IDH Farmfit

SDM Case Report: FMS Farms, Nigeria

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FMS Farms, established in 2009 to pursue commercial agricultural opportunities in West Africa, currently consists of a vegetable farm, a cassava plantation farm with outgrower model and poultry farming located in Ekiti state, Nigeria. The SDM analysis focuses solely on FMS’s cassava plantation business unit through which they operate a cassava block farm, nursery and processing factory. FMS sources from both block and community smallholder farmers and addresses several of their challenges of land and market access, affordable financial services, access to quality inputs and market oriented agricultural extension services through their service delivery model.

To grow their business and address domestic market opportunities for cassava derivatives, FMS intends to develop their block farm model and expand its active block farmer base of 171 in 2019 to 1,237 farmers by 2025. Annual block farm sourcing volumes are expected to grow to 48,400 MT per annum of cassava tuber by year 2023, resulting in 9,680 MT of annual starch product.

By offering additional farm land and a comprehensive bundle of services on credit (incl. training, inputs, improved stems and mechanization) FMS is able to more than double annual production per block farmer, thereby significantly boosting their household incomes to above the poverty line of 912 USD per household per year within 1 year.

This analysis assesses FMS’ strategy and business model and identifies opportunities to establish an efficient sourcing model while mitigating business and farmer-level risks. For FMS to run an efficient, inclusive and sustainable cassava processing business it should strategically design its sourcing and service delivery model, while optimizing its working capital needs and attracting new sources of affordable finance. Few of our key suggestions to FMS are to:

  1. Establish a phased cropping scheme within the block farm. To maximize the processing factory utilization, FMS needs to ensure a steady supply of quality tubers throughout the year. This can be achieved by balancing the timing of planting of stems given seasonal rainfall variability, timing of harvest for optimal starch content and volume of tubers, and the even distribution of monthly harvesting volumes.
  2. Provide financially attractive services on credit. By providing services on credit the block farmers are enabled to invest in high-quality inputs, improved cassava stems and hire mechanized farming equipment while incurring low cash expenses, comparable to those of community farmers. The interest cost associated to the credit provision represents a 6% increase of total annual costs for a block farmer, however the investment results into an increase in yield of 50% and in income of 600%.
  3. Create an optimal mix of block and community farmers. While sourcing from block farmers should be prioritized as it provides a high degree of control on both quality and supply, adding community farmers to the sourcing mix is both necessary and affordable. By only sourcing from block farmers FMS cannot fully optimize its processing factory utilization and as sourcing from community farmers does not require extending credit for a period of 12 to 18 months, it allows FMS to reduce its total working capital needs.

Secure new sources of capital. By unlocking the Anchor Borrowers Program FMS could scale up faster as their cost of capital would decrease to 9% compared to the going market rate of 25%. This would directly increase farmer incomes as they can access credit at a lower cost

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