Written by Herbert Hatanga, Partner for East Africa
Most investment professionals would agree that fieldwork is one of the more enjoyable aspects of due diligence, whether assessing a potential investment or monitoring an existing one. I’ve experienced it countless times, and I am no exception. In this article I share one of my most recent experiences.
A few months ago, my colleague Fred and I travelled to Bundibugyo in Western Uganda to conduct due diligence on an aggregator’s operations. Aggregators play a critical role in connecting smallholder farmers to markets, purchasing their produce, and ensuring prompt payment. Many also offer additional services such as agronomic advice, certification support, financial literacy training, business planning, and gender inclusivity programs.
As part of our standard investment process, we followed the first steps of the value chain, from the smallholder farms down to the warehouse where products are ready for export – i.e., the final handover point, where aggregators transfer goods to logistics operators like shipping companies. To better understand the operations, Fred and I visited several farms that supply the aggregator.
This story, however, is less about the mechanics of due diligence and more about the relationship we observed between the cocoa farmers and the aggregator we were evaluating for financing.
Meeting the farmers
Esther and James (names have been changed to protect privacy) grow a variety of cash and food crops on a 1.5-acre (0.6 ha) farm. They introduced cocoa on their farm just over 15 years ago, with the support of an aggregator that had been operating in the region for several decades.
Esther and James told us that maintaining their farm is a daily commitment and a vital part of their livelihood. The farm provides food for their family and generates income to cover essential expenses like school fees for their three children. They credit the aggregator’s support with increasing their cocoa yields and improving their household income. Additionally, participating in the aggregator’s financial literacy program has enabled them to build significant savings, bolstered by the recent surge in global cocoa prices, further enhancing their financial security.
The couple manages the farm themselves, occasionally hiring help for labor-intensive tasks. Farming is a full-time endeavor, involving regular activities such as inspections, pruning, pest and disease control, harvesting, fermenting, and drying cocoa beans. Each step requires meticulous effort before the crop can be delivered to the aggregator’s storage facility – a local warehouse built by the aggregator in their village.
While Esther and James are free to sell their cocoa to other buyers, they mentioned that prefer working with what they call “their” trusted aggregator. The immediate payment upon delivery is a significant advantage, especially compared to other buyers who often offer less favorable terms. They also value the agronomic support provided by the aggregator’s field extension worker, as well as the premium bonuses tied to certification programs, which have further strengthened their loyalty.
Why aggregators are essential in agricultural value chains in Sub-Saharan Africa
For Esther and James, the aggregator has been instrumental in securing a stable and reliable revenue stream. Over the past 15 years, it has consistently linked them to markets, earning their trust through its long-term presence in the region. Beyond cocoa, the aggregator has helped them diversify their income by introducing new cash crops such as coffee and vanilla, while promoting good agricultural practices that enhance soil health and boost yields. These efforts have translated into higher incomes, improved resilience, better household nutrition, and more. Regular farm visits from a qualified agronomist and on-call support further ensure that Esther and James have the guidance they need to succeed.
While aggregators are indispensable in supporting smallholder farmers, particularly with pre-harvest activities, their ability to promote sustainable farming practices is often limited by the lack of external funding from traditional lenders. This financial constraint hinders the broader adoption of environmentally sustainable practices.
Esther and James informed us that they receive no direct incentives for the positive climate and environmental contributions they achieve by practicing sustainable agriculture. Aggregators are uniquely positioned to bridge this gap. By integrating smallholder farmers into broader climate change initiatives, aggregators can foster a more cohesive and purposeful approach to enhancing climate resilience and supporting nature-positive outcomes across smallholder farming landscapes.
Opportunities to support aggregators for improved smallholder farming practices
Farms like Esther and James’s are a testament to the resilience and potential of smallholder communities across Sub-Saharan Africa, where poverty and limited resources remain persistent challenges. Scaling success stories like theirs requires creative solutions to address the financing gaps that often hinder access to inputs and essential services.
During my recent field trip, I was reminded of the transformative role aggregators play – not just as market connectors but as enablers of growth and resilience. Initiatives like the Food Securities Fund work behind the scenes to address these gaps by providing the necessary financial support to aggregators. This, in turn, strengthens the link between smallholder farmers and the resources they need to thrive.
The stories of farmers like Esther and James are a powerful reminder of the importance of long-term partnerships and innovative approaches to fostering resilience in agriculture. It’s a journey worth continuing, one relationship and one story at a time.
Herbert Hatanga, author of this blog, is pictured in Uganda while conducting due diligence on an aggregator that operates in sustainable cocoa value chains and sources from smallholder farmers.
