I’ve been mulling a concept around for some time now. It’s about how we manage and address risk through diversifying or specializing our businesses and skills.
Evidence of diversification is prevalent in Malawi, certainly much more than I am used to. It is not uncommon for someone to have 2 or 3 jobs at once, maybe a core career as well as a side business and a few related interests. However, it is the prevalence of little groceries though that really got me thinking about different strategies of managing risk. These groceries range in size from tiny shacks outside a house or little cubby-holes in a cluster of larger buildings, to larger and seemingly more permanent shops. And then there are the more established superettes (about the size of a 7-Eleven), larger stores and wholesalers. On a smaller scale, there are the boys that wander around the town carrying trays or crates with a random selection of the fastest selling items.
Groceries are everywhere. I actually have no idea how many I pass on my way to work every morning; my guess is at least a dozen and there are easily a few dozen more just off on any side. But beyond the sheer number of these groceries of varying scale, they are all selling small amounts of the same things, at roughly the same price, with the only exception being the wholesaler (which as I found out is where most of the little groceries source from). Cookies, sodas, packets of milk powder or cooking oil, margarine and sugar and salt and occasionally home-made donoughts or hard-boiled eggs.
At the Dedza bus depot there are probably 5 of these little shops lining the side facing the road. If you go around the back to face the depot there are at least 5 more. If you cross the road to the other side of the depot, there are another 4 facing each other, all the same size, all with one shop keeper, all selling the same things.
The wholesaler, Metro, sells items at a lower per-item price, but actually at a higher upfront cost which an individual either cannot afford or justify at that point in time. So these little grocers will find the initial capital and buy in bulk, then divide up the items into more manageable sizes, mark them up a bit (anywhere between 5 and 50 kwatcha) and sell the smaller packets to individuals at a price and quantity they can afford.
I’ve learned a lot of this because we actually have one of these little grocery shacks out front of our house, but it’s not been doing very well, for a whole range of reasons. One of those reasons is that we are down the hill and don’t have good access to the traffic that frequents the main roads, hence only the neighbours (some of whom have their own shops) or the villagers from across the valley are our clientele. Another reason might be the drawing down of the initial capital investment in items for sale that are instead being used in our house or to invest in another side business of making donoughts, but without replenishing the stocks in the store. Again, diversification into other businesses is meant to reduce the risk and increase income quickly, but with everyone doing the same thing, it is unlikely to produce the desired results, particularly if poorly managed.
At first glance, this makes no sense. The market is flooded; competition is stiff; differentiating between them beyond convenience of location and friendly demeanour is, at least to me, nearly impossible. Given that, why would someone get into this business? And if you did, why not do something to make your store stand out? Differentiate differently.
I mentioned in a previous post that I don’t like to keep comparing Canada and Malawi, for a variety of reasons. But in this case, the comparison has actually provided some very interesting insight.
I started wondering if specialization was simply not possible in this business environment. For example, I would happily buy fresh fruit from one of the many groceries rather than wandering around searching the little markets and street corners to see if there is any available that day. I asked around a bit, and the answers I’m getting say that actually specialization is possible, and certainly more possible in larger trading centers. The barrier (at least one of them) is perceived risk. Diversification reduces the overt risk of investing capital in one product line, and investing in non-perishables means that they can be stored for a long time without the risk of spoiling. Unfortunately, the hidden or unacknowledged risk is that by flooding the market with the same product and choice, small-scale grocers are effectively reducing their selling power and increasing their own competition, all without an increase in market size or disposable income. Not to mention the nutritional side-effects from providing, buying and selling sugar, oil and salt filled products that fill you up but have little real nutritional value.
I started to imagine and discuss different alternative scenarios that could reduce the competition and increase the selling power. I placed these situations in the context of a rural village because it is a bit more challenging, more contained and targets people I work with. The context actually matters. While specification can and does happen in Lilongwe, it is near non-existent in a village. Specification would be much more challenging in a village situation where access to capital is limited, population size is smaller and disposable income is scarcer.
Situation 1: Pharmacy
We are in the middle of rainy season in Malawi. This season yearly sees an increasing prevalence of diseases, illness and accidents. It also coincides with the time of year when people need to be out in their farms working, weeding and harvesting to provide enough food for the coming year. Therefore, this is the least opportune time to get sick. Every few days though, someone else in my community gets ill, usually with Malaria or a water-related illness.
I started wondering about converted a grocery into a pharmacy that sold medication and bandages to bring the market closer to the customer. Maybe the store keeper could be trained in some basic medical best practices and be fluent in drug dosages to encourage the proper usage and proportions. Essentially, would bringing the medical services closer to those who need them help people to get faster and better treatment? Currently, the hospitals and clinics are far away from rural villages and roads in the rainy season can be dangerous and slow, so proper treatment is difficult.
I mentioned this idea to a few colleagues and friends, and the answer I received was that while better, reliable and closer service was needed, they did not think it would work. Medical services are provided free of charge at major centers, and income is precious. Despite the need and time spent in travel, people would choose to trek to the major centers for the services rather than pay for the medication at a closer location. Cost trumps convenience, and the business would likely struggle.
Situation 2: Farmer inputs
My second idea pertains to farmer inputs. Procuring farm inputs of good seed, fertilizer and tools is a constant challenge for farmers (this is what I’m hearing and seeing). Currently, farmers have to go to the trading centers to purchase inputs at various times of the year, and with the liberalization of the market and gradual downsizing of the ADMARC (sort of like the Canadian Wheat Board, but with a focus on maize), procuring inputs has becoming increasingly challenging and expensive. With decreasing available land, decreasing land fertility and erratic weather, they are at the same time increasingly needed.
(As a side note, it is AMAZING how much of a difference fertilizer actually makes to crop yield. The difference in height, colour and health of the maize plants is blatantly obvious. You can look across a valley and see who planted what seed (local or hybrid), using what technique (3 grains or 1) and using how much fertilizer.)
Fertilizer in particular has become a highly politicized topic. With market liberalization and a drastic reduction in subsidies, the price has gone from 500 MWK a bag to anywhere between 5,000-10,000 MWK. The issue is complicated.
http://www.thegatewayonline.ca/blog/graham-lettner/fertilizing-relationships
The government has tried to assist by introducing a voucher programme for those who need it the most, but this has been met with scepticism and sometimes anger. You can tell where the fertilizer is being handed out on any given day by the masses of people waiting outside the shed to receive it.
Given the high demand, the high transport costs and the increasing distance to markets, I wonder if there is the potential for a small-scale rural farm input center. The answer I’m getting is yes. People already have to buy the products at variable prices, so unlike the pharmacy case, that is not a disincentive. There is a well established desire and need for the inputs. There is a lack of service providers and it can be difficult and expensive (both in time and money) to get to and from the markets.
So maybe establishing a small private sector of farm inputs has potential. When I was in Chisasiko, I actually spent an afternoon with Enock drawing out the fertilizer market with him since he was thinking of becoming a fertilizer supplier in his community, taking on the transportation costs and time to bring more goodness closer to where it was needed at a slightly higher price to cover his costs. The biggest barrier is of course finding the initial capital to make such an investment.
Situation 3: Livestock
Unlike most other southern African nations, Malawi has a remarkable shortage of livestock. This strikes me as odd since livestock can be a good store of capital (purchased when money is available and sold when food and income get scarce), a good dietary supplement for meat and milk, and the manure can be used to make organic fertilizer (which is desperately needed). There are a few major cattle/livestock farms, and goats bounce around villages, but there seems to be very little order, interest or investment in this field.
I started wondering if a villager/farmer were to get trained in best livestock practices, rent out his land (a scare commodity) to his neighbours for maize cultivation (or another crop), and raise livestock on the uncultivated pastures that speckle the landscape, if he/she could make it viable as a business. Maybe they could set up a little butchery or milk stand. Change the mentality from subsistence farming or farming as a business to livestock as a business.
Despite the benefits this might bring, the associated risk and necessary changes seem just too high. Even our best farmers who are willing to try new techniques and plant new crops plant a good portion of their land with maize. Those who are more hesitant still plant the local varieties using local methods. Not planting maize is just not an option, and is regarded as foolish. Because livestock is scarce and security is an issue, there is the concern that they would be stolen. As such, people are hesitant to invest the necessary capital in something that could be carried away at night. Without easy access to a veterinarian or knowledge of animal diseases, there is also the risk of illness and infection. Certainly, diseases had wiped out half the livestock in Chisasiko village the year before.
These barriers, and probably a few more, would have to be addressed before a farmer would even consider livestock as a viable business proposition.
Diversification and specification to varying degrees and in different contexts brings the discussion of perceived and real risk to the forefront. I have solicited the opinions of colleagues and friends, but I think now it is time to go back and get more input from farmers themselves and from you. Please send ideas and suggestions my way.
