Category Archives: maize

Agro-ecology Explained

This week there was a Webicafe session arranged by the Route to Food Initiative on Agro-ecology. Route to Food has championed a petition in Kenya’s Parliament calling for the removal of harmful chemical pesticides that are sold in the country.

The session featured two experts; Dr David Amudavi of the Biovision Africa Trust and Nicholas Syano of the Drylands Natural Resources Centre (DNRC). Biovision Africa works with smallholder farmers in 13 counties to disseminate useful and practical scientific information through various channels, and they also have a program with the African Union working with 35 partners in 9 countries. The DNRC works with 800 farmers in Makueni county, training them on and sustainable agricultural practices such as indigenous plants and rainwater harvesting.

The organizations are all trying to ensure farmers can work with nature to achieve food security. This is at a time small scale farmers, who produce most food for the country, are most affected by climate change and get the least support from the Government.

Excerpts:

  • Agro-ecology is not a new concept. Agro-ecology is as old as agriculture. It borrows a lot from indigenous knowledge of agricultural practices, and it is only the term that is new.
  • Agro-ecology is not organic farming. Indeed, organic is just one of the ways in which farmers can apply agro-ecology practices, which all seek to promote the use of alternatives such as minimum tillage, conservation agriculture, crop-rotation, manure, inter-cropping, mulching, permaculture, agroforestry, and organic – that can all improve soil health and fertility through less, or no, use of chemical inputs in food production.
  • Agro-ecology as a science looks at how plants and animals get manipulated by man to stimulate production and consumption. There is a balance in the interaction of plants, animals and humans – and anything harmful to any of the three, or the environment, is not acceptable in agro-ecology.
  • Agro-ecology means food security: If you compare communities that rely on agro-ecology and those on monoculture, the ones that engage in diversified farming are more resilient to economic shocks – and governments should direct more research there to ensure food security and sustainable agriculture.
  • Challenges include low awareness and funding. Agro-economy can feed the nation., but agriculture gets a tiny share of the national budget devoted to research funding and even smaller for agro-ecology (estimated 2% of agricultural funding). Currently, most-research funding goes to mono-culture, industrial-based, crop farming that is also supported by political voices. This is compounded further by a lack of data on the uptake of agro-ecology. as well as people who can write well about agro-ecology.
  • In agro-ecology, if you plant trees, grow as many varieties of trees. In Makueni, DNRC has re-planted trees that had vanished – lost varieties of fruit, dry land species and nitrogen-fixing trees. They also plant acacia that grows very fast and is useful for honey farming and charcoal. Individual farmers bring in their small honey harvests and the organization sells them as a collective and share the money out. They also make green charcoal in a special kiln using pruned acacia wood. Over the last decade, DNRC has planted Moringa trees – and with the outbreak of COVID this year, they have seen great demand for Moringa seedlings, oil and powder.
  • One good agro-ecology practice is to have African farmers use seeds adapted to local conditions. These can be sold, re-used, and exchanged while avoiding some monopoly seed laws that restrict what farmers can do with their seeds and multinational intellectual property disputes.

Unga Seaboard Deal Details

EDIT July 27: Seaboard announced they are waiving the minimum acceptance threshold and will proceed to complete the acquisition of shares for which acceptances had been received  and those shareholders will be paid Kshs 40 per share in cash. Seaboard still intends to seek a de-listing of Unga from the NSE and will convene an extraordinary general meeting “in due course”.

EDIT July 20: Official results of the offer, saw Seaboard increase its shareholding from 2.92% to 18.97%, and combined with the 50.93% of Victus, they now control 69.9% of Unga’s shareholding. Other shareholders own 30.1% but 8.16% of them did not respond to the offer and Seaboard who had a target to attain 75% in order to push for a de-listing of Unga from the Nairobi Securities Exchange will make further announcements.

EDIT June 14: Seaboard Corporation has received regulatory approval from the Capital Markets Authority (CMA) to extend its offer to buy the minority shares in Unga Plc by another 10 days.. to 5.00pm, Thursday 28th June. “During the offer period, Seaboard received numerous queries from Unga Plc shareholders with requests for resubmission of the offer documents that were originally dispatched to them via post by the Registrars. This is primarily attributed to the change in postal addresses and/or relocation of shareholders whose new details are not updated with the Central Depository and Settlement Corporation”.

May 30: Today sees the start of an offer period by Seaboard Corporation, acting in conjunction with Victus Limited, to buy out other shareholders of Unga Group PLC and to de-list the company from the Nairobi Securities Exchange.

From reading the various offer documents relating to the Seaboard proposal that includes the public notice, circular to Unga  UGL) shareholders, offer terms, and a public FAQ…

  • Seaboard: The company which states it is on the Fortune 500 list, was incorporated in 1908,  and is registered in Delaware and headquartered in Kansas. It had $5.8 billion revenue and $427 million profit in 2017 and is involved in marine, pork, commodity trading and milling (where Unga is), sugar and power industries. Seaboard owns 2.92% of Unga and also 35% of Unga Holdings, a subsidiary of Unga (who own the other 65%) and which comprises the flour milling and animal feed operations of Unga. Seaboard is joined in the Unga buyout deal by Victus which owns 50.93% of Unga shares.
  • Delisting:  the memorandum notes that: “It is Seaboard’s intention that UGL retains its position as the preferred our producer in Kenya… ( but that ) as a publicly listed entity, UGL is disadvantaged because this status requires public disclosure of otherwise confidential business information relating to its business strategies … (also that) in addition, the present public structure makes it difficult to attract additional strategic investors.

  • Offer Price: Over the last year, Unga’s shares have traded at between Kshs 30 and Kshs 32 and they briefly rose to Kshs 60 after the offer was announced in February but are now settled at ~Kshs 42 per share. Contained in the documents to shareholders, CBA Capital confirms that Seaboard has enough funds at Citi (bank) to complete the offer and to pay all shareholders in full at the offered price – which will amount to a cash payment of Kshs 1.4 billion (~ $14 million). Payments will be by M-pesa, cheque, or bank RTGS/EFT (for amounts over Kshs 1 million). 
  • From publicly listed to privately held:  Their target is to get 90% acceptance, but if they get 75% they may push on with the plan toward delisting, as they caution that any shareholders who hold out and don’t sell their shares, may find it harder to trade them in future. The offer to Unga shareholders opens 30 May and runs through to 13 June, after which the shares will be suspended till the end of June, ahead of a results announcement on July 2.
  • Firm Price? They have reached out to other large shareholders in Unga who own about 15% of the company shares. June 6 is the final day for Seaboard to vary the offer and if they do so all shareholders will benefit from the new price. But already there is a report that they have ruled out increasing their bid, saying they will be no change to the offered price unless a competing bid arises. Of note is that one of the large investors at Unga is a company which emerged to mount one of the competing bids at Rea Vipingo that resulted in the initial buyout promoter raising their eventual payment to Vipingo shareholders.
  • Board recommendation: The offer documents value the shares using the income approach at Kshs 39.82 per share, at  Kshs 39.01 using the market approach and at Kshs 62.04 using the asset approach. Seaboard is offering Kshs 40 and the members of the Unga board not linked with the promoters (3 of the 8 directors recused themselves) have recommended that Unga shareholders accept this price which is based on independence advice from Faida Investment Bank.
  • Transaction Advisors: Besides CBA Capital which are the fiscal advisors and sponsoring stockbrokers, CBA is the paying bank, while other local firms in the Seaboard deal are Kaplan & Stratton (legal advisors), Oxygene for public relations and CRS are still the share registrars. The promoters hope to conclude the deal by September 30.

Seaboard and Victus offer to buy out Unga shareholders

Still, the offer of Kshs 40 per share, which value Unga at Kshs 3.03 billion, and which the Seaboard promoters state is a premium (33% above Unga’s current trading price of Kshs 30) is rather low. The share was trading at Kshs 44 per share two years ago, and one investor puts the company net asset value as at June 2017 at Kshs 52 per share, which will have gone up with the recent rise of the NSE later in the year.

Urban Inflation Index: July 2017

Comparing prices and inflation in Nairobi to four and five years ago. 

Price and inflation comparisons are made a bit difficult by the unprecedented (in recent years) shortage of certain food commodities. Back in 2008 as post-election violence rocked the country, supermarkets opening shop, receiving supplies, stocking shelves and selling fresh foodstuffs and household items were seen as one of the barometers that life was getting back to normal. But going into the August 8 elections, several supermarkets have had empty shelves, notably at Kenya’s largest chain, Nakumatt that is limping under debt, and empty shelves, with lawsuits from landlords and key suppliers and a delayed shareholder deal. Unlike Uchumi who faced a similar situation just over a year ago, Nakumatt has not shown humility in asking for a bailout from the government or relief from suppliers and partners.

On to the index

Gotten Cheaper (in four years)

Finance: Bank loans are 14.0% due to the interest capping law of 2016. Average bank rates were 17% in July 2013

Fuel: A litre of petrol is Kshs 97.1 (~$4.25/gallon) today in Nairobi. It was 109.52 per litre in July 2013 (and 117.6 five years ago).

About the Same

Staple Food: With just under two weeks to the elections, maize has been hard to find, even at the government subsidized prices of Kshs 90 per pack. In July 2013 the pack cost Kshs 104 (and it was 118 five years ago) But just how long it will stay at 90 is not clear as the 2017/18 budget drafted at a time of high maize prices and low supplies, zero-rated the importation of white maize for a period of four months. Will it go back up after this window closes?

Communications: Phone call rates flattened in 2013 even though at the time Airtel and Yu were bringing the prices down, while now Safaricom battles distant Telkom Kenya (rebranded from Orange) and Airtel, as well as Equitel from Equity Bank, with competition more on data pricing, and mobile money transfers – where M-Pesa still dominates.

Beer/Entertainment: A 200 bottle of Tusker beer is Kshs 200 at the local pub. This is the same price it was in July 2013. (And it was 180 five years ago)

Utilities: Pre-paid electricity is about Kshs 2,500 per month, which is unchanged from the last review. The calculation of pre-paid tokens remains a complicated exercise.

More Expensive

Other food item: Sugar is hard to find, more so for traditional brands like Mumias. A 2kg bag of Chemelil sugar is Kshs 290  compared to 250 in July 2013 and five years ago it was 237. Prices of other food commodities like milk and butter have also gone up.

Foreign Exchange: 1 US$ equals Kshs. 103.9 compared to 87.15 in July 2013 and 84.25 five years ago.

There has been quite some outward flow of currency ahead of the election.

Food Imports to Kenya

While there have been several discussions about maize and other food imports to Kenya such as where the maize came from, who is selling it, and at what price, more is on the way to deal a national disaster situation, partly attributed to delayed rains and prolonged drought.

Writing in a recent opinion piece in the Standard, James Nyoro, government advisor (who was previously the Rockefeller Foundation’s Managing Director, Africa, and probably the next Deputy Governor of Kiambu), wrote that food imports are normal for Kenya… in normal years, Kenya imports 30% of maize, 75% of wheat, 45% of sugar and 80% of its rice needs.

This comes at a time when all of Africa is talking about embracing agri-business and getting more people and more value out of agriculture. Kenya is probably in a very good place, as it  produces lots of foods, does a lot of local consumption and international exports, and has good networks and communications tools for farmers and government, but still, there is little finance to agriculture, and a lot of prime agricultural lands is being converted to real estate or commercial uses.

The Cabinet Secretary for Treasury recently gazetted and listed companies that were allowed to import duty free, non-GMO, yellow maize to be used for animal feed including Unga Farmcare 36,000 metric tonnes, Pembe Feeds 20,000, Isinya Feeds 50,000, Sigma Feeds 50,000, Milele Feeds 20,000, Mombasa Maize Millers 36,000, Chania Feeds 4,000, Farmers Choice 30,000, Naku Modern Feeds 2,000, Pioneer Feeds 3,000, Empire Feeds 10,000, Tosha Feeds 90,000, Turbo Feeds 1,000, Treasure Feeds 3,000, Economy Farm Feeds 1,000, Prosper Properties 2,000, Legorn Feeds 3,000 , Huduma Feeds 6,000, Eden Millers 5,000, Ohami Feeds 1,000, Tarime Feeds 1,000, and Thika Farmers Group 36,000 metric tonnes

He also set published temporary rules for white maize, sugar, milk, and dates: The ones for white maize included Any person may import white maize if it meets the following conditions—

• The white maize shall not be genetically modified in accordance with the standards applicable in the European Union; i.e it shall not be genetically modified (GMO) maize.
• It shall have a moisture content not exceeding 14.5%;
• It’s aflatoxin levels shall not exceed 10 parts per million;
• It shall be accompanied by a certificate of conformity issued by a company appointed by the Kenya Bureau of Standards; and
• It shall have been imported on or before the 31st July, 2017.
• Any person may import dates during the month of Ramadhan.

In a separate notice, he authorized there be no duty on sugar imported between May 11 and 31 July 2017 and as well as on 9,000 tonnes of milk powder imported by milk processors authorized by the Kenya Dairy Board.