivery.”

Thus from a humble beginning, Smart Logistics has grown into a solid company with over 4,500 sorghum farmers under its contract. From customers in Kitui and Makueni counties only, Rose now also has suppliers in Western and Nyanza regions.

Loise Mwangangi is one of the happy farmers who have found a home at Smart Logistics Solutions. She partnered with the firm five years ago.

“Before sorghum, I was growing maize, beans and cowpeas. However, the harsh climatic conditions in Kitui made it difficult for me to even feed my family since the rains would often fail and all the crops would wither and die.”
This recurring frustration is what made Loise buy Rose’s idea. She has planted sorghum on her 30-acre piece of land, where she harvests over 10 tonnes per season, all of which she sells to Smart Logistics.
Her yields have increased every season except last year, when she cut her acreage by half because of the quelea quelea, which prey on the grain.

“Since I partnered with the company, I can comfortably educate my four children and I have even built a grocery shop to supplement my earnings,” says the farmer.

Rose pays her farmers according to the prevailing prices in the market. Currently, farmers under Smart Logistics Solutions take home between Sh25 and 27 per kilo of sorghum grain.

The quelea quelea are a headache for many sorghum and wheat growers. To fight them, Smart Logistics has partnered with Alliance for a Green Revolution in Africa (Agra), which has started an initiative to spray large farms to curb the birds.

Other challenges facing Smart Logistics include limited storage capacity, especially after the company collects the produce from farmers before transporting to Nairobi.

But this is being worked on as Smart Logistics has constructed a grain bulking centre that can hold up to 10,000 tonnes. It is located along Machakos Road just three kilometres from Nairobi-Mombasa highway.

Other than pest control, Smart Logistics provides technical support to farmers. The company has over 17 field staff, who go round the farms training and teaching farmers about best farming practices.

“Since quality is of utmost importance to us, we have partnered with stakeholders such as Agra, the European Union, Kenya Agricultural Research Institute (Kari) and the Ministry of Agriculture to ensure that our farmers receive all the support they need to grow a premium crop,” Rose says.

Kari provides the farmers with seeds and fertiliser, she adds.
The firm has partnered with financial institutions that lend farmers money for inputs. “Since we cannot give the money ourselves, we act as guarantors for the loans they take, provided they use the money to improve their farms.”
Last season, the company handled over 3,500 tonnes of sorghum, from which it made about Sh7 million profit. The business is pegged on volumes, meaning that the more farmers Rose signs up, the more the company makes.

Smart Logistics not only deals with sorghum, it has diversified to yellow passion fruits, soya beans, sunflower and maize. Passion fruits have proven popular as the company now has over 1,500 farmers who supply it with the fruits, which it sells to All Fruits Limited.

Currently, Smart Logistics has embarked on a project to get all its farmers under an insurance scheme to cushion them from the vagaries of weather and pests.

With just Sh450, the farmers are able to insure an acre of land. They are then entitled to a refund of 80 per cent of the produce lost.

Rose has grand plans for Smart Logistics. Earlier this year, she entered the company into an Agra- sponsored competition, African Enterprise Challenge Fund, and won Sh50 million.

With the money, plus an infusion of the company’s profits, Rose intends to start a processing plant to extract starch out of the sorghum so that she can deliver a value-added product to EABL.

From sorghum by-products, she wants to produce animal feeds which she can then sell to farmers.

University of Nairobi