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					 FINANCIAL SERVICES IN AGRICULTURE VALUE CHAINS



                            Financial Market Survey dissemination workshop
                                          on 25th May 2010
                                  at Jacaranda Hotel, Nairobi, Kenya.




                                    Rapporteur’s Report


                                                   By

                                  Stephen G. Kimotho, Rapporteur:
                                  B.ed(Hons) Linguistics & Literature
                                         M. ED (Literature)
                                   PhD (Communications: Ongoing)
INTRODUCTION

This is the Rapporteur‟s Report that summarises the key proceedings, questions, responses and
recommendations of the Financial Market Survey Dissemination workshop on “Financial Services in
Agriculture value chains” which took place in Nairobi on 25th May 2010. This report will also give
highlights of a Launch of a book titled “Value Chain Finance: Beyond Microfinance for Rural
Entrepreneurs” which took place on the same day.

The report has the following main parts: Executive Summary, Opening Session, Conference
Presentation, an interactive session, Groups Discussions, Conclusion and Book Launch.



                                                   1
TABLE OF CONTENTS


Introduction                  ...................................................................................................................   1
Executive Summary ..................................................................................................................                3
Part I
1.0 Opening Session ...............................................................................................................                 4
1.1 Presentation ..... ..............................................................................................................               4
1.2 Highlights of the presentation ........................................................................................                         4
1.3 Interactive session ............................................................................................................                5
1.4 Responses to the Reactions .............................................................................................                        8
1.5 Presenter‟s Conclusion ......................................................................................................                   9
1.6 Group Discussion ..............................................................................................................                 9
1.7 Recommendations .................................................................................................                               10
1.8 Rapporteurs Observations ..............................................................................................                         11
1.9 Conclusion                .........................................................................................................             12
1.8 Rapporteur‟s Observations ................................................................................                                      11


Part 2                        ...................................................................................................................   13
2.0 Book Launch .........................................................................................................                           13
2.1 Introductory Remarks...........................................................................................                                 13
2.2 Key Note Speech .................................................................................................                               14
Book Launch                   .........................................................................................................             13
Appendix (i) Names of the Participants ........................................................................                                     16




                                                                                               2
EXECUTIVE SUMMARY

The Financial Market Survey dissemination workshop was a joint event organized by AgriProFocus,
International Institute of Rural Reconstruction (IIRR), Royal Tropical Institute (KIT), Oikocredit, and SNV
among other players. The conference drew a wide array of participants from the donors, financiers,
NGOs and producers in Kenya and beyond. In all, one key presentation was made, followed by an
interactive session, group discussions, reporting of the group discussions and final response session.
During the workshop, there was a clear call for joint action to focus on:
      Capacity development and producer organisations
      Knowledge development on agri-financing within banks and other financial institutions
      Joint financial product development for agri- sector on micro and meso level and
      Joint development of risk mitigating instruments (such as insurance)

After the opening session, a presentation titled “Financial Services in Agriculture Value Chains‟‟ was
made. The presentation consisted of a survey by on Agricultural value chains in Kenya. The survey
focused on five sub-sectors, these are: Potato, Dairy, Coffee, Domestic Horticulture and extensive
Livestock. It gave an elaborate background on each sub-sector in the Kenyan context, financial
products available for each, major challenges, linkages and opportunities and recommendations. The
presentation was followed by an interactive session. In this session participants gave their reactions
through questions or comments about the survey. Thereafter, the presenter and the other parties who
took part in the study responded to the participants reactions. The third session constituted of group
discussions. The participants were divided into four main groups. Two questions were given for
discussion. Each group had to appoint a secretary to do the reporting.


The second part of the session was a launch of a book titled „Value Chain Finance:
Beyond Microfinance for Rural Entrepreneurs.’ The book by IIRR was the third publication by the
organization on Value chains. The President of IIRR, Dr. Isaac Bakelo and the guest of honour Mr.
Mugo Kibati, the current Director General, Kenya Vision 2030 Vision Delivery Secretariat led the
participants in the launching of the book.




                                                    3
                                                 Part 1
1.0      OPENING SESSION
The opening session of Financial Market Survey Dissemination workshop began with Mrs. Rahab
Njoroge (IIRR - Kenya country Director), welcoming and recognizing the presence of various guests
and participants. She then invited Carol Mulwa (Country Manager Kenya Oikocredit) gave her
appreciation and optimism about the survey and a brief background of the survey.

1.1      PRESENTATION
The presentation titled „Financial services in Agriculture Value Chains‟ was done by Ephraim Njenga.
Generally, the presentation focused on five sub-sectors namely: Potato, Dairy, Coffee, Domestic
Horticulture and extensive Livestock.


1.2      HIGHLIGHTS OF THE PRESENTATION
In his introductory remarks, the presenter stressed the importance of agriculture in shaping the
economical, social and political landscapes of Kenya. He further posited that, with a direct
contribution to GDP of 24%, labour force absorption of 75%-80% and contributing more than 65%
of the countries export, agriculture sector cannot be sidelined in the country‟s emancipatory effort of
its people from the yokes of poverty.
It was also noted that, despite the significant role that Agriculture plays in Kenya, it continued to
receive the lowest share of bank credit allocation. This was also highlighted as one major hindrance to
the growth and expansion of the sector.
According to Njega, the survey used the following methods:
      a) Desk study of relevant materials and past studies, literature review
      b) Depth interviews with stakeholders and chain actors
      c) Survey (potato farmers)
      d) Engagement of stakeholders at various sectoral forums e.g. exhibitions
      e) Case study
In a summary, the presenter underlined, the main challenges encountered by farmers across the five
sub-sectors as follows: Low productivity, climate risk, price instability, poor storage facilities, market
risk, excessive intermediaries, 'seasonality' of production and excessive informality in distribution.
Some of the main recommendations suggested across the five sub-sectors are: value creation, value
preservation, value addition and mobilization of farmers to financial access.




                                                    4
1.3     INTERACTIVE SESSION
The interactive session gave the participants, panellist and the audience an opportunity to react to the
presentation. The reactions were in form of comments, observations and questions.


Reaction 1
Lucy from the Kenya Coffee Producers Association made an observation that there is need for more
effort in providing and enhancing capacity building programs to the farmers need since this could be
the underlying problem that is causing discomfort on the part of the financiers who are approached
for financial support by the farmers. In her words, the participant asked, “How are we going to
assure the financiers that the farmers will pay back the money borrowed? There is a need to think of
a solution in this area. Who should take the responsibility of educating and guiding the farmers on
sound practices in order to build the financiers confidence? The largest problem is capacity building
of producer organisations to be able to successfully do business.”


Reaction 2
Beatrice Obara (from DAV Capital Limited), a participant, highlighted the importance of being
strategic and a holistic perception of Agricultural value chains for substantive impact. “In financing
Agricultural Value Chains, the financier and other stakeholders should understand that without value
addition and sound marketing strategies, then, the overall effect of the chains will continual to be
minimally felt.” She further posited that, to ensure success and profitability of Agricultural Value
Chains, all players in this chain must actively participate in their respective positions. To illustrate her
point, she talked of a limited company that her organization has established to facilitate the
marketing of the farmers produce and on behalf of the farmer. She further argued that establishing
such intermediaries helped farmers reach the big players in the market. “Big traders who offer
competitive value for the farmers‟ produce are more willing to do business and enter into formal
agreements with a legitimate companies or institutions and not individual farmers.




                                                     5
Reaction 3
Sabdiyo B-Dido, the portfolio co-ordinator of SNV Kenya spoke of the necessity of sufficient and in-
line attention of both areas, which is capacity building and financial product development, while at
the same time taking into account the informal sector.



Reaction 4
Joseph Irungu (from IIRR), though very impressed by the survey, which he described as one of the most
optimistic, was apprehensive of one thing: the yawning gap between theory and practice in the
Agricultural Value Chains. He felt that the stakeholders should be linked through stakeholder forums,
through which for instance banks and producers can jointly come to realistic planning.


Reaction 5
Wolfram Jaeckel (form DEB/German Development service), was also impressed by the presentation
and commended those involved for the good work. Nevertheless, he had some questions concerning
the methodology used in the survey. Precisely, Jaeckel questions were as follows:
   a. How did you come to the five sub-sectors explained in your study? Did you select them, and if
       you did what criteria did you use to select the five that you have discussed?
   b. Do you have any information that would show or present these Agricultural Value Chains from
       the farmer to the retailer (considering the big difference in the net margin and the gross
       margin). It would be interesting to see; what the total margin from the farmer to the retailer
       would look like; and what causes these margins? Where would you get the largest margins in
       the sub-sectors considered; and why are they so large and what activities can be done to
       improve the situation?


Reaction 6
Alex Kirui (Heifer international) who works with livestock farmers in high potential and Pastoralist
area suggested that there is need for more agricultural related institutions near the farmers to offer
the much needed support to the farmers. He also suggested that there is need to set up more
agricultural oriented hubs where farmers would get financial and technical supports.


Reaction 7
J.B. Kangethe, a pig farmer but also a development practitioner, was more concerned about the
financing procedures and the approaches used by many financing institutions. According to him, most
of the approaches or procedures used by the financial institutions were not farmer friendly. He


                                                   6
quoted the formulation of the questions in the loan application forms and the almost indecipherable
terms on the loan agreement forms. He attributed this to lack of sufficiently trained loan officers;
especially on issues to do with agriculture and Agricultural Value Chains.


Reaction 8
Kibui Michael (private sector) concerns were about the informal value chains. He argued that there
has been a lot of discourse on formal value chains but little has been done about the informal values
chains. To justify his claims he points at the presenter‟s statistics on the role of informal value chains in
the economy of the country. Michael further argues,


           “I know from the business world that money is not really the problem despite the
           fact that we are talking about financing. There is a lot of money in the Informal
           Value chains; for instance look at the dairy sector – it was earlier mentioned
           that about 80% of the milk business is in the informal Value Chains in Kenya;
           fresh fruits and vegetables at Marikiti market etc. There are actually a lot of
           funds. It is a question of how these funds are balanced (harnessed). I am yet to
           see a real case where there is a genuine effort to improve the Informal Value
           Chains. How are these critical masses of entrepreneurs being helped to tap in
           the knowledge of value addition? How can these farmers in the Informal Value
           Chains be empowered?”
Reaction 9
This participant‟s reactions were meant to reinforce Kirui‟s enquiry on Livestock farming. She wanted
to know whether the financing institutions have a product that suits the pastoralists in Kenya,
especially because of the long duration that such a farmer wait before they realize any yield. In her
second question, the participant was concerned about the extreme formalization of the financial
products bearing in mind that the culture of borrowing is still new to many Kenyan farmers. “How can
we formulate products that are not too formal as to exclude the beneficiaries?” she asked.




                                                     7
1.3    RESPONSES TO THE REACTIONS
On methodology, the presenter said that methods such as interviews of chain managers on the
margins during the survey on the potatoes sub-sectors were used mainly because there lacked other
relevant studies on potatoes value chain and hence they had to come up with a margin according to
the prices provided by the farmers all the way to the retailers.
Carol Mulwa (Country Manager Kenya Oikocredit) in her response to the question by Wolfram
Jaeckel on the methodology used to reach at the five subsectors argued that the five were the major
agricultural sectors and had great impacts on Agriculture and the Kenya‟s economy in general. She
further, stated that this defined the scope of the study as it was beyond the limits of this study and
impossible to study every sector.


James Sina (representing equity bank), a panellist, noted that most of the issues raised by Kangethe
(a pig farmer) on policies and procedures had been well taken care of by the government. Sina sited
the initiative by the ministry of finance on public–private partnership as a good example.


In his response, Sina added that credit officers with specialized agricultural knowledge are available
in several financial institutions like equity bank, contrary to the claims made earlier. In addition, he
noted that, currently sector based lending – agriculture taking a big potion, that support value chains,
are available in many financial institution and perhaps what the farmers need is sensitization on how
to get access to these products and proper advice. Sina also observed that there is need to
strengthen all the players in the value chain.


Responding to the question of livestock farmers in arid areas by Alex Kirui (from Heifer international),
Sina noted that, financiers like Equity Bank, is piloting index based livestock insurance for such
farmers in arid areas; a good case being Marsabit. Over 30, 000 pastoralist have been reached
through training so far and over 2000 have already purchased the insurance.


1.5 PRESENTER’S CONCLUSIONS


In his concluding remarks, the presenter noted that; farmer mobilization for financial access, Market
driven development of financial service, key risk mitigation and adaptation to Climate change and
training of MFIs on agriculture finance as critical. In addition, he argued that grant should be used as
last resort and farmers must be sufficiently taught about record – keeping




                                                   8
The presenter further advised that, there is need to consider the entire portfolio of value chain for a
farmer, ongoing regional integration to impact on value chains, harmonization of NGO activity in
value chains (Cooperation vs. competition) and the reviving of the government extension services.


1.6 GROUP DISCUSSION
Four groups were formed to engage the survey on the basis of the questions given below. The
groups consisted at least 4 diverse categories of participants:       Donors, financiers, NGOs and
producers and discussed the following questions:
       1. Did you find the study exhaustive? What are other issues not identified
       2. Based on challenges identified by the report and your group, identify additional solution to
       address these?


GROUP REPORTS
To the first question, most of the groups felt that the study was exhaustive. However, they noted that,
most of all these challenges were not new. Therefore, they wondered why the linkages were still
missing despite all the interventions. The groups also added that, it seemed that dairy sector was the
only one doing well at the moment.
The following are other points noted by the groups:
       a) Study‟s ability to capture the role of the middlemen and the adverse effect this had had
           on the farmers was not sufficient.
       b) How the different functions in the value chain are affected by financing needed some
           further attention.
       c) The need for categorization of the players along the value chain as either useful or not
           useful
       d) What defines that which needs financing? Is it the current value chain or a new value chain
           and when is financing useful? (e.g. mangoes Farmer - high breeding – more profit vs. Low
           breeding – loses )
       e) Insurance
       f) Capacity building on both sides producer farming as a business and banks: product
           knowledge.
       g) The important opportunities of mobile banking
       h) Legal framework contract farming


That notwithstanding, one group felt that the survey was not exhaustive enough and cited the
potatoes value chain as one such sector that was wanting in terms of exhaustiveness.


                                                   9
1.7 RECOMMENDATIONS
1. The following were the recommendations that emanated from the group discussions.
    There is need to:
       a. Carry out an in depth assessment and investigation on the inability of the accessing
            Credit. Why have the farmers not been accessing finances?
       b. Establish the weakest point in financing a value chain
       c. Develop new value chains that are profitable
       d. Come up with /propose new value chains financing initiatives
       e. Improvement of the legal frame work and contractual farming
       f. Carry out specific product analysis, assess the market and analyse the possible
            challenges.
       g. Enhance strategic business planning – farmers need to change their mind sets – A farmer
            needs to plan too.
       h. Carry further analysis of the equity insurance product for a case study.
       i.   Have new extension services e.g. in dairy – fodder issue
       j.   Ensure sustainability of interventions
       k. Investment of product development in micro insurance i.e. Refinement of micro insurance
            production to capture the need of the farmers.
       l.   Have specialized production and scheduled production
       m. Have market led production, Market development and market linkages
       n. Intensify capacity building – enhance relationship between farmers and financiers
       o. Establish cases of success studies of establishments that have excelled.
       p. Ensure that all players in the Value chains are engaged i.e. the producer, processor,
            marketer etc.
       q. Enhance cooperation and not competition among the NGOs
       r. Re-examine the terms of financing – repayment rates, remove barriers i.e. terminology,
            orthographic of use of jargons
       s. Introduction of mobile banking – to help farmers have easy access to financing institutions


CONCLUSION
In his conclusion, Sina noted that the efforts to have such a survey were commendable and marked a
good and prospective beginning. He further encouraged interaction between various institutions and
players through mutual reinforcement. A strong public –private partnership was also encouraged as it
would effectively reduce overlaps and redundancy.




                                                     10
Julius Chege, a panellist and the chief executive Officer – Pamoja Women Development Program
(PAWDEP) observed that the survey was informative the report will profit the financial providers and
all other stakeholders.


Carol Mulwa (Country Manager Kenya Oikocredit) concluded by saying that the need to finance
Value chains is there and it‟s real. She was optimistic about the success of value chain financing
because it has attracted a lot of support. She however encouraged actors in the value chain to be
positive about their own contribution to enterprises. Financiers want to see that those they fund are
not only enthusiastic about the project being financed, but are also willing to contribute their own
funds and other resources.




                                                 11
                                                 Part II
                                          BOOK LAUNCH
2.1 INTRODUCTORY REMARKS

In her introductory remarks, the IIRR - Kenya country Director, Mrs. Rahab Njoroge acknowledged all
the IIRR development partners, the financier of the project in co-operation with KIT (Royal Tropical
Institute) and all those who contributed in one way or another to the completion of the text. She also
observed that this was their third book on Value Chains. In addition, she informed the audience that
similar publications were in the pipeline which includes titles on „Domestic Value Chain,‟ „Gender and
Value Chain‟ and „Pastoralist Value Chain.‟ The Director then invited the IIRR president Dr. Isaac
Bekalo to take the audience through the intricate process of publishing the book that was being
launched.

In his remarks Dr. Isaac Bekalo, explained to the audience - why and how the book was produced,
how the book was produced, the „writeshop‟ process and advantages, the issue at stake dealt in this
book, problems in financing rural SMEs, financing the value chain, three situations of value chain
finance (i.e. crafting new chains, expanding chain liquidity, unleashing investments), remodelling risk
management, The chain of value chain finance and Involving local banks.

In his final remarks Dr. Bekalo observed that:
   a) Risk-sharing is key, hence, there is need for cross-organizational collaboration and co-
       innovation
   b) Added value of value chain finance is reorganizing and professionalizing the value chain
   c) value chain finance reaches beyond micro-finance, however, there is need to pay attention to
       the paradox of chain integration v/s empowerment

He finally acknowledged the efforts and dedication of the authors, resource persons, editors, and
facilitating staff and gave a special word of gratitude to the donor-partners.

2.2 KEY NOTE SPEECH:

The key note speech was given by Mr. Mugo Kibati – Director General Kenya 2030 Vision Delivery
Secretariat. Mr. Kibati noted that the efforts IIRR and other development partners were not only
supportive and in line with goals of vision 2030 but also touched on an important economic pillar of
the country. The value chain finance initiatives were described as avenue of empowering and
strengthening people thus creating economical and social stability. The Director General also said
that the majority of Kenyans who are poor are apparently very hard working but are in an


                                                  12
environment that doesn‟t allow them to reap advantages from the fruits of their labour. This is partly
because of various factors, for instance; the in ability to access loans because they cannot afford
collateral and incapacitation because limited information on how to invest. In his concluding remarks,
Kibati called on the financial banks to realize that the real value is in those whose potential has not
been exploited, not because they do not have good ideas but because the environment around them
is not enabling. He emphasised the fact that Vision 2030, belonged to all Kenyans and cannot be
cornered by any quarter of the society; not the government, NGOs or private sector. All must work
together through this kind of initiative for posterity.




                                                     13
Appendix (i) Names of the Participants

    1. ALEX            KIRUI                  HEIFER INTERNATIONAL - Kenya
    2. BEATRICE       OBURA                   DAV CAPITAL LTD
    3. CAROL          MULWA                   OIKOCREDIT
    4. CHARLES        OTIENO                  HEIFER INTERNATIONAL - Kenya
    5. EDWARD         KAITEYA                 KENFAP
    6. EPHRAIM        NJEGA                   Profitzone
    7. GUUS           ROOZENDAAL              FORE FINANCE
    8. JACKIE         GATHONI                 TROCARE
    9. JACOLINE       PROMP                   SOLIDARIDAD
    10. JAIME TER LINDEN                      FORE FINANCE
    11. JAMES         KANGETHE                KOAN
    12. JAMES         SINA                    EQUITY BANK
    13. JOSEPH        IRUNGU                  HSHC
    14. JULIUS        CHEGE                   PAWDEP
    15. JUSTUS        KIAGO                   Min of Coop Dev & Marketing
    16. LILLIAN       OGOLA                   RISE TRUST
    17. LUCY          KIMANI                  KCPA
    18. MARY KEN      MUTHONI                 PELUM KENYA
    19. MICHEAL       KIBUE                   AGRITRADE
    20. MICHEAL       KIBUI                   PRIVATE SECTOR
    21. RONALD        MWAGULA                 PELUM KENYA
    22. SAMUEL        NDUNGU                  KOAN
    23. RAHAB         NGUMBA NJOROGE          IIRR
    24. THOMAS        OBUGA                   OIKOCREDIT
    25. TIMOTHY       SHITSESWA               PROFIT ZONE
    26. VINICENT                              KARI
    27. WOLFRAM       JAECKEL                 DED GERMAN DEVELOPMENT SERVICE
    28. DAVID         MAINA                   APF/SNV
    29. SABDIYO       DIDO                    SNV
    30. JECHONIAH KITALA                      SNV
    31. STEPHEN       MUCHIRI                 EAFF
    32. ELIKANAH      NGANGA                  OIKOCREDIT
    33. GEORGE        KANIA                   PROFITZONES




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