Investment Opportunity in Ware Potato Storage in Kenya

Explore the potential and feasibility of investing in ware potato storage in Kenya, a sector with suitable climate, high-yield crops, and government support. Learn about the market demand, challenges, and opportunities for both fresh and processed potato products.

• Agriculture
• Investment
• Potato Sector
• Kenya
• Business Planning

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1. Business Planning for investments in Agriculture A case for a 500 MT ware potato storage in Kenya with ventilation plus mechanical cooling Rene Oostewechel, Nairobi 11 July 2018

2. Todays presentation (30 minutes) We (SNV, WUR and industry stakeholders) made business calculations for an in-company in order to facilitate the finance an investment in ware potato storage. 1. Potential for and feasibility of ware potato storage in Kenya 2. Why a business plan is needed and how it is built-up 2

3. Why invest in the potato sector on Kenya? Suitable climate for cultivation in Kenya highlands Crop with high yield potential and low water footprint Big improvements (yield) can be achieved Government encourages its cultivation to decrease dependency on maize as a staple Well known food by large part of the population Recent availability of new varieties and seeds Increase in middle class leads to strong increase in potato products demand (fries [fresh and pre-fried frozen], crisps etc.) 3

4. Value of the Irish potato 4

5. Main issues in Kenya potato sector Low yields (cost price) Peak availability (price fluctuation) high- and lean season Suitable varieties (processing, storage) Irrigation infrastructure Storage infrastructure Knowledge 5

6. 1stmarket for lean-season potatoes: fresh market Fresh potatoes Better prices in lean periods Source: https://mfarm.co.ke/trends Source: Market analysis of potato Value Chain in 3 target countries of East Africa, 2016 Note that prices do not increase during second half of lean periods (this is due to deteriorating quality) 6

7. 2nd market for off-season potatoes: processing industry Industry needs: Even supply throughout the year (contracts) Consistency in quality Preferably consistency in price Suitable varieties High conversion factor (easy to clean, little waste) Low cost price Long term contracts with limited number of suppliers No dependency on one supplier 7

8. Achieving year-round availability of potatoes The aim is not storage in itself! But year-round supply! This can be achieved: Through irrigation - If water is available, reliable and sufficient, this is a good option Through storage - In case of storable varieties, this is a good option 8

9. Investing in ware potato storage; Location Location in or near producer areas: Limited distance from field to store for raw material Cheaper land and labour Above 2.000/2.100 meter; storage based on ventilation only Below 2.000/2.100 meter; ventilation plus mechanical cooling 9

10. Investing in potato storage; contract Secure raw material for storage (purchase contracts) Agree on size (>55mm in case of fries processing) Agree on variety Agree on purchase price and location (farm gate) Agree on payment terms (cash on delivery) Only store healthy product (storage is not a hospital) In case of small producers: Pre-sorting by hand in the field, packing in bags. There is a trust issue (supply purchase as agreed) Small farmers are very eager on getting a contract. 10

11. Minimizing storage losses At least 3,7% storage losses must be calculated with during a 4 month period due to weight losses. Careful handling of the potatoes during harvest and store filling Curing / drying Cooling through ventilation (less hours/ higher capacity and using high RH night air) 11

12. 500 MT ware potato storage Several suppliers with representation in Kenya. - Geerlofs - Omnivent - Tolsma - Agrovent 12

13. Profitability of storage Studies show that investments in storage are interesting but details are missing! In general however, also in our business calculations for a local possessor, profitability proves to be very good. In Kenya, investments in ware potato storage seem interesting enough to develop a detailed Business plan with business calculations. 13

14. Investment costs for technology per MT The cost per MT potato storage for technology are relatively high for small good quality storage facilities Estimated - 2.000 per ton for a 10 MT facility - 500 for a 100 MT facility - 435 for a 500 MT facility Therefore a 500 MT facility is advised as minimum capacity for this type of investment 14

15. Advantage of a good business plan The development of a Business plan forces the entrepreneur to think in details and often the plan is adapted in the process. The Business plan must describe a clear strategy and forms the basis for financing the project 15

16. Build-up of a business plan Business idea and partners Location choice DESTEP analysis and (potato) sector description Demographic-, Economic-, Operational plan Technical plan Social-, Technological-, Ecological- and Political developments Investment plan Benchmarking Legal & organisational plan incl. HR Description of the market and developments Business calculations and financial analysis SWOT analysis Risk analysis and mitigation Business objectives Development impact and CSR Sales plan Conclusions 16

17. Investments in hardware Replac. Value units TOTAL INVESTMENTS EURO KES 118 25,688,600 51,377 total investment investment per ton buildings land construction of the building Equipment for ventilation equipment including transport, duties etc. wooden pallet boxes (1.2x1x1 *570 kg x Euro 50 lifttruck weighing scale and grading equipment 100 KVA power generator Office ofice equipment 217,700 500 435 1 1 0 0 50,000 5,900,000 1 74,500 46,000 25,000 1,200 17,000 8,791,000 5,428,000 2,950,000 141,600 2,006,000 880 1 1 1 1 4,000 472,000 Deprec. Mainten. Insurance Buildings Machinery and equipment Technical assistance office equipmnet 4.0% 12.5% 10.0% 25.0% 1.0% 2.0% 0.1% 0.1% 17

18. Operational costs and profitability Calculate required volumes for processing per month via conversion factor Deduct storage losses There are two seasons that means 500 MT storage has a 1000 MT turnover Purchase costs raw material; contracted, ex-field means additional transport costs. Quality, size and variety Labour (manager, guard, lift truck driver) and energy (3.000 kwh x 24 KES) Overhead, lease, interest, depreciation, maintenance, tax IRR 46% (in our example) 18

19. Risks & mitigation Competition from pre-fried frozen fries Technical storage risks (storage losses) - temperature, ventilation capacity, quality of potato, handling Supply risks - non compliance with contract, storable varieties, processing varieties, many small batches, draught Price risks Operational costs risks - Price of energy, labour 19

20. General considerations As investment costs per MT decrease at higher capacity storage, it seems a better option for small producers to jointly invest in storage via a cooperative than investing each on their own Also the management of the store, which requires knowledge, can be easier and cheaper organised with more capacity A supply contract to a processor can be combined with supplying the fresh market for own account Be aware that the potatoes in store must be financed for a period of 3-4 months. Either purchased and paid at harvest by the investor or extended payment when producers remain the owner. 20

21. General considerations Due to current seasonality of potato availability, one might expect an increase in the fresh market when good quality product is available during extended periods. The market for processed potatoes (fries) in restaurants increases with an estimated 10 to 15% annually. This translates in good opportunities for processors Restaurants need consistency in quantity, quality and price. If local processors (fresh fries) cannot meet this requirement, they will shift to imported pre-fried frozen. To meet the market demands and make use of the market opportunities, processors need storage! Realised either by themselves or (preferably) by farmers or investors 21

22. General considerations When investing is storage, it is important to ensure that, through extension and investments, also in primary production improvements are made - Good seeds, cultivation techniques, crop protection, fertilization etc.) will result in a higher yield (= lower cost price) and healthy product. - The feasibility of storage is based on good produce being supplied from the field as well as a proper business plan. 22

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24. . Thank you for your attention 24