How to make yours high-value commodity
By Dr MAINA MWANGI
| April 25th 2015
It is imperative for investors in agribusiness to determine the strategies that will ensure their business thrives and remains sustainably profitable and competitive far into the future.
Enterprises applying the high value concept have both comparative and competitive advantages and are likely to be more successful.
Simply put, a high value product is one for which the consumer is willing to pay significantly more, compared to other products serving the same purpose.
With regard to agricultural produce, very often the high value is due to superior quality attributes that may include nutritional content, taste, longer shelf life, unique colour in the case of flowers or medicinal properties.
Some crops grown in Kenya only acquire high value status in export markets and have no special value in local markets. A kilo of Brussel sprouts (a vegetable) in Githurai market fetches barely a fraction of its value when exported to Brussels, Belgium.
Because of cultural conditioning, few Kenyan men, and probably women too, would spend cash on a bunch of roses, even on Valentine’s Day, yet the same bunch fetches Dollars and Euros in other markets daily.
To succeed in agribusiness one must carefully choose what to grow based on a good understanding of the target market. Not all produce must reach foreign markets to attain high value status.
Apples, grapes or strawberry are examples of fruits grown in Kenya and fit in the high value category, whether grown for export or for sale at City Market, supermarkets or any of the peculiarly Kenyan impromptu markets that spring up during traffic jams.
In fact, these fruits represent some high value commodities with greater demand than can be met through local production. For some agricultural produce high value is attained after extraction of particular compounds used in specific diets, dyes, medicinal/ therapeutic or beauty enhancing value.
Good examples of these include various herbs and spices, the drug yielding plant Artemesia or the popular neem tree. A high value market opportunity that is yet to be fully exploited is in organic production targeting the proportionately small but highly dedicated category of organic consumers.
Immediate benefits of high value crops farming include the higher returns per equivalent unit of effort. For example, an acre of maize might cost more or less the same to grow as an acre of baby corn.
However, the baby corn is likely to earn a farmer far more than the dry maize when sold through selected grocery stores that are strategically located in the leafy suburbs targeting the more refined tastes of expatriates or richer mid to upper class.
Unlike dry maize, baby corn would also easily find its way to the menu of any of the high end tourist hotels dotting Kenya’s coast line and parks, and has high demand from consumers in Europe. Considering the income potential, dry maize which is shelled for flour or sold green for roasting on road sides, compares poorly to baby corn.
Another benefit of high value crops farming is reduced competition especially if some type of innovation is involved or where the initial cost of investment is high.
It is an open secret that Kenyans can copy and reproduce a business idea with alacrity, which is very true in agribusiness as well. Investing in high value crops venture can be a bulwark against unfair competition and the harder the business is to reproduce the better. Despite its great rewards, agribusiness ventures dealing with high value commodities is fraught with challenges. Some crops may require production under certain special climatic conditions including light, temperature, humidity or nutrition. Since consumers are willing to pay more, they expect nothing less than the highest quality.
The grower, packers, transporters and everyone in the value chain must therefore put in place effective and well coordinated quality monitoring systems and measures to protect produce from any type of perishability or contamination with pesticide or other unwanted matter.
Quality monitoring can be especially challenging if production of some or all the produce is outsourced from outgrowers contracted by the business owner who bears ultimate responsibility for quality.
Of course, high value produce is as good as cash and has to be secured from thieves and pilferage at all times, including investments to safeguard against theft of intellectual capital and continuous innovation to stay ahead.
These requirements can significantly increase costs of production, including insurance and costs for training everyone handling goods and enforcing quality standards.
Finally, investors in high value agricultural commodities should not be ensnared into concentrating risk through specialising in a single or narrow range of lucrative crops.
It is still wise to diversify the range of crops grown, targeting markets differentiated by location and income levels, among other factors, and keeping in mind that charity begins at home.
The writer is a lecturer at the School of Agriculture and Enterprise Development, Kenyatta University
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