How We Made It in Africa July 12, 2020
The price of food is a significant source of risk in developing economies across Africa – where data is available, it is estimated that Africans spend upwards of 40% of their household income on food.
On the supply side, more than 50% of Africa’s workforce relies on the agricultural sector for their livelihood, income, and employment, according to the Food and Agriculture Organization (FAO) of the United Nations. Yet, Africa is a net importer of food – its collective food import bill is expected to rise to $110 billion by 2025.
These two problems are inextricably linked. Goal number 2 of the UN’s Sustainable Development Goals is zero hunger, and in working towards this objective, the FAO has identified the support of smallholder farmers’ ability to increase food production as a crucial element. In particular, the fragmented, inefficient and informal nature of African economies has an adverse effect on market access for smallholder farmers, and as a result, drives up the price for food for consumers at the end of the supply chain.
Meanwhile, Twiga Foods is a venture-backed startup working to better organise informal retail in Kenya. Says co-founder and CEO Peter Njonjo, “We’re using technology to aggregate this fragmentation and build efficient supply chains, with an objective of reducing the cost of food.”
The greater metropolis of Nairobi has around six million people, who are fed by 180,000 small shops, kiosks and vendors. Together these informal shopkeepers make up approximately 90% of the retail market.
Twiga Foods’ tech-enabled platform aims to improve market access for farmers and food processors by building reliable supply for informal retailers, according to Njonjo.
How Twiga Foods works
On the supply side, the biggest problem farmers face is getting their produce to market, due in part to their reliance on informal middlemen in the supply chain. Prior to Twiga, unscrupulous brokers would take advantage of these difficulties by offering farmers below-market prices for their produce or by their unwillingness to transact with farmers during periods of supply surplus. Twiga, on the other hand, offers farmers a guaranteed market and fair pricing.
Twiga deals directly with farmers to match the demand from retailers. Twiga collects the produce straight from the farms, and farmers are paid via mobile money platform M-Pesa within 24 hours of collection.
According to Njonjo, Twiga has reduced typical post-harvest losses in Kenya from 30% down to 4% for produce sold through the Twiga platform.
On the demand side, Twiga registers merchants in Nairobi who then place an order with a sales representative or directly on Twiga’s app. Upon receiving the order, Twiga dispatches via its distribution vehicles free of charge and in 24 hours.
To optimise delivery, Twiga maps its vendors using geographic information system (GIS) mapping and leverages its AI-enabled distribution platform to see who is ordering, where they are located, what the conditions of the road are, and how to best organise deliveries to maximise efficiency.
In digitising and building a ledger of all transactions, Twiga is also able to offer access to credit products through third parties, for both farmers and vendors. As its customers grow, Twiga grows, and increasing scale and volume of orders have positive implications for Twiga’s unit economics and profitability, as well.
Now in its seventh year of operation, Twiga has become the single largest buyer of fresh produce in Kenya, servicing over 4,000 farmers and 35,000 shopkeepers.
A partnership-driven approach
Twiga Foods employs a business-to-business model. It sells to merchants who in turn sell to the end customers. However, the Covid-19 pandemic has the company exploring how to get food in the hands of more Kenyans at an even lower cost. To do so, the company has employed a partnership-driven approach and teamed up with ecommerce retailer Jumia in Kenya.
“[We were asking] how can we get food to vulnerable people – and we spent time brainstorming this with Jumia,” says Njonjo, “and we’re like ‘if we can get this to vulnerable people, can’t we just get it out to everyone else?’ And that’s what led to the launch [of the Twiga Fresh Bundle on Jumia Kenya]”.
In leveraging Twiga’s B2B infrastructure and Jumia’s consumer-facing platform, the Twiga Fresh Bundle, consisting of fruits, vegetables and non-perishable foods is priced around 50% cheaper than a comparable basket at supermarkets.
It is another distribution avenue for Twiga. “[With this partnership] we can start a B2B platform that services the ecommerce industry… So for us, it’s also looking at traditional and non-traditional channels that are emerging – so the same way we look at informal retail, ecommerce is also an emerging channel that we can service,” says Njonjo.