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THE ROLE OF WRS & FINANCIAL
SERVICES IN IMPROVING PRODUCE
MARKETING BY SMALLHOLDER
FARMERS IN KENYA
By Edward Kateiya
KENFAP
8th November 2011
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)
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
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
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
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
Overview of WRS approaches
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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
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
Conceptual Framework
Smallholder farmers’
capacity (input, output,
Price, quality, standards,
skills, organisation &
information flow)
W
Better
storage
Reliability
R
Sustained
quality
Credit
Collateral
Security
Support services
(financial, insurance,
research and extension)
S
Enabling environment (policies, regulations, legal framework)
Improved
Livelihoods
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
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
RESULTS
UNDERSTANDING THE WRS OPERATIONS
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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
UNDERSTANDING THE RISKS
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Price volatility
Weather conditions
Theft
Trust
Inadequate information sharing
Farmers harvesting at the same time
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
UNDERSTANDING THE WRS OPERATING
ENVIRONMENT
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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
Smallholders’ Capacity to engage in WRS
Parameters
Western
Eastern
Rift Valley
Nyanza
No. Bags delivered
to grain bulking
centre per farmer
(90Kgs bag)
60-120
bags
1-20 bags
10-65 bags)
2-20 bags
Awareness level
(WRS)
22.4%
10.8 %
39.6%
13.5%
Awareness level
(Cereal banking)
75.8%
78%
67.8%
89.5 %
Level of quality
standards
adherence -NCPB
19.5 %
12.2%
21.4%
11.3 %
Average Storage
period (grain
bulking)
3 months
3months
2-3months
3 months
Average distance to
nearest warehouse
≈20kms
≈25kms
≈15kms
≈5kms
Average distance to
nearest market
≈1km
≤1km
≈5km
≈1km
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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
Types of WRS in Kenya
Parameter/type
Private
(LESIOLO/EAGC)
Public (NCPB)
Community Cereal
Bulking/Banks
Capacity
50,000 Metric Tonnes 1.8 Million MT
Varied
% utilization
50-60 %
10 % or less
Seasonal
Facilities
2 sites, Rent NCPB
silo
110 sites spread over
Regional distribution
Certification
certified
13 Certified
Uncertified
Documentation
Automated &
electronic
Manual
Member register
Clients
Large scale farmers & Large scale farmers
traders
Smallholder farmers
Minimum quantity
50 MT / 500 bags
10MT/111bags
Any quantity
Distance
Specific locality
20km
Within the area
Financing
Receipts accepted by Promissory note
Banks
accepted by bank
Not accepted
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
Financial products
Financial
Institution
Type of product Description of
product
Conditions
Cooperative
Bank
Amiran Farmer
Kit Finance
Greenhouse
technology
Loan=: 50-500,000
Interest=13%, Insurance=2.5 %
Period =24 Months
active account -6 months
Maziwa Plus
Dairy farmers
Scheme-HI/coop
Loan=100,000-10 M
Interest =12% coy/coop
Interest=14% =Farmer
500 liters per day
Formal contract
Active Account
Period=60 months
Agriculture
commercial
loan
Medium & large scale
Loan=5,000-500,000
Interest =15 %
Period =12 months
Title deed, logbook
Equity Bank
Financial products cont’
Financial
institution
Type of the
product
Description of
the product
Conditions
Equity Bank
Kilimo
Biashara
Small/large scale
Interest -15% flat, Period-3 yrs, Lace-3%
Title deed, logbook, shares, cash cover
Kilimo Kisasa
Smallholder
farmers
Loan=50-500 T
Interest-15%, penalty -6% , Lace 3%
Affront pay=0.325% of loan, Daily deposit
Chattel Mortgage , Period=12 months
Kilimo
Maendeleo
Smallholder
farmers
Interest-15%, penalty -6% , Lace 3%
Affront pay=0.325% of loan, Daily deposit
Period=24 months, Title deed, logbook
Mavuno
Small scale tea
Interest=15.5%-18%, Period=12 months
farmers
Delivery slip, Active account
Loan =100,-500 T
Kenya
Commercial
Bank
Dairy herd
Dairy farmers
improvement Loan= 50 ,000-2
million
Dairy
Installment
Interest=competitive
Deducted from milk payment
Chattel=dairy cows
Coop societies
Interest=flexible
Loan=5-20million
Financial products Cont’
Financial
institution
Type of product
Description of
the product
Conditions
Agricultural
Finance
Corporation
Seasonal Credit
Maize, Potatoes, Interest=10%, Period =12months
Rice
Default=20%,
Title deed
Cash crop Credit
Sugar cane,
Coffee, Tea
Interest=10%, Period =24 months
Title deed
Livestock credit
Beef, poultry,
pigs, sheep &
goats
Interest=10%, Period =24 months
Monthly payment
Machinery
Combine
harvesters
Interest=10%,
Business Loan
Butchery, cereal
trading, all
services
Interest=10%,
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
Insurance services/products
• Many existing insurance products
Livestock-dairy cow, beef, poultry, sheep & goats
Crop-sugar cane, French beans, sorghum, artemisia
Crops- Kilimo salama
Challenges on insurance services
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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.
Recommendations
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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
THANK YOU