SECTIONS

Ways to boost your agribusiness profits

Microfinance institutions and banks have tested the segment but are still hesitant. [iStockphoto]

Contributing over 30 per cent to Kenya’s economy, agriculture has since claimed its space as the country’s backbone. 

In the last few years, farming and agribusiness have evolved rapidly to become more modernised and tech-driven. One also doesn’t need huge tracts of land to venture into the sector.  

And across the value chain - production, processing, and distribution - the faces doing agriculture have also changed becoming more youthful. 

The sector can only become exciting, especially with innovations such as smart farming where farms are managed using technologies such as the Internet of Things (IoT), robotics, drones and Artificial Intelligence (AI) to boost production. 

A new study by Financial Sector Deepening (FSD) named Agriculture and Processing Landscape Report offers select opportunities that can help reduce the cost of doing business and also increase profitability. 

Here is how each of them will work.

Small scale irrigation

Small-scale water pumps and irrigation kits have increasingly become affordable ranging between Sh24,000 to Sh96,000 per unit.

“Some firms are offering customer financing to allow farmers to pay over 12 to 24 months,” the report says.

It also adds that microfinance institutions and banks have tested the segment but are still hesitant.

The impact of this is that it will reduce reliance on rain-fed agriculture noting that land under irrigation in the country is still at six per cent. It will also increase yields and enhance resilience in face of low rainfall or drought.

It can help also to achieve sustainable water resource management although some centralised planning is required for this.

Index-linked insurance

This opportunity embeds insurance with input loans or purchases for livestock and crop inputs. It has already demonstrated market traction with firms like Pula and ACRE, in partnership with APA as the underwriter.

However, the report states that more work is needed to mainstream with local insurers.

Having insurance contributes significantly to resilience for smallholders’ vulnerability to weather or disease-related shocks.

“It allows farmers to plan around more stable cashflows and smooths income from season to season; creates more incentive for a farmer to invest, given protection against risks,” says the report. 

Cold storage

About 20 to 40 per cent of crop output is lost due to spoilage.

“Cold store technology is expensive and requires innovative financing solutions or pay-per-use models to make it available to a wider farmer base – there is an innovation from early-stage firms in this space,” notes the report.

The report says that cold storage reduces output losses and increases take-home income for farmers, giving them resilience to climate risks. As temperatures continue to rise, the report adds that food spoilage will only be accelerated making the need for cold chain solutions greater.

“Farmers can often get a premium price for their produce when it is cooled and delivered to the market in superior condition,” the report says.

Animal waste management and biogas solutions

Biogas technology is now affordable and available to Kenyan farmers with some firms offering flexible payment terms. 

The report notes that enteric fermentation and deforestation are two of the largest contributors to greenhouse gases emissions in Kenya

“Biogas solutions address these by converting animal waste into gas for cooking or heating which displaces firewood and charcoal,” says the report.

Animal waste management will also ensure farmers are less dependent on imported fertilisers.

These opportunities exist as well in the processing subsector as listed in the report. Opportunities to be exploited are in milk and dairy, fruit juices, French beans and maize.

Milk and dairy

According to the report, Kenya processes milk largely for consumption, and to a smaller extent for making dairy products (yoghurt, butter, ghee, etc.) which are sold through formal retail channels.

Large processors in the market are 30 or so in number with 80 per cent of the market controlled by four companies: Brookside, Kenya Creameries Cooperative, Githunguri and Sameer.

There are smaller processors (67 mini dairies) that are active in the space.

The report says per-capita consumption of milk in Kenya is already nearly three times that of other African countries and with rising incomes and population growth, total demand is expected to grow significantly in the next decade

To meet the demand, there is room to bring in more players – suppliers of milk and/or processors.

“A key barrier is the availability of cooling stations within proximity of smallholder farms,” the report says.

As such, farmer group sharing or lending for the purchase of equipment can help

Fruit juices

Only 10 per cent of the about one million tonnes of mangoes produced every year go towards one form or another of processing like dried mango and juices.

“The rest is consumed domestically, and there is significant post-harvest wastage (plus 40 per cent),” the report says.

Though processed juices are increasingly available on the market, targeting all income segments, the report says most of the pulp used for mango juice is imported since 5,000 metric tons of fruit juice are imported, including mango – and only 50 per cent of the demand is met by local supply). Other than perishability and consistency of quantity, local varieties tend to have high fibre content hence less ideal for juicing

“Only six major pulping plants exist in the country, though small-scale processors do exist and are on the rise,” it adds.

One area MSEs can get into is investing in cold storage to avoid the post-harvest loss or ripe fruits rotting on trees.

Maize

In Kenya, maize is mostly processed for flour. It is also used for animal feed. There are large and medium millers (20 or so) producing sifted maize meal or flour under their own brands.

There are also small millers producing sifted maize meal and other processed maize products, sometimes in their own brand consumer packaging, but at much smaller volumes

Additionally, there is also the cottage industry “micro” processing where tens of thousands of posho millers produce un-sifted flour using hammer mills with capacities of 10 to 50 bags per hour.

MSEs have the opportunity of investing in solar-powered grain posho mills and purchase small milling equipment through farmer group sharing or lending for purchase. They can also use local assembler working capital finance and vehicle financing.

French beans

The report acknowledges Kenya as the second largest exporter of green beans to the European market and the crop is traditionally grown for export purposes. 

Given Kenya’s success in the green bean export market, it is noted that producers are keen to engage in contract farming to expand their supply.

A key challenge, in addition to the quality requirements, is the availability, proximity, and affordability of cold storage.