Promoting Tanzania rural businesses

Saturday October 20 2018

A beehive. Without changing the downstream

A beehive. Without changing the downstream activities, beekeepers would end up with poorly filtered honey gathered in buckets of 30 litres each, which they sell to middleman at a low price. PHOTO |FILE 

Micro and small enterprises (MSEs) in rural areas struggle with low production productivity and product quality because of the lack of machinery and equipment, which is a direct result of their undercapitalisation.

The costs of machinery are too high for a single firm: so, in the case of wood furniture manufacturers we opted to create community-based organisations (CBOs), who could purchase machinery and equipment and they were granted a micro-loan to buy the machinery. The easy part was the payment of the installments and the mastering the vocational skills to work effectively with the machinery.

More challenging is the CBO-management as most MSEs were not used to work in a cooperative way. There is a risk that CBOs struggle in adapting their management to maximise the benefits from their increased production productivity: lack of leadership or distrust between shareholders may prevent firms to work effectively.

Although CBO-management may be a challenge, some of the CBOs used the renewed productivity as a stepping-stone for further development and professionalisation as a firm. They started to differentiate management roles between individuals (such as timber purchasing, manufacturing, and sales) acting effectively as a company instead of acting as individual carpenters whom just timeshare the expensive machinery. Although we provided training in management, marketing and financial management it was a daunting task to incentivise MSEs to take the next steps in the professionalizing of their business: reaching out to retailers in cities, developing a marketing and sales strategy and developing the wood furniture activities into an integrated company with a growing number of employees were too big a change for most companies. In other words, the deep-rooted cultural habits to work as individuals on a local scale and the difficulties to grasp the complexity of managing a modern enterprise should not be underestimated in rural entrepreneurship projects. Promoting entrepreneurship is not only about providing financial means, equipment, and training managers in how to run a business. It is also about taking leadership, having the ambition to grow, and willingness to take the risk whenever necessary. Moreover, a business is usually only successful after several attempts, and therefore persistence to move on after failures is crucial.

In the case of beekeeping, manufacturing processes such as filtering, creaming, packaging and branding require costly investments that go beyond the budget of individual firms and CBOs. The minimum volume of honey to break-even requires several thousands of beehives, which is for instance way beyond the production capability of beekeepers in the Mvomero District. How can a rural entrepreneurship project under these conditions professionalize beekeeping activities?

We realised early on that we only could move the needle by combining two types of activities. First, beekeepers had to learn how to professionalise beekeeping activities and, second, reaching the market would require reorganizations and investments in downstream activities that surpass the financial capacity of local beekeepers.

Let’s first have a look at the professionalisation of the beekeeping activities. Professional beekeeping can only be executed with professional beehives such as top-bar and langstroth hives. These hives are expensive investments (Sh70.000 for a topbar) and can only be used profitably if enough hives are colonised and if colonies are producing enough honey. To be successful beekeepers have to learn to inspect hives every two weeks, they have to learn to split colonies and breed queens, and they have to provide forage whenever this is required. This is a radical change compared to the traditional way of beekeeping where wooden boxes are split trunks are placed in trees and harvested six months later. We observed is that there is a high attrition rate: many like to start beekeeping and buy hives but they underestimate the knowledge and continuous dedication that is required to keep bees in a profitable way.

The downstream activities in beekeeping show a less well known aspect of (rural) entrepreneurship. Without changing the downstream activities beekeepers would end up with poorly filtered honey gathered in buckets of 30 litres, which they sell to middleman at a low price. Quality assurance, packaging, labeling and access to the market are problems that can only be solved by developing a commercial entity that is responsible for these activities. The honey extraction equipment is expensive and minimum volume of honey is five ton per year. This implies that extra honey has to be produced through the introduction of professional bee farms in combination with the production of more beehives that can be sold to beekeepers. To keep the financing acceptable beekeepers pay yearly installments over a period of five years. Free courses and field trips should be organised to maximise learning of beekeepers. This, in turn leads to higher productivity and profitability.

Accordingly, it is not only necessary to instruct beekeepers and provide financial help in buying hives in order to professionalise beekeeping. It is also vital to redesign and organise the downstream activities. We are building for instance a collection house in Turiani where the honey can be extracted and packaged according to international norms; this will help to sell the honey in various retail channels at higher prices. Rural entrepreneurship is in this case a matter of value chain restructuring and not only realising an improvement in the beekeepers’ activities.

How can these downstream activities be managed? There are different possibilities. We mention two options. In some regions a collection house is managed as a cooperative of many groups of beekeepers. This kind of participative management guarantees that the revenues of the collection house will benefit the beekeeper community too. However, cooperatives only work effectively with a trusted, knowledgeable and ambitious leadership and that has proven to be a challenge for several cooperatives. The second option is to set up a commercial entity to run the collection house activity. In this case attention should be paid to the relationship with the beekeeper community: the commercial entity can’t work with arms-length transactions with beekeepers. In contrast it has to develop strong nurturing relationships by providing free courses and helping beekeepers financially to buy beehives. So both options come with a caveat.

A last point is worth mention. Rural entrepreneurship can only be successful if entrepreneurship and continuous change become a way of living. This is for instance shown by the beekeeping initiative of TFS in Mafinga: although there are now more than 1200 beehives in place and honey is extracted in line with international standards, the leader of the initiative continues to search for higher productivity by selecting and multiplying strong colonies – instead of relying on the swarming of wild bees. The top quality honey they produce also attracts international buyers, and once capacity further expands they can sell to premium priced export markets.

In other words, rural entrepreneurship only reaches as far as the ambitions of the managers, but there is no reason to believe that small rural firms can’t expand to the national and international markets as long as there is vision, ambition, and persistence to get there.

This article is prepared by Nicholaus Tutuba, Jasinta Msamula and Dr Hawa Tundui from the School of Business at the Mzumbe University together with Prof Wim Vanhaverbeke from the Hasselt University in Belgium. They have been working with rural entrepreneurs during the last four years. They intend to professionalize the management of MSEs in rural areas. Also, to increase the standard of living of rural entrepreneurs through increased productivity and better product quality.