Radava Mercantile – Linking agriculture to the financial markets
Radava Mercantile provides an agricultural commodity exchange market, alternative financing and post-harvest technologies to smallholder farmers in sub-Saharan Africa. Its CCO and Co-Founder Ivan Omondi tells us more about it.
Radava Mercantile provides an agricultural commodity exchange market, alternative financing and post-harvest technologies to smallholder farmers in sub-Saharan Africa. Its CCO and Co-Founder Ivan Omondi tells us more about it.
Ivan, before we get started, let's do a video pitch for our very busy readers who don't have time to read. Can you introduce Radava Mercantile in less than a minute?
What led to the creation of Radava Mercantile?
The problem:
The lack of structured markets forces millions of smallholder farmers in sub-Saharan Africa to sell their produce at depressed prices. An estimated 500 million farmers working on 33 million farms incur significant post-harvest losses due to inefficient market linkages and poor storage. For instance, the oversupply situation at markets at the time of crop harvest compels millions of farmers to sell their produce at reduced prices. The commodity prices only rebound once the supply has reduced.
Current state:
• Given the fragmentation and challenges assessing creditworthiness, access to finance for farmers to purchase inputs (or hold on to outputs to sell when prices are higher) remains a challenge.
• Given that farmers keep selling their produce at reduced margins, their working capital keeps shrinking, reducing their ability to access quality farm inputs such as seeds, fertilizer, labor, extension services and machinery.
• In addition to losing 20-30% of agricultural produce, farmers in sub-Saharan Africa are forced to sell their produce to a saturated market because they lack standard storage facilities.
Desired state:
We desire a state of affairs where:
• farmers get value for their produce, which gives them a better living standard
• farmers are not forced to sell their produce to a saturated market
• different factors are used to assess farmers' creditworthiness to enhance their access to finance to purchase inputs (or hold on to outputs to sell when prices are higher)
• farmers have access to modern warehousing facilities.
Gap between them:
• Lack of modern storage facilities
• Limited access to innovative credit facilities tailored to smallholder farmers
• Inefficient value chains
• Lack of market data and information
• Lack of functional agricultural commodity market exchange
Could you present Radava Mercantile’s offer?
We provide smallholders farmers with access to affordable financing (agricultural and business financing); modern storage, transport and logistics; sustainable market linkages; timely extension services; optimal commodity markets, and efficient pre/post-harvest management
Strength of Need:
According to Tegemeo Institute, “The disincentives to storage due to constraints on borrowing capital and lack of standard warehouses contribute to a circuitous flow of farm produce out of surplus areas during harvest periods, only to move back in once deficits set in. More generally, the disincentives for farmers and traders to store produce tends to depress prices right after harvest and (because relatively little is stored through the season) less is available for consumption later in the season, which raises prices more during these periods. In order to drive down the price of food to rural and urban consumers, there is a need to address the disincentives to on-farm and trader storage.”
Our research corroborates Tegemeo’s findings, as we established that most of the farmers sell their produce immediately after harvest, which saturates the market, in turn reducing the price. Creation of alternative, well-rewarding and sustainable markets is a gamechanger for the farmers.
Level of non-consumption:
In developed countries, market losses (due to price volatility) are relatively low as they have functional agricultural commodity exchange markets and farmer-tailored credit facilities. For instance, farmers leverage on futures contracts to eliminate price volatility risk. On the contrary, most sub-Saharan African[LG1] smallholder farmers who produce food crops such as maize fall into the trap of negative effects of forces of demand and supply.
More specifically, the manner in which financial systems including credit facilities are structured excludes smallholder farmers. For example, the credit facilities are largely collateral-based; most smallholder farmers lack assets that can be used as collateral. In Rwanda, only 1.9% of the total loans advanced in the year ending 2019 went to the agricultural sector. The industry also has the highest loan application rejection rate at 49% (source: The Eastern Africa Publication). This is one of the ‘non-consumptions’ that we intend to democratize.
Potential to create other markets:
We believe that if we solve this problem, it will facilitate the creation of the first democratized agricultural commodity exchange market in East Africa. As of today, commodity markets have been dominated by the traditional global powerhouses (the US, Japan, Australia, Germany and Canada). For instance, the CME Group Inc. (founded in 1848 at the Chicago Board of Trade) dominates the commodity exchange industry with over 20 million individual contracts transacted daily. Others such as ICE (Intercontinental Exchange) and TOCOM (Tokyo Commodity Exchange) transact millions of commodity transactions daily worth tens of billions of dollars. In comparison to some of the aforementioned regions, where some commodity markets have existed since 1848, Africa and specifically East Africa have been extremely late to the party. The existing agricultural commodity exchange markets are not sustainable and are characterized by low trading volumes. Given that it is a known fact that these exchanges connect producers to a global marketplace, the millions of smallholder farmers in Africa have been missing out. The commodity exchanges in the aforementioned countries have had significant and well-documented developmental benefits; they’ve made economies more inclusive, strengthened the links between agriculture and finance, improved risk management, and made global commodity markets more efficient and competitive.
Secondary industry development:
We are also working to develop secondary support industries, through provision of farm technologies and innovations, access to farmer-tailored credit facilities, agricultural inputs (seeds, fertilizer, labor, machinery), warehousing and storage facilities; and through enabling market linkages and e-commerce business for agricultural produce.
What's coming next for Radava Mercantile?
The next steps for Radava Mercantile are in boosting the following targeted areas to scale:
• Development of commodity portfolio
• Development of the physical infrastructure
• Technological development on blockchain
• Development of logistics
• Marketing
• Research and development
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