Building an Avocado Cluster in Central Kenya1
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Building an Avocado Cluster in Central Kenya1
By David Knopp and Ken Smarzik
Small-holder farmers in the developing world have traditionally been locked out of high value markets
due to the familiar challenges of poor quality, small volumes, and inconsistent supply. The spot-market
broker has typically serviced this sector, however with low prices and an unreliable buyer, farmers have
been left with little incentive to assume risk and upgrade production. This has fueled the endless cycle of
poverty.
In Kenya, through facilitation of a pilot business linkage with a lead firm, avocado farmers were able to
produce in bulk, access markets, and obtain much needed services to improve production. The enhanced
transactions and improved prices had a demonstrator effect within the sector, stimulating new entrants,
investment, and the emergence of a commercial support services industry. This paper details the path
undertaken by the USAID-funded Kenya Business Development Services Program (KBDS) in facilitating
emergence of the Kenyan avocado cluster while building more inclusive markets for rural smallholder
farmers.
unmarketable. From her total tree count,
Wanjohi was able to sell only 120 fruits for
I. Context export. Even for these few fruits, she could
In January 2003 Mary Wanjohi was a never predict when the broker would
depressed farmer. Her 138 Fuerte and 3 appear, however when they did come to
Hass variety avocado trees were not collect, the fruit was quickly offloaded at
offering the returns she had expected. KShs2 0.50 per fruit. With no market for
Anthracnose had attacked her trees, Grade 2, Wanjohi left the diseased fruit to
withering leaves and branches while rot and be eaten by dogs. She even
blackening fruits. Cercospora spot and scabs considered cutting down her trees and
had also infested her crop, leaving a yellow selling the wood, as some of her neighbors
spotting and a rough, corky appearance on had done.
the skin. A mild infestation of any of these Five years have passed and Mary Wanjohi
diseases would lower Wanjohi’s chance of continues with the avocado business. She is
reaching the Grade 1 export market. The now a member of the Iriguini Mambo Self
combined infestation rendered her fruit Help Group, which comprises of 25
1 David Knopp was Director of the Kenya Business Development Services Program from 2002 to 2008 and is
employed as a value chain specialist by Emerging Markets Group, Ltd. He was the major author of this paper. Ken
Smarzik is Managing Director of the Economic Growth Practice Unit of Emerging Markets Group, Ltd., and was a
technical advisor to the KBDS program during its six years of operation. Both can be reached at 2107 Wilson Boulevard,
Suite 800, Arlington, Virginia 22201, USA or at david@kenyabds.com and ksmarzik@emergingmarketsgroup.com.
2 Kenya Shillings. US$1 = 70 KShs.
1
neighboring farmers, who are organized into has purchased top-working services and plans
a larger network of 600 area farmers. to convert 50% of her trees to Hass variety
Collectively they represent over 4,800 Hass within the next year.
and Fuerte variety trees. Grade 1 fruit is sold Farmer Wanjohi’s situation is similar to
through a formal supply contract with East that of over 10,000 other avocado farmers in
African Growers, one of five large Central Kenya. What was it that caused this
horticulture exporters now buying directly turnaround? What stimulated the emergence
from farmers. Grade 2 fruit is sold to Ruiru of new industry and investment? What
Natural Oils, an industrial scale processor specifically was undertaken to build more
which exports crude avocado oil abroad for inclusive markets for the rural smallholder
cosmetics. The group has contracted Ideal farmers, and may this experience be replicated
Matunda Ltd., a rural-based market linkage in other settings?
firm to coordinate agronomic services, as well The purpose of this paper is to detail the
as grading, collection, transport, and path undertaken by the United States Agency
communications with each of the dedicated for International Development (USAID)
buyers. funded Kenya Business Development Services
Program (KBDS) in stimulating the
emergence of the Kenyan avocado cluster.
Through facilitation of a pilot business
linkage with a lead firm, avocado farmers
were able to produce in bulk, access markets,
and obtain much needed services to improve
production. The enhanced transactions and
improved prices had a demonstrator effect
within the entire sector, stimulating new
entrants, investment, and the emergence of a
commercial support services industry.
Farmer Mary Wanjohi During the entire process, the donor partner
played an important role in reading market
signals, and responding with commercially-
The Iriguini Group has opened a bank viable solutions to unblock constraints, add
account with Equity Bank – guaranteed value, and achieve efficiencies throughout the
through the exporter supply contracts – chain.
which offers Wanjohi credit to hire
agrochemical spray services at the beginning
of the season. These agrochemicals, coupled II. KBDS Methodology
with the general crop husbandry practices The Kenya Business Development Services
applied, have resulted in a yield between 150 Program (KBDS) is a 6 year program funded
and 250 Grade 1 fruits per tree, or 24,000 by USAID and implemented by Emerging
fruits last season alone. Through a more Markets Group Ltd., (EMG). The objective
direct relationship with the buyer, farmer of KBDS is to increase growth and incomes
Wanjohi is now averaging KShs 4.00 per fruit among rural micro- and small enterprises
for Grade 1, and KShs .50 for Grade 2. She (MSE) through: 1) access to markets; and 2)
2
access to skills, resources, and information to intervention had a common objective – to
compete in those markets. overcome the value chain constraint through
Unlike other development programs, a commercially-viable solution. To maintain
KBDS was not pre-assigned a specific a clear exit strategy and ensure deliverables
industry or sector for targeting. Rather, the were met, local facilitators were typically
program first applied a matrix of selection hired through 12-month performance
criteria to identify those target industries that contracts.
were viewed as having high growth potential The interventions Kenya BDS Approach
for the rural MSE. Following the initial were financed through a
sector selection, KBDS then applied Market Intervention
USAID’s value chain framework (Figure 1) to Fund which allowed Select Target Industry
develop a clear understanding of the industry KBDS to operate
system, with particular examination of the flexibly, and introduce
Conduct Value
end market, vertical and horizontal inter- new interventions on an Chain Analysis
relationships, support markets, enabling ongoing basis in
environment, and firm-level upgrading. response to market
Identify / Prioritize
These analyses were helpful in determining changes. It also Constraints
the underlying systemic constraints and encouraged pilot-
opportunities, which were then vetted with testing and innovation.
Design
market actors and key industry stakeholders After the one year Interventions
to develop an upgrading strategy for the performance period,
sector. those interventions that
Tender Among
achieved impact and Local Facilitators
commercial viability
Figure 1 were ramped up and
Award, Support and
USAID Value Chain Framework replicated and those Monitor
which achieved less
impressive results were
Commercialize and
either discontinued or Graduate
modified. Regardless of
success or failure, all interventions provided
lessons-learned.
Over the 6 year period, KBDS was
constantly identifying new constraints in the
market system, and designed follow-on
interventions to ensure the upgrading
strategy was achieved.
Once the key constraints were prioritized,
KBDS designed program interventions which
were then tendered among local facilitators.
These facilitators typically included NGOs,
local private consulting firms, or even
independent consultants and each
3
III. Enhancing An analysis of the avocado market system
revealed a series of both challenges as well as
Competitiveness in the opportunities. Food safety concerns had
Avocado Sector become increasingly dominant in the
European market in an effort to protect the
consumer. With new practices in globalized
Why Avocadoes? procurement, retailers were finding it
The initial value chain selection process necessary to develop standardized systems for
undertaken by KBDS applied a number of minimum quality control. Of critical
filter mechanisms to arrive at sectors for importance was EUREPGAP (European
targeting. These included: 1) the size of the Retailers Protocol on Good Agricultural
sector and potential to increase rural Practices), the set of private sector standards
household incomes; 2) the number of MSEs developed by the European supermarkets
in the sector with potential for outreach; 3) requiring that any fresh produce supplier
the existence of market demand; 4) potential meet a minimum set of good agricultural
for employment generation; 5) existence of practices related to food hygiene, pesticide,
linkages conducive to a market-based traceability, and maximum residue levels
approach; and 6) the potential for positive (MRLs). Such standards provided pressure
synergies with other donors and government on Kenyan exporters to strive for more
initiatives. vertical integration and traceability to ensure
Based upon the above criteria, tree-fruits access to a premium market outlet.
emerged as a priority area for support, with a Analysis of the end markets revealed that
concentration on mangoes, passion fruit, and the international market for avocadoes was
avocadoes. Outreach was strong, with the quite competitive. Internationally, Peru,
tree-fruit sector consisting of approximately Chile, and Mexico were major producers of
150,000 farmers, of which the small-scale the high-value Hass variety, with the small-
producers represented approximately 95%. holder tree count averaging 50-100 trees per
The sector also covered approximately farmer6. Other direct competitors included
143,000 hectares or 60% of the total area South Africa, Spain, and Israel.
under horticulture production. In 2000, this Aside from these challenges, it was
accounted for an estimated 2.2 million MT, determined however that Kenya had a
valued at approximately KShs 19.1 billion3 number of comparative advantage factors in
(which represented nearly 45% of the total avocado production. First, there was a
domestic value of horticultural output (KShs sizeable quantity of mature Hass and Fuerte
42.7 billion4). Within the tree-fruit sector, variety trees already in the ground. Second,
avocadoes accounted for the largest share in favorable climatic conditions allowed for a
export earnings estimated at nearly 56%5. primary harvest taking place from January –
May, as well as a secondary flush in October.
For the European market, the January –
3US$ 272 million
February period provided a unique counter-
4US$ 610 million
5 Karuga, Stanley, “Overview of the Fruits and
Organic Pesticides and Herbicides Subsectors,” USAID 6 In Kenya the average tree count is from 5-10 trees
KBDS Report, January 2003, page 8. This is equal to per farmer, significantly raising production costs and
US$ 152 million. making it more difficult to standardize quality.
4
season with South Africa, which typically did number of comparative advantages in place,
not come into production until mid March. the potential did exist to revitalize the sector.
Third, the international airport in Nairobi Specifically, it was seen that if key constraints
offered a variety of airfreight services, while such as quality and volume could be
the port of Mombasa could directly ship to addressed while adding value to the product,
Marseilles and Rotterdam. Most important both farmers and exporters could be re-
however was the existence of several large- engaged. These findings were echoed by
scale horticultural exporters in Kenya, who stakeholders during a KBDS-sponsored
from other crops such as green beans and cut vetting conference, and formed the basis for
flowers had longstanding relationships with an upgrading strategy for the sector.
key procurement agents in the British,
French, and German markets. Production Census and Cluster Analysis
Initial meetings by KBDS with the large
It was well known that given the moderate
exporters in 2002 revealed that avocadoes
temperature, plentiful rainfall, and rich
remained an important crop in Kenya, with
volcanic soil, the highland areas of Maragua
an export of approximately 12,000 MTs in
District offered the most favorable location
2000 representing 17% of total horticultural
for avocado production. It was also known
exports. Frustrations however were plentiful,
that due to the past history of avocado
as with over 75% of production from
farming in Kenya, a sizeable number of
smallholders, exporters lamented on the poor
mature trees were still present.
quality and erratic supply. Smallholder
An identification and mapping exercise of
sourcing was also conducted exclusively
all the avocado production clusters in
through brokers. This not only led to daily
Maragua District was undertaken as a critical
hassling on price, but lack of traceability and
initial activity. An avocado production
inconsistent ripeness, which could lead to
cluster was defined as a geographical zone
higher rejection rate.
with a high concentration of avocado trees
As for production, the cultivation of
(about 8,000) and farmers (at least 500)
avocadoes in Kenya dates back to the 1970’s,
within a radius of up to 5-8 kms. Adopting
where it was once referred to as “green gold”
this definition, the study found that Maragua
by the farmers. However, the outbreak of
District had 10 avocado production clusters.
disease such as anthracnose in the mid-1990’s
In total, the District had 156,193 avocado
stymied production, while the growing trees in these clusters. These trees were
prevalence of brokers and briefcase exporters owned by 21,281 farm households giving an
reinforced the notion of an unreliable market. average holding of 7 trees per farmer. The
This left farmers unwilling to upgrade and following summary table offers an overview of
expand their tree-count, which averaged a farmer and tree population in avocado
paltry 5 to 10 trees per farmer. production clusters studies in Maragua
While the sector remained depressed, District.
KBDS saw an opportunity. With a steady
market demand, existing supply, and a
5
Table 1
Summary Table: Farmer and Tree Population in Avocado Production
Clusters Studied — Maragua District
Number Number of avocado trees
Cluster Location/sub-location of
Fuerte Hass Other Total
farmers
Ng’araria LocationKawedno Sub-
580 8875 1807 177 10859
location
Ngararia sub-location 948 11730 1262 476 13468
1. Ng’araria/ Naaro sub-location 989 8791 551 109 9451
Muruka Muruka LocationMuruka sub-
868 4627 1476 180 6282
location
Kiranga sub-location 970 5866 280 751 6897
Sub-total 4354 39889 5376 1693 46958
Ithiru LocationGithuya sub-
279 1637 64 277 1978
location
Kaguthi sub-location 972 4940 27 620 5587
2. Ithiru Gakarara sub-location 446 2995 36 36 3066
Kiiri sub-location 628 4663 223 243 5129
Gakui sub-location 612 3403 65 1004 4471
Sub-total 2936 17638 415 2179 20231
Gaichanjiru LocationNgurweni
446 1373 0 1804 3177
sub-location
Gaichanjiru sub-location 479 1345 232 1336 2913
3. Gaichanjiru
Kagumo-ini sub-location 504 2307 237 1580 4124
Kagira sub-location 280 1283 183 798 2264
Sub-total 1709 6308 652 5518 12478
Ruchu LocationMungaria sub-
751 3864 463 260 4587
location
Gacharage sub-location 1110 4045 355 477 4877
4. Ruchu
Githumu sub-location 670 2627 36 229 2892
Kariua sub-location 786 3592 59 354 4005
Sub-total 3317 14128 913 1320 16361
Kagunduini LocationKagunduini
450 2078 196 553 2826
sub-location
5. Kagunduini Githunguri sub-location 675 1593 62 1924 3579
Kariti sub-location 490 3363 132 483 3977
Sub-total 1615 7034 390 2950 10383
6Number Number of avocado trees
Cluster Location/sub-location of
Fuerte Hass Other Total
farmers
Kigumo LocationGithima sub-
734 138 2509 574 3221
location
Kirere sub-location 565 2722 5 1388 4116
6. Kigumo Marumi sub-location 190 651 0 74 726
Gachocho sub-location 490 1420 25 984 2429
Irigu-ini sub-location 323 663 17 552 1232
Sub-total 2303 5594 2557 3573 11723
Kangari LocationMariira sub-
522 1648 33 208 1889
location
7. Kangari Kinyona LocationKamukambi
413 1014 17 439 1470
sub-location
Sub-total 935 2662 50 648 3359
Ichangaki LocationIchagaki sub-
344 2243 41 718 3002
location
8. Ichangaki Kianjiru-ini sub-location 452 1571 6 1040 2617
Gikomora sub-location 261 2119 0 436 2555
Sub-total 1057 5933 46 2195 8174
Nginda LocationMbugua sub-
211 1546 82 195 1822
location
Gakoigo sub-location 423 1315 3 1068 2385
9. Nginda Kaharo sub-location 132 806 35 799 1640
Gathera sub-location 283 2124 0 0 2124
Rukui sub-location 116 1232 17 93 1342
Sub-total 1165 7023 137 2155 9314
Muthithi LocationKagurumo sub-
97 612 0 209 821
location
Munguini sub-location 155 815 0 348 1164
10. Muthithi Kiahiti sub-location 326 1285 0 575 1860
Muthithi sub-location 312 1847 3 722 2572
Gikarangu sub-location 188 1912 0 448 2361
Sub-total 1078 6472 3 2303 8778
Kahumbu LocationKahariro sub-
141 722 0 190 912
location
11. Kahumbu Githembe sub-location 376 1122 7 549 1678
Mugumoini/Gakuyu 418 1813 0 496 2309
Sub-total 935 3657 7 1236 4899
7Number Number of avocado trees
Cluster Location/sub-location of
Fuerte Hass Other Total
farmers
Kamahuha LocationKamahuha 308 1468 19 940 2428
Kaharati sub-location 360 1237 8 927 2171
Sabasaba sub-location 464 822 67 1393 2282
12. Kamahuha/
Iganjo sub-location 147 1086 72 497 1656
Makuyu
Makuyu LocationMakuyu 368 715 106 1227 2048
Gakungu sub-location 101 615 252 341 1207
Sub-total 1747 5943 524 5325 11792
Grand Total 23150 122280 11068 31102 164451
Notes: Shaded zones have an avocado tree population of less than 5,000 and therefore do not fit strict definition of a cluster
Source: Kenya BDS-sponsored avocado tree census by Ministry of Agriculture, Maragua District; June, 2004
The study not only provided an estimate of credibility when approaching exporters as
potential supply, but revealed which varieties well as investors, as critical detail such as rural
were being produced and in what areas. For road networks and potential collection sites
KBDS, the information revealed priority could be discerned.
areas for targeting. It also provided
Figure 2
Geographical Placement of Production Clusters in Maragua District
Source: Kabbucho, Kamau. Avocado Production Clusters in Maragua District, USAID/Kenya BDS Program, Nairobi, July 2004, page 12.
8Pilot Business Linkage to Stimulate
Transactions
Armed with detailed information on
potential supply, KBDS visited each of the
major avocado exporters operating in-country
to discuss areas of potential collaboration.
Initial reaction was lukewarm at best. While
some of the exporters expected a handout,
others had undergone donor fatigue and
offered little time for discussion. Fortunately
Meeting with farmer group leaders to discuss marketing issues
East African Growers (EAGA), one of the
larger horticulture firms, was willing to pilot
a backwards linkage intervention. The
A lead facilitator was hired by KBDS to
exporter had been frustrated with irregular
assist the farmers through the group
supply and poor quality. Most importantly,
formation process. An initial step
traceability was increasingly a concern in the
undertaken by the facilitator was to
end market. It was hoped that through a
competitively select and develop two Group
direct relationship with the farmers both
Management Officers (GMOs) from within
efficiencies and food safety could be achieved.
the farmers’ village. Each GMO had a
KBDS facilitated field barazas7 within the
professional background in agriculture.
targeted production clusters to stimulate
Under mentorship by the facilitator, the
interest in the venture. EAGA senior
GMOs worked with the farmers to develop
management accompanied the team on the
strong and viable groups. Within four
awareness-creation visits. This provided a
months the essential components were in
motivation for farmers, and reinforced the
place. Each group was formally registered as a
commercial nature of the activity. During the
“Self-Help Group” with a standing
events, KBDS communicated the desire to
constitution, mission statement, and account
link serious farmers directly with the market.
with Equity Bank. Meetings were held at
Critical to this process was the theme of self-
weekly intervals, and presided over by group
selection. Responsibility was given to farmers
officials that were elected by their members.
to organize themselves into groups of 25-30
The GMOs also participated in the meetings,
farmers with a minimum count of 5 trees per
and provided regular assistance in group
farmer. To mitigate the spread of farm-to-
strengthening, crop husbandry, as well as
farm disease and facilitate centralized
training on the business aspects of farming.
collection, farmers were encouraged to
A critical focus was placed on forecasting of
consolidate production with others that were
production, where farmers were taught how
situated in close proximity (preferably
to take inventory of their trees (number,
neighbors).
variety, age), and develop projections on
7 Barazas are rural village meetings typically
production for the entire season, broken
assembled by the Chief. down by month and even week. Each
9member farmer identified themselves with This activity also included the hire of two
the program by posting a sign at their farm stores to house a certain amount of
entrance, indicating the group name and tree agrochemicals in the area as well as the
count. The signs allowed the exporter field spraying equipment.
representatives to identify which farmers were Suspicion however remained among the
in the scheme, while also serving as an farmers as this was the first time they had
indicator to brokers that the farmer had interfaced directly with an exporter. There
already contracted a dedicated buyer. By the were some doubts as to whether fair prices
end of the first four months, an initial pilot and prospects of a readily available market
grouping of 405 farmers were organized into would be honored. The exporter as well had
14 “Self-Help Groups” within Kandara some misgivings, fearing farmers would “side-
Division. sell” their fruit to other buyers, or fail to
provide the actual production projections as
Facilitation of Embedded Services detailed. A good harvest was required for the
exporter to achieve an adequate return on
Strong groups however were not enough.
investment.
Adequate volumes of Grade 1 fruit were
To protect the interests of both parties,
required to make economic sense for the
KBDS facilitated a series of negotiations
exporter. To express commitment as well as
between farmer group representatives and
increase the likelihood of strong yields, the
EAGA. A supply contract was used to
exporter provided a variety of services on an
formalize the understanding. Farmers agreed
embedded basis, meaning the cost of which
to sell all Grade 1 fruit produced to the
was factored into the purchase price offered
exporter while providing timely and accurate
to farmers. A lead agronomist and an
production projections. The exporter in turn
agricultural extension officer were tasked to
agreed to provide a guaranteed market for the
visit the pilot area twice a week to advise
fruit at pre-negotiated prices. The price was a
farmers on tree management. Young men
minimum floor price, with the potential to
from the village were trained as pickers to
rise should market conditions improve. The
assist farmers to bring down the proper fruit.
supply contract also detailed other issues
Graders were trained in variety, size, and
related to payment terms, rejections, grading,
quality requirements.
workforce ethics, and even dispute resolution
The most costly input was introduction of
mechanisms. Supply contracts were signed by
a formal spraying program. The exporter
the exporter, group officials (with all farmers
worked out a pesticide application protocol
signing an addendum), and the Horticultural
acceptable to EUREPGAP standards,
Crops Development Authority (HCDA)8 as a
purchased sufficient quantities of
third party witness.
agrochemicals to cover all farmers in the pilot
At all times, it was important for KBDS to
area, imported two motorized sprayers,
“stay out of the supply chain.” While the
procured protective clothing, and hired a
total of six young men from the pilot area to
8 HCDA is a Kenyan parastatal which disseminates
be trained in spraying. The exporter went as
far as keeping records for purposes of market information, issues exporter licenses, provides
advice on production and post-harvest handling, and
traceability and adherence to required MRLs. serves as general industry regulator for the horticulture
sector,
10program facilitated forums for both farmers Before paying farmers for acceptable fruit,
and exporter to discuss production and EAGA had to deduct monies to cover the cost
marketing issues, not once did KBDS become of spray services and fertilizer offered in
involved in the direct negotiation. All issues advance. Rather than undergo these
regarding production, collection, grading, deductions, some farmers left the program
transportation, and payment were conducted and side-sold to brokers for immediate cash.
directly between the two parties. While this helped to weed out non-
With organized groups in place, the GMOs performing farmers from the scheme, it left
were able to consolidate information on their member farmers responsible for their
production from each farmer to arrive at the unpaid debt, as EAGA applied the cost of
total number of trees broken down by variety. embedded services to the group level, making
Such information was forwarded to the it the responsibility of each group to reconcile
exporter as a means for estimating expected among individual farmers. Therefore those
agrochemical requirements as well as farmers abiding by their supply contract
forecasting production. Forecasts covered a commitments and selling through the scheme
six month timeframe, broken down on a were left responsible for covering the debts
monthly and weekly basis. incurred by the non-performing farmers.
This led to over-deductions among the
Initial Pilot Results remaining farmers, fueling misperception
that the EAGA was paying less than their
Although the initial pilot program
contractual obligation.
commenced rather later in the season, farmers
Based upon this initial experience, it was
were still able to enjoy the benefits of
decided that enough demonstration had
embedded services and a guaranteed market.
taken place to convey the value of crop
Prices also increased from KShs 0.50 and
husbandry services among farmers. The
KShs 1.00 offered by the broker to KShs 3.00
exporter also expressed interest to offload
for Fuerte and KShs 4.50 for Hass,
those embedded services such as agrochemical
respectively. For the exporter, they were able
spraying that was not part of their core
to forecast production and source fruits
business, and instead focus on providing a
directly from 10,964 trees. Due to the late
ready market for Grade 1 fruit. KBDS would
uptake during year 1, initial sales were
take on the responsibility of developing
modest, with approximately 342,750 Grade 1
stand-alone service providers.
fruits, or 1,371 MTs sold through the scheme.
While farmers enjoyed the embedded
services and readily available market, exporter Facilitating Expansion within the Value
EAGA was under pressure. The large outlay Chain
of capital to increase production was The initial pilot linkage with EAGA had a
expensive, and significant yields were profound effect in Maragua District. Farmers
required to obtain a minimum return on not only saw the value in having direct
investment. Brokers had already increased linkages with the market, but the critical
their farm-gate prices to compete with the connection was made between active crop
exporter which tempted farmers with a short- management and better sales. Lead firms that
term perspective. had initially rejected the program had also
11taken notice, as the pilot served as a potential between 20 to 40 MT per day from
means of achieving higher quality fruit that smallholders, while exporting the crude oil to
could be traced to farm-gate. A systemic South Africa and Italy for refining into
behavior change was taking place in the cosmetics.
industry. Soon both farmers and exporters
were approaching KBDS for assistance. It
was time to scale up.
During the second, third, and fourth years
of the program, the program was expanded
with four additional exporters – Kenya
Horticultural Exporters (KHE), Indufarm
(EPZ) Ltd., Kakuzi, and Sunripe. The offer
to each of the lead firms was the same. If the
lead firms would provide a guaranteed market
and premium price for Grade 1 avocadoes,
KBDS would buy-down risk by organizing Fruit Awaiting Processing
and linking smallholders. In other words, the
program would assist the lead firm to identify
viable production clusters, form farmers into For the farmers, the emergence of three
groups, and hand-hold the commercial processing firms not only provided a market
relationship during the inception phase. By for their Grade 2 fruit, but offered a 300% to
the end of year 4, the initial 405 pilot farmers 400% price increase over the price of fruit
linked with one exporter was scaled up with sold to be consumed on the local market.
to include 5 exporters, directly linked with Most importantly, it ensured that whether
5,320 farmers and 75,390 avocado trees. Grade 1 or Grade 2, a farmer would have a
Enhanced market access served as a market for all fruits harvested.
stimulant for farmers to invest in their
existing crop as well as plant new seedlings.
With the increase in production, a number of Emergence of a Support Services Market
prospective local investors approached KBDS With a readily available market offering a
regarding a secondary market. Each investor premium price for Grade 1 export-variety
was interested in developing a processing fruit, farmers had a clear incentive to upgrade
facility, but shared a similar concern, “Is there their trees. Moreover the embedded services
enough fruit?” For KBDS, the avocado offered under the initial EAGA linkage
production and cluster census was critical in provided a clear demonstration that grafting,
revealing an adequate supply of fruit within pruning, and agrochemical spray services had
the primary areas of production. Towards the value. KBDS noticed that aside from EAGA’s
middle of 2005, three industrial-scale activities, the local supply of such services was
avocado processors commenced operations weak to non-existent. As part of the
(prior to this time there was no avocado upgrading strategy, a series of interventions
processor operational within Kenya) – Ruiru was launched to meet this unmet demand and
Natural Oils, Ltd., Av-Oil Industries, Ltd. develop the local support services market.
and Sun Mango, Ltd. each began processing
12Through grafting or top-working accessing such inputs was expensive,
technology, a farmer could convert their especially when considering the cash flow
orchard without having to incur the costs and constraints of applying seven cycles of spray
waiting period related to establishing a new in advance of harvesting season. As
orchard. Pruning was also not only critical smallholder farmers were largely perceived as
for pest and disease control, but it allowed a un-bankable this was a constraint that
farmer to control tree size for ease of financial institutions were unwilling to
harvesting and chemical application, while address. In response to address these
allowing for faster vegetative growth, early challenges, KBDS piloted a two-pronged
flowering, and production of larger fruits. To intervention to develop a cadre of well trained
develop the market for grafting and pruning and equipped commercial sprayers, while
services, KBDS competitively selected and launching a loan product through Equity
developed a total of 95 individuals from the Bank whereby farmers could access spray
areas of production. Training was offered on services on credit. The program contracted a
the technical aspects of grafting and pruning, local facilitator to develop the technical
as well as general business and financial capacity of 42 individuals as agrochemical
management and marketing. The program sprayers, while assisting them access
also facilitated access to commercial working motorized boom sprayers and protective
capital, tools and equipment. clothing on commercial terms. A critical
To stimulate additional demand, KBDS constraint however remained financing of the
undertook a number of awareness creation service. Application of agrochemicals
events. These included farmer field days, typically commenced with the onset of
sensitization barazas, and exposure visits. flowering, which was well in advance of when
One tool included a marketing pamphlet a farmer can harvest and receive payment. In
sponsored by Osho Chemicals, which listed collaboration with Equity Bank, a credit
the contact information for each service facility was developed which provided
provider in the District. Following the smallholder farmers access to otherwise
capacity-building training and awareness unaffordable spray services. The credit
creation activities, the grafting and pruning facility was extended to those avocado
service providers were released into the farmers with an existing supply contract and
market. For KShs 250 they would top-work a established history of buying and selling with
tree and for KShs 150 they would undertake a lead exporter.
pruning to open up the canopy. Commercial The model was simple. Agrochemical spray
uptake among these simple services was service providers would provide the spray
immediate. service directly to smallholder farmers,
While grafting and pruning were effective whereupon a receipt was signed by both the
in opening up the canopy and promoting farmer and the provider indicating the service
more disease-resistant, exportable varieties, was rendered. On a monthly basis, the
agrochemicals were still required to maximize providers would consolidate service receipts
yields and reach the Grade 1 market. Farmers for payment from the bank. Each exporter
understood their importance, however had would pay their respective farmer groups for
little understanding of what to spray when, produce received through Equity Bank. As
how, and in what amounts. Moreover farmers sold their fruits to the respective
13exporter, a check-off system within the bank both farmers and exporters. It was felt that
would deduct the scheduled loan payment the longstanding history of broker
before releasing net proceeds to the farmer exploitation would be too difficult to
group. The facility marked a hallmark in overcome. “A broker will always be a broker”
commercial bank lending for smallholder was the common sentiment.
farmers, whereby credit was approved based A number of groups in Kandara Division
upon the strength of the farmer-buyer supply expressed the desire for an umbrella
contract. During the initial pilot period of leadership to represent their interests in
this intervention, 3,055 farmers accessed discussions with the exporter, and serve as the
commercial spray services reaching 23,916 primary point of contact for all issues related
trees. A total of KShs 1,751,909 or to production, selling, buying, and payment.
US$28,719 was disbursed by the bank Elections were held and an apex leadership
through this value chain finance scheme. was established. While this model was an
Although not important in the grand scheme efficient means for representing a large
of things, the connection to commercial amount of farmers, problems shortly arose.
finance was made. Decisions were made unilaterally without the
consent of members. Officials in the
The Market Linkage Firm – An Honest executive committee began to charge sitting
fees. The treasurer began issuing payment for
Broker farmers out of his house, rather than the
While KBDS facilitated the development previous practice of cutting checks at group
of a number of stand-alone services to meetings which was more transparent. One
improve production, it was clear that a committee member even began to conduct
successful producer-buyer linkage drove the secretive discussions with another exporter
entire market system. A critical challenge who wanted to poach production from the
however was finding the best scheme to link scheme. In short, poor governance and
farmers with markets in which the incentives corruption led to the demise of this market
of both parties were mutually aligned. In linkage arrangement.
other words, it had to be win-win, and the One of the exporters expressed interest in
model adopted had to be demand-driven by setting up their own in-house unit to manage
those stakeholders involved. Over the course the outgrower scheme as part of their core
of the program KBDS provided the business. Following a series of discussions
environment whereby participating farmers with farmers it was agreed that the exporter
and lead firms could test a variety of linkage would set up a field coordination office, and
mechanisms. that farmers would nominate a representative
During the early stages of KBDS, a from among themselves whom the exporter
concerted effort was made to identify those would train and develop as their outgrower
brokers already operating in the avocado manager. While well-versed in agronomic
sector. It was assumed these actors were issues, the exporter was unable to dedicate the
already commercially-oriented, and could be necessary interface with farmers to ensure the
most easily developed to service farmers in a groups remained intact. Moreover some
more transparent and professional manner. farmers noted collusion between the
This approach was immediately rejected by exporter’s field purchasing agent and local
14brokers, whereby Grade 1 fruit sold from the agrochemical products are properly
farmer’s was exchanged with brokers for stored, handled, and applied.
lesser quality. When such problems arose, the • Document control and records. Maintain a
lack of a fair dispute resolution mechanism centrally administered book and record-
and the directed governance hierarchy left keeping system for the smallholder
farmers with little leverage. Over the farmers, and ensure that such records are
harvesting season that this model was tested, maintained at both office and farm level.
the exporter only managed to facilitate two This includes management of a
collections from the scheme. traceability system for all produce, with
Largely through trial and error, an supporting documentation.
approach which may be described as • Forecasting of production. Gather
“outsourcing,” whereby the lead firm and accurate projections on production from
farmers contract an independent third party each group member, and consolidate for
evolved as the most viable option. As stated weekly, monthly, and seasonal reporting
earlier, local facilitators contracted by KBDS to the exporter.
had developed a network of group • Group formation and hand-holding with
management officers (GMOs) that were
lead firm. Provide training to
involved with the day-to-day activity of
smallholders farmers in group dynamics.
member farmers. Each GMO could manage
Maintain weekly interaction with groups
up to 20 groups consisting of 25 to 30 farmers
to ensure commitments are upheld, while
per group, or 600 farmers in a given area. For
facilitating discussions or negotiations
each particular production cluster, a Field
between farmers and lead firm as needed
Coordinator would oversee a network of
(including negotiation of supply
GMOs. The Field Coordinator was also an
contracts).
individual hired from the area, however
During the initial stages of development
possessed not only agronomic skills but also
the operational costs of the market linkage
general business and financial management.
structure was entirely assumed by KBDS.
The Field Coordinator would manage a rural-
This included the staff time of GMOs and
based office, and provide a centrally
field coordinators as well as the running costs
administered production (one-stop-shop) for
of the rural-based program offices. KBDS
both farmer and buyer. Specific services
was uneasy with the allocation of such
included:
subsidies, however it was recognized that the
• Centralized crop management. Oversight
market linkage arrangement must first
of all crop production and handling demonstrate value before soliciting a fee from
through field-based GMOs, including the farmer.
identification of pest and disease Each facilitator that was contracted by
incidence on-farm, implementation of a KBDS to set-up a market linkage
quality control system on variety and arrangement was placed on well-defined
rootstock, assurance that pre-harvest phase out of operational subsidies, whereby
intervals are maintained, proper the cost of operation would gradually be
sanitation and handling at all grading and assumed by those stakeholders (namely
collection facilities, and oversight that farmers and lead firm) benefiting from the
15service. In the end, the market linkage units the sale of all fruit acceptable to the buyer was
were registered as independent companies, to cover operational costs. The structure of
who levied a percentage-based “service fee” on each firm can be found in Figure 3.
Figure 3
Structure and Payment Flows of Market Linkage Firms
Grade 1 fruit payment
Exporter Processor Lead
Service fee
Firms
Service fee
Grade 2 fruit payment
Equity Bank
Checks Payable to Farmer Group Name
Field Market
Coordinator Linkage
Firm
Group Group Group
Management Management Management
Officer Officer Officer
Farmer
Groups
For farmers, the market linkage structure ready market for farmers. The option of
was preferred as it provided more equitable outsourcing someone to handle the groups
governance with lead firms. If the lead firm and manage the crops was welcomed. During
reneged on their collection or payment the initial four years of KBDS
commitments, they stood in jeopardy of implementation, four market linkage firms
losing the entire produce from a production were developed, representing a total outreach
scheme. of 9,882 farmers. On average KBDS provided
For lead firms, the arrangement was approximately three years of subsidies to
preferred as it allowed the lead firms to focus these firms before fully phasing out all
on their core business, which was offering a operational support.
16While the primary service offered by each Achievements Thus Far
of the firms was the bulking and linkage While KBDS rolled out a series of
function, subtle differences set them apart: interventions related to facilitating linkages
• Agri-Outlets, Ltd. had a network of with both primary and secondary markets,
GMOs as well as collection agents, which hand-holding the initial buying and selling,
allowed them to undertake the and developing support services to increase
transportation of fruit to factory gate. yields, it was important that the program
While their primary buyer was exporter operated within a clear exit strategy. Each
Kakuzi, Agri-Outlets also had a strategic intervention designed by the program
relationship with each of the three adhered to a fixed timeline where subsidies or
industrial processors operating in technical assistance was phased out. This was
country. Therefore the services offered to critical to avoid both market distortions, test
farmers included both primary and the commercial viability of the activity, and
secondary markets. gauge the true commitment of those market
• Sure-Link provided linkages with both actors.
Indu-farm as well as Sunripe. Both
exporters had dedicated trucks collecting
from the scheme. A strategic decision
undertaken by Sure-Link was to work
with “larger smallholders.” In other
words, increase the per farmer tree count.
Participating farmers were tied to
planting schedules which required a
minimum of 30 trees per farmer (planted
seedlings qualified), with an eventual
target of 50 trees per farmer.
• Ideal Matunda Limited (IML) was
contracted to oversee the linkage with
East African Growers, Ltd. In addition to
coordinating their own transport, the
service provider developed their own in-
house spray team which offered spray
services on cash or credit through Equity
Bank. Farmer Cyrus Mburu in front of a well-cared for avocado tree.
• Fineline Rural Reach was competitively Note how he has undertaken topworking and grafting, and has
an extremely clean farm
selected by farmers to manage their
linkage with Kenya Horticultural
Exporters (KHE), as well as provide
It has been approximately one year since
linkages to the local processing market.
KBDS phased out all operational subsidies to
the market linkage firms in Central Kenya.
• Ideal Matunda Limited (IML), has
continued quite actively with East African
17Growers, Ltd., with a current outreach of whole have increased their prices to meet the
1,566 farmers organized into 57 groups export demand. For KBDS, any approach
representing 21,315 export variety trees. that incorporates the smallholder as a more
• Agri-Outlets, Ltd. continues with active active participant in the core avocado
management of farmers under the Kakuzi business is a success, as it illustrates a behavior
exporter and linkages with three oil change in the larger market system.
processing factories. The program is Following is a summary highlighting the
covering Muranga South, Thika, volume, value, and production over the past 4
Muranga North, and Nyeri reaching years. Figures represent a combination of
10,073 farmers with over 58,152 trees. farmers directly benefiting from Grade 1 and
• Sure-Link maintains a business Grade 2 KBDS market linkage activities, as
relationship with both Sunripe and well as those additional farmers accessing
Indufarm (EPZ) Ltd., whereby 768 additional business services (grafting,
farmers in Maragua representing 23,578 pruning, spray) outside the scheme.
trees continue active buying and selling.
Their recently developed Sagana portfolio
entails an additional 165 members and
2,235 trees. Each of the three firms is
developing investment proposals to
expand operations on the ground.
• Fineline Rural Reach was unable to
achieve commercial viability in the
avocado sector, but has instead focused
their core business on a similar linkage
scheme with passion fruit, which provides
year round production for over 2,229
farmers within Embu and Meru District.
Last year the scheme produced
approximately 6,971 MTs purple passion
fruit, of which 60% was exported as Grade
1 valued at KShs 219,655,4049.
The 519 farmers representing 5,264 trees
previously operating under the direct linkage
with Kenya Horticultural Exporters (KHE)
are presently interviewing these three market
linkage firms to contract their services for the
next harvesting season. In other production
areas lead farmers have replicated the
approach by forming their own groups,
bulking the product, and formalizing direct
relationships with lead firms. Brokers as a
9 US$ 3,137,934
18Table 2
Summary Production Table
Yr 1 Yr 2 Yr 3 Yr 4
Outreach (# farmers) 405 4,925 6,838 20,942
Number of Trees 10,964 51,242 67,593 169,675
Volume of Produce (MTs) 1,371 8,107 7,604 19,088
Value of Produce (KShs) 3,220,674 40,093,311 44,688,240 105,715,728
During year 1 of the pilot program, a total volume of 1,371 MTs was produced through the scheme. Out of the estimated volume of 500
pieces per tree, approximately 15%, or 206 MTs was sold through the Grade 1 market valued at approximately KShs 2,056,665, while the
remaining 85% or 1,165 MTs was discarded on the local consumption market at approximately KShs 1,164,009. As no processor was yet
in operation, the Grade 2 market commanded a price of approximately KShs 1 per kilo. During year 2, the increased access to agronomy
advisory services and manure/fertilizer application led to noticeable changes with an increased production to approximately 630 fruits per tree.
The quality of Grade 1 fruits had also increased to an estimated 25%. Grade 1 fruits in the two years were largely unchanged although
Grade 2 prices have significantly gone up following the establishment of three oil processing plants, with farm gate prices averaging KShs 4.00
per kg. Value estimates are based on production and not on the actual marketed fruits. During year 3, weather conditions (the severe
prolonged draught of 2005 and early 2006) led to heavy flower abortion that resulted to reduced production of fruits estimated at 450 per tree.
It is estimated that 50% of fruits were Grade 1 for all the export programs. During Year 4, unanticipated rains and flooding led to heavy
infestation of Cercospora disease. Overall yields remained at 450 fruits per tree however 15% were Grade 1 with the remainder for Grade 2
processing. The price of Grade 1 fruits in years 2 and 3 remained at an average of KShs 2.50 per piece. During Year 4, average Grade 1
prices remained at 3.50 for Fuerte (90% production) and 4.50 for Hass (10%), while Grade 2 was set at approximately KShs 4.50/kg.
Investment at the lead firm level continues. 2007 harvesting season, three Equity Bank
A sixth exporter, Sunny Processors, Ltd. has branches (Thika, Muranga, Kangari)
plans to commence a fresh-line operation for approved loans for 130 groups (3,055
avocado export and is buying from the farmers), with a total of KShs 1,751,909
scheme. A fourth oil processing plant is set to disbursed ($28,719). In total 23,916 trees
commence operations. Olivada, a New received the recommended seven cycles of
Zealand investor, is in the process of spray and close to 99% of the loan will have
establishing a multi-million dollar oil been repaid this calendar year, which is
refinery. Oil refining captures the majority of remarkable given the pilot nature of the
value in the secondary market, and this will be product. Equity Bank is now replicating this
the first time such technology will be available product in the mango, coffee, and macadamia
in Kenya. The Kenya Agricultural Research nut sectors.
Institute (KARI) has become actively Of the 95 individuals trained as grafting
involved in building the capacity of service and pruning service providers, 93% (88
providers in crop husbandry, as well as service providers) continue to operate
conducting research into new seedling successfully as independent business-people.
varieties. Commercial uptake of grafting and pruning
The pilot season for agrochemical loans services has been strong. To date a total of
had interesting results. By the end of the 4,796 smallholder farmers have paid full
19commercial rates to access these services, providers that give sub-par services may be
resulting in the rehabilitation (top-worked, reported by the client to the association.
pruned, grafted) of 35,225 additional export- Through this combination of private sector
variety avocado trees. investment, research and development, and
government support, a true avocado cluster is
beginning to emerge in Central Kenya.
Ongoing Threats
While KBDS no longer provides
operational subsidies to the avocado program,
smallholder farmers and the industry at large
still face several challenges.
Avocadoes are a seasonal crop with one
primary harvest from the January – May
period and an occasional secondary flush
Graduating Class of Pruners from September through October. Should
poor weather, disease, or end market forces
result in a less-than successful harvest, the low
To professionalize their offering, the volume of fruit could easily force a market
grafting and pruning service providers have linkage firm out of business. To protect
formed an Association – a critical step to against this risk one alternative could be to
professionalize as well as self-regulate services lay-off staff during those non-harvesting
offered. In collaboration with the Ministry of periods. While this would lower operational
Agriculture (MOA), an accreditation policy costs, the prospect of having no direct
was developed for the trained service interaction with groups during the off-season
providers. Part of this activity included could lead to those groups becoming weak or
development of a Code of Conduct for the falling apart. Moreover various activities such
associations, which were then given the as grafting, pruning, spraying, and other
mandate to accredit individual providers, and general crop husbandry needs are required
take action against those who fail to adhere to during those non-harvesting periods.
an established code of ethics. As members of Consistent signals and communications are
the association, providers agreed to honor a required to keep a group intact, and ensure
uniform service price list, adhere to proper that active farm management is maintained.
labeling, supply only KEPHIS (Kenya Plant Each of the 3 market linkage firms that
Health Inspectorate Service) certified continue in the avocado sector has
grafting material from approved mother undertaken their own survival strategies to
blocks, and “re-graft” should the initial mitigate the effects of seasonality.
service fail to take. Each member of the • Sure-Link has promoted snow-peas and
association also agreed to possess an sugar snaps among their farmers, which
identification card to protect against provides for continuous cash flow and
fraudulent providers, as well as serve as a year round production.
“quality vetting system.” For example, those
20• Ideal Matunda Limited has incorporated hedge their risk. Multiple experiences of high
agrochemicals spray as part of their value rejections, delayed payments, or a late or
proposition, which typically commences missed produce collection from a lead firm
approximately 5 months before harvest. can easily tempt a farmer to side-sell to a
They have also introduced mushroom broker, even if the price is less.
farming amongst their farmers to A final challenge is the impending
complement avocado production. requirement for GLOBALGAP (formerly
• The avocado harvesting season for Agri- EUREPGAP) certification. While the
Outlets extends approximately 3 months markets in UK and France have yet to impose
longer than their competitors since the strict requirements on sourcing only
firm also specializes in Grade 2 linkages GLOBALGAP certified fruit, one
with processors. Additionally the firm is participating exporter has already lost a
pursuing linkages in the mango sector and number of German-based buyers for not
is also exploring the prospects of passion having GLOBALGAP certified avocadoes.
fruit production. Unless farmers increase their yields, the low
Regardless of the strategy, each firm has volumes will make it difficult to justify the
learned that diversifying cash flow to protect investment in certification. In the short to
against seasonality is essential for survival. medium term the KBDS strategy will be to
While each of the market linkage firms is ensure farmers are undertaking good
able to cover their operational costs at agricultural practice consistent with
present, expansion and outreach to new areas GLOBALGAP guidelines before undergoing
is a significant investment. This requires the costs of testing, auditing, and
capital to expand operations to market the certification. Of first priority is maintaining
scheme, identify and train new GMOs, form quality and increasing production.
farmers into groups, and rehabilitate their
trees or plant new seedlings. All of these
actions are time consuming, and no monies
IV. Lessons Learned on
can be made at this stage which requires a Facilitating Inclusive
significant up front pay-off with little
immediate reward. A critical challenge facing
Markets
For KBDS, the initial process was first to
these firms is how to ramp up and cover this
obtain a clear understanding of the industry
investment for group expansion in a manner
system. Through analysis with different
which least exposes the firm.
actors in the value chain, it became clear that
Brokers remain a persistent threat to the
systemic constraints were lowering the
system. While prices offered through the
incentives for smallholder farmers to invest in
market linkage firms are unmatched at the
their crop, while mistrust at the lead firms
broker level, side-selling still occurs. The
fueled this inefficient behavior. Through a
broker is still able to present an attractive
pilot linkage activity, KBDS was able to buy-
offer. They arrive immediately when the fruit
down risk and convince both producer and
is ready, pick and grade the fruit for the
buyer to experiment with a more direct
farmer, and pay cash-on hand only for the
relationship. Through increased sales and
fruit they pick. Like anyone else, farmers
better prices this pilot linkage was critical for
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