Meet the Entrepreneur: Elia Timotheo, East Africa Fruits
At FINCA Ventures, we look for entrepreneurs leveraging market-based solutions to create large-scale, lasting social impact. In this series, “Meet the Entrepreneur,” we’ll be taking you into the minds of the intrepid leaders at our portfolio companies who boldly venture into markets in need of positive disruption.
Market inefficiencies saddle the farm-to-market sector in countries across sub-Saharan Africa. Smallholder farmers face sub-optimal yields, food losses and waste, and unfair market returns. Informal market vendors, who dominate the last-mile of distribution, have little control over the quality, quantity and regularity of the produce they sell. In this interview, we chatted with Elia Timotheo, founder and CEO of East Africa Fruits, to grasp how this Tanzanian-based food distributor is bringing greater efficiency to the agricultural value chain. East Africa Fruits formalizes the informal farm-to-market sector by providing a stable, fair market for horticulture crops, transporting goods using cold-storage and distributing to food buyers to improve productivity and incomes for smallholder farmers and informal vendors.
Your mom was a Tanzanian food entrepreneur. How did this upbringing and other experiences inspire you to build and run an agriculture company?
Elia: East Africa Fruit’s origins came from a mix of factors in my life, but my first motivation was to never be employed. I wanted to run a business like my mother. Despite not going to school, my mom began her first business in the 1980s selling fast food in the Kilimanjaro area of Tanzania. I grew up watching and helping her, a hardworking single mother, who now has five restaurants. She inspired me and passed along the fundamentals of business, but I didn’t know what kind of enterprise I wanted to run. While I was an undergraduate, I had the opportunity to work with the Ministry of Agriculture. Through this, I participated in a program that allowed me to meet with farmers to understand their challenges and what the government could be doing to address their agricultural needs. My program team visited over 3,000 farmers across Tanzania, and together we observed patterns around food waste and transactional middlemen, all of which resulted in reduced incomes for smallholders. This was the “ah-ha” moment that put me on a mission to develop a business solution to eliminating post-harvest losses and increasing incomes for small-scale farmers.
Tell us more about the issue of post-harvest loss. Why is it such a big problem and how is East Africa Fruits tackling this issue?
Elia: Roughly half of what farmers produce never reaches the market, and this loss is spread out across the farm-to-market value chain. First, farmers may lack the knowledge and training to properly care for their farms, produce and harvests, resulting in 20 to 25 percent of losses. Second, farmers sell produce to brokers who use inappropriate vehicles to transport perishable produce, leading to another 10 percent of losses. Lastly, in the market, it’s very difficult to sell all the produce in one day or even two, yet there are no storage facilities for a truckload of produce that just spent days travelling hundreds of miles in inadequate conditions. All this results in severe losses for farmers who fail to reap the fruits of their hard work. To change this, East Africa Fruits establishes a relationship with smallholder farmers and provides training, food processing, storage and market access using cold-storage transportation. This process extends the shelf-life of produce and reduces post-harvest losses.
A key part of your business model is removing layers of middlemen in the farm-to-market value chain. Why does this need to be disrupted and how is East Africa Fruits offering a better alternative?
Elia: When I first got into the business, I began as a middleman, or broker, to understand the ecosystem. For a farmer to sell produce, he or she must sell to a broker in the local village. For that produce to reach a commercial center, like Dar es Salaam — which may be hundreds of miles away — the village broker must then sell to a transporter who will take the produce to market. There may be only one truck to choose from, so the transporter has the upper hand in price negotiations. Once in-market, the produce passes through another broker who negotiates selling to consumers. When I worked as a middleman, I saw this in action. I never met the farmer; I met a broker who spoke with the farmer and another broker who helped me hire a truck to transport my produce to the market. I was neither in control of selling my produce in the market nor was I able to set consumer pricing — I had to accept whatever prices were established for me. If I wanted to move my produce from one market to another, I was forced to pay layers of fees. All of this creates inefficiency and waste, and this is happening to most farming businesses in Tanzania. At East Africa Fruits, we reduce this complexity in several ways. First, we provide agronomic training to smallholder farmers to help them perfect their product for better-quality harvests. Second, we transport farmers’ produce post-harvest on our own trucks, from the farm, to our facilities [for collection, processing and storage], to the market. This way, our customers avoid wasting time and resources waking up hours before dawn to figure out how to get produce to market. Lastly, we offer our customers convenience: already sorted, trusted produce, on-time. All of this brings about perfection in the distribution system, characterized by greater efficiency and fairer wages.
The obvious customer in your business is the farmer, but equally important is the last-mile vendor. Can you paint us a picture of the struggles faced by informal market vendors and how you are addressing their needs?
Elia: The struggles faced by informal vendors mirror the challenges faced by smallholders. An informal vendor may wake-up at 3 or 4 am to visit one of the public markets to buy produce. Then, he or she will leave the produce with a transporter to deliver it to the informal market kiosk, a process that may take hours. We see an opportunity to reduce the amount of time and money that informal vendors spend navigating this daily routine. There is also potential to improve the security and transparency of the final product. A good example of this would be potatoes. Potatoes are usually sold in a bag where you cannot see what is inside — you can only see the few potatoes on top. Brokers exploit this by putting only the good potatoes on top and rotten produce beneath, causing the informal vendor to incur a loss. At East Africa Fruits, we sell our product in a transparent way so that vendors can see exactly what they are buying, and they can be sure that they will sell a higher percentage of everything they are buying. This leads to cost reduction and increased profitability for the vendors. It also builds up a business track record for informal vendors to help them qualify for microfinance loans to expand their businesses.
How has your business pivoted since its inception and why do you continue to tackle all elements of the farm-to-market value chain?
Elia: When we started thinking about farming, we thought about creating super-quality produce to supply exclusively to premium markets, like high-end supermarket chains, hotels and possibly for export. However, we realized this didn’t match our original vision of producing strong social impact. This forced us to pivot to where we are today: perfecting the farm distribution system, getting produce as quickly as possible from farm to retail, with emphasis on serving informal vendors in the marketplace. To do this well, we know that farmers need access to training to produce harvests of value, access to inputs like seeds and fertilizer, and access to markets for reliable and fair selling.
East Africa Fruits works with 1,300 smallholders in Tanzania and plans to reach 7,000 by 2023. What are your growth strategies and what role will technology play?
Elia: One strategy to grow the number of farmers that we work with is to multiply the number of collection centers that we manage across Tanzania. Our main facility in Dar es Salaam is responsible for storage and distribution. Collection centers are used to gather, sort and process all the produce harvested by our rural smallholder network. A combination of labor and machinery is leveraged to clean, dry, pack and store all the produce that we collect. More collection centers will bring us closer to farmers and enable us to increase our combined productivity, with a goal of moving from 95 or 98 percent sellable produce to 100 percent. In terms of technology, we hope to purchase an off-the-shelf, farmer-side, data storage software solution for building reliable customer profiles and tracking ordering patterns. This will help us anticipate volumes of produce to optimize resources in terms of purchasing from farmers and managing distribution. We are also looking to design a front-end, software solution for selling.
How will you strengthen the connection between East Africa Fruits and smallholders as you grow?
Elia: Three things come to mind. First, farmers believe in organizations that have a physical presence. Collection centers represent our #1 physical entry point into communities. Today, our collection centers are used to process produce post-harvest, to conduct monthly farmer trainings to increase their productivity, and to maintain recordkeeping. In the future, we’re considering using collection centers as agro-dealer shops or storage facilities for farmers’ produce that they do not intend to sell right away. Longer term, we are looking into leasing tractors from our centers. Second, we hold regular meetings with farmers to learn and solicit suggestions for how we may better serve them. Hearing their challenges makes us closer to them and forces us to deliver solutions. This practice comes directly from my early experiences working with the Ministry of Agriculture. A third key way for us to strengthen our relationship with farmers is to support their access to basic needs: farming inputs, microfinance loans, crop insurance.
Financial service providers struggle to serve smallholder farmers and informal SMEs, who are often deemed too risky. What opportunities do you see in financial inclusion as a result of the impact created by East Africa Fruits?
Elia: While we do work across the farm-to-market value chain, that doesn’t mean we can do everything ourselves. We see many opportunities to channel financing to small-scale farmers and informal SMEs and actively seek to connect our customers with microfinance and insurance organizations. We think about this aspect in two dimensions. Our first focus is on enhancing farmer productivity given existing farm sizes — better inputs to create better outputs to help farmers grow incomes. The second dimension is through farm expansion. Moving a farmer from half an acre to two acres will have an impact on the cost of production, which can be covered through financing solutions. The farmers working with East Africa Fruits have developed a strong business track record, which can be shared with microfinance institutions like FINCA Microfinance Bank [“FINCA Tanzania”] to help smallholders qualify for loans to support the purchase of inputs, assets or expansion of farms. Similar benefits would apply to informal vendors looking to leverage microfinance loans to grow beyond one market kiosk. Because our customers are cut off from traditional financing [e.g., because of socioeconomic status or rural location] they solicit loans from local village brokers who charge crazy high interest rates, which only perpetuate the cycle of poverty that they face. This practice is most common when it’s time to pay school feels prior to harvest.
Imagine it’s five years from now and East Africa Fruits is making international headlines. What would that headline be and why is this important to you?
Elia: “Creating a Sustainable Environment for 20,000 Smallholders to Thrive” — This would demonstrate tremendous gains in smallholder productivity and a sizeable market for small-scale farmers and informal vendors to sell their produce.
Why were you excited to have FINCA Ventures come on-board as an investor?
Elia: It’s always helpful to bring in a fresh set of eyes and thinking as we look to scale our business. FINCA brings expertise in financial services and we hope to collaborate with its Tanzanian microfinance institution to deliver financing solutions to our farmers and vendors. To have an investor who is equally committed to the success of our company and our customers is most exciting for us.
So, what’s your favorite fruit or vegetable?
Elia: Pineapple! If I must pick a vegetable, I’d go for spinach.