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When people ask me if they can invest in farmers through TJ, I try to explain that it& #39;s not easy to deliver returns like this. We& #39;re only now getting to the point where we can make farmers productive enough to walk away with a 20% profit after paying back their loans.
1/ https://twitter.com/ugodre/status/1314448053080920064">https://twitter.com/ugodre/st...
1/ https://twitter.com/ugodre/status/1314448053080920064">https://twitter.com/ugodre/st...
We effectively charge about 5% interest over the course of the season, and we& #39;re lending to the farmers against our own balance sheet. So, the overall profit of the farm is 25%. The farmer gets 20% and we get 5%.
If we took 3rd party money... the farmers profit would go down. 2/
If we took 3rd party money... the farmers profit would go down. 2/
Given how hard farming is, I don& #39;t think it& #39;s fair to cut a farmer& #39;s profits in half from 20% to 10%, especially if right now we still have a big enough balance sheet to do the lending ourselves.
Eventually, we might have to take on external funding to be able to make loans. 3/
Eventually, we might have to take on external funding to be able to make loans. 3/
It& #39;s also important to note that the only way we& #39;ve been able to return a 20% profit to our farmers is because:
1) Our extension team works REALLY hard with them to improve their yields. On an almost daily basis.
2) We offer a fixed price as the offtaker.
1) Our extension team works REALLY hard with them to improve their yields. On an almost daily basis.
2) We offer a fixed price as the offtaker.
And by the way, life as an offtaker of tomatoes is tough. Last year, we purchased tomatoes at a price of 38 naira/kg (farm gate). We didn& #39;t yet have our factory up and running, so we had to turn around and sell them to the market. The average price we received was 28 naira/kg.
We essentially had a negative operating margin on our business, even though our farmers were making money. Why did we do it? Because once we start processing, buying at 38 naira/kg will still enable us to make our finished product (tomato mix) with a decent margin.
As our farmers keep getting more and more productive, we will lower our purchase price. The eventual goal is for the farmers to make a 25% profit margin, and for TJ to make a 50% operating margin (which, after overheads etc. will translate into a 10% profit margin).
If there& #39;s enough room in the equation for the farmer to make a 25% profit margin, Tomato Jos to make a 10% profit margin, and a third-party lender to make a 10-20% profit margin, trust me, we& #39;ll be excited to offer this up! But we& #39;re just not there yet.
Final point: I don& #39;t think everyone offering farmer lending programs is fraudulent. I think there are some good folks out there, some naive folks out there, and some bad apples. But I really couldn& #39;t tell you who is who. I& #39;m in the business of minding my own business. 
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