The pros of hoarding profits

Baobab bicyclist

Plenty of fruit from the baobabs in Mangochi district isn’t sold to TreeCrops. Much is sold to vendors going to Blantyre to sell it to small juice business. Some women also make baobab juice, both in Blantyre and in Mangochi.

This poses a  supply challenge to TreeCrops: if it’s harder for our processors to find baobab fruit, they end up processing less, so we buy less, and export less.

I was at first ambivalent about Malawian market women making juice. It’s hard not to root for the underdog, the women trying to make a few kwacha buying baobab and selling juice, especially when Engineers Without Borders talks about “Dorothy”, the African woman whom our work should ultimately help.

But today I sat down and considered this challenge and I know firmly believe selling baobab to our company is a much better proposition than hundreds of women making juice.

Why?

With adequate sales, TreeCrops will make a significant profit which can be reinvested into the company to buy more baobab, expand to new markets, or develop new products. The profits made by women selling juice are too small to be reinvested (except in buying more baobab) and are simply consumed. A lumpy profit distribution allows for growth. 

We sell baobab to more lucrative export markets, in effect giving baobab more value than making it into juice. Also, we will find new markets for side-products, such as baobab seed oil in cosmetics or baobab fibers in tea, which can’t be done by women selling by the roadside with little or no profit to reinvest. Product development requires sophisticated market knowledge. 

We restrict the number of people who can become members in our processing clubs so they make reasonable profits on their work, akin to the City of Toronto limiting the number of taxis that can be on the road. With (near) unlimited entry, the earnings of roadside juice-making are very little. It’s not just about jobs, but well-paying jobs. 

We raise product quality by insisting on processing standards. Case in point: when performing a quality check at a new depot, chicken feathers were found in one bag. When questioned, the man whose bag it was apologized, but then said he’d keep the bag to sell to other vendors. Quality standards require a minimum level of market organization. 

TreeCrops, being managed and co-owned by a grizzly German forester, has plans for protection and rejuvenation of the woodlands in which baobab is found. The vendors, on the other hand, will go so far as cutting off tree limbs to get the fruits, a completely unsustainable practice. Environmental standards are enforceable with formal companies. 

Try as I could, other than the heart-warming tale of a entrepreneurial, savvy market lady turning a few kwacha a day making juice, I couldn’t think of anything attractive about the mass competition of the current baobab market. This free-for-all frenzy isn’t effective competition, it is wasteful and unprofitable. There’s a good case to be made for a clear market leader controlling the majority of the resources. It’s the difference between your great aunt’s inheritance being divided up amongst all her great-nieces and great-nephews, or going to her favourite—and most industrious and entrepreneurial—grandson.

So far from more competition in the baobab fruit market, I’d like to see less. Which of course means more: more fruits for TreeCrops, more sales, more profits, more profitable employees, more protect woodlands, more products, and more reinvestment.

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4 Responses to “The pros of hoarding profits”


  1. 1 Pascal July 21, 2009 at 11:44 am

    Hi.

    Great article, but remember that there isn’t only Tree Crops Malawi that produce Baobab in sustainable way.

    In Senegal we transform around 500 Tons of closed Baobab fruits every year since 1999 and we think that open market is the best thing that Baobab and African Villages never had in his old life. The important is to manage the source and be present into International Market (we export in 22 countries) with know how and research. This is the point.

    Try to go a little bit deeper than red fibres used in Teas and you will see that every producers will be happy to sell his production of Baobab Fruits to Tree Crops.

    ;-)

    Have a Great Day

    Pascal

  2. 2 Graham Lettner July 22, 2009 at 8:47 am

    Hi Pascal,

    Thanks for the response.

    Anywhere I can go on the web to find out more about your work in Senegal exporting baobab fruit? Do you have particular information about your own sustainability approach? TreeCrops has a particular system of mapping and protecting woodlands in conjunction with buying the baobab from these woodlands. Not without its hiccups, but an approach with some promise.

    Cheers,

    Graham

  3. 3 larsen July 23, 2009 at 4:12 am

    “With adequate sales, TreeCrops will make a significant profit which can be reinvested into the company to buy more baobab, expand to new markets, or develop new products. The profits made by women selling juice are too small to be reinvested (except in buying more baobab) and are simply consumed. A lumpy profit distribution allows for growth.”, and

    “We sell baobab to more lucrative export markets, in effect giving baobab more value than making it into juice. Also, we will find new markets for side-products, such as baobab seed oil in cosmetics or baobab fibers in tea, which can’t be done by women selling by the roadside with little or no profit to reinvest. Product development requires sophisticated market knowledge.”

    So you/your processors are paying more to baobab fruit vendors (because you/they’re more profitable), esp if you have problems getting the quantities?

    The point about the lumpiness is interesting. what if small changes are not salient enough for people to think about reinvesting? because in general many times small is also big…
    like when you change shades of gray below the level of perception, and don’t notice you have gone from rel light to rel dark.

    • 4 Graham Lettner July 23, 2009 at 1:43 pm

      The changing the shades of gray metaphor works for me: it reminds me of the frog in the slow-to-boil water that never jumped out before it was cooked.

      Though it’s not just noticing that the small bits add up to the big sum; I think there’s more to it. Even just the willpower to save small earnings to make a big lump investment is tough, tougher than getting a windfall (your great aunt’s inheritance) and thinking about what to use it for.

      Plus, there’s a mindset difference between spending and investing. I can’t say I’ve thought much about personal investing beyond a simple treasury bill or a mutual fund. But investment is what businesses do so they’ve got an eye out for taking a lump sum and turning it back into future cash flow.

      Sorry–got off on a run on an interesting idea. Thanks for writing, Larsen. Got a blog of your own?


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Working to include smallholder farmers in agricultural markets, we know there are no easy answers. This blog is a place to ask "What does it take to make it work?" and to share what we're seeing and learning.
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