Category Archives: maize

Kenya Markets & Agriculture Pricing of Maize, Potatoes, and Milk

What drives the agriculture pricing of maize, potatoes, and milk in Kenya? Part I of a post by  @kwambokalinda of M-Farm

In commercial agriculture, as in any business venture, the aim is to make a profit on an investment, within the environmental and policy framework available for the sector. It is, however, not in question that there exist unsavoury practices practically the world over. Recent potato, maize and milk shortages in the weeks between March 2017 and the present day illustrate as much.

That said, it is pertinent that fault is placed where it lies, and speaking to traders in the Kenyan potato, milk and maize value chains, it was gathered that low rainfall in November 2016, as well as with the rains in April, led to price fluctuations in the weeks after February 2017. Mitigating circumstances lowered prices during the same period, when traders sourced their produce in areas that had rainfall in November 2016, such as;

  • In the case of potatoes, this included Narok and Mau Narok, which are blessed with forest rains and fertile lands in Tanzania.
  • With milk, rains in April meant that costs to access to main roads went up – and with farmers unable or unwilling to ease traders’ burden, the costs are being transferred on to consumers.
  • As for maize, a 90-kilo bag which a farmer sold at Kshs 2,200 in December, had doubled by March 2017: Meanwhile, millers have been consistently buying the maize at Kshs 4,700 per bag

We have to remember to factor such matters into our plans and budgets as Kenyans. Also, we have learned that it takes the government a lengthy period to act or even plan for such occurrences. It would help to have neutral sources of data alongside that of the government to help shape the response to food security challenges in Kenya.

See also, Secrets of a Farm Middle Man 

$1 = Khs 103

Unga Holdings 2016 AGM

The Unga Group had its 2016 AGM at the Intercontinental Hotel today. Revenue and profit were up, but profit was down compared to 2015 which has been boosted by the sale of a Bullpak subsidiary.

In comments at the AGM,  the Unga chairman and MD spoke on various issues such as changing food patterns as seen in new products that they are adding to reach consumers and farmer segments, more technology being deployed in agriculture and the rise of young agri-preneurs  who may be one day disrupt the food chain, difficulty obtaining quality maize, difficulties with getting timely payments from Nakumatt, and overall as slow down in the economy as seen in lower buying power for their products and a tightening of credit at banks.

Ahead of the usual votes to approve the accounts, directors re-election, dividend (Kshs 1/= share)  and re-naming of the company to Unga PLC (as per the 2015 companies act), the shareholders Q&A was the main part of the AGM.unga-2016-agm

Excerpts

  • Dividends & Bonus: Why no bonus after the Bullpak sale? The money from Bullpak went to buy Ennsvalley Bakery (and shareholders had approved it)
  • Product reach: Unga is a national brand, that’s sold mainly in supermarkets, but are not in every part of the country. They are seeing challenges with buyers affording products and will introduce smaller packs of some products to remain affordable and within reach of consumers.
  • Gift items: One shareholder asked for Unga shopping vouchers instead of lunch, and when the Chairman announced that there was a product pack to go with lunch, this got a cheer from the many shareholders, but the very next question was for t-shirts to market the company.
  •                                                                                                                                                                                                                                          The Chairman said they had made changes based on requests at past AGM’s but that she would endeavor to one day to have everything shareholders wanted – dividends , t-shirt, lunch, and product pack.

Secrets of a Farm Middle Man

 The middle-man* is widely derided, as one of many layers of between farmers and consumers, who squeeze the farmers prices lower, and increase the cost of foods to consumers. But what does a middle man-do, and why do they do it?

  • The money is insane. e.g. Middle-men get paid Kshs 50 per (90kg) sack of potatoes at the village, and others get Kshs per sack at the market. With every lorry having over 100 bags, a middle-man can make over Kshs 10,000/= per day just dealing at a market. But how much he /she has to share this cut, with others around the market system is another story.
  • Taxes: Cess/market fees are paid at the market of origin only. Along the highway, there are weigh-bridges,  but lorry with perishable items can’t afford to stay and queue while items go stale or rot. So they pay Kshs 2,000 per lorry to bypass the weigh-bridge, and they don’t have a cess receipt, its Kshs 1,000 to pass a police road block.
  • The farther the market is from the farm source, the bigger the profit for the transporter or middle man e.g transport all the way to Mombasa, or to Tanzania where a lot of Kenya produce ends up, and vice versa.
  • It does not tolerate strangers. A farmer can’t just drive up with his lorry, and expect buyers to embrace him/her. It can even be murderous.
  • It’s a relationship business. They have to network &  know where to find and sell produce and deliver on time.
  • Middle-men value and deliver on quality. If several lorries are waiting to clear at at a market, they can choose the ones with produce from a certain area that is desirable compared to that from others. Also lorries with produce from single farms are desirable over those collected from many different farmers or areas.
Middle men travel far to search for farm products.

Middle men travel far to search for farm products.

  • We are the reason they exist. Hotels and restaurants need food like chips every day of the year, regardless of where the potatoes come from. The middle-man economy ensures that this happens.
  • The business is hard work. The trades and operations are done very early in the morning, and end at about sunrise. This may tie in with the Equitel loans that start at 1 a.m. peak and are disburse by 5 a.m. before Equity Bank branches even open. When you visit a market in the day time, you see retail trade & prices, while the wholesale business has already been completed.
  • There is honor in this: Middle-men will  under-cut each over deals, but will not cross each other on payments, which they do  via mobile money or bank deposits.
  • When farmers talk to middle-men about the money they make, some immediately want to abandon farming, while forgetting that they have one resource that the middle-man doesn’t – their land.

Notes

  • * There are lots of women in the business – so middle man can also mean middle woman
  • $1 = Kshs 100

Yara and the Kenya Fertilizer Market

This week Yara had a lunch meeting in Nairobi to highlight their investments, plans, products and solutions, for Kenyan farmers. Yara Kenya Country Manager, James Craske, also spoke about the global fertilizer environment, including regional markets, production, challenges, and other aspects of the industry.

Yara East Africa breiefingExcerpts

History: Yara, the largest nitrogen fertilizer producing company in the world  (33 million tons in 2014),  and has been shipping to Africa since 1929.  Yara East Africa has been in Kenya for 20 years, has 20 – 50% market share in most of the sectors they specialize in (e.g they call their CAN fertilizer – Yara Bela Extra). They will be doing a roadshow in the North Rift area, starting in Eldoret-Uasin Gishu area.

Farmer Focused: They are farmer focused on developing farmers and improving farm profitability. They  target to increase a farmers earnings by a factor of 4:1 after he or she  invests in their fertilizer. They have crop specific guides like for maize, coffee, tea, horticulture variants and other crops, and have trained 55 interns to work with the farmers in Kenya.

Distribution Network: They have 80 distributors and 10,000 stores in Kenya. They also sell directly to large commercial farms of more than 500 hectares. Freight is  big cost factor for farmers in Kenya.Craske said they can load a 30,000 ton vessel in Norway and ship the fertilizer to Mombasa for $30 per ton, but it costs  another $70 – $80 per ton to get the fertilizer from Mombasa to Eldoret.

Production potential: Countries that have natural gas like Tanzania and Mozambique are natural places to produce fertilizer. But local production may be a challenge as fertilizer components come from many countries e.g.  Saudi Arabia, Russia, China and processing is sometimes a dirty process.  Kenya is a 500,000 metric ton fertilizer market and Tanzania is a 200,000 one. A urea factory costs about $1 billion and it is expected that a factory will need to produce about 1 million tons per year to break-even so they will have to factor in some exports from Kenya to invest in one here. (There’s a factory that is being built in Uasin Gishu, by Toyota, that may produce fertilizer blends)

Counterfeiting: This is a big concern for Yara and they carefully monitor their products distribution channels to stop contamination and counterfeiting e.g. people re-using their branded bags or people taking other subsidized government fertilizer and selling it in Yara bags – as has happened  in Tanzania. It is  estimated that 20% of Kenya government subsidized fertilizer may end up in Uganda, and in Kenya, any Yara store found selling open bags is kicked out of their program, and in Asia, every Yara bag has a tracking barcode to discourage counterfeiting.

#WhatsNextAgTech

Nest Nairobi held its monthly entrepreneurship speaker series in partnership with the  Kenya Climate Innovation Centre (KCIC) on January 27, at the Strathmore Business School.

#WhatsNextAgTech panel

#WhatsNextAgTech panel

Hosted by Zeynab Wandati (business reporter at NTV Kenya), the panel featured Stefano Carcoforo (CEO/Co-Founder of iProcure Africa), Grant Brooke (CEO at Twiga Foods), Marion Moon (Managing Director Wanda Organic), Charles Odida (a farmer), Linda Kwamboka (Co-Founder at MFarm Ltd), Chris Kolenberg (Director Marketing & Sales at Kenya Biologics), and Munyutu Waigi (Co-Founder of Umati Capital)

Excerpts from the event sorted by subject 

Agri-Economy  Agriculture is 26% of Kenya’s GDP and employs 80% of the rural population. It comprises 40% of exports and 45% of govt. revenue and 7% of industrial raw materials – KCIC rep

Government

  • A law is coming in farming which will require all farmers to be members of an organization ,  and through that, they will be taxed  – Marion
  • I’ve no faith in the government to solve small farmer problems e.g. they allow contaminated maize imports, our borders are porous  and farmers get zero protection, just exploitation from the government – Munyutu
  • The support that governments give to farmer has very little to do with farmers interest e.g. in the choice of fertilizers sold – Charles
  • Ultimately you have to work with government. It’s not as bad as it was in the 90’s – Stefano

Cooperatives

  • We work with cooperatives, providing tech to them; while others devalue them by saying they want a cut, and there are many shady ones, cooperatives aggregate demand on behalf of farmers and play an integral role in rural societies – Stefano
  • We don’t work with cooperative, as we want to pay farmers directly. I’ve never seen a successful corporative, they are more like pyramid schemes. They may work when they are 10-15 people, but go bad when they are 200-300 members and become unions  – Grant
  • Cooperatives are very critical but don’t have farmers’ interest at heart. There is an Eldoret dairy cooperative with $10 million revenue, but it’s farmer members remain poor – Munyutu

Maize

  • Maize is a terrible crop – when you have a bumper season, the price goes down. When you have a bad year, the government imports a lot of maize – Stefano
  • Maize is a good crop. Farmers with good storage, and good planning don’t have to sell maize at throwaway prices. Ugali (made from maize meal) is one of the top foods bought in every household. Also there are institutions that buy hundreds of bags of maize every year e.g. schools to fees students – they need quality and villages don’t trust imported maize – talk to them, negotiate sales in advance and they come to check out the farmers fields, and pay more than the government – Charles

Farmers

  • The average of age of a Kenyan farmer is 62 years; they are used to a certain way of doing things right, and it is hard for them to change – Charles
  • Growing a crop does not happen overnight like the Eurobond;  Farming does not produce quick money, and farmers, by nature, are patient – Charles
  • Farmers trust each other, they trust farmers who have tried things e.g. they will try a pest control fertilizer that they are referred to by others – Linda
  • Farmers will adapt when they see something work. So you often have to give them free samples  – Chris

Finance 

  • 98% of produce is sold to the informal markets and there is little formal financing for that. Debt is about 20-30% of the market cost of foods sold as middle men and mama mboga pass on the cost of default risk – Grant
  • Cash flow in key in agriculture. When a crop needs weeding, you have no choice, you have to do it, or you’ll have no harvest. You have to schedule money for from activities. – Charles
  • SACCO’s are good for farmers, but there are also many Kenyans in the US and Dubai (where investments only earn 1-2%), and who are willing, and do lend their idle cash, to farmers they trust to earn much more (some of them are even on @twitter) – Charles
  • The government has many avenues of financing farmers e.g. AFC lends to sugar farmers at 5% – Charles
  • Bank ads for farmer loans look sexy in TV but in reality, they are too slow  for farmers – they don’t disburse money quickly enough – Munyutu

 Local Markets

  • Food is 51% of household spending – Grant
  • Food safety is the driving concern for a mama mboga as she will want to know and tell her customers which farm her produce comes from –Grant
  • Urban young farmers who want to get rich doing passion fruit and strawberry should instead grow things that you can see a market for everyday – Grant
  • It’s crazy that 100% of our local produce would be rejected at the EU – Chris
  • Processors are getting tired of dealing with brokers and aggregators and want to go deal with the farmers directly – e.g. for dairy, fruits (A company called Fresh & Juicy is working with farmer to supply Nakumatt) – Munyutu

 Inputs

  • It took 2 years to get bio-organic fertilizer approved in Kenya – Marion
  • Ultimately, what farmer can produce is declining, and those who are increasing productivity are doing so using chemicals, but that is only a short-term (5 years) measure  – Marion

Export Markets

  • Italian companies that produce canned beans and used to source them from South America,  are now looking to get them in Kenya, but are struggling to find enough farmers – Marion
  • Kenya can compete with Brazil in passion fruit; that market is big – Marion.
  • Kakuzi has 300 small-scale farmers that they used to grow their produce. They know what they spray on their own 6,000 acres, and work with 300 other farmers who they advise, but ultimately, they can’t establish exactly what inputs these farmers are adding to fruits – Chris
  • Small scale farmers wont be able to compete in future – 1st world farmers are 40X more efficient – Chris

 Logistics / Middle Men

  • Kenya is not food insecure,it is logistics insecure. A banana is Kshs 10 (sometimes  20), which is the same price as a banana in London;  that’s because we stopped investing in markets, and there are many bottlenecks, broken links and 5-7 people between the farm and the market  – Grant
  • Supply chains are longer in Kenya that they need to be – there are too many brokers, and the farmer is not visible in the farm to fork story – Charles
  • Middlemen exist because farmers don’t understand what the markets want – Linda
  • Middlemen add zero value, and that’s why the price of food is high – as they hedge against their defaults – Munyutu.

Tech

  • Farming is putting a seed in the soil, nurturing it and harvesting – it’s not phone or apps or tabs – (which only bring in efficiency) – Marion
  • Kenya has been slow to get/adopt farm smart phone apps & software compared to Brazil and South Africa – Charles
  • Kenyans don’t use Kenyan products, but use our apps so we can make them better  – Linda

 Whats the Next Big Thing in AgTech?  

  • Traceability fake products look more real than the original product – so the next big thing in agri-tech will be clever apps to provide assurance through traceability of inputs. There’s now a lack of traceability, farmers will tell you what you want to hear, and counterfeit products are prevalent – Stefano
  • Distributed Commodity Exchanges, which used to be in Chicago and Ethiopia (ECX) are now in the cloud with firms like Twiga that act as warehouses – Grant
  • Mid-size farm management as a career. There are people in this room who inherit 30-40 acres in rural areas, but want other people to profitably manage farms for them – Grant
  • Partnerships – Marion
  • Farmers specializing in certain crops and increasing their yields drastically – Chris
  • Financial capacity building – financial products in simple math, loan calculations in easy language – Munyutu

The outreach manager of KCIC said they provide entrepreneurs with an enabling environment (policy) for innovation, business advisory services and financing opportunities [for (1) proof of concept financing  and (2) a seed facility of climate change venture funding of $100,000-500,000 of  growth capital for entrepreneurs from June 2016]