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FINANCIAL SERVICES IN AGRICULTURE
VALUE CHAINS
Potato
Dairy
Extensive
Livestock
Domestic
Horticulture
Coffee
Tuesday 25th May 2010
Consultants and Trainers
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
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IMPORTANCE OF AGRICULTURE
GDP
• Direct contribution to GDP 24%
• Indirect contribution 27%
JOBS
• 75-80% of all labour force directly and
indirectly
EXPORTS
POVERTY
• More than 65% of all exports
• Poverty eradication and food security
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INTRODUCTION
Analysed Allocation of Bank Credit to Private Sector for 12 months to Feb 2010
Building and Finance &
construction insurance
4%
4%
Agriculture
5%
Real estate
7%
Trade
16%
Private
households
15%
Consumer
durables
7%
Transport &
communication
s
9%
Mining and
quarrying
2%
Manufacturing
12%
Business
services
9%
Other
activities
10%
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POTATO SUB-SECTOR

Background
2nd most important food crop after maize
Direct and indirect employment 2.5m. Gender parity
Contribution of about KShs.10B (Farmers KShs. 5B,
Brokers KShs.1B, Others KShs. 4B)
Declining production vs. Increasing consumption????
Farmer
NM=75.2%
Wholesaler/
Transporter
NM=18.09%
Market
Retailer
Stall
Owner
NM=24.52%
NM=22.52%
Supermarket
Processor - Fries
GM=259.33%
NM= 100%
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POTATO SUB-SECTOR

FINANCIAL ISSUES
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
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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
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DAIRY SUB-SECTOR

Background and Value Chain
Contributes 4% to the GDP
About 2.25 million Kenyans involved
80 % of marketed milk sold unprocessed. Consumption
(100 ltr per capita) not rising to match production
Dairy hubs changing the sub-sector rapidly
Sector facing crisis due to glut – Over KShs 1 B worth of
stock held, prices reduced, capacity installed
Production
Processing
Transport
Distribution
Chilling
Retail
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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
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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
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DOMESTIC HORTICULTURE

Background and Value Chain
Largest foreign exchange earner KShs 71.6 B
Vegetables,
herbs and spices
34.2%
Fruits and nuts
Flowers
40.4%
25.4%
Market Value as of 2007
Domestic – Fruits and vegetables, flowers (6%)
Tomatoes (1) & passion fruits (5) among most valuable
Production
Processing
Transport
Distribution
Wholesale
Retail
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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
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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
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COFFEE SUB-SECTOR

Background and Value Chain
4th Largest forex earner. Rising prices
Sub-sector facing a continuous decline
high of 130,000 MT to average 50,000 MT
Low domestic consumption
but increasing via coffee shops
Long and complex value chain
Production
Marketing
Pulping
Roasting
Milling
Retail/Export
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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
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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
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EXTENSIVE LIVESTOCK

Background and Value Chain
Annual Production Value figures in
KShs Billions
Read Meat
4.66
1.2
0.062
White meat
5.9
Egg production
34.4
2.47
Bee-keeping
industry
Hides and skin
Wool
Production
Distribution
Trade
Butchery
Slaughter
Retail/Export
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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
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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
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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
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THANK YOU FOR YOUR KIND
ATTENTION
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