DrumNet : Making Markets Work for the Poor

By

Edith Ofwona Adera

Senior Program Specialist

IDRC – Canada

31st March 2008

Background: Challenges for Smallholder Farmers

Low Productivity

Poor Market Access

Inefficiency

Background: Challenges for Smallholder Farmers

Low Productivity

Poor Market Access

Inefficiency

Growing the wrong mix of crops in their farms, or only growing subsistence crops.

In some cases, farmers are unaware of recommended agronomic practices.

Farmers are unable to purchase the required inputs to grow high quantities of top-quality produce.

RESULT:

Disappointing harvests of the wrong crops.

Background: Challenges for Smallholder Farmers

Low Productivity

Poor Market Access

Inefficiency

Farmers operate in information-poor environments regarding prices and market outlets.

Farmers are unable to aggregate their produce at levels required to access the largest markets.

Opportunities to exploit are created for brokers, resellers, and other intermediaries.

RESULT:

Limited choice of market outlets and disappointing net prices.

Background: Challenges for Smallholder Farmers

Low Productivity

Poor Market Access

Inefficiency

Small farm produce often changes hands 3 or 4 times on the way to the consumer.

Transportation is slow, costly, and wasteful. Communication is person-to-person.

Logistical processes are non-existent, especially around ICT and payment processing.

RESULT:

Potential profits drained from all participants, particularly farmers

Implications of these Challenges – Western Kenya

Small Plot Farmers

Large Plot Farmers

Farmgate Brokers Local Brokers Central Brokers

Processors

Exporters

Large Retailers

Market & Other FeesTransporter

Large Institutions

65% 23%

9% 3%

An Overview of DrumNet Project • DrumNet – provides a high-demand set of business support

services to 300 resource-poor farmers in Western Kenya for Sunflower Production – Scale up to 30,000 farmers (GATES).

• Three sets of business support services are provided — marketing, finance, and information as an integrated package.

• Key actors in the agricultural value chain are interconnected using the mobile network (ICTs) & interactive database to reduce transaction costs and improve farmers’ livelihood – farmer groups, transaction agents, produce buyers, input stockists, financial institutions and agricultural extension support institutions

The DrumNet Model

What does DrumNet Offer?

Productivity

Market Access

Efficiency

DrumNet Services

1. Transparent pricing and marketing information presented to farmers.

2. Tangible advice on advantageous crop mixes and recommended farming techniques in partnership with extension support institutions.

3. Savings-led credit program for accessing required farm inputs.

What Does DrumNet Offer?

Productivity

Market Access

Efficiency

DrumNet Services

1. Real-time analysis of market opportunities.

2. Product aggregation required to sell into the best markets.

3. Negotiation and contractual arrangements with the best buyer(s) – contract farming.

What Does DrumNet Offer?

Productivity

Market Access

Efficiency

DrumNet Services

1. Database technology tracks entire business process with minimal human effort.

2. Mobile communication technology with an sms gateway is used to relay information throughout the network.

3. Transportation coordination ensuring point-to-point delivery.

4. eliminates theft and fraud Cashless transactions.

DrumNet Technology OverviewDrumNet System - Integrated market, financial, information

system. Tracks the business flow

- Modular Design – farmers, crops, buyers, bank, notification, reporting, back office modules etc

- Interfaces with the SMS Gateway Communication system

SMS Gateway - GSM Short Messaging System (2 way)

- No need for dedicated connection to operators and negotiation of a contract

- Deployment within hours (can use pre-paid SIM cards) – operational March 08

- Low power and autonomous scalable

- Based on Open Source Software

DrumNet SMS Gateway• In Kenya supports both Safaricom and Celtel

operators

• New operators can be added

• Capable of sending/receiving 10

SMS’/minute per operator

• Selects optimal operator depending of SMS

price, GSM network status and load of the

system

• Documented platform: allows any other

application to use the platform (multilingual)

DrumNet SMS Gateway – Future Plans

– Make the unit smaller and even more low powered

(< 20 W)

– Increase the SMS rate to 30 SMS/minute per

provider

– One SMS gateway unit would be capable of

providing SMS services to 1000 farmers/users

PRODUCE PAYMENT FLOW

Produce Delivery

NoteSHG to Buyer

Buyer Picks up Produce

Buyer weighs, grades, accepts

or rejects

Buyer Statement

to DrumNet

DrumNet Calculates

payments per group

DrumNet instructs Bank to transfer funds to

FG accounts

Farmer Groups Get Paid

Initial Results - DrumNet, farmers are retaining over 72% of the

wholesale value of their produce..

Small Plot Farmers

Large Plot Farmers

Processors

Exporters

Large Retailers

Market & Other FeesTransporter

Large Institutions

72%

9% 5%

Commission

14%

Challenges• Technophobia – fear of using mobile phones and

difficulty in mastering the system codes (simplicity required)

• Cost of Communication – high mobile charges even for sms

• Technological adaptation to needs – responding to changing needs of the players within the value chain w.r.t functionality of the system

• Business model – designing a sustainable business model and determining the optimal costs for farmers and key players within the model

Some Results – Phase 1• Farm productivity – increased, especially for farmers

with access to credit

• market prices – less fluctuation in produce price over time

• household income – general increase in household income

• Model likely to be sustainable and replicable with higher volumes of farmers (Business model is currently being assessed and documented for wider dissemination)

Thank You!