The evolving role of open ‘informal’ markets

Charles Dhewa Correspondent
Attempts to use African agriculture as a catalyst for economic revival and growth have focused mainly on mechanising production and luring young people into farming. While there is nothing wrong with such efforts, lack of attention to other agricultural value chain nodes has seen new commodity brokers and traders quietly setting themselves for success through picking their spots in agricultural ecosystems, finding the right partners, and leveraging their competencies to rewrite rules of food demand and supply, almost unnoticed.

Through its work in African food markets, eMKambo is witnessing the birth of new value chain actors who are inserting themselves in agricultural ecosystems, filling the gap between formal and informal niche markets. Such niche markets stretch from household, community, restaurants/eating places, food courts, supermarkets and hotels. Some households constitute a certain class with a defined food basket (something akin to pick and go).

Besides transforming the way consumers, financiers and entire national agricultural industries view food, these fast, dynamic and ICT-driven commodity brokers are also changing the role of big, dominant informal open markets like Mbare in Harare, Soweto in Lusaka, Zambia, Lideta open air street market in Addis Ababa, Lilongwe central market in Malawi, Makola market in Accra, Mercado Central Market in Maputo and many others. These big markets are now being forced to use their convening power to aggregate commodities from diverse production areas including from neighbouring countries.

Redefinition of commercial commodity broking

Where supermarkets used to obtain commodities from contract farming models and a few registered formal commodity brokers, the increasing diversification of consumer classes and food preferences is spawning diverse small niche food buyers and suppliers. Consequently, the new competitive environment is making it expensive for registered commodity brokers to accurately make sense of the needs of diverse consumer classes. To a large extent, commercial commodity broking has been broken into individualiased smaller commodity brokers who understand niche markets and consumer requirements.

In addition to a smaller and well-defined distribution pattern, these actors use appropriate packaging features as per customer requirements. This new class of commodity brokers comprise individuals who are networked, passionate about food and knowledgeable about food and nutrition. They also play an advisory role and bring knowledge in food science, nursing, nutrition and other professions which enable people to have their food and health in their hands. These agile commodity brokers are also connected through religious circles, workplaces and have networks within a certain class of consumers in specific residential areas. Some of the consumer networks are being built through social media platforms like WhatsApp groups that bring together people with the same interests — providing an opportunity for enterprising commodity brokers to introduce business cases.

Resetting agricultural competitive landscapes

Connectivity, through ICTs, and ubiquitous transportation is accelerating activities of these commodity brokers and enabling them to challenge traditional value chains and vertical integration arrangements that have traditionally created barriers for small actors with limited resources. As these actors jockey to deliver distinctive propositions to diverse consumers and end users at scale, they are building strategic relationships rooted in a deep understanding of underlying client needs and delivering commodities in ways that cut across traditional silos. What was once a predominantly vertical model organised around few value chain actor classes and well-defined functions is being transformed horizontally to build greater alignment with the needs of diverse classes of consumers.

By creating new layers of productive action within formal and informal agricultural markets, these new agile commodity brokers are triggering demand patterns from consumers to inform production.

For instance, they are now influencing demand for high value commodities like ginger, peppers, garlic, broccoli, strawberries, baby marrow and others. From an aggregation perspective, these actors are minimising the need for durable physical structures as the commodity brokers to move around identifying needs and mobilising commodities.

While aggregation centres remain important, more fundamental is a system of tracking consumer trends, tastes and preferences through fluid pathways. This is where a knowledge broker and catalyst becomes critical in lifting farmers from the weeds so that they negotiate and structure their relationships with consumers and powerful value chain actors.

The absence of a catalyst or knowledge broker sees farmers continue to produce cabbages and leafy vegetables when consumers need high value commodities. Very few farmers are aware that tastes and preferences are now influence demand more than volumes supplied to the market.

Space for new winners among farmers and commodity brokers

In order to keep up with the pace of change, farmers have to build strong relationships with dynamic commodity brokers who understand the demand side at a granular level. While different value chain actors are doing what they are good at, they are unknowingly preparing the ground for the rise of innovative insurgents that are either establishing more specialised niches or forging productive alliances with bigger players like processing companies. On the other hand, the market on its own is not able to inform farmers about changes in consumer preferences without agile informal commodity brokers.

In the current scenario, there is no need for several aggregation centres but few large ones like Mbare which act like one-stop shop, big enough to enjoy economies of scale. The smaller the market, the higher the fixed costs.

What is more appropriate now is a big aggregation centre and many fluid distributors who can take commodities from the aggregation centre like Mbare or Malaleni straight to end users. Creating many aggregators within the value chain increases costs and double handling.

Food vendors already have their own market while the new agile commodity brokers are serving the middle class consumer between the poor and the very rich. These middle class consumers do not want to buy from the supermarket but also don’t want to go to Mbare while preferring the freshness of commodities associated with Mbare. The new broker is also satisfying middle class needs and offering food as a service. They are also creating new partnerships and ecosystems. As food market trends continue to gain momentum and become progressively inter-connected, an accurate reading of the market and its potential has never been so critical for farmers and other value chain actors.

Providing a new gear for financial inclusion

The new agile commodity broker is joining together all modes of payment, within African informal open markets that are largely cash economies. Fast and fluid commodity brokers can get money from the bank, invoice big or institutional buyers, buy in cash from the farmer or use mobile money when dealing with farmers and traders. Through fluid semi-informal activities, they scaffold inclusive financial models. They are also linking with exports through adjusting local commodities to suit regional and export markets. In Mozambique, the famous traders called Muqueristas are adept at catalysing regional trade.

Source:The Herald

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