4Agriculture and Business Environment Agro-ecological zones :-Medium agricultural potential : 15% of land-Marginal lands: 18%-Range land (arid and semi arid: 67%Annual precipitation:-900mm – 1500 mm per annum along the coast;-500mm to 600 mm per annum in the hinter land.Climate:-Hot and dry from January to April/May;-June to August is the coolest period of the year;-Short rains from October to December;-Long rains from March/April to JulyBusiness Environment-High level of poverty % (National poverty level-50%);-Lack of sustainable income from manufacturing, trade and other commercial ventures in the region;-No facilities for post-harvest preservation ;-Very little local value addition to agricultural commodities and fish products;-Main business is in hospitality and tourism sector.Infrastructure:-Roads, electricity and water have lately been improved;-County is well linked to other parts of the country through highways;-Linked to the export market through the port of Mombasa and Moi International airport;-The county lies along the Indian Ocean;-Neighbours Tanzania and Zanzibar.
5Resource Availability - Fruits Mangoes-Most widespread fruits along the coastal region;-Kwale is one of the largest producers after Tana River ;-Main growing areas are Matuga and Msambweni Sub counties;-Acreage under mango tree is 4135 hectares mostly holdings farms in and around homesteads;-Approximately 500,000 trees which yield an average of 179 kgs per year per tree;-43,196 tonnes sold in the year 2011; 52,574 and 91,390 in 2012 and respectively.Main species (cultivars):Ngowe, which is the dominant variety estimated at 50%;Boribo/Kipunda/Kimji or indigenous variety that is being gradually replaced due to low yields and biennial harvesting;Apple – popular for its sweetness and amount of flesh; about 20%.New varieties: Haden, Tommy Atkins, Van Dyke, Sensation and Kent - yield between 1,000 and 1,200 fruits per tree
6Mango Market Main Challenges 50%: Kongowea Market in Mombasa; 20%: exported to Tanzania;10%: Hotel Industry along the South Coast;10%: Processors, mainly Milly Processors in Mtwapa, Kilifi County (famous for Picana brand);Balance is sold locally by hawkers or consumed at farm level;Mango fruits fetch a price of Kshs.20 per Kg, i.e. Kshs.5-7 per fruit;Figure goes down drastically during peak harvest periods - as low as 50 cents due its rapid ripening and perishability.Main ChallengesPoor market development and weak supply chains leading to exploitation of the farmer;Pest and disease invasion: fruit fly, weevil, powdery mildew, etc;Unreliable rainfall hence the need for irrigation;Low uptake of modern farming practices; farmers’ unable to buy inputs/implements;Poor post-harvest handling;Lack of storage facilities for ripe fruits;Minimal value addition.
7Challenges to production CitrusKwale is the largest producer in the coastal region, followed by Taita Taveta;Citrus family includes oranges, lemon, tangerine, grapefruit and lime;Main growing areas are Matuga, Msambweni, Shimba hills and Mwaluphamba;Acreage: 2870 hectares - mostly small holding farms in and around homesteads;High potential within the current growing area and beyond.Approximately 800,000 trees which yield an average of 52 kgs per year per tree;20,157 tonnes sold in 2011; reduced to 8,398 in 2012; increased to 41,400 in 2013;Market60%: Kongowea and other markets in Mombasa;20%: Hotel Industry along the South Coast;10%: Grocery stores; balance - hawkers or consumed at farm level;Price Kshs per Kg/ Kshs.3-5 per fruit; as low as Kshs. 1 during peak season;Stiff completion from Tanzania - sweeter, juicier variety in Tanga Region.Challenges to productionPests / diseases, poor husbandry practices, old trees that need replacement;Destruction of the crop by wild animals, especially in Shimba Hill area;Lack of technological packages of training and extension services;Poor infrastructure -high transportation costs for off-farm delivery to markets;Exploitation by middlemen due to unorganized market structures;Poor post-harvest handling, lack of storage facilities for ripe fruits;Minimal value addition.
8PassionFarming of passion fruit is among the fastest growing agricultural activities in Kwale County (KARI report)Growing areas : Msambweni, Shimba Hills, Mwaluphamba and LungaLunga (lower parts);1million trees in Kwale County which yield an average of 14 kgs per year/tree;Acreage is hectares mostly small scales farmers;Can harvest throughout the year using irrigation and modern farming methods; simple to cultivate, inter cropped as a creeper, can thrive even on hedges;KARI has introduced Varieties like Brazil and CF4 – better tolerance to diseases and bugs compared to the local yellow passion fruit;is training farmers in orchard management and fruit harvesting; rapid increase in fruit supply - has doubled in 4 years;20 collection centers supported by MESPT have changed the supply mode.MarketMostly sold to ALL FRUIT EPZ Limited, Changamwe, Mombasa County. Requires 10,000 MT pa but farmers can only supply 400 tonnes.12 MT sold between Dec and Feb 2012; increased to 44MT in June – Sept 2012 and 85MT in Dec 2012 – Jan Prices: KShS.6 to Kshs.14/Kg;70%: Kongowea and other grocery markets in Mombasa and Kwale Counties,20%: Hotel Industry along the South Coast; balance - processors or consumed at farm;Challenges to production: Similar to other fruits
9PineappleThe most important variety "Smooth Cayenne" is grown commercially in Kenya for both canning and the fresh market.Not widely grown in Kwale County; found in Msambweni and Matuga Sub- counties but have a very high potential ;Only 30.7 hectares most of which are small scale holding in and around homesteads;Approx. 300,000 trees - average of 2.95 kgs per year per tree;694 MT sold in 2011, increased to 729 and 902 in 2012 and 2013 respectively;Planting to harvesting takes 1 – 2 years; ratoon crop 9 months – 18 months;For canning and puree production, sugar/acid ratio 13 to 16° Brix is suitable - attainable when the fruits mature when there is plenty of sunshine.Market80%: Kongowea Market in Mombasa ;20%: Hawkers or consumed at farm level.Price: Kshs.20 per Kg, i.e. Kshs. 20 per fruit.Challenges to production : Unreliable rainfall hence the need for irrigation + similar to other fruits.
10Challenges to production Paw pawsPopular fruit in Kwale County; main growing areas are Msambweni, Shimba Hills, Matuga and Lunga Lunga (lower parts);450,000 trees in the County - average yield of 39 Kgs per year/tree;Acreage: 722 ha mostly small scale farmers;Harvested throughout the year; high potential for more cultivation.Market60%: Kongowea, other grocery markets in Mombasa and Kwale;10%: Hotel Industry along the South Coast;Balance is consumed at farm level.Price: Kshs.10/Kg, i.e. Kshs. 10 per fruit.Challenges to productionPests and diseases; poor crop husbandry practices;High transportation costs due to poor infrastructure;Lack of inputs and knowhow; very limited value addition.
11OthersInclude: bananas, jack fruits, guavas, tomatoes and water melons;Currently grown on a very small scale, mainly as subsistence crops; combined annual yield 2,000MT - Kshs. 30,000,000;High potential for commercial production, especially guavas, tomatoes and water melons - in high demand due to their medicinal value and nutrients;Establishment of processing factories – like a tomato paste plant - would instantly catalyze the crop production.
12Summary Fruits Growing Regions Approx. No. of Trees Yield (Tonnes) Per YearPrice (Ksh/Kg)Income(Ksh.M)Potential Yield (T)201220132014CITRUS(oranges, lemons and tangerine)MsambweniMatugaShimba HillsMwaluphamba797,2228,39841,40051.9320828100,000MANGOKinango (very rarely)510,49352,57491,390179151,370.85300,000PASSIONShimba hillsLungalunga(lower part of Lunga Lunga-along the beach)986,4445,74014,10814.3282.1650,000PINEAPPLE307,0007299082.9518.165,000PAWPAWS451,2508,32617,59738.9910175.97OTHERS200030,00020,000
14Viable Value Addition Products Fruit JuiceLiquid that is naturally contained in the fruit;Mechanically extracted and flavored but retains its natural quality;Most popular juices are made from mangos, citrus, paw paws, pineapple, tomatoes, guavas, apples, pitches and strawberries;Orange juice is most recommended for Kwale with option to produce mango, passion, tomatoes and guava juices as alternative products during low citrus season.Reason: presently no large scale processors of orange juice in the Coast Region. Mango, passion factories available.
15Fruit PureeMade by boiling peeled fruit and adding sugar and starch to produce a sweet a jelly;Can be consumed directly or incorporated in making juice, jam and squash;Is locally popular, mainly as a sweetener in oriental and Arabic dishes;Pineapple or mango puree added to cake makes it soft, sweet and yummy;Also a great baby food. Can also be topped on desserts, cookies or to the bowl of cereals.Huge export demand in the Middle-East and Europe.
16Fruit Jam/Tomato Paste Thick mixture of fruits, pectin and sugar; boiled gently but quickly until the fruit is soft and has an organic shape;Most fruits can produce jam but pineapple, mango, strawberry and plum jams are the most common and popular brands;Marmalade is a variety of jam made from citrus fruit, adding peels to bring a bitter-sweet flavor.Tomato pasteThick paste made by cooking tomatoes for several hours to reduce moisture, straining them to remove the seeds and skin, and cooking them again to reduce them to a thick, rich concentrate;Used as a flavor /gravy on dry fried food like potato chips, chicken, rice, bananas grilled beef and fish.
17Other ProductsRaw MaterialBenefitsAnimal FeedsFruit fibre and other wastesLinkage to livestock farmingBiogasGreen energyNon-nutrient compoundsCitrus peelsMedicinal valueDietary fiber or NSP (non-soluble polysaccharides) like hemi-cellulose, pectin, tannins and gumsHelp prevent constipation by reducing gastro-intestinal timeIncrease the bulk to food.
18Juice producers in the Coast Region Location Annual Output (MT ‘000)MarketPulp (mango, passion, citrus)Mango juiceCitrus JuicePassion JuiceOthersTotal (MT ‘ 000)All fruits EPZChangamwe EPZ30,000Export, Local RefinersMilly processorsMtwapa, Kilifi7,0004,0002,0001,00015,000Export, localMalindi Farmers Co-op.Malindi3,000Local refinersCoast Development AuthorityHola1,500500 (tomato)LocalICDC project (proposed)Kilifi5,000Over 20 Cottage IndustriesAll over the region200300Total-45,0005,7002,3001,2003,80058,000
22Market for other products Demand for fruit jam, puree and tomato paste is closely related to that of juices;Prominent exporters can take 20,000 MT of puree and jam/marmalade pa for the Middle- East and European market;Market Challenges and ConstraintsSeasonality of the crops might impede continuous production; facility required for preservation of the raw materials during off season.Food production industry - protracted licensing and regulation processing, especially regarding environmental and public health concerns.Marketing StrategyDirect marketing of bottled juice and tomato paste to supermarkets, retailers, hotels, institutions, etc;Ex-factory sale of juices, tomato paste and compost manure;Sub-contracted supply of concentrate to large juice processing factories;Targeting the export market for the bulk of puree;Ensuring that products are standardized, branded and well packaged to meet international standards;Use of website, media and word of mouth to advertise the products.Pricing StrategiesConsider terms of sale - credit sales, wholesale vs. retail, distance to market and type of packaging.Adopt penetration pricing as an entry strategy - slightly lower than the average industry prices.
23SUPPLY CHAIN Raw Material Supply Chain Transportation of Raw Materials Key success factor for fruit projects - over-ripe, rotten fruits are discarded as waste at considerable loss to the business; delays in supply cause factory down time.Recommended supply chain:-farmers deliver to collection centers; picked by factory;-Co-ops manage the collection centers and pay the farmers;-Co-ops are contracted suppliers to the factories.Other inputs - sugar, starch and packaging material - procured in sufficient quantities to last for approximately one month.Transportation of Raw MaterialsMost efficient and currently popular - vehicle leasing. Frees the company from maintenance, service and insurance costs.It is thus recommended to lease transport but have one (1) 7 - ton lorry as fall- back.Product Supply ChainDistributors, wholesalers and retailers;Exporter to the export market (for puree);Factory gate sales for manure and other by-products.
25Business Profiles: 1. Juice Production Reception of goods SortingWashingPeelingSplitting and removal of coreBlendingPulpingFilteringPasteurizingCoolingPackaging into bottlesLabeling and packing into cartonsDispatch
27Proposed Factory siteLocal leaders and the business community prefer plant to be located along the Mombasa – Lunga Lunga Highway, i.e., between Msambweni and Matuga- easy access to market;-good transport infrastructure.County Integrated Development Plan (CIDP) recommends Kikoneni/Dzombo in Lunga Lunga Constituency.Other factor to consider is closeness to the source of raw materials - Shimba Hills produces the largest quantity of citrus fruit.At least 3 acres of land is required; necessary infrastructure must be in place.
31Financing PlanCounty government: land, construction of factory shed, provision of infrastructure;Farmers co-operatives: establish fruit collection centers; in future plans to carry out semi-processing (pulping) in those centers;Co-operatives to raise funds from members for initial costs and working capital;private investors: plant, working capital and other fixed assetsShareholderPercentage shareholdingItems financedAmount (Kshs)Kwale County /Cooperatives30%Land & building25,000,000Start-up costs2,000,000Working Capital5,000,000Total32,000,000Private Investors70%Plant & Equipment70,000,000Other assets6,000,00076,000,000Grand total108,000,000
32Projected Income Statement IndicatorRateComparison to marketIRR (10 years)9%Treasury bonds: 5-6%ROI 3rd year18%Fixed deposit: 7 - 8%Return on Equity 3rd year22%Unit trust rate: 8 -10%BEP 3rd year32%Industry average: 30 – 50% of capacityNet profit after tax 3rd yearKshs. 24,062,960Shows good profitability
332. Fruit Puree Particulars 1st Year 2nd Year 3rd Year 4th Year Capacity Utilization40%50%60%70%80%Raw Material Input (tons)10,00012,50015,00017,50020,000Puree production (tons)2,0002,5003,0003,5004,000By-products (manure) (tons)5,0006,0007,0008,000
36Summary of Investment Item Costs Land and building 25,000,000 Plant & equipment65,500,000Other assets6,000,000Working capital11,800,000Start-up costs2,600,000Total110,900,000
37Proposed Business Model Ownership StructurePrivate investors to take full ownership of the project – Kshs M;Farmers to form cooperatives for supply of raw materials;County Government to extend necessary support to the business: infrastructure, ease of licensing, business development services to farmers in order to increase crop yield.Proposed Factory SiteMsambweni is the most suitable and convenient location:-Easy access to market;-Good transport infrastructure, especially to collect pineapples and mangoes beyond the boundaries of Kwale County.-Availability of land (at least 3 acres) and necessary infrastructure will be an important consideration.Main MarketsExport markets in the Middle East and Europe;Supermarkets and hotels in Kenya and neighboring countries;Ex-factory sale of compost manure to farmers;
38Projected Income Statement IndicatorRateComparison to marketIRR (10 years)9%Treasury bonds: 5-6%ROI 3rd year20%Fixed deposit: 7 - 8%Return on Equity 3rd year27%Unit trust rate: 8 -10%BEP 3rd yearIndustry average: 30 – 50% of capacityNet profit after tax 3rd yearKshs. 29,905,274Shows good profitability
393. Fruit Jam/Tomato Paste Production ProgramParticulars1st Year2nd Year3rd Year4th Year5th yearCapacity Utilization40%50%60%70%80%Raw Material Input (tons)4,0005,0006,0007,0008,000Jam production (tons)8001,0001,2001,4001,600By-products (manure) (tons)1,5001,9002,3002,6003,000
40MIXING OF PECTIN & SUGAR Process flow chartCLEANINGMIXING OF PECTIN & SUGARDISPATCHCOOLING &PACKAGINGDE-SEEDINGCRUSHINGCOOKINGPULPING
42Summary of Investment Item Costs (KES) Land and building 16,000,000 Plant & equipment38,500,000Other assets1,000,000Working capital9,000,000Start-up costs1,500,000Total66,000,000
43Proposed Ownership Structure Farmers form a cooperative society which will own and manage the project;Raise 20% of investment through shares; balance financed through a medium-term loan, preferably from the Co-op. Bank of Kenya;County government could also inject funds to support farmers. Optional;County Government will also extend necessary support to the business.Proposed Factory SiteMost suitable and convenient location is Ukunda town:Easy access to the beach hotels in Diani which are the main local consumers;Good transport infrastructure ensures easy linkage to Mombasa and the up- country market;Direct link to Northern Tanzania where there is a good market for the product.
44Projected Income Statement IndicatorRateComparison to marketIRR (10 years)14%Treasury bonds: 5-6%ROI 3rd year31%Fixed deposit: 7 - 8%Return on Equity 3rd year132%Unit trust rate: 8 -10%BEP 3rd year28%Industry average: 30 – 50% of capacityNet profit after tax 3rd yearKshs. 17,870,775Shows good profitability
45ECONOMIC AND SOCIAL BENEFITS Economic Indicatorsa. Wealth creation:Increased income from fruit farming since there will be a ready marketDividends from shares in the investments;Income from direct and indirect employment;BDS providers will be engaged;Linkage to transporters, wholesalers and retailers;Providers of technical services e.g. maintenance, plumbers etc.b. Tax revenue:National and County government will benefit from tax revenues, licenses and other levies.c. Value addition: potential to add value by over 50% to raw fruits.d. Employment creation: approximately 100 direct jobs and over 1,000 indirect employmente. Export potential: high potential for export to the international markets and East African region especially Tanzania.Social BenefitsImproved standard of living for local farmersStrengthening the cooperative movement in the regionReduced insecurity due to gainful employment of idle youthEmployment opportunities for women
47IMPLEMENTATION PLAN Activity Jul- Sep ‘14 Oct- Dec ‘14 Jan-Mar ‘15 Apr-Jun ‘15Jul-Sep ‘15Oct-Dec ‘15Feasibility StudyRaising EquityGrowing of fruitsConstructionProcuring & Installing plantsTrainingTrial/Commissionin g of projects
48REQUIRED BUSINESS DEVELOPMENT SERVICES BDS ActivityTarget beneficiaryExpected benefitsEnhanced agricultural extension services including provision of essential farm inputsLocal farmers and cooperative societiesBetter yieldRight fruit varieties for the proposed productsImproved land utilizationImproved living standardEntrepreneurship and management trainingCooperatives and small scale enterprisesBetter business managementInculcation of entrepreneurial culture among localsJob creationGovernance and leadership skillsCooperative management and SMEsBetter managed cooperatives and businessesStrong cooperative movementTechnical skills trainingYouth and womenEnhanced human resource capacity;Improved product quality;Marketing and accessing public procurementCooperatives, SMEs, Youth and WomenImproved market access
49CONCLUSIONProposed business models are financially viable and also economically/socially beneficial to the local community and the country as a whole towards the attainment of Vision 2030;It is possible to implement all the proposed projects within a period 12 to 18 months as outlined in the implementation plan above;The investors will have the latitude to vary plant capacities, technology and product range including integrating all the products in one factory.Potential investors are therefore invited to:Consider the business proposals contained in this report;Identify suitable investment opportunities therefrom.