Financial services in agriculture value chains

1. Consultants and Trainers Helping Women to Grow! Financial services in agriculture value chains Domestic Horticulture Extensive Livestock Potato Dairy Coffee Tuesday 25th May 2010

2. RESEARCH METHODOLOGY • Desk study of relevant materials and past studies, literature review • Depth interviews with stakeholders and chain actors • Survey (potato farmers) • Engagement of stakeholders at various sectoral forums e.g. exhibitions • Case study

3. IMPORTANCE OF AGRICULTURE

4. INTRODUCTION

5. Potato sub-sector Market Retailer NM=24.52% Stall Owner NM=22.52% Farmer NM=75.2% Wholesaler/Transporter NM=18.09% Supermarket GM=259.33% Processor - Fries NM= 100% • Background

6. Potato sub-sector • AVAILABLE PRODUCTS • Large players can access funds from banks and MFIs • Generally no specialised products for sub-sector except by AFC (Nanyuki and Molo areas only) • Group loans through ROSCAs helpful to farmers • Microcredit by MFIs especially for traders • Government funds e.g. Njaa Marufuku, ASCU • RECOMMENDED HIGH-IMPACT PRODUCTS • Value Creation – Inputs and irrigation • Value Preservation – Cold storage and efficient transport • Value Addition – Processing and marketing • FINANCIAL ISSUES

7. Potato sub-sector - CONCLUSION • MAJOR CHALLENGES TO SECTOR FINANCE • Low productivity – Inputs, clean seeds • Lack of cold storage for seed and ware potato • Climate risks – drought, floods, frost • Price instability/Market access • Excessive intermediaries - brokers • LINKAGES AND OPPORTUNITIES • Horizontal – Farmer cooperatives for linkage • Vertical –e.g. Deepa Industries e.g. Midlands • CONCLUSIONS • Mobilisation of farmers crucial to financial access • Cold storage and vertical linkages – long term • More development organisations needed

8. DAIRY SUB-SECTOR Chilling Processing Transport Production Distribution Retail • Background and Value Chain

9. DAIRY SUB-SECTOR-finance • AVAILABLE PRODUCTS • Many specialised products available • Processor guaranteed loans and advances on delivery e.g. Equity, Coop Bank • Input finance – inputs supplied on credit e.g. Githunguri Dairy • SACCOs loans – for capital and operations • Equity investments e.g. Aureos Capital, members • Micro-leasing e.g. Juhudi Kilimo – Purchase cow • Dairy loans by MFIs e.g. Sisdo • Wholesale loans e.g. MESPT – ABD for ASALs • Various projects e.g. EADD, KDSCP, MESPT, SDCP, IQAM • RECOMMENDED HIGH-IMPACT PRODUCTS • Value Creation – Purchase of superior breed • Value Preservation – Chilling plants/Cold transport • Value Addition – Processing long-life products

10. DAIRY SUB-SECTOR-conclusion • MAJOR CHALLENGES TO FINANCE • Low productivity – Inputs, clean seeds • Production seasonality – gluts, low prices • Unlinked farmers are locked out • Excessive informality in distribution (hawking) • Low investment in long-life processing capacity • Diminished market prospects – supply inconsistency • LINKAGES AND OPPORTUNITIES • Mobilise horizontal and vertically unlinked farmers • International and regional markets • CONCLUSIONS • Marketing is the key threat to finance for the sector • Producer prices below production costs • Inclusion of milk in strategic food reserves urgent • More dairy hubs necessary for increased access to finance • Replication of success models e.g. Githunguri DFCS/Fresha

11. Domestic horticulture Wholesale Processing Transport Production Distribution Retail • Background and Value Chain Market Value as of 2007

12. Domestic horticulture - finance • AVAILABLE PRODUCTS • Many specialised products available • Asset finance loans for greenhouses (Amiran kit) by Coop Bank, Equity, KWFT etc • Agriculture loans by many MFIs e.g. Sisdo, Pawdep • Wholesale loans e.g. MESPT-ABD for ASALs • Seasonal and modified loans e.g. pay as you harvest from AFC, Pawdep, KADET etc • Micro-leasing for assets such as drip irrigation e.g. Juhudi Kilimo • Business loans for horticulture traders e.g. AFC, Equity • RECOMMENDED HIGH-IMPACT PRODUCTS • Value Creation – Greenhouses and drip irrigation • Value Preservation – Cold chains for domestic • Value Addition – Juice extraction, drying, fruit concentrates etc

13. Domestic horticulture-conclusion • MAJOR CHALLENGES TO FINANCE • Climate risks – droughts, floods, extreme cold • Market risks – postharvest gluts too low prices • Wastage 30-40% post-harvest losses • Lack of diversification by farmers despite the many opportunities e.g. herbs, over 40 vegetables • Low value addition despite high potential • Poor market linkages – horizontal and vertical • High quality just for exports - • LINKAGE AND OPPORTUNITIES • Mobilise farmers for horizontal and vertical linkage • Importation of concentrates for juices??? • CONCLUSIONS • Over-reliance on rain-fed system need to be reduced • Mobilisation of farmers require further effort • Linkages will be key to accelerating finance • Greater integration into higher value chain activities • Cold chains are an urgent issue for sustainability

14. Coffee sub-sector Milling Marketing Pulping Production Roasting Retail/Export • Background and Value Chain

15. COFFEE SUB-SECTOR- finance • AVAILABLE PRODUCTS • Few specialised products available • Advances/Seasonal loans by Coffee Development Fund (CODF) <= 2 kg per coffee tree • Coffee Rehabilitation loan by CoDF < 1kg per tree • Cash-crop loans by AFC for 2-8 years • Advances on delivery by millers e.g. Nyambene Mills • SACCO loans e.g. Taifa SACCO • Supplier credit available to most farmers • Grant - Value Chain Based Matching Grant Fund • RECOMMENDED HIGH-IMPACT PRODUCTS • Value Creation – Warehouse receipting system, Input finance (guaranteed lending) • Value Preservation – Upgrade pulping technology • Value Addition – Coffee shop setup and operation

16. Coffee sub-sector-conclusion • MAJOR CHALLENGES TO FINANCE • Climate risks – droughts, floods, extreme cold • Poor attitude towards coffee farming and the industry • Deep mistrust among chain actors • Outdated pulping technology • Exposure to global economic risks. Export overreliance • Lack of traceability. No pay for quality • Poor corporate governance by cooperative • Too much government • LINKAGE S AND OPPORTUNITIES • Coffee act to be changed to allow farmers to control the product along the entire value chain • Coffee shops – more players are needed • CONCLUSIONS • Domestic market and diversification of international markets • Transparency regarding margins by chain actors

17. EXTENSIVE LIVESTOCK Slaughter Distribution Trade Production Butchery Retail/Export • Background and Value Chain

18. Extensive livestock - finance • AVAILABLE PRODUCTS • Few specialised products available • Livestock purchase loan for traders – Equity/CARE • Livestock business/project loan by Kenya Livestock Finance Trust • MFI loans for poultry farming (tied to farming cycle) • Supplier credit available to poultry farmers • Grant – By Government for restocking after drought • Livestock insurance by Equity and UAP Insurance • RECOMMENDED HIGH-IMPACT PRODUCTS • Value Creation – Loans for quality breeds • Value Preservation – Micro-leasing for freezers • Value Addition – Equipment to add value e.g. meat mincers and electronic scales by butcheries

19. Conclusion - FINANCE • Farmer mobilisation most crucial for financial access • Climate change adaptation key risk mitigation • Market driven development of financial services • Training of MFIs on agriculture finance critical • Grant should be used as last resort • Record-keeping by farmers too poor

20. Conclusion - general • Consider entire portfolio of value chain for a farmer • Ongoing regional integration to impact on value chains • Harmonisation of NGO activity in value chains. Cooperation vs competition • Collapse of government extension services hurting all sub-sectors

21. Thank you for your kind attention