SDM Case Study: Union Service Stores, Tanzania

Union Service Stores Company Limited (USSL) is a Tanzanian family-owned business founded in 1992. Headquartered in Moshi, Kilimanjaro region, USSL specializes in the production of animal feed, maize flour and agricultural inputs. USSL currently sources maize, sorghum and barley primarily from a combination of traders and commercial farmers. However, this meant there wasn’t sufficient security of supply particularly when it comes to pricing. As a result, USSL aims to significantly increase the proportion of its sourcing from smallholder farmers. USSL has contracted 25 farmer groups (~5,000 farmers) in the Northern Zone with ambitions to also contract farmers in the Southern Zone. This strategic change is expected to increase the security of supply to USSL by allowing higher volumes of maize grain to be sourced that meet USSL’s quality requirement. An important element for USSL to realize the potential benefit of sourcing from FOs is to secure sufficient farmer loyalty rates.

The SDM (Service Delivery Model) analysis shows that under current assumptions USSL is able to generate a healthy return on investment from the SDM from the start of the operations. Even though the costs of offering the services to farmers are not offset by charging farmers or Farmer Organizations for the services, the commercial growth that is facilitated by it, is larger than the investment required. The biggest risk to the success of the SDM is that farmers are not able to afford service adoption: cash-flow challenges make it difficult to purchase the optimal quantities of inputs at the time they should be applied. In addition this study brings to light the risk that all farmers will experience a drop in net income in the first year(s) of participation in the SDM, creating a disincentive for continued participation in the SDM. As the farmers are expected to benefit increasingly from participation in the SDM following these initial years, USSL is advised to explore ways to provide additional support to farmers in initial years of participation in the SDM.

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