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Testing two wheeled tractor business models in Kenya

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Presentation on testing and demonstrating 2WTs based technologies in Kenya. And exploring the business models

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Testing two wheeled tractor business models in Kenya

  1. 1. Testing site-specific Commercial Systems to deliver 2WT-based mechanization in Kenya FACASI Mid-Term Review Hawassa, Ethiopia 9th to 13th Feb 2015 Pascal Kaumbutho / John Mung’oo
  2. 2. Milestones: Output 2.1: Market analysis of small mechanization.  Country level literature review  Interviews of national and local market actors  Round table discussions with different key group actors.
  3. 3. Challenges and Opportunities in Business Models
  4. 4. Challenges: 1. Lack of Private Sector Participation: Low demand, taxation, few service providers including mechanics, spare parts, finance etc. 2. Few dealers in Kenya stock 2WT tractors ● Some are CAMCO, Flying Horse etc. Camco imported 30 and were able to sell 20 to flower industry players.15 are still in store and it has not been easy selling them. ● They do not plan to buy more unless market is created.
  5. 5. Challenges (Contd.) 3. Few Service Providers ● There is a misconception that 2WT are hard to operate, this is only true to inexperienced operators. ● Previous Training targeting extension agents more than service provider.
  6. 6. Challenges (Contd.) 4. Lack of Government policy on Mechanization: A policy paper that was started in 1995 has never been completed. The policy formulation process started again last year and will be completed early this year (2015) (Traffic Act!) 5. Mind Set: Kenyans are used to 4WT. Service providers who have 4WT know a 2WT will reduce their fuel expenses.. ● 2WT tractors will lower their status in the society ● Working business models are necessary
  7. 7. 6. Lack of records to aid financing: ●Many banks in Kenya are willing to lend money to farmers ●Most of financial institutions in Kenya have Agribusiness departments ●The problem is that most farmers and services providers do not keep proper records and lack strong business cases.
  8. 8. 7. Dependence on rain fed agriculture ●Risk profiles are discouraging. ●Previous loan experiences are negative
  9. 9. 8. High Price ●The price of a Chinese tractor in Kenya is US $ 2000. ●The price of a Brazilian planter is US $ 4500 ●A Sheller sells for US $ 720 ●Trailer = US 1,450 ●These prices are way beyond the reach of smallholders farmers in Kenya
  10. 10. 9. High competition from Motorbikes ●Bikes are used to transport shellers and water pumps to wherever they are needs ●A motorbike and a small-sheller with Engine would cost about US$ 800 whereas a 2WT with the same Sheller would cost US$2500 ●2WT have advantage of being powerful than the motorbikes
  11. 11. A farmer on a Motorbike with a water pump to transporter to watering point
  12. 12. Opportunities ●Decreasing farm sizes ●Multiple use of 2WT ●Experienced dealers (with 4WT, they ask if there is a 2WT Demand) ●New Projects (IFAD, FAO, EU etc) ●Support from Devolved County Governments since 2013
  13. 13. A small bailer at ATDC - Siakago
  14. 14. Results: Overview of Market Analysis of Small Scale Mechanization Sector Profile and organization  2WT imports are by individuals and companies with short-term service needs, mostly in transport  2WT for closing gaps between manual and animal powered systems, and the 4WT is absent.  In a country with only 800 4WT absorption capacity, only some 1000 tractors are estimated to be working today.  There is no known central effort to increase 2WT but there are for 4WT  There are new opportunities in a devolved agricultural sector and FACASI should move BDS faster to tap into the great opportunities.
  15. 15. Output 2.2 Business Model Design.  Identification of key drivers.  Identification of existing business models  Business model mapping  Analysis of the performance of models  Identification of critical success factors  Preparation of an upgrading plan.
  16. 16. Results: BM design Mapping Model Stakeholders Functions/ Services Interventions for upgradingDealer Service provider Government/ donor/ project BM 1 Eric (Bungoma) - ATDC - Mechanics - Contractor provides hire services to farmers ATDC is in charge of the tractor but provides it to the SP when needed - Broaden the range of services offered – expand accessories - Finance (equity bank) - Business skills training BM 2 Rayfield (Eldoret) - Second hand market actors for 4WTs - Service providers and operators - Imports and distributes tractors and machinery - Manufactures implements - Provides workshop and support services Provides services – ploughing, seeding, spraying, harvesting, transport - Diversify into 2WT as dealer and SP - Finance - Training - Branding
  17. 17. Results: BM design Mapping (Contd) Model Stakeholders Functions/ Services Interventions for upgradingDealer Service provider Government/ donor/ project BM 3 Muriuki/ Mwiti (Laikipia) - FAO - Mechanics - Suppliers - Transporters - - Contractor provides planting and spraying services to farmers (planting services are with draught animals) KENDAT set up the SP in business - Project provided training support -FAO provided training support - 2WT implements - Access to finance - Training in operations and business management - Access to spare parts dealers BM 4 Teckia venture (Laikipia) - Ol-Pajeta conservancy of wildlife – training (project) - Input suppliers - Financial institution - Contractor provides hire services to farmers for planting FAO support in providing a 4WT KENDAT set up the 2WT SP in business - Project support training - Diversify operations – agro vet dealership with spare parts - Access to finance - Training in machinery operations
  18. 18. Results: BM design Mapping (Contd) Model Stakeholders Functions/ Services Interventions for upgradingDealer Service provider Government/ donor/ project BM 5 Kirari (Laikipia) - Dealer - Operators - Agro-dealers - Mechanics - Contractor provides hire services to farmers (ploughing, transportation) No prospects. (The SP has no interest to upgrade because ofhis age)
  19. 19. Results: Business model analysis Performance assessment: Components Private sector led SP models Dealer/ manufacturer led supply chain model BM1 – Muiuki/ Mwiti Laikipia BM2 Teckia venture Laikipia BM3 Kirari Laikipia BM4 Eric Bungoma BM5 Rayfield Eldoret Infrastructure +++ ++ +++ ++ ++++ Offering (Product/ service) ++++ +++ +++ ++ ++++ Customer ++++ ++++ ++ +++ ++++ Monetization +++ ++ ++ + ++++ Sustainability ++++ +++ ++++ + ++++
  20. 20. Critical Success Factors  Market linked TIMELY farming systems: Value-chain approach  Access to PROVEN & SERVICEABLE equipment and affordability of equipment: hence the need for Service Provider based systems.  Availability of financial services but for Service Providers FIRST.  Quality of work and life of machine: Training of Service Providers, 2WT operation as well as equipment/implements  Business development services: Training Service Providers in Costing services and Record keeping  Full-range, value-chain services: From planters to threshers and shellers, to animal feed choppers and millers
  21. 21. New Learning (Thanks to FACASI)… ● 2WT demand is luke-warm but has definite space ● 2WT with CA Equipment lacks the critical mass hence the necessary support services ● 2WT with CA Equipment lacks knowledge- backing among users, hence the low demand ● It is possible to generate organic growth of 2WT services but it will take too long… ● Use FACASI unique place to influence other BAU interventions in the making ($266m effort)
  22. 22. KCEP Business Model ● FAO (themselves) to train Master trainers to train Trainers ● Opportunity Provision: Contract produce buyers to hopefully contract farmers ● Education: Train farmers in CA ● Get 40000 farmers to adopt CA in 4 months, 80000 in a year! ● Build-in input voucher scheme ● Build support services for business advancement
  23. 23. Preparation of a Business Model Upgrading Plan:
  24. 24. Building a Successful Business Model 1. Understand localised mechanization needs 2. Build a Business Case for each Service 3. Build Business Cluster (IP) among identified stakeholders 4. Train Service providers beyond but with Mechanization as entry point 5. Avail range of power and equipment for hire at a hub with room for other agribusiness services 6. Organize exposure, information exchange, value-addition etc. and links to markets
  25. 25. Way Forward for FACASI (Kenya): • Have one Mechanization Hire Hub in each of Laikipia/Meru and Bungoma/Uashin-Gishu • Locals helped build ownership through visits and training to see, hear, and learn from farmers and SPs with experience in conservation agriculture. • Local hirers / Service Providers are integrated and promoted as servers of choice placed on a equipment commission and purchase scheme (price of service control)
  26. 26. Way Forward for FACASI (Kenya): • Attraction based on numbers and figure- work to Micro-finance institutions • Farmers can grow own finance scheme via training, CVs and produce sales • Broad advisory and marketing services (IT backing, GIS mapping, Mpesa etc.) • Sustain self-regulating mechanisms to ensure win-win growth and effective replication nationally and even regionally.
  27. 27. Thankyou… Ahsante Sana…

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