Business Minds Africa
BMcase001
has a staff of 66. In each of the 15 villages, BioRe has a local office with a supervisor and several extension workers, who each serve 50 farmers. It was converted from a project into a subsidiary of Remei AG in 2002, and in 2006 into an independent firm. BioRe retains very close links with Remei: the Swiss firm buys all of its output, provides financial services, and coordinates the value chain. Remei AG and BioRe want to make BioRe fully independent, establishing a truly Africa-based company with local management and, ultimately, the farmers as shareholders.
Farming, harvesting, ginning, and spinning Meatu is an agricultural district where most households depend on rainfed farming. Each family has about 32 ha of land. On 4-5 ha they grow cotton, yielding 1250 US$/year, which is 80% of their cash income. On another 2.4-3.2 ha they grow food crops, mainly for home consumption. The farmers grow cotton under 5-year contracts that oblige them to use only organic production methods, follow the advice of BioRe's staff, and deliver the entire output to BioRe. In return, BioRe purchases the entire crop, provides seeds and bio-pesticides, and offers training and extension advice. The farmer can terminate the contract at any time, but BioRe can only do so if the farmer violates the contract, for example by spraying chemical pesticides. The cotton is sown in 2-week intervals from November to February. Relay sowing serves to spread the risk of drought. BioRe's extension officers visit the farms twice a month. The organic certification agency, too, makes random inspections. BioRe sets up farmer field schools in each location, where farmers learn about cultivation techniques, pest control, and other matters. One farmer from each group is regularly trained on BioRe's demonstration farm, and is expected to transfer this knowledge on to the other farmers in his location. The company also supplies implements such as ox-drawn weeders for the farmer groups to use collectively. The seed cotton is harvested from May to July and stored at home. When the price is right, the cotton is taken in bales of 60-100 kg to the BioRe village office, where it is sieved, inspected, weighed, and stored for transport. The farmer is then paid in cash and goes back home. A lorry takes the cotton to the nearby Bibiti Ginnery, which separates the seeds from the lint, presses the lint into bales, and transports them to the port of Dar-es-Salaam. For these services, Bibiti receives a fixed fee per ton of cotton. Part of the seed is kept for sowing, rest is sold to mills that process it into oil and cake. Bibiti works exclusively for BioRe to avoid any risk of contamination.
Chain finance BioRe pre-finances the crop by paying an input subsidy into a special bank account. The farmer receives a bankbook to be able to make a withdrawal in order to buy seeds and bio-pesticides from the company. For first-time farmers BioRe pre-finances the crop through a loan at zero interest rate. But this is risky: in 2007, 23% of new farmers did not deliver their cotton to the company. This resulted in a US$ 7000 loss , but BioRe continues to pre-finance new farmers in order to attract new farmers. Farmers are paid cash on delivery. During the buying season, BioRe withdraws the equivalent of US$ 50,000 in cash from the National Microfinance Bank every day. If BioRe did not pay in cash, the farmers might sell their crop to other buyers - even at a lower price. In 2008, BioRe needed US$ 3.5 million in cash to pay its contract farmers. The money is brought under police escort to BioRe's office, where it is divided among the 15 village supervisors, who take it on their motorbikes to their villages. At night they come back to the office to hand in the purchase slips. The handling costs are high, and the risks of robbery are significant. Occasionally, payment slips are not backed by an actual delivery of seed cotton. BioRe has no alternative ways to pay the farmers. Some years ago, the ginnery was given an investment loan of US$ 400,000 for new equipment, to be paid back over 4 years. In return, Bibiti would would give BioRe preferential treatment. However, the ginnery stopped serving other clients, so now 2