Digital trading platforms for agriculture: the case of TruTrade Africa
Tea pickers in Kenya's Mount Kenya region
In developing agriculture, smallholders and large wholesale buyers (such as supermarket chains) are usually completely dependent on informal traders and middlemen to keep the flow of products and payments going back and forth along the chain. Middlemen exploit this situation by adopting a buy-low-sell-high mentality that maximizes their profits, but also constraints the growth of the value chain as a whole. As a consequence of this “distance”, farmers are also unable to formalize (with a contract) their business relationship with the wholesalers, something which would strongly raise their appeal as potential clients in the eyes of formal financial institutions.
Digital technology can help to bridge the distance between these value chain segments, such as in the case of TruTrade Africa, a mobile-enabled trading platform active since 2015 in Uganda and Kenya. What is interesting about TruTrade is that it has sought to use digital technology to redefine the role of the traders in the value chain, as opposed to trying to disintermediate them completely from the equation.
TruTrade allows large buyers (wholesalers, but also processors and exporters) to place orders on the online platform for large quantities of specific crops, which can be then be reviewed by a group of local traders affiliated to TruTrade. If a trader accepts a commission, he is responsible for procuring the commodity among its network of smallholder producers, and then sell it to the buyer.
The trader earns a commission on the successful sale, which –interestingly- is actually based on the price that the farmers got for their crops, and not what was paid by the end buyer. This effectively shifts the traders’ mentality from a buy-low-sell-high approach to one that actually tries to deliver the best price for the smallholders they are sourcing their products from. Overall, the system is extremely transparent: farmers, for example, can use the online platform to monitor the evolution of the transaction, to see how much the end buyer paid, and how much the trader earned with his commission.Most importantly, TruTrade allows farmers to be paid “cash on the bag”, immediately upon handing out their crops to the trader, either via mobile or in cash. To do this, TruTrade advances the funds required to the trader itself, on credit, so that he is able to pay all of his suppliers immediately. This system solves a major challenge usually faced by smallholders: the inability to be paid on the spot due to the middleman lacking enough funds at hand.
Apart from this advantage, this system provides several other benefits to all actors involved. Smallholders gain access to better market channels and higher prices for their products, and can also keep track of their sales history through the app. Buyers gain access to a large and traceable supply chain of products. Traders are able to pay farmers immediately and do not risk them side selling their products to others.
TruTrade does not take part in any of these transactions directly; it actually earns its revenue by placing a commission of 5 percent on the value of the produce sold to the buyer. It also charges an interest to its traders for the money it advances to pay the farmers. As of 2018, TruTrade could boast a network of 150 traders in Uganda and Kenya, which enabled more than 7000 farmer transactions and supported farmers in earning 15-20 percent more on their crops. It had brought over 1700 tons of produce to the market, with total sales to buyers of more than US$ 900.000.