of offering credit themselves. And the bank captures a new customer market with minimal risk, adding to its loan portfolio and deposit base. DrumNet has, however, experienced its share of


noncompliance. Farmers have opted to side-sell produce outside buyer agreements to attain quick cash or evade loan obligations. Buyers have at times failed to honor contract terms, and input retailers have engaged in dishonest practices as well. Even banks have strayed from the program by delaying payments and introducing unexpected fees to farmers. It is crucial to resolve the issue of partner noncompliance because the benefit any one actor accrues from DrumNet depends on other partners’ faithful completion of their functions in an agreed-upon manner. In other words, once one actor fails to comply because he or she does not find value in the arrangement, the overall value of the supply-chain approach is lost.


Low agricultural yields


Farmers’ inability to attain sufficient crop yields has also negatively affected the project and its overall service package. In many instances, poor yields have resulted from poor weather conditions. Kenya has experienced several years of irregular and insufficient rain, especially in the eastern portion of the country. Consequently, many farmers have produced only small or extremely stunted harvests. Soil conditions in Kenya have also diminished farmers’


productivity. Because of population pressures, intensified agricultural activities, and low fertilizer use, many Kenyan famers have exhausted their soils. With such soil conditions, even the best agronomic practices result in disappointing yields, low returns on farm investments, and consequently further soil degradation from season to season. The use of poor seed varieties has exacerbated the problem.


The way forward


To address these challenges and others, DrumNet has identified products and services that can be bundled with or added as supplements to the supply chain:


• Performance rating. DrumNet is devising a performance rating system that will be integrated into DrumNet processes to allow good and bad performers to be identified, thus creating an incentive for better partner behavior and commitment and distinguishing especially competent, reliable actors over time. Simple credit ratings could also serve as helpful indicators for banks as they assess potential borrowers’ creditworthiness.


• Crop insurance. A dedicated crop insurance product that insures farmers’ inputs against drought or other acts of God would reduce the weather risk inherent in agricultural financing, win further buy-in from farmers, and fill a crucial gap in this bundled, supply-chain approach. The product could


be directly tied to input sales or incorporated into production contracts. Farmers would receive not only a guaranteed produce purchase price, but also guaranteed reimbursement or replacement of inputs.


• Soil analysis. A soil analysis service would provide farmers with precise recommendations on how best to restore fertility to their soils and, accordingly, improve land productivity. A fertilizer matching component—matching the right fertilizers to a farmer’s particular soil composition—would make the analysis even more effective. The analysis could be offered by input retailers, thereby generating greater trust between farmers, retailers, and DrumNet.


• Payment systems. Advances in electronic payment options should also play an important role as DrumNet moves into the future. Payment systems like M-PESA, ZAP, and MobiCash can increase the timeliness of transactions between supply-chain partners and move cash points closer to rural-based farmers. These payment solutions, together with the increasing number of bank products available in the market, will reduce the hassles farmers now incur when receiving payment.


DrumNet is now commercializing its operations through the formation of a private company in Kenya. The products and services described in this brief, along with others, are being incorporated into the new company’s platform. In addition, the company plans to upgrade DrumNet’s existing IT system, building a more robust and expandable system that is accessible to rural-based partners. The system will be modular in structure, so users with different requirements can select and use different components. Furthermore, the system’s functionality will be matched by its simplicity—it will easily plug in to the way users already conduct business. To mitigate risk on a larger scale, comprehensive and commonly accepted standards for communication, financing, information, and exchange must be applied across different agricultural supply chains in Africa. It is in everyone’s interest to facilitate and enforce the development of these standards to ensure that all agricultural actors and initiatives operate under a single preferred paradigm. n


For further reading: X. Giné, “DrumNet Case Study” (World Bank, Washington, DC, 2005), siteresources. worldbank.org/DEC/Resources/DrumnetCaseStudy.pdf; S. Arnquist, “In Rural Africa, a Fertile Market for Mobile Phones, New York Times, October 6, 2009, www.nytimes. com/2009/10/06/science/06uganda.html; The Economist, “Security for Shillings: Insuring Crops with a Mobile Phone,” March 11, 2010, www.economist.com/business-finance/ displaystory.cfm?story_id=15663856; The Economist, “Dial M for Money: Beating Banks at Their Own Game,” June 28, 2007, www.economist.com/business-finance/displaystory. cfm?story_id=9414419.


Jonathan Campaigne (jfc@prideafrica.com) is executive director of PRIDE AFRICA.Tom Rausch (trausch@prideafrica.com) is PRIDE AFRICA’s regional director for East Africa.


INTERNATIONAL FOOD POLICY


RESEARCH INSTITUTE Supported by the CGIAR


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sustainable solutions for ending hunger and poverty Supported by the CGIAR


www.worldbank.org Copyright © 2010 International Food Policy Research Institute and the World Bank. All rights reserved. Contact ifpri-copyright@cgiar.org or pubrights@worldbank.org for permission to republish.


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