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In Farming, always research before you invest

28th Jun, 2017

Farming is a lucrative business but it is not for the faint hearted; or the ‘telephone farmer’ for that matter

Simon Matetai, 33, a corporate lawyer at a regional insurance firm, is always on his cell phone talking or texting one person or another.

When Matetai is not following up his employer’s clients he is checking on how harvesting is going on at a farm he leased in Kajiado, some 75 kilometers from Nairobi. This season, he grew capsicum after he suffered heavy losses when a tomato disease wiped out his entire crop in the previous season.

Since the rainy season started at the end of March, his capsicum harvest has been rotting before it gets to Marikiti, Nairobi’s vegetable market. He also says his unscrupulous farm manager has also been selling some of the harvest at the local market and pocketing the sales.

“I was introduced to this business by a friend who had leased a farm in Kajiado and seemed to be doing well,” Matetai said. “I made the mistake of leasing this farm without doing proper research on how it would be managed.”

Matetai’s case is not unique.  Many modern-day small-holder agribusiness investors in Kenya invest in agricultural ventures without sufficient knowledge and rely heavily on farm managers to run the farm as they toil on their white-collar jobs in the city.

In a country where about a quarter of the national output and more than 60 per cent of employment is from agriculture, it is surprising that investments in the sector would be made so casually.

Most of Kenya’s agricultural output is generated by small-holder farmers who have little access to financing and modern farming technology. They also suffer from a lack of economies of scale that would have allowed them to get cheaper farm inputs.

A few years back, many Kenyans flocked the quail business, which was hailed as the best ‘side-hustle’ ever. At the peak of the quail bubble, an egg sold for as high as Ksh130 at local supermarkets, before the market burst and prices crashed more than 95 per cent.

Many would-be agribusiness entrepreneurs were left counting loses but that has not stopped others from falling into the same trap when making farm investments.

‘Gardens of Babylon’

Here’s how it works: one person tells his friends that his half-acre strawberry farm brings in a million bob every three months. The next thing you know, his friends have taken up strawberry farming and in no time every one is planting strawberries.

A few months later, the market is swamped with strawberries and prices for that commodity tank as produce goes to waste in leased farms. The new entrepreneurs count losses and swear not to try it again.

Irene Kimani, who graduated recently, fell for a mushroom growing craze she was introduced to by a campus friend who paid for her to attend a mushroom-growing training seminar.

With her parent’s farm in Kikuyu town, about 25 kilometers from the capital, she was hopeful that she would find ready buyers for her produce among the large hotels and restaurants there.

She however, did not know how challenging production of the mushroom substrate would be. Her first attempt to grow the edible fungus without treating the mushroom as required “produced zero” and marked the end of her mushrooming venture.

“The market was there, but production proved to be harder than I had expected,” Kimani said.

Poor research

The main problem, however, was not a lack of market or difficulty in growing them, but poor market research before venturing into the agribusiness.

Despite such failure stories, agriculture still remains the top source of income for many Kenyans. A good calculated investment in agribusiness could yield significant returns.

According to John Logan, country director Technoserve Kenya, a non-profit organization that encourages the development of the private sector, some of the things that need to be taken into account before venturing into a farming business include: Checking the seasonality of the crop, if there is any expert knowledge and technology needed, and also the type of weather and soil in the area you would want to farm.

“Knowing what they are getting into is more important than having the finances ready. A good understanding of the production process and availability of market for the harvest is always a winner,” Logan said.

Lack of proper preparation in what they were investing in spelled doom for Matetai and Kimani’s ventures. Even though they had the required financial outlay to invest in the business, they lacked skills to manage and grow the businesses.

There is, however, need for small-holder farmers’ financing to enable them employ modern technology in their business and even scale-up production.

Agricultural lending plays key roles in enabling small-scale farmers expand their income.

Economic Impact

Kenya’s overdependence on rain-fed agriculture has shown that drought usually has a direct impact on the country’s economy, according to the World Bank.

“Our estimates suggest that for every 100mm shortfall in rain, GDP declines by some 0.3-0.5 percentage points,” the lender said in an economic forecast report that cut Kenya’s economic growth this year to 5.5 per cent for an earlier estimate of 6 per cent.

The bank further said access to cheap credit had tightened in the market after a 14 per cent interest rate cap was introduced last year.

While financing from commercial banks might not be easy for small scale-farmers, other lenders such as co-operative societies and aid-based organizations such as One Acre Fund and Technoserve have come in to fill the gap.

 

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