Boniface Chilomo presenting one of the pigeon pea bags he sold to WFP in Malawi.

Copyright: WFP/Tobias Flaemig.

During a P4P workshop for small and medium traders in 2011, Boniface Chilomo from Dindi Chemicals and General Supplies recounted the challenges he faced when he recently held two contracts to deliver 95 tons of pigeon peas to WFP. Most problematic for him was “miscommunication regarding whether or not WFP could pay me on partial delivery.”

Boniface was under the impression that this was not possible, and therefore faced cash flow problems. To resolve this, he took a 3 million Malawi Kwacha loan (about US$ 18,000) with a 20% interest rate and it took him an additional 2-3 weeks to deliver the final tonnage. Had he known that WFP can pay vendors already a partial payment before the full contracted amount is delivered, both collecting and delivering the pigeon peas would have been much easier and quicker for Boniface.

The resulting delay meant that the price for pigeon peas increased. When Boniface started to buy from smallholder farmers, the price was at 45 MK per kg. In order to ensure he could meet WFP’s contract, he offered a higher price to ensure that he received enough stock from the limited supply base. Buying at 50 MK per kg led his competitors to also raise their prices. While waiting until he received the loan from the bank, the price had risen to 55 MK, so he had to pay even more for the remaining stocks he needed.

Boniface also stated that traders often experience delays in securing a performance bond, a guarantee required by WFP in case a contract is not fulfilled. Boniface thinks that the reason for this is the way in which banks in Malawi interact with businesspeople. The P4P team noted that often traders approach the wrong person at a bank and thus time is wasted to reach the person with the right knowledge and authorisation.

On the other hand, some small traders who also won a contract with WFP were able to deliver without significant delays. This shows that it is important to keep the different business capacity levels of small traders in mind when engaging them to buy from smallholders. A lesson learned for WFP, which will now conduct a comprehensive analysis on suppliers’ capacity in order to customize necessary support.

When asked about the differences he experienced with WFP as a buyer as opposed to commercial agents, Boniface stated that when selling to agents, prices can be very volatile and change rapidly. But agents are faster and able to pay the same day - and in cash.

However, he stressed that he wants to keep “doing business with WFP, because it is a smart business” for several reasons:
•    He felt assured of the prices he was contracted on, regardless of price fluctuations in the market;
•    There is an added reputation that comes from working with WFP which enabled him to attract more business;
•    He sees WFP as a stable organisation, and farmers assume that the price traders selling to WFP offer is the “very best price”, so they sell to him even if other traders are offering the same price.
•    Traders like him can sometimes collect stock on trust because farmers know that they are purchasing on behalf of WFP and are sure they will be paid.

In 2012, WFP and its partners will continue to work on optimizing its payment procedures by prioritising payment tasks and putting pressure on banks that are slow to release funds. A faster settlement of contracts will be an important step towards better business relationships with farmers’ organisations and small traders like Boniface Chilomo.