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. Today’s 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.
Potential for and feasibility of ware potato storage in Kenya
Why a business plan is needed and how it is built-up

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.)

4. Value of the Irish potato

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

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

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

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

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

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.

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)

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

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.

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
-€ 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

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

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

17. Investments in hardware

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)

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

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.

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

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.

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24. Thank you for your attention.
Thank you for your attention