CEDIAM: a fruit processor sees its future in banking

This article provides an overview of how climate change may frame smallholder mango farmers’ approach to irrigation technology selection in Mali and argues that leading mango off-takers such as CEDIAM, a privately-held fruit processing company, have an incentive to provide irrigation infrastructure financing to smallholder farmers in a context of limited farmer access to bank financing and increasing off taker competition for farmers’ production. However, off takers are likely benchmark the expected yield improvements from irrigation against the benefits of investing in their own cold chains to reduce fruit losses across the supply chain.

In Mali, growing mango demand is incentivizing smallholder farmers to increase their yields  

Between 2008 and 2015, Mali’s mango exports grew at an annual rate of 21%[1] driven by increased mango consumption in Europe, where The Netherlands serve as the main import market and trading hub[2][3]. At the same time, government incentives for export-oriented industrial investments[4] have added more than 11,000 tons[5] – equivalent to 28% of mango exports in 2015 – to domestic mango demand over the past five years.

While demand continues to grow, mango yields in Mali are low[6] compared to other producing countries. As an example, average yields in Mali are about 18% of the yield of the lowest-yielding mango cultivars produced in the United States[7]. This is due to Malian farmers’ limited access to best-in-class agricultural techniques and to bank financing. To seize current growth opportunities, mango farmers are faced with the challenge of increasing yields through high-impact shifts in their cultivation systems.

Irrigation is a compelling yield improvement solution

As demonstrated by Project Unnati, an ongoing mango yield improvement initiative launched by Coca Cola and Jain Irrigation in India, irrigating mango orchards that previously depended on rainfall can result in significant yield improvements in the short term[8]. Bringing irrigation technology to smallholder-managed orchards in Mali is thus a critical component of an effective yield improvement strategy. The need for mango farmers to adopt irrigation technology is reaffirmed by increased variations in the quantity and timing of rainfall due to climate change as Indian producers have experienced in the recent past[9].

Climate change will limit irrigation technology options to the most water-efficient ones

Given its low cost and simplicity to implement, basin flooding – which consists in digging a basin around a mango tree and flooding it through a channel – is the irrigation method that appeals to smallholder farmers the most. However, due to climate change Malian populations, including those in mango-producing regions, are living in increasingly water-constrained environments in which there is a constant trade-off to be made between using water for human, livestock, and farming purposes. As such, mango farmers have a strong incentive to implement water-efficient irrigation solutions that will preserve social peace in their communities and make their activity sustainable in the long run.

In that context drip irrigation, which uses up to 80% less water[10] than basin flooding, stands to gain farmers’ and public sector preference despite its higher upfront capital requirement that smallholder farmers will be unable to self-finance.

Leading fruit offtakers such as CEDIAM may be the best positioned to finance drip irrigation infrastructure

Mali’s banking penetration rate of 14.7% as of 2015[11] indicates the limited availability of banking services in low income rural communities and reduces smallholder farmers’ chances of qualifying for bank financing to support orchard improvement initiatives. Despite their growing availability, the high cost and short maturity of microfinance offerings is ill-suited for the financing of capital projects.

While the solution is unlikely to come from traditional commercial banks and microfinance institutions, smallholder farmers could leverage their existing relationships with agro-industrial companies such as CEDIAM to fund yield improvement initiatives. Founded in 2012 and based in the south of Mali, CEDIAM produces and exports mango pulp and concentrate to Europe. In an increasingly competitive local mango market on the demand side, CEDIAM stands to directly benefit from the yield improvements achieved by wholesale farmers through a reduction in raw material price tensions and supply risk. There is thus an argument for CEDIAM and other fruit processing companies with strong balance sheets to fund smallholders’ irrigation infrastructure as Coca Cola is doing with the Unnati project.

While farm-level yields are problematic, fruit processors also experience fruit losses on purchases from farmers due to gaps in the cold chain between the farm and the plant. In that context, there is also an argument for CEDIAM to first focus on reducing fruit losses by investing in cold chain improvements since increased farm-level sourcing will also mean higher fruit losses in the current configuration. Assuming that CEDIAM considers farmers’ creditworthy and decides to pursue both capital projects, the author welcomes readers’ perspective on how the company should prioritize the investment decisions in order to balance short term supply security and financial goals with long term partnership building with suppliers.  (707 words)


[1] http://www.worldbank.org/en/news/feature/2016/11/28/to-increase-exports-of-malis-mangoes-make-farmers-more-productive, ¶ 16, Line 4

[2] https:// www.intracen.org%2FuploadedFiles%2Fintracenorg%2FContent%2FAbout_ITC%2FWhere_are_we_working%2FMulti-country_programmes%2FPact_II%2FEtude%2520national%2520mangue%2520-%2520Mali.pdf&usg=AOvVaw3fAJy06vdWqPHBLqj5jLNs, Page 9, Table 1, Line 3

[3] http://www.freshplaza.com/article/121462/holland-is-centre-of-eu-mango-trade, ¶ 3

[4] https:// www.droit-afrique.com%2Fupload%2Fdoc%2Fmali%2FMali-Code-2012-investissements.pdf&usg=AOvVaw2NyIHzx-1kUN445MFm-NCt, Page 3, Article 5, ¶ 4

[5] http://www.worldbank.org/en/news/feature/2016/11/28/to-increase-exports-of-malis-mangoes-make-farmers-more-productive, ¶ 3, Line 2

[6] http://www.maliweb.net/economie/agriculture/pcda-remise-de-kits-aux-professionnels-filieres-2442132.html, ¶ 5, Line 10

[7] https://hort.purdue.edu/newcrop/morton/mango_ars.html#Yield

[8] http://www.coca-colacompany.com/stories/how-mango-farmers-in-india-are-doubling-production

[9] http://www.thehindu.com/news/national/kerala/Climate-change-hits-mango-production/article15606932.ece

[10] https://www.researchgate.net/publication/275272978_MANGO_PRODUCTION_AND_FRUIT_QUALITY_UNDER_PROPERLY_MANAGED_DRIP_IRRIGATION_SYSTEM, ¶ 5, Line 25

[11] https://www.bceao.int%2FIMG%2Fpdf%2Fnote_d_information_-_4e_trimestre_2015.pdf&usg=AOvVaw2a5JjPbNdRvuJTfSKzRgQY, Page 16, ¶ 2


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Student comments on CEDIAM: a fruit processor sees its future in banking

  1. Thank you Abdoulaye for this very thoughtful and detailed article on Mali’s mango sector. I find it particularly though-provoking to see another “chicken-egg problem” in which financing represents a potentially critical yet scarce enabler for domestic agricultural development.

    You very nicely outline the fundamentally positive market growth dynamic with Mango export growth of 21% annually from 2008 to 2015 likely to be constrained going forward by an anticipated supply shortage largely driven by lower production yields as a result of water scarcity – While I clearly understand the very compelling logic to engage a customer such as CEDIAM in the financing of efficient drip irrigation for farmers, I am wondering why the world’s largest drip irrigation providers Jain and Netafim could not play a financing role as well, given they are suppliers of the irrigation equipment?

    Ideally, a financing arrangement with a “mini-syndication” between CEDIAM and Jain/Netafim could allow the two companies to share the risk (and preserve funds) of financing farming activities while at the same time reducing the risk of the financing given CEDIAM’s role as a core customer providing demand stability. A similar model is executed in various forms by numerous industrial and consumer product companies in which the equipment manufacturer offers financing to customers. The recent acquisition of Netafim by the Mexican chemicals group Mexichem could also potentially lead to further yield improvements in Mali’s mango sector through the supply of agricultural chemicals in form of product bundles, allowing drip irrigation players to tap into a to-date hard to access market.[1]

    [1] Reed, J., “Mexichem to buy Israeli irrigation specialist Netafim” Financial Times (Aug 7, 2017)

  2. Given the popularity of this topic, I thought I would get the ball rolling!
    I understand CEDIAM’s incentives to help finance its mango suppliers to ensure supply and reduce price volatility, however I am not sure this is the best allocation of resources for CEDIAM, which remains a producer and exporter of mango pulp/concentrate.
    First of all, CEDIAM would be exposed to credit risk from a company which main client is CEDIAM itself, creating both financial and supply risk concentration. Secondly, CEDIAM would limit its choice of suppliers and will favor suppliers that it banks, which might prevent the company from optimizing supply costs with other suppliers. Finally, I believe that the cost of capital of CEDIAM is fairly high (high cost of debt in emerging markets) and as a result, I doubt the sustainability of these loans for the suppliers and whether they could take them without putting their finances at risk.
    Consequently, it might not be a great idea for companies such as CEDIAM to finance its suppliers. If CEDIAM really wants to hedge its supply, I would suggest the company to become a producer itself in order to achieve adequate risks and returns.

  3. Loved reading about this. I’m a big believer that improving agriculture-sector performance needs to come from productivity at the farm, which I think does a far better job explaining differences in farmer incomes between rich and poor countries, and capital investment is the way to get there (I spoke to this a bit in my article). That said, it’s not clear to me who is best-suited to drive such investment and, to your point, it’s not clear that actors like CEDIAM have the right incentives to do so.

    What’s striking to me is how long these inefficient production systems have been in place without the technological catch-up we would expect if off-takers could really internalize the benefits of improved productivity at the farm. This might imply that it really just doesn’t make economic sense to prioritize capital investment at the farm over other areas of the supply chain, or off-takers may simply perceive these projects as too risky given the lack of demonstrable successes. If I were in CEDIAM’s shoes, I might wonder how I’m actually going to internalize the benefits of more efficient farmers. Export-oriented food crops like mangos could be a good candidate for investment, since the crop isn’t just going to be consumed by the farmer and the local community, but non-food cash crops or crops where there is a single local off-taker might be even better for the benefits to stay internalized.

    Looking at these types of settings, there may already be examples of this being done well which CEDIAM could learn from, or there could be real business opportunity to start something that’s never been done before. Apart from off-takers, I also see opportunity for independent finance organizations and manufacturers of capital goods to develop creative structures for communities of farmers to pool capital and collectively leverage capital goods which could not be used economically by a single smallholder (think John Deere sells a tractor which is owned by a collective). Separately, there’s some good evidence of medium/large-scale farmers providing mechanization services for hire in Bangladesh or professional service enterprises in China [1]. Applying these to a West African context might take some modification – a paper by the IFPRI talks about how these types of rental markets could be adapted profitably in Ghana [2].

    [1] Mechanization in Ghana: Emerging demand and alternative supply models, paper in Food Policy journal: http://www.sciencedirect.com/science/article/pii/S0306919214000876
    [2] Economics of Tractor Ownership with Applications in Ghana, report by the International Food Policy Research Institute (IFPRI): http://ebrary.ifpri.org/cdm/ref/collection/p15738coll2/id/128492

  4. Thank you, Abdoulaye, for shedding light on irrigation infrastructure in Africa from a different angle. It was great to learn about how an intermediary in the market can help the farmer side of the overall supply chain.

    Interestingly, this also speaks to what we’ve been discussing in class – you have to think about how your actions affect others in the supply chain, not just about your own benefits, to actually maximize outcomes and results for all players in the system. With that being said, I think CEDIAM has to consider long-term partnership building with farmers, rather than its own short-term supply security and financial goals, to achieve the best for the company itself and the overall supply chain of processed mango products. In order to do so, CEDIAM needs to ensure the company has good communications with the farmers and to better understand the supply side of the story – what exactly they need and how they should get what they need.

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