1
NATIONAL UNION OF COFFEE AGRIBUSINESSES AND FARM
ENTERPRISES (NUCAFE) BUSINESS MODEL
JUNE 2014
This business model was p...
2
Background
The Uganda coffee sector is characterised by ‘old trees and old farmers’ but the National Union of
Coffee Agr...
3
NUCAFE’s members are Farmer Associations or companies limited by guarantee. In essence these
are at sub-county level. Th...
4
It is an intertwined network (See Figure 1) of value chains (product and services) and different from
the traditional li...
5
NUCAFE has focussed on ensuring that it avoids conflict of interest with its members by ensuring it
facilitates the link...
6
Access to Finance
Another successful initiative by NUCAFE has been the memorandum of understanding (MoU)
between NUCAFE ...
7
Kabonera Farmers’ Association, Mr Muluya Philip, offered his family’s land title to the Association as
collateral. Asked...
8
During 2001, the members identified the need for information to improve the operations of the
cooperative. To address th...
9
Figure 3: Bukonzo Joint organisational structure
The processing is divided into 29 micro washing stations. Only nine of ...
10
Bukonzo Joint remains a firm advocate for starting with what is available and the use of local
resources as shown below...
11
Acknowledgment
A special word of thanks and appreciation goes to the NUCAFE Board of Directors and management
for the s...
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Nucafe business model

  1. 1. 1 NATIONAL UNION OF COFFEE AGRIBUSINESSES AND FARM ENTERPRISES (NUCAFE) BUSINESS MODEL JUNE 2014 This business model was presented at the 2nd African Continental Briefing on Promoting inclusive finance models for farmers in Africa held on 13-14 July 2014, Nairobi, Kenya and Organized by the Pan African Farmer’s Organisations (PAFO), the ACP-EU Technical Centre for Agricultural and Rural Cooperation (CTA), and the African Union Commission (AUC). The Continental Briefing was held in the context of the International Conference organised by CTA and AFRACA on Revolutionising finance for agri-value chains in Kenya from 14-18 July 2014 (http://fin4ag.org/)
  2. 2. 2 Background The Uganda coffee sector is characterised by ‘old trees and old farmers’ but the National Union of Coffee Agribusinesses and Farm Enterprises (NUCAFE) is set to change this and to make the sector attractive to the younger upcoming farmers and entrepreneurs. NUCAFE was founded in 1995 as the Uganda Coffee Farmers Association (UCFA), whose name changed in response to a member needs assessment and strategic planning session in 2003. NUCAFE’s vision is for coffee farmers to profitably own their coffee along the value chain for sustainable livelihoods, consumer satisfaction and social transformation. NUCAFE has 170 members (associations, cooperatives and estate coffee farms) collectively represented by 150,000 farming families having over 600,000 individual farmers across the 5 main coffee growing regions of Uganda. NUCAFE operates in 19 districts of Uganda which are Rukungiri, Bushenyi, Masaka, Rakai, Mpigi, Wakiso, Jinja, Kayunga, Iganga, Mbale, Sironko, Kapchorwa, Nebbi, Gulu, Bundibugyo, Sironko, Bududa, Manafa, and Arua . NUCAFE is governed by a 17-member board of directors who represent the major coffee growing regions, the youth, women and projects or strategic areas of NUCAFE’s operations. The board of directors’ retirements are staggered to ensure continuity and a strong institutional memory capacity within the board. NUCAFE has a flat management structure. To ensure empathy to the key client (the coffee farmer), all NUCAFE managers have to be coffee farmers in their individual capacity. This has been a critical asset to the organisation’s relationship management in relating to the needs of the farmer and understanding the challenges they are facing. It is also vital in building farmer organisations within a specific value chain as it ensures focus on the client and goals to be achieved. This strengthens the role played by the commodity (coffee) in holding together all the value chain actors. The organisation’s growth is largely organic and has to a large extent been driven by lessons learnt from the past performance of the cooperative movement in Uganda. This has resulted in the emphasis on a facilitation role in the value chain with the farmer retaining ownership of the coffee along the value chain. In so doing this has helped to manage and minimise conflicts of interest between the farmer-led organisations and their members. Initially, NUCAFE has strategically positioned itself as more of a social service provider between 2003 and 2012 but has since evolved into a social entrepreneurial direction for the period 2012 to 2016. As a social entrepreneur NUCAFE plays a leading role in advocacy matters that relate to the coffee farmers. At the forefront of their business model, NUCAFE plays an increasingly greater role across the entire value chain as it seeks ways to encourage its members to take greater control of their business. Through this approach NUCAFE expects to continue playing a leading role in the formulation of policies related to the coffee value chain. This was clearly highlighted in the role played by NUCAFE in the formulation of Uganda’s first national coffee policy. It is seen as a framework through which all development efforts in the coffee subsector will be aligned with Vision 2040 aimed at transforming Uganda’s agriculture into a more productive, profitable and competitive sector.
  3. 3. 3 NUCAFE’s members are Farmer Associations or companies limited by guarantee. In essence these are at sub-county level. The Farmer Associations are groups of individual members within the same locality that organise themselves at close levels of the community structure such as parish level. The groups are legally registered as businesses. The associations in a coffee growing area form hubs, the aggregation points for coffee sales and input purchases, headed by one of the member associations. The lead association is usually one that has evolved through serving the other member associations as the leader or lead Farmer Association. The business model NUCAFE’s business model (farmer owner model) is established on 4 key pillars:  Farmer centeredness: Linked to the farmer ownership model which encourages the farmer organisation to participate in the opportunities along the entire coffee value chain. This ensures that all NUCAFE’s activities are performed in the farmers’ best interests or the farmers’ interests are at the centre of NUCAFE’s decisions.  Financial sustainability: One of NUCAFE’s strategic objectives is to enhance the farmers’ opportunity to generate and earn income from the enhanced business activities of the farmer organisation.  Networking and partnerships: NUCAFE recognises the importance of working with strategic partners and networking with organisations with a similar or complementary approach to business. NUCAFE will be able to achieve a greater impact through creating opportunities to leverage other businesses than if it acted alone.  Innovation and social entrepreneurship: Embedded social responsibility into its value proposition; doing good while yielding a better return for the farmer. This should attract social investors that can boost access to social capital for investment in the coffee value chain. NUCAFE’s Farmer Owner Model The farmer ownership model is aimed at supporting the farmers to organise and position themselves to take on as many roles as possible in the coffee value chain so as to increase their share of the value chain. Through this model the capacity of the farmers is enhanced to ensure that they can remain in charge of their affairs and take responsibility for their own actions. Groups •25 to 35 members NUCAFE Coffee Association Cooperative or Company limited by guarantee Coffee Farming Households Groups •25 to 35 members Coffee Farming Households Annual General Meeting Elected Board Business Manager 3 Elected Leaders •Chairman •Secretary •Finance Registered Business Name Cooperative or Company limited by Guarantee
  4. 4. 4 It is an intertwined network (See Figure 1) of value chains (product and services) and different from the traditional linear value chains which only focus on the active players in production, processing and marketing without taking into account the other stakeholders outside the linear framework such as the financial institutions, input suppliers, academia, Non-Governmental Organisations (NGOs), etc. Figure 1: NUCAFE’s Farmer Owner Model The associations/cooperatives in the inner circle provide some services; bulking, primary processing of coffee and deliver to the central hub at the National Farmer Organization level (NUCAFE) in the second circle. Then NUCAFE facilitates further value addition and other inclusive business services such as training, marketing, dissemination of information and advocacy. According to the “farmer ownership model” the role of the farmer organization such as NUCAFE, its member associations and partners is different. Rather than buying coffee, the focus is on facilitating the various processes and providing services that empower farmers and encourage farmers to invest higher in the coffee value chain. As a facilitator, NUCAFE and its partners do not take coffee away from farmers but facilitate the farmers to add value to the coffee and provide services not traditionally provided by the conventional middlemen. NUCAFE Approach Key to NUCAFE’s operations has been how to do things differently. The implementation of the Farmer Ownership Model began in 2003 and while it is still undergoing perfection and proving it works, it has also been used to create a portfolio of services. The goal is to retain the farmer as the primary customer of NUCAFE’s services. NUCAFE’s main activity has been advocacy. As a result of NUCAFE’s instrumental role in the creation of the coffee policy in Uganda, coffee is the only value chain or crop with a dedicated policy. Through its advocacy NUCAFE has the opportunity to interact with other policy makers and businesses involved in the coffee value chain. Farmer Exporters Processors Roasters/supermarkets/ Consumers Bulking Processing & Marketing Association training Business training Service linkages Enabling environment Information flow Financial Services Inputs Certification/ Standards Donors Coffee Development Fund Nurseries Uganda Coffee Development Authority (UCDA) National Agricultural Advisory and Development Services (NAADS) Cooperative training Uganda National Bureau of Standards (UNBS) Academia Traders/Exporters Principles 1. Farmer owned & Empowerment 2. Performance pay 3. Value Addition 4. Financial Solidarity 5. Sustainability UCTF National Coffee Farmers Organization NUCAFE Associations/ Cooperatives Government Ministries (Agriculture, Finance, Planning and other Institutions) National Agricultural Research Organisation (NARO) Mobilization and Good Agricultural Practices Extension & Business support services
  5. 5. 5 NUCAFE has focussed on ensuring that it avoids conflict of interest with its members by ensuring it facilitates the linkage between its member and coffee buyer without taking control of the coffee. In this approach the coffee producers know the buyer of the coffee and the terms under which the coffee is purchased. NUCAFE is rewarded for its effort with a commission. The implementation of this business model has been systematic and had to take a slow pace and phased approach while adding services and assuming more roles and control along the coffee value chain. NUCAFE began with minimal processing of coffee, Kiboko (dried coffee cherries) to Fair Average Quality (FAQ), and then progressed to grading the FAQ. The processing of the coffee was outsourced, and as a result NUCAFE did not have to invest in the processing equipment at the start, but rather developed and strengthened its relationship with key clients (with processing facilities) and then it facilitate marketing of processed coffee on behalf of the farmers. NUCAFE is currently investing in a coffee processing plant of its own outside Kampala to facilitate participation of the farmers higher in the coffee value chain. It will also manage the processing for some of the farmer organisations that would prefer to export their own coffee. The plant will provide the opportunity for NUCAFE to match some market requirements, such as specific coffee grades or sizes that it was previously unable to match with an outsourced processing function. NUCAFE is also providing the opportunity to assure traceability between farmers and buyers. With the increased control of the chain, NUCAFE has been able to work directly with coffee roasters and chains in Europe to access pre-finance without interest while farmers hold onto their coffee for more value addition. It has secured confidence, trust and credibility. The farmer ownership enhances capacity of farmers through their associations to participate in the most profitable nodes of the coffee value chain (Fig. 2), with increased farmer ownership via value addition and influencing pricing for stable farming household incomes ensuring shared value, determination of the future of farmers’ children and societal transformation. Since 2005, over 1000 jobs have been created in the rural communities. Farmers have upgraded from gross income of only US$ 2 per kg of graded coffee beans to earn at least 30% of the value roasted coffee per Kg. Coffee flowers 1 tree = US$ 0.11 Red cherries 1kg =US$ 0.40 Kiboko 1kg = US$ 0.60 F.A.Q (ungraded) 1kg = US$ 1.00 Green Berries 1kg = US$ 0.17 Graded AA coffee 1kg =US$ 2.00 Roasted beans 1kg =US$ 10.00 Roast and ground 1kg= US$ 30.00 1 cup =US$ 2.00 (80 cups =US$ 160.00) Source: Joseph Nkandu Consumer 1 tree= US$ 0.15 1kg= US$ 0.20 1kg= US$ 0.35 1kg= US$ 0.50 1kg= US$ 0.10 1kg= US$ 0.15 1kg= US$ 4.00 1kg= US$ 8.00 1 cup=$ 0.63 Empowering farmers to integrate; satisfying customers Prices in US$ Costs in US$ Figure 2: Farmer Participation Higher in the Coffee Value Chain
  6. 6. 6 Access to Finance Another successful initiative by NUCAFE has been the memorandum of understanding (MoU) between NUCAFE and Centenary Bank which entered into during 2010 under which NUCAFE was to provide the following:  Identify who among its members were suitable for finance, based on their historical coffee production records.  Mobilise and sensitize the identified farmers in preparation for the bank to finance the identified business opportunities.  Recommend the identified coffee farmers and their farmer organisations to the bank.  Monitor the farmer organisations’ coffee bulking and marketing activities and ensure compliance with the NUCAFE farmer ownership model to reduce risk to the bank, the farmer organisation and the farmer.  Ensure that the business managers of the farmer organisations make the necessary deductions against the farmers’ coffee sales and make sure that the deductions are remitted to the bank as loan repayment.  Support the bank in loan recoveries when necessary  Train the bank staff in coffee production, and the various stages of the coffee value chain as it relates to the NUCAFE farmer ownership model and approach to farmer ownership. The bank would use the above listed areas of support to extend credit to NUCAFE’s members that met the bank’s criteria. Success stories among the members Due to the nature and size of NUCAFE, not all initiatives meet the needs of its diverse membership and as a result each of its members tailors how best to fit into the NUCAFE family while serving its members. As if that was not enough, NUCAFE also took it upon itself to organize a training of loan officers of the bank to appreciate the NUCAFE business model and its holistic coffee value chain approach. Overall NUCAFE has worked to increase access to finance among its members using different innovative approaches. For example while access to finance under the MoU with Centenary Bank has been a success with Kabonera, it could not meet the needs of Bukonzo Joint. However Bukonzo Joint runs a different approach which has been a success thanks to its business model. Kabonera Coffee Farmers Association Kabonera Coffee Farmers’ Association was registered in 2002 and began bulking coffee in 2005. Upon realising the higher gross margins the members were supportive of the bulking continuing in 2006 and it has since continued to grow despite the working capital challenges as the volume of business increased. Kabonera is the lead farmer organisation of the Masaka coffee hub consisting of 8 Coffee Farmer Associations with 74 farmer groups serving 2,220 members. Coffee Farmer Association Groups Members Kabonera 15 450 Kyanamukaaka 13 390 Buwunge 11 330 Kisekka 9 270 Kkingo 11 330 Lwengo 9 270 Mukungwe 3 90 Bukulula 3 90 74 2,220 Table 1: Kabonera Coffee Association membership structure The biggest and most critical challenge to accessing credit was the lack of collateral by Kabonera. To address this, Kabonera turned to its members and, after consultation with his family, the chairman of
  7. 7. 7 Kabonera Farmers’ Association, Mr Muluya Philip, offered his family’s land title to the Association as collateral. Asked why he and his family would take such a risk, his reply was that it’s the ‘Love for the people”. Mr Muluya can best be described as a social entrepreneur that would like to see the Kabonera Farmers’ Association develop a savings and credit arm, an inputs supply network and develop its own processing facility. Mr Muluya is also a director of NUCAFE and believes that other members would also be willing to offer collateral should there be an additional need having seen the impact of increased access to credit through the Muluya family commitment and support to the Masaka hub. During 2011 the board of directors of Kabonera Coffee Farmers Association resolved to obtain a loan from Centenary Bank to serve the Masaka coffee hub. A loan of Uganda Shs 22 million was obtained for 2012. During 2013, the loan amount was increased to Uganda Shs 75 million due to increased interest and the quantity of coffee among its members. Kabonera Coffee Farmers Association is currently seeking Uganda Shs 100 million for the 2014 crop season. - 20,000 40,000 60,000 80,000 100,000 120,000 140,000 2007 2008 2009 2010 2011 2012 2013 Coffee Handled by Masaka Hub (ton) Table 2: Masaka hub coffee tonnage2007- 2013 Access to credit has resulted in increased quantities of coffee handled by Kabonera despite increasing competition. The marked decline during 2012 was due lack of credit as a result of a slow bank processes. This clearly highlights the importance of access to credit and obtaining it at the right time in the season. Other benefits to the farmers have included the following:  Farmers have been able to access immediate cash for household needs and coffee farming inputs such as fertiliser and herbicides.  Assisted Kabonera adjust to the competitive environment in which the middlemen are able to pay cash for the coffee where Kabonera was previously unable to do so.  Reduced the delays in paying for the coffee delivered to the hub.  The farmers are more loyal and willing to deliver their coffee to the hub as shown by the increasing quantity of FAQ coffee handled by the hub. Bukonzo Joint Microfinance cooperative microfinance Bukonzo Joint’s Managing Director highlights the importance of agricultural development to focus on understanding the farmers’ activities and the reasons for them before trying to encourage them to run their business differently. The Bukonzo Joint Microfinance cooperative society was unable to utilise the NUCAFE MoU due to the size of its business and the fact that it was an established micro loan institution. Bukonzo Joint was started in 1999 as a savings and credit association because the farmers felt they were neglected as no support was coming through to their region. Small groups of 5 or more were created under which the members were encouraged to save. After accumulating some savings the groups started lending to their members.
  8. 8. 8 During 2001, the members identified the need for information to improve the operations of the cooperative. To address this, they created training teams for agriculture, group management and financial management with trainers from amongst their own members whose skills had been noted during group formation. The trainers had to train member groups other than their own. The association continued to focus on poor collections and became increasingly concerned that the bulk of the borrowing was among coffee farmers. The reasons for non-repayment related to the performance of the coffee market. During the 2004 general assembly, the members decided to start bulking coffee and honey, which caused distress among the local traders who complained to the local authorities that Bukonzo Joint was not a registered coffee trader. Bukonzo fulfilled the necessary obligations to ensure compliance. Bukonzo Joint’s coffee business developed steadily after 2004 but experienced a marked decline during 2007 as a result of the men abandoning their migrant work in the towns on realising that the coffee business being run by the women who stayed at home on the farms was generating more revenue than their migrant work. They then opted to sell their coffee directly to the middlemen rather than go through Bukonzo Joint. To address this, the association became a member of NUCAFE and received coffee specific training for some of its leaders, mentoring in bulking to the near east town (Kasese) and ultimately to some speciality roasters in Europe and the cooperative introduced the Gender Action Learning System (GALS) to address the gender issues and the association’s declining coffee business. The Gender Action Learning System was complimented with the household approach. The women were also encouraged to run and operate their own businesses. The programme has been a success and the female members of the association are proud to highlight that their greatest success is the acceptance by their husbands that the land belongs to all members of the family and thus a collective effort is out to ensure success. [ This is clearly highlighted by Ms Ithungu Teddy, a farmer at the Musasa Lower Micro Washing Station. Bukonzo Joint also implemented a gender based reward system to encourage men to support women taking up leadership positions. Bukonzo Joint leadership decided that in cases where the leadership was by women the profit share would be at a 60 to 40 ratio in favour of the women groups. However, if men are the leaders the profit share ratio would 40 to 60, with the group gaining the bigger share. This greatly influenced the men to support women leaders as this resulted in a higher profit share for the entire farmer group. Operational organisation Bukonzo Joint currently focusses on the production of fully washed organic Arabica coffee. It has retained its roots as a micro finance institution but strategically linked it up with the coffee trading business. The resources within Bukonzo Joint are leveraged or shared across the micro finance and coffee businesses in a manner that carries mutual benefits. This structure has seen Bukonzo Joint manage its loan portfolio successfully and increase production.
  9. 9. 9 Figure 3: Bukonzo Joint organisational structure The processing is divided into 29 micro washing stations. Only nine of which are conventional washing stations as these have not yet met all the necessary organic certification standards. Each micro station is further sub-divided into small farmer groups of 5 or more. Each micro station has leader, secretary and business managers who are responsible for the purchase of coffee cherries and the subsequent processing of the cherries. In doing this they also manage all the quality requirements and communicate this to the farmers. The parchment when fully processed and at the required moisture content is delivered to the Bukonzo Joint warehouse where it is purchased by the procurement manager provided it meets the quality standards. When the farmer makes the sale at the micro station, the farmer specifies the terms i.e. whether it is for the export market, immediate payment or what amount is expected as an advance payment. Ms Medius Baluku makes a presentation on coffee handling and processing at the Bwimaniro organic coffee washing station. The farmers through their own initiative started roasting and grinding coffee for the local market using available traditional resources -a clay pot for roasting and a grinding stone. However, with the support of one their Japanese buyers and the Japanese government, they acquired a coffee roasting facility fully equipped with roaster, grinder and packing machine. They have begun receiving commercial orders for roasted coffee from local businesses and some regional traders from the Democratic Republic of Congo (DRC). Managing Director Micro Finance Department Marketing Department Workers’ Supervisor Accounting Manager Finance Manager Cashiers Cashiers Loans Officer Field Internal Inspectors Secretariat Team (Shared Service) Quality and Transfer Manager Procurement Manager Micro Finance Department Micro Finance Department Field Officers Support Staff VolunteersSecurity Guards
  10. 10. 10 Bukonzo Joint remains a firm advocate for starting with what is available and the use of local resources as shown below with the outlet at the Head office. Bukonzo joint activities effectively give a farmer ownership from the coffee nursery established and operated with NUCAFE, planting new coffee trees, nurturing the coffee trees, primary processing at the micro stations, outsourcing secondary processing and grading for export and roasting coffee for sale.
  11. 11. 11 Acknowledgment A special word of thanks and appreciation goes to the NUCAFE Board of Directors and management for the support in publishing this article. Their willingness to share the business model and experiences in facilitating farmer businesses offers valuable knowledge for other farmer organisations. The ACP-EU Technical Centre for Agricultural and Rural Cooperation (CTA) believes sharing farmer experiences will go a long way towards enabling other farmer organisations to understand the importance of treating agriculture as a business. References Baluku, Paineto (2014). Managing Director, Bukonzo Joint Cooperative Union. Meeting at Bukonzo Joint Offices, Kasese, Uganda. 12th June 2014. Bwimaniro Micro Washing Station (2014). Bukonzo Joint Cooperative Union. Meeting at Bwimaniro Micro Washing Station, Kasese. 12th June 2014. Kabonera Coffee Farmers’ Association (2014). Management team, Kabonera Coffee Farmers’ Association, Meeting at Masaka Hub Offices, Masaka, Uganda. 7th June 2014. Muluya, Philip (2014). Chairman Board of Directors, Kabonera Coffee Farmers’ Association, Meeting at Muluya family residence, Masaka, Uganda. 7th June 2014. Muwonge, David (2014). Deputy Executive Director, National Union of Coffee Agribusinesses and Farm Enterprises (NUCAFE). Meetings at NUCAFE offices, Kampala, Uganda. 5th to 12th June 2014. Musasa Lower Micro Washing Station (2014). Bukonzo Joint Cooperative Union. Meeting at Musasa Lower Micro Station, Kasese. 12th June 2014. Nkandu, Joseph (2014). Executive Director, National Union of Coffee Agribusinesses and Farm Enterprises (NUCAFE). Meeting at NUCAFE offices, Kampala. Uganda. 6 th June 2014.

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