SMEs turn to agriculture to grow profits

High yielding crops that weather dry spells, a blossoming export market and a huge appetite by lenders to the agricultural sector have conspired to draw more entrepreneurs into agribusiness with the new breed of agroproneurs easily clinching export deals emerging as the latest millionaires.

With the latest development, a new breed of SMEs has now concentrated their efforts in agribusiness with impressive results. From buying huge tracts of land which they are turning to commercial bread baskets that feed cities, schools and hotels, to adding value for both local and export markets, these small enterprises have partnered with scientists, financial institutions, NGO’s and government to redefine farming in Kenya.

Recently released statistics by the Kenya National Bureau of Statistics show that in 2013, Kenya exported 350,474,113 kg of horticulture valued at Sh71.6 b with the exports mainly being cut flowers and fruits, with the flowers accounting for 32 percent of the European Union (EU) flower market—one of the largest flower markets in the world. This has placed the horticulture among the leading contributors to the Agricultural GDP at 33 percent earning the country Sh71.6b in exports and an estimated Sh153 b from the domestic market, in an agricultural sub sector that hasn’t received subsidy of any kind and yet has remained bigger than banking, tourism and even telecommunication. According to the Kenya Bureau of Statistics, 70 percent of those involved in this lucrative market are the small and medium businesses which the bureau estimates to be around 300.

Its these promising returns in the export market that have seen business people who once held lucrative positions in big companies quit their jobs to tap into these burgeoning sector. 
A classic example is Mrs Lucy Mundia and David Mulwa who were both senior directors in a local bank. Having surveyed the export market for long they set up on establishing a horticulture exporting enterprise in 2001, the long journey that culminated in the establishment of Kandia Fresh Produce, one of the leading SMEs in the horticulture export market. Having started as a two person business, the company has since been on a growth trajectory, currently boasting of 28 permanent employees and over 70 casual labourers.

Having started with the export of avocados only, the enterprise has since diversified its export range to include sugar snaps, passion snaps and okra among others.
It has now become a global competitor and has on several occasions participated in the prestigious Fruit Logisitca fresh produce trade show in Berlin Germany, which brings together companies from across the entire fresh produce value chain in the world. In 2009 the company emerged among the top 100 SMEs in East Africa in a survey carried out by KPMG East Africa and Nation Media Group. The success story of Kandia is shared by many of the SMes in the horticulture industry.

Other farmers have been brought together by circumstances which have then catapulted them into the commercial world and turned them into business people. When the government issued a ban on illegal logging of trees, farmers living near the epic Kakamega forest lost what used to be their source of livelihood since they could no longer sell timber from the forest, but an ambitious project by the International Centre of Insect Physiology and Ecology (ICIPE), an international research institute with its regional headquarter in Nairobi, changed the view of Kakamega forest by the farmers.

Under ICIPEs bioprospecting programme which aims to ensure that farmers living near ecological areas benefit from the benefit of these areas, farmers were taught how to domesticate wild animals that traditionally had medicinal value. Farmers formed themselves into an SME called Muliru Farmers conservation Group and started cultivating and commercializing products from the domesticated plants which made insect repellents and botanical pest control products.

With the help of NGOs and other research institutions farmers learnt how to make a host of products including those that could cure flu coughs and even hangovers from these wild plants. They got the machinery to do it and have currently developed commercially branded range of product known as Naturab which include a balm and ointment. The success of their commercial venture pushed them to get full registration as an SME. Banks have been knocking on the SMEs’ doorsteps with offers to encourage the enterprise to diversify their range of products. The SME was last year awarded the prestigious SEED award by UNEP and the international Union for Conservation of Nature for their effort to conserve the forest and for being the most promising agriculture/environment related SME in emerging economy.

The new breed of SMEs have also concentrated on value addition, with this desire birthed by the realization that the enterprises can fetch more and become commercially viable through complimenting raw materials with other components to make a hybrid end product. Already farmer small and medium groups in Meru have regrouped into enterprises that specialize in value addition after enduring the exploitation from the middlemen for long. They have pooled resources and started processing high quality yoghurt. In what started with teething problems that threatened the viability of their commercial ventures, the agricultural SMEs in Meru now supply goat yoghurt to all the supermarkets in Meru and recently got exclusive orders to supply the same to major chain stores in Nairobi including Nakumatt and Ukwala supermarkets.

“There has been buzz and lots of talk about SME growth in the country, but I can tell you its not a walk in the park. We at one time during the inception of this SME cursed the day we entertained that idea because there were teething problems left right and centre, but the journey has been worth. We have invested in state of the art machinery for packaging and processing, trucks for transport and we are waiting to list on the stock exchange when SMEs are given the go ahead,” says Nixon Mugambi, Chairman of Vexos enterprises in Meru.

Banks and other financial institutions have introduced SME friendly services from loans to free business advice and the scramble among the commercial banks has been on agriculture based SMEs who have expressed appetite for loans. According to an officer at K Rep Banks loan department the uptake of loans in the bank increased by 30 percent in the year 2013 with the majority of these being in small companies whose aim of the loan was to buy agricultural related products.

“This is an unprecedented move. Agriculture which has traditionally been the preserve of the poor has suddenly been driving the activities of many of the commercial banks due to the heavy demand of the new breed of farmers and SME related to agriculture,” she said.