` THE ROLE OF WRS & FINANCIAL SERVICES IN IMPROVING PRODUCE MARKETING BY SMALLHOLDER FARMERS IN KENYA

1. `THE ROLE OF WRS & FINANCIAL SERVICES IN IMPROVING PRODUCE MARKETING BY SMALLHOLDER FARMERS IN KENYA By Edward Kateiya KENFAP 8th November 2011

2. Introduction • Follow up of earlier study on government interventions in input & output markets • Address emerging demand from KENFAP members • Two case studies-improve smallholder accessibility to: • WRS • Financial services • Carried out in August- September 2011 • Generate evidence to: • inform WRS policy , regulation and legal framework • lobby for appropriately Financial/Insurance products for smallholder farmers • Partners involved – • KENFAP supported by Agrinatura-Natural Resource Institute (NRI) & Wageningen University ( LEI)

3. Problem statement • Commodity markets operates in dynamic environment • Supply & Demand forces • Climate change • Government policies • High Post harvest losses and disorganized markets • Perpetuate waste and reduce economic returns • Inadequate information on markets • Inappropriately packaged financial products/ services

4. Rationale • Demand from KENFAP members for accessible WRS • Emerging gaps in the ongoing process on WRS policies and regulation formulation • Lack of awareness on WRS and its benefits • Farmers reaction on the pilot WRS-mixed • Maize marketing operate in a liberalized market system • Financial institutions sceptical - ability of smallholder farmers

5. Objectives – Case 1: WRS • To understand the operations, risks, challenges and enabling environment for WRS • To identify the capacity needs of SH farmers to engage in WRS • To determine how best WRS can improve grain management and marketing

6. Case 2-Financial & Insurance Services • To identify existing financial credit sources and insurance services available for SH. • To examine terms and conditions of loans targeting SH and identify impediments or difficulties • To identify the hidden costs embedded in bank loans and identify the cost of risk participation by Banks and Micro finance Institutions

7. Overview of WRS approaches • American elevators • Latin America-title document • Colombia- Banks • Eastern Europe & Soviet Union- licensing regimes • Hungarian system-Regulatory agencies & indemnity funds • India-Futures markets • South Africa-SAFEX-stock exchange • Malawi- subsidy production-many crops • Madagascar-Credit-led system-CECAM • Kenya • certified WRS pilot-EAGC & NCPB • Uncertified –Cereal Banks

8. WRS initiatives in Kenya • WRS focus on maize and wheat • Builds on pilot initiatives by • EAGC-membership-certified WRS • Lesiolo-private • NCPB-public • Grain bulk handlers of Mombasa-private • KACE-Market information • Cereal bulking initiatives by public and private actors

9. Smallholder farmers’ capacity (input, output, Price, quality, standards, skills, organisation & information flow) Better storage Reliability Improved Livelihoods Sustained quality Credit Support services (financial, insurance, research and extension) Collateral Security Enabling environment (policies, regulations, legal framework) Conceptual Framework W R S

10. Methodology • Design • Cross section study • National level-Key informants • Local level-Field activities & farmers • Sample size & Sampling procedure- • Sample size 240 farmers –randomly sampled • Key Institutions /organizations-Purposive base on functions & role • Study sites -purposively selected based on:- • WRS activities • Regional diversity • Agro ecological Zones

11. Methodology cont… • Study sites • Western-Bungoma • Nyanza-Siaya • Eastern-Meru North & Makueni • Rift Valley- Nakuru, Narok, Marakwet & TransNzoia • Data collection • Reconnaissance survey • 2 Checklists-WRS & Financial services • -Primary-Personal Interviews • Secondary- overview of WRS approaches-global, regional & local initiatives • Data Analysis-Qualitative & quantitative • Presentation of preliminary results to KENFAP Technical team and Agrinatura • Preliminary report and validation workshop

12. RESULTS UNDERSTANDING THE WRS OPERATIONS • Process-lengthy & bureaucratic • Limited access by smallholder farmers-10% • Large scale farmers & traders-90% access • Few certified Warehouses-14-EAGC & NCPB • Several community cereal banks • Inadequate awareness-80% of smallholder farmers interviewed were not aware about WRS

13. UNDERSTANDING THE RISKS • Price volatility • Weather conditions • Theft • Trust • Inadequate information sharing • Farmers harvesting at the same time

14. UNDERSTANDING THE WRS CHALLENGES • WRS is a new terminology • High costs of storage 8 -11% • High costs of transportation and long distance travelled - av 20km to the Nearest certified NCPB warehouse • 90 % of the respondents failed to meet quality tests • Minimum -10 metric tonnes (NCPB) & 50 metric tonnes (Lesiolo)-WRs -Not accessible to smallholder farmers • 80% of the respondents interviewed complained long intake procedure & piece meal quality related technicalities •  70 % of the respondents claimed storage does not cover the costs due to fluctuating produce prices

15. UNDERSTANDING THE WRS OPERATING ENVIRONMENT • Gentlemen arrangement & loose contracts • No WRS policy • No WRS rules & regulation • Informal engagement with competent authorities-KEBs & KEPHIS • Policy formulation, development of rules & regulation as well as legal framework ongoing

16. Smallholders’ Capacity to engage in WRS

17. How best WRS can improve grain management & marketing • Change in price- (kshs 1,800-3,000)- 66.7% -within 6 months • Net benefits increase by 54 % • Secured Loan- 50-80%-Equity Bank , Cooperative society • Maintaining quality of the grains • Improved Bargaining power • Security of the stored grain • Market information

18. Types of WRS in Kenya

19. Recommendations: Case 1 • Federate farmers into Cooperatives/associations- • Build capacity of SH farmers to effectively engage in WRS • Increase awareness on WRS to all stakeholders-Banks, depositors, WRS operators, Insurers • Improve market information systems to favour to smallholder farmers • Need for national policy, regulatory and Legal framework for WRS • Fast track the process of policy & regulation formulation • Innovate affordable warehouse-gradual progression from Community Cereal Banks to fully fledged WRS linked to Commercial Warehouses • Establish training centre and incorporate in school curriculum

20. Financial products

21. Financial products cont’

22. Financial products Cont’

23. Relevance & appropriateness of Financial products • Requirements-organized group, farmer, account holder, minimum quantity per day, pay slip, membership • Interest rate-12%-18% • Other charges-insurance, processing fee,-2.5-6% • Very expensive default action-create fear

24. Insurance services/products • Many existing insurance products • Livestock-dairy cow, beef, poultry, sheep & goats • Crop-sugar cane, French beans, sorghum, artemisia • Crops- Kilimo salama

25. Challenges on insurance services • organization of farmers-smallholder farmers • Difficulties in developing index products-data • The Kenya meteorology department-manual • No insurance premium financing-structure • poor history of insurance –limited trust.

26. Recommendations • Package lending to suit farming cycle • Attitude change toward agriculture-risk • Building trust between banks and insurance • Develop alternative approaches on dealing with defaulters • Improve technical skills on agricultural financing and insurance • Further research

27. Thank you