But still, agricultural workers tend to have very little access to credit. One barrier to rural access is sheer physical distance: given that margins are lower than with urban clients, financial institutions are not interested to reach remote areas. Prior to independence, Angola was self-sufficient in all key food crops (except wheat) and was an exporter of cash crops, in particular, coffee and sugar but today the stage of development of the agricultural sector has deteriorated mainly because of being neglected during the oil boom.
MFIs microfinance institutions tend to see farmers as high risk. There is a different way to look at this, because farmers' income is irregular and highly susceptible to environmental and climate situations. One example is a collaboration between the Coopera, a local financial cooperative and Frutas da Lagoa in Angola. Frutos da Lagoa is running a pilot program to integrate small-hold farmers into its supply chain by selling the fingerlings and feed, buying back the grown catfish from farmers to process and send to supermarkets.
Their joint business plan entails providing credit to small farmers in order to integrate them into Frutos da Lagoa’s supply chain. More specifically, Frutos da Lagoa provides the fingerlings, feed and training to small farmers and then buys back the grown catfish to process in the processing facility. This creates a win, win, win situation for all parties involved. Farmers get the guaranteed sells to processors, thus reducing their operational risk and the supplemental income; the financial cooperative gets a competitive return on its capital and Frutos da Lagoa gains a more robust supply chain that would feed its processing center even if problems arise in its internal production (see graph).
Mario Mendes, Founder of Frutos da Lagoa says “The key is to start within the communities and to start small with a lot of support and by diversifying crops with fish farming on a supply chain program. Part of the process is also providing education about financial services to the farmers. It is called financial literacy. Over the years the concept of cooperatives have had very little pick up and little effort has been concentrated on providing that knowledge sharing with the agricultural sector. But what Frutos da Lagoa founder wants to showcase is that there is a way to revive the whole industry by doing things differently. So far many African countries including Angola have developed a logistical network purely geared towards importation. Over the last 3 years Angola has spent a staggering USD 8.6 Billion importing food, which means that on average the country spends yearly about 20% of its foreign reserves on food.
There is almost no conservation and transportation infrastructure in the interior of the country. Small hold farmers do not have any bargaining power when buying their inputs (seeds, fertilizer, insecticides) because they cannot afford bulk purchases. They are vulnerable negotiators since the sale of their products depend heavily on price fluctuations as there is no organized effort to bargain a standardized price. As a result, farmers compete negatively with each other and undercut the next farmer’s price. Today the situation is that the logistical and conservation infrastructure to reach the consumer market is completely lacking.
High unemployment rate, especially youth unemployment due to lack of opportunities in the agricultural sector makes it an unattractive sector for work. There is no doubt that Angola is a very risky market for sustainable farming.
Why this platform is likely to win
Alberto Mendes founder of the Coopera financial cooperative and Mario Mendes are highly educated entrepreneurs and have made it their mission to give support to their native country. Together and through Frutas da Lagoa they provide a structured approach to agricultural development. They have removed the “uncertain factor” so that the farmers only focus on the production of their crops and in creating the ecosystem required for a challenging environment – to create a scalable model because of the lack of logistical infrastructure discussed above.
COOPERA founded by Alberto is the backbone for the financial cooperative. Mario’s passion for agriculture led him to start the catfish farm – with a vision to create and implement a new model for rural development. Formal private ownership of the means of production is the check and balance needed in the development of a dynamic market in African countries. Entrepreneurs often are not able to leverage their land, production, equipment, etc, to do more for the market, says Alberto Mendes, one of the founding members of Coopera and current managing director.
In fact this ecosystem creates a one stop shop to plug in small hold farmers into a bigger supply chain.
The financial cooperative is a way to coordinate the efforts of all farmers into a common goal – the credit package comes with the necessary training for the farmer to be successful. The cooperative aggregates the input needs of several farmers so they get better prices. The cooperative aggregates the output of several farmers so they are able to get higher selling prices and not undercut each other.
Technology gives a significant edge to the financial cooperative. It is able to use biometrics to register clients. Just keep in mind that more than 70% of the population does not have a bank account and that in general the rural population is not obligated to have a valid ID. Use of cloud based software makes the process of following up on credit and/or client activities more efficient with the biometrics.
Currently one of the largest processing company, Frutos da Lagoa partners with Coopera, Mario saw an opportunity to work with a cooperative to make sure its supply chain is more resilient (if the company has a problem with its own production, can always rely on production from the small farmers to keep processing center running).
Frutos da Lagoa is like an anchor client that guarantees purchase of the small holder farmers production. This is very significant because it substantially decreases the risk of price fluctuation and market access to small farmers.
Although this is just the beginning, Frutas da Lagoa and Coopera are surely going in the right direction, as bureaucracy and lack of resources slow down the alternative methods for farmers to obtain loans in this new entrepreneurial covid period. Alberto Mendes says, “Strength comes from careful planning combined with patient and rigorous execution. Coopera is very aware of the challenges the local market presents and is executing a sustainable holistic approach to create ever expanding market clusters.