inzending 2011- Cheetah Malawi

Since 1995, Cheetah Malawi Ltd operates a contract farming scheme for exporting paprika with thousands of smallholders. Recently, Cheetah provided embedded services of crop promotion and extension, and supplied seeds.

Cordaid responded to Cheetah’s proposal and included a grant , a loan and a bank guarantee. This package was given under two assumptions:
- supply of paprika would be ensured by the outreach of Cheetah’s promotion system;
- access to credit would be an incentive to farmers to participate in the scheme, and would ensure increased volumes. 
The financial and market risks of the project were qualified as ‘high’, as the financial situation of the company fluctuated widely with each paprika season’s results, but it had a huge potential to reach many small farmers.

Farmers sold to competitors that offered higher prices. Cheetah lost therefore volumes and farmers did not repay their loans to Cheetah. The Paprika Association of Malawi (PAMA) actively encouraged ‘brief case traders’ for paprika. In 2007 “Africa Invest” (AI) bought commercial farms in the same region and started to plant paprika on it. Cheetah was the only company that had field staff and distributed seed. Other paprika buyers didn’t have these costs. Cheetah established the total crop in Malawi and in the end was only able to buy less than 50% of it.

The most important lesson for Cordaid is that the roles of the different parties in the chain should be clear. Cordaid financed Cheetah for technical assistance, credit supply and marketing, which lead to inefficient structures and high structural costs for the company. It is also important to take the development phase of a business into account, a start-up business should be gradually supported, and not overburdened with different roles, functions and a high debt. As of now, Cordaid will work through microfinance institutions that supply credit for small farmers. Financing arrangements will be made between financial institutions and value chain actors on the roles and responsibilities of each party. Support for development of small and medium enterprises will be channeled through local fund structures that are better capable to do a close monitoring, while technical assistance to farmers that are supplying to companies may be channeled through farmer associations, providers of Business Development Services or NGOs.