Business Development Services (BDS) Market Diagnostics in Kenya

FINAL REPORT FOR BDS DIAGNOSTIC IN KENYA FIT RESOURCES JANUARY 2009

1

FINAL REPORT

CONSULTANCY SERVICES FOR BUSINESS DEVELOPMENT SERVICES (BDS) MARKET

DIAGNOSTIC IN KENYA

CONDUCTED BY:

FIT RESOURCES

SUBMITTED TO: EAST AFRICA DAIRY DEVELOPMENT (EADD) PROJECT


2

JANUARY 2009


3

CONTENTS

Background and introduction 4

Methodology and activities 4 Preplanning 5 Training 6 Field work 6

Sampling 7 Key challenges of fieldwork 7

Data processing 8 Presentations 8 Key conclusions of the methodology 8

Findings of fieldwork and data analysis 10 CONSUMER SURVEY by location 10

Locations covered and key informants interviewed 10

Targeted SME consumers interviewed 10

Market profiles 12 Key demand side constraints and opportunities 18 Business development services that address those constraints and opportunities

31

Specific policy constraints that are affecting MSE product markets 31 SUPPLIER DIAGNOSTIC by location 32

Existing providers/ services and their locations 32

A workable data base of the BDS actors 33 BDS suppliers interviewed 33 Types of services and price of services, how providers cover costs, profitability, existing contractual arrangements and promotional/marketing strategies

34

Capacity gaps of interviewed suppliers 40 Priority supply side constraints, market failures, and market opportunities 40 Comparison of interviewed suppliers 44

The enabling environment for BDS 47 Conclusions 48

Characteristics of the market for BDS in each specific region in relation to existing supply, demand and transactions

48

An insight into the potential of each target market location 51 Level of market distortion 51

Comparative information on the in-country sites and the 3 markets 52 Recommendations 53

Other current or proposed dairy sector interventions 53 Sustainable solutions to address priority market constraints and market failures

53

Illustrative market based interventions 59 Approaches and methodologies 62 Strategies which ensure effectiveness and efficiency 63 Strategies which ensure sustainability 69


4

Suggested BDS providers/delivery channels to target for future interventions

72

Selecting appropriate BDS providers 72 BDS performance measurements at the BDS market level 73

Annexes 78 Database of SME actors including persons interviewed Database of BDS suppliers including persons interviewed Database of targeted suppliers

Itinerary FIT/RI scope of work

Final instruments Data collected BDS training report Researcher training report


5

Background and introduction

In a bid to improve life through poverty reduction, a consortium of organisations comprising of Heifer International as lead, TechnoServe Inc, ILRI, ABS-TCM and ICRAF launched a 4 year program dubbed EADD (East Africa Dairy Development) funded by Bill and Melinda Gates Foundation. The programme aims to move smallholder farmers out of poverty by delivering farmer-focused, value-chain activities that are implemented simultaneously to stimulate dairy farm production, dairy-sector services, business development and dairy market pull. The vision of success for the EADD is that the lives of 179,000 families—or approximately one million people—are transformed by doubling household dairy income by 2018 through integrated interventions in dairy production, market-access and knowledge application.

The consortium deemed it important to carry out a market assessment to understand the characteristics of the BDS markets in relation to existing supply, demand and transactions in the dairy sectors in some key sites in Kenya, Uganda and Rwanda. The information would:

• Provide an insight into the potential of each market

• Clarify opportunities for interventions

• Define broad strategic approaches FIT Resources Kenya (FIT) in collaboration with Research International East Africa Ltd (RIEAL) were contracted to coordinate the market diagnostic in key locations in Kenya. The findings and recommendations of this consultancy will contribute to the market focused, sub sector approach of the EADD aimed at improving the functioning of BDS markets. The final scope of work is attached to this report (Annexes/Final Revised SOW). FIT Resources act as the lead agency and contract holder, to provide strategic leadership in devising and conducting the business development service consumer research and supplier diagnostic. Research International conduct the field work as a sub contractor, to collect primary and secondary qualitative and quantitative information, analyse, process and present the data. Methodology and activities

To achieve the above results the following activities were agreed on:

• Preplanning (planning meetings, research boundaries on the basis of project resources, existing sub sector information, market assessment goal/objectives/research hypothesis, developing and testing the tools, screening interviewers, target locations in each country, preliminary key informants, other current or proposed interventions)

• Training (training of EADD staff, field research teams and BDS training workshop)


6

• Field work (target groups, sample size, areas covered, team structure, consumer survey and supplier diagnostic)

• Data processing (developing the data base of BDS actors, profiling the markets, choose priority constraints, identifying and scoping out sustainable solutions, defining ‘illustrative’ market based interventions and strategies, suggest appropriate BDS providers, establishing comparative information, identifying BDS performance measurements)

• Presentations (stakeholder workshops and final presentation) Preplanning

Relevant background information was sourced via a series of planning meeting with Technoserve and EADD consortium members. Meeting presentations and minutes are attached to this report (Annexes/Process meetings). These meetings also included setting the research boundaries on the basis of project resources, preliminary selection of target locations and the agreed definition of ‘small holder farmer’. The market assessment goal, objectives and research hypothesis were agreed as follows: The market assessment goal is: To understand the characteristics of the BDS markets in relation to existing supply, demand and transactions in key sites in Kenya. The market assessment objectives are:

• To provide an insight into the potential of each market • To clarify opportunities for interventions • To define broad strategic approaches

The research hypothesis is: If current BDS market dynamics are better understood then strategic approaches and interventions can be devised to develop BDS markets in a sustainable manner and benefit SMEs. It was agreed that the FIT/RI team would build capacity of the project staff to undertake future market assessments during the life of the project. Due to budget constraints a targeted number of sites were discussed that affords the best opportunities to kick-off the project and generate some ‘quick wins’. A training itinerary was also agreed upon to capacitate EADD project staff in BDS and research skills. FIT Resources provided lead for the overall assignment and liaison with Technoserve and the country office on all the pre planning activities. FIT Resources coordinated the field preparation with Research International and Technoserve including: tool development and testing, researcher selection and training and itinerary development. Different tools were developed to cover the demand (consumer) side and supply (supplier) side of the market. The final instruments and itinerary are attached to this report (Annexes/Final Instruments). The following activities were undertaken prior to the commencement of fieldwork: screening of team members, preparation and translation of questionnaires and preparation of reporting tools and manuals. Research International personnel met field staff/counterparts and finalised the selection of target locations and identification of key informants in each location. Research International finalised the training of field researchers including EADD project staff and preparations for field research.


7

No secondary information was used as the project is building on a baseline survey and an existing value chain assessment. The comprehensive examination of targeted BDS markets and value chains will assist EADD in designing systemic solutions to key market problems. The two subsystems—BDS markets and value chains—are complementary components of the larger market system into which MSEs must integrate. Training

1. BDS training workshop - FIT Resources personnel implemented an in-depth staff

stakeholder training in Kenya. This 2 day formal training in diagnostic skills covered the principles and practices of BDS, BDS market development, BDS market assessment and BDS market development programme design and performance measurement. The aim of this training was to capacitate project staff and provide stakeholders with a contextual framework for the research. The workshop presentations, training materials and training reports are attached (Annexes/BDS Training).

2. Training of field research teams - teams including Technoserve and consortium

member staffs, were subject to an in country briefing session prior to fieldwork commencement. The training sessions covered methodology of the assessment stages, sampling, tools and stimulus methods to use with market players and how to complete reporting formats. The aim of this training was to capacitate project staff to engage in further market diagnostics beyond the life of this collaboration. The workshop presentation and training reports are attached (Annexes/Research Training).

Field work

In order to complete this assignment within the defined period, a large team of interviewers, team-leaders and supervisors were assigned. Team members were recruited from the RIEAL regional offices, according to specifications based on experience and qualifications. The RIEAL Principle Researcher and a field coordinator coordinated the research at all stages, and focused on ensuring that outputs were planned in advance so time-schedules were met. They worked alongside the RIEAL existing field management structure that forms the line management for the field departments. Daily reporting of results and activities from each team was channeled back through this central management team. Research International led and implemented the field research in collaboration with EADD project staff. However no staffs were on the ground during the Kenya fieldwork. Consultations and market observation were undertaken during the fieldwork which included visiting identified target locations plus identifying and holding interviews with key informants and targeted dairy sector stakeholders relevant to the selected sites. Consumer survey - Consumer research was implemented with a selection of consumers from the core market itself with a focus on farmers and chilling plant stakeholders. However the definition regarding ‘small holder farmer’ was reviewed and altered during a process meeting and the ceiling lifted of the number of cows as many farmers in Uganda and Rwanda are large compared to Kenya’s extensive small holder population.


8

Constraints and opportunities were then identified in the areas of market access, input supply, technology/product development, management and organisation, policy, finance and infrastructure. The size and strength of the market in each specific area of the country for those services was estimated broadly plus key sub sector constraints, market failures and market opportunities defined from the demand side. Key business development services were identified that address the specific constraints and opportunities. Supplier diagnostic - Based on the identified priority services, relevant suppliers were identified and a supplier survey implemented with service providers from the support markets to determine who is supplying BDS and how. Constraints, market failures and opportunities were then determined from the supply side. A comparison of suppliers was also undertaken and the level of market distortion anticipated. Stakeholders from the business environment such as local authorities, regulators/policy makers were contacted as required to provide an overview of the business environment. Fieldwork commenced on 15th November and ended on 30th November. Three separate field teams of 6 enumerators were used with each team covering 2 sites. The three teams were supervised by 2 co-ordinators who visited all the 6 sites. The sites covered in the survey are shown below:

Mweiga Kipkeleon Keiyo

Ol Kalau Siongiroi Kipkaren

New sites not included will be covered by Technoserve staff beyond the life of this consultancy. Sampling

• The sample included 660 interviews spread across 6 sites. • 600 farmers were interviewed. • As per the briefing instructions, the teams covered a 20KM radius from the location

of the chilling plant. Depending on the number of locations located within the 20 KM radius, an equal number of sampling points were picked in each location to ensure spread of interviews.

• For each location, the team leader picked the starting point randomly, and using the random route method, farmers who fitted the set criteria were interviewed. Selection criteria:

o Dairy Farmer o Have less than 5 mature milking cows

• As for suppliers (60 were interviewed), the team picked supplier names from the farmers, other suppliers and also those they came across in the market places. From the list, a score was given to each an every supplier based on set criteria (capacity to deliver services, closeness to SMEs (In terms of understanding their culture and geography, commercial focus e.g. level of profitability, focus on services, SMEs or BDS, organizational independence- especially from donor funds, legally registered and willingness/interest/ability to partner). From the list, suppliers who met the above criteria were selected for the interviews.

Key challenges of the fieldwork

• Some areas in Kipkeleon and Mweiga were challenging to the interviewers because of the large distances they had to walk to reach the farmers due to large acreage of the farms, hilly terrain and lack of public transport.


9

• Kipkelion, having been one of the areas affected by post election violence, the farmers received the research team with a lot of caution. They needed assurance that the team had not been sent with political motives by their perceived political aggressors. The farmers wondered why the chief had not told them to expect the team. Fortunately, one of the team members hailed from that community and even after introducing herself as such, she was required to tell her genealogy.

• The farmers complained that the questionnaire was too long as it was taking at least one hour to answer.

• The Technoserve team was absent on the ground in all the sites apart from Mweiga where one staff joined the RI team towards the end of data collection. This caused delays in data collection as the research team had to find their way in the sites.

Data processing

Research International processed all the data collected on an ongoing basis. Research International personnel have developed a database of actors (BDS providers in each of the areas under study are listed, categorized by service provision and their location recorded). A further database defines specific provider gaps and capacities including a score against agreed selection criteria for determining target partner providers. A database of the small and micro enterprises (SMEs) interviewed has also been developed. The full data set is attached to this report (Annexes/Databases). To understand the markets, RI examined three key issues - demand, supply and transactions (the interaction between demand and supply) during the market assessment. The outcome of analyzing this information forms a picture of each BDS market showing how it works, where the opportunities for growth are, and where significant problems lie. Data analysis was undertaken to profile the markets, establish comparative information on the in-country sites (and the 3 countries) and draw conclusions from the data. A round table meeting was held in early December 08 with stakeholders to overview the methodology and process of data processing and analysis and reach consensus on the priority constraints/opportunities and identify possible solutions. The meeting presentation is attached to this report (Annexes/ Process meetings). Sustainable solutions that address priority supply side and demand side constraints were discussed. Illustrative market based interventions were also developed with a focus on potentially sustainable/profitable services that are replicable in the private sector. Strategies which ensure effectiveness, efficiency and sustainability were also discussed alongside suggested BDS performance measurements. The data processing plan was then circulated for stakeholder feedback during the analysis process and the data plan is attached to this report (Annexes/Process meetings). Comparative information on the in-country sites and 3 BDS markets was also produced. Presentations

FIT Resources and Research International personnel collaboratively implemented a presentation and action planning at a stakeholder workshop in Kenya with staff, consortium members and key informants on the 7th of January 09. This workshop included a short review on the basic principles and practices of BDS and the Market Development Paradigm. All the research findings were presented and proposed illustrative solutions and


10

performance measurements discussed (Annexes/Process meetings). Feedback was recorded and an action plan developed. FIT Resources then prepared this final draft report as and will present the final report to Technoserve with support from Research International in Nairobi, Kenya by FIT Resources and Research International on January 30th 2009. Key conclusions of the methodology

• Outsourcing the market assessment to a research company ensured a more

effective and efficient MA process. • A combination of outsourcing and internal capacity building ensured the best

possible results. The likelihood of useful research results was ensured as EADD stayed close to the market assessment process.

• The ability of EADD staff to remain consistent to the process was questionable. Staffs were not always available for the trainings and meetings as required plus EADD field staff were not available to partner on the field work in some locations drawing into question the long term ability of field staff to implement further diagnostics in new locations.

• Determining a clear hypotheses and outlined market assessment goal and objectives ensured a more effective delivery of analysed data from Research International.

• The market assessment focused on a holistic picture of the market and incorporated both sides of the market equation—demand and supply.


11

Findings of fieldwork and data analysis CONSUMER SURVEY by location

Locations covered and key informants interviewed

This study covered six locations, namely: Locations Sample size

Kipkaren 100

Keiyo 100

Kipkelion 96

Siongiroi 104

Olkalou 101

Mweiga 99

Total 600

Targeted SME consumers interviewed As per the recruitment criteria, all consumers interviewed were small scale farmers currently engaging in cattle keeping among other farming activities. The study targeted farmers with less than 5 mature milking cows. Overall, a total of 600 farmers were interviewed. The number comprised of 360 (60%) males and 240 (40%) females were interviewed in the six locations. Their ages ranged from 18- 65 years as shown in the table below:

SAMPLE TOTAL Male Female 18-25 26-35 36-45 46-55 56-65 65+

BASE: Total Sample 600 360 240 63 189 148 87 88 25

%

Kipkaren 17 20 12 22 20 20 16 7 -

Keiyo 17 16 17 11 17 18 21 17 4

Kipkelion 16 14 19 14 19 15 15 18 4

Siongiroi 17 18 16 35 22 14 17 3 8

Olkalou 17 13 23 8 12 18 15 31 32

Mweiga 17 19 13 10 11 16 16 24 52

Overall, majority of the farmers had small farms ranging from less than acre to 5 acres. However, in Keiyo and Kipkaren, a relatively high number of farmers had 5 acres of land and above.


12

Farm Sizes TOTAL Kipkaren Keiyo

Kipkelion Siongiroi Olkalou Mweiga

BASE: Total Sample 600 100 100 96 104 101 99

%

Below 1 acre 11 6 1 18 17 16 10

Between 1-5 48 46 43 46 49 50 56

Above 5 acre 40 48 56 36 34 34 33

Across the six sites, farmers reported to be selling at least ¾ of their milk production. Farmers in Kipkaren followed by Kipkelion reported the highest production and sale per day milk compared to the other sites visited.

Milk Production TOTAL

Kipkaren Keiyo

Kipkelion Siongiroi Olkalou

Mweiga


Average number of litres produced per day 10.8 12.5 10.6 12 10.1 8.7 10.9

Average number of litres sold per day(L) 7.8 9.7 8.1 8.5 6.6 6.4 7.1

Average number of litres consumed in the household 3 2.8 2.5 3.5 3.5 2.3 3.8

When asked about the contribution of the dairy farming to their total household income, half of the farmers estimated the contribution to be over 30%. On specific sites, farmers in Siongiroi, Ol Kalau and Mweiga respectfully showed a relatively heavy dependence on dairy as their main source of income.

Income proportion from dairy farming TOTAL Male

Female

Kipkaren Keiyo

Kipkelion Siongiroi Olkalou Mweiga

BASE: Total Sample 600 360 240 100 100 96 104 101 99

%

Less than 10% 13 11 17 12 10 13 9 23 14

11-30% 37 36 38 41 44 44 36 24 32

31-50% 34 35 31 24 29 36 42 32 37

51-70% 12 14 9 19 14 7 7 17 9

71-90% 4 4 3 4 3 - 7 3 4

Refused/Not mentioned 1 0 2 - - - - 2 3


13

Market profiles

Respondents interviewed in all the six sites practiced mixed agriculture; cattle keeping (100%), food crops farming (78%) and cash crops (29%). A majority (81%) of the respondents kept mixed breed of cattle. Only 14% kept indigenous while 9% kept pure breeds.

Cattle breeds Total Kipkaren Keiyo Kipkelion Siongiroi Olkalou Mweiga

Base: Total sample 600 100 100 96 104 101 99

% % % % % % %

Cross breed 81 78 85 82 80 83 78

Indigenous 14 5 9 21 25 8 13

Pure breed 9 21 10 4 1 9 11

Kipkaren had a comparatively higher percentage of respondents (21%) with pure breeds followed by Mweiga (11%) and Keiyo (10%). Siongiroi had the least number of respondents (1%) with pure breeds compared to the rest of the sites. Siongiroi also had the highest percentage (25%) of respondents with indigenous breeds followed by Kipkelion with 21%. Kipkaren had the least percentage (5%) of respondents with indigenous cattle breeds followed by Olkalou (8%) and Keiyo (9%). When the farmers were asked if they had plans to change anything in their dairy farming, over ¾ of them expressed intent to change something in their dairy farming. Farmers in Keiyo had the highest percentage (93%), of those who had plans to change and was closely followed by Siongiroi (85%) and Mweiga (84%). Plans to change something in dairy farming Total Kipkaren Keiyo Kipkelion Siongiroi Olkalou Mweiga

Base: Total sample 600 100 100 96 104 101 99

% % % % % % %

Yes 79 77 93 71 85 66 84

No 21 23 7 29 15 34 16

The intended changes mentioned by the respondents are presented in the table below:

Intended changes TOTAL Kipkaren Keiyo

Kipkelion

Siongiroi

Olkalou

Mweiga

BASE: All plan to change 476 77 93 68 88 67 83

%

Improve breeding / breed of cattle through breeding methods / use AI 60 71 83 75 35 54 45

Improve feed through growing better / more feed 47 56 61 41 42 42 35

Change feeding to zero grazing 39 64 76 16 17 28 28

Enlarge size of herd / Buy more cattle 37 35 54 21 26 45 39

Improve feed by buying supplements 33 47 65 24 25 15 13

Improve the veterinary treatment / drugs used on cattle 30 56 66 13 11 13 11

Improve my knowledge about dairy farming 26 34 46 9 8 36 22


14

Improve the quality of my milk / improve my milk handling skills 23 36 53 9 8 16 12

Improve feed storage methods 21 36 35 9 14 9 19

Improve the management of my dairy as a business 21 34 48 4 7 15 11

Group together with other farmers / join association / join coop / join producer group 19 34 47 6 11 6 2

Get more money for my milk through changing buyer (general) 18 27 33 7 11 10 13

Grouping with other farmers to get a better price 17 26 39 12 7 9 5

Get more money for my milk through increasing price 13 23 28 6 7 10 4

Improve building 12 21 24 9 1 15 4

Grouping with other farmers to get cheaper inputs 11 19 31 1 - 7 2

Buy farm equipments 11 16 26 7 3 10 4

Improve technology 10 25 20 3 1 6 4

Improve transport / invest in transport 8 18 22 1 1 1 1

Improve record keeping skills and related skills 7 17 15 1 - 6 1

Improving breeds of cattle reared topped (60%) the list of the changes the respondents planned to undertake. These respondents reckoned that, pure breeds produced more milk compared to the cross-breeds that a majority kept. Almost half of the farmers (47%) noted the importance of giving their animal’s high quality feeds and disclosed that they were planning to improve the feeds they give to their cattle. These respondents said they had plans to start feeding their animals on processed feeds and also that they would farm their own feeds including Napier grass. About two fifths (39%) of the farmers said they intended to practice zero grazing. They observed that through zero grazing they would be able to feed their cattle adequately thus increasing their milk production. A significant number of farmers also indicated their plan was to increase their herds (37%). To them, the move would help increase their milk production for more income. Further, on being asked how certain they were on making the intended changes in dairy farming, majority of the farmers indicated they were “definite” or “very likely” to implement their plans as shown in the chart below.


15

Awareness and frequency of use of the BD services Awareness and usage of different services among farmers was investigated. Results show that farmers had purchased a couple of services/ inputs for their dairy cattle. Almost all the farmers were aware of veterinary treatment and vaccination services, mineral supplements and supplementary feeds and also pest control related sprays. However, for AI, despite high awareness, the number of those who have ever used the services declined significantly. Further, those who claimed to be using AI services “nowadays” also showed a decline implying there was likelihood that farmers are more inclined to be using bulls for insemination. Notably, 60% of the farmers aware of AI indicated the service was adequate low demand for the service.

64

54

62

61

65

59

65

48

43

45

50

53

39

72

58

60

64

57

67

57

33

38

30

36

33

33

28

42

42

39

40

44

39

23

29

37

36

38

25

39

3

9

7

2

2

8

7

9

14

16

10

3

21

5

13

3

5

8

4

Improve breeding / breed of cattle through use AI

Enlarge size of herd / Buy more cattle

Change feeding to zero grazing

Improve feed through growing better / more feed

Improve feed by buying supplements

Improve feed storage methods

Improve the veterinary treatment / drugs used on cattle

Get more money for my milk through changing buyer

(general)

Join association/ coop /producer group

Grouping with other farmers to get a better price

Grouping with other farmers to get cheaper inputs

Get more money for my milk through increasing price

Improve transport / invest in transport

Improve the quality of my milk / milk handling skills

Improve the management of my dairy as a business

Improve my knowledge about dairy farming

Improve record keeping skills and related skills

Improve building

Improve technology

Buy farm equipments

Definatey will do so Very likely to do so Somewhat likely


16

The chart below summarises awareness and usage of dairy related services and inputs. The table below presents services/inputs that the respondents had ever purchased by sites.

Services/inputs ever purchased or received Total Male Female Kipkaren Keiyo Kipkelion Siongiroi Olkalou Mweiga

Base: Total Sample 600 360 240 100 100 96 104 101 99

% % % % % % % % %

Veterinary treatment services 99 99 98 98 98 99 98 100 99

Insecticides & tick sprays 98 97 98 92 98 97 99 100 99

Veterinary vaccination 93 93 94 92 96 95 90 92 95

Mineral supplements 92 93 92 85 91 100 100 89 88

Supplementary feeds 76 80 70 87 72 79 70 70 76

Artificial Insemination (AI) 59 66 48 87 65 32 14 75 80

Milk collection/ bulking 37 40 34 10 11 58 30 55 61

Milk coolers 30 31 28 56 4 75 41 3 1

Seeds to grow feed 25 26 24 16 12 22 19 44 39

Information/ training on 23 21 26 15 19 8 14 37 43

37

75

76

98

92

93

59

99

Milk collection/bulking

Veterinary vaccination

Milk coolers

Supplementary feeds

Insecticides & tick sprays

Mineral supplements

Artificial Insemination (AI)

Veterinary treatment services

27

61

22

45

82

75

39

80

30

60

24

59

92

87

45

92

54

93

84

91

92

93

95

99

33

31

32

47

25

29

40

31

Used nowadays

Ever purchased

Inadequate Amount

Purchased in P12M

Aware


17

animal husbandry

Disinfectants - for cleaning and sterilizing 19 20 17 11 6 31 21 22 22

Metal milk churns 18 21 13 2 2 16 22 28 37

Milk advance payments or credit services 12 14 9 3 3 7 14 25 20

Information on dairy markets 9 9 8 10 12 1 2 21 5

Hay bailers 7 8 4 2 8 7 6 6 10

Chaff Cutters 7 7 6 8 16 5 1 4 6

On familiarity with the benefits of the dairy related services and inputs, almost half of the farmers indicated they were not completely familiar with AI benefits. Despite low awareness, a significant number of farmers were also not very familiar with the benefit of training in animal husbandry. When farmers were asked their opinion on ease of availability of services/inputs they were aware of, key services mentioned were rated as reasonably available. However, training on animal husbandry and milk advance payments were rated as unavailable though strongly needed. Overall, veterinary treatment, was rated as the most important service with AI being mentioned a distant second. Further, in terms of purchase of the services/inputs, almost all the farmers claimed to purchase on their own indicating insignificant market distortions. The chart below summarises feedback on familiarly, ease of availability, need and affordability of some of the services/inputs that farmers were aware of.

47

45

38

36

36

35

35

31

54

64

84

91

92

93

95

99

Aware (n=600) Completely familiar with benefit of

Easily available Not affordable even after saving up

Very strongly needed

Most important overall

Disinfectants - for cleaning and sterilizing

Information on dairy markets

Hay bailers

Chaff Cutters

Milk testing kits

Milk advance payments or credit services

Metal milk churns

Information/training on Animal husbandry

Milk collection/bulking

Milk coolers

Supplementary feeds

Insecticides & tick sprays

Mineral supplements

Veterinary vaccination

Artificial Insemination (AI)


40

75

57

39

34

27

36

60

75

56

69

83

76

69

54

75

22

34

13

9

7

22

56

45

77

94

89

81

70

89

78

61

70

47

48

47

76

68

73

72

65

82

78

77

69

82

47

57

69

53

46

41

49

73

62

54

61

41

57

51

1

9

1

3

5

5

6

8

18

45


18

Other services that farmers mentioned to be getting from suppliers include:

• Animal reproductive health and good breeds

• Dehorning

• Foot trimming

• Transport of feeds

• Credit facilities to individuals and groups (Aina Moi Advisory Centre)

• Teaching on diseases

• Castration

• School fees and emergency loans (Olkalou Dairy)

• Organizing farmers field days

• Tick control

• Processing yoghurt in small quantities The overriding reason for non use of some key services and inputs like AI and supplementary feeds was said to be mainly cost. However, for information on training, “where to get it” was a key constraint.

70

96

100

50

30

11

4

17

70

8 8

33

Artif icial Insemination (AI)

n=37


n=23

Supplementary feeds n=8

Milk coolers n=6

Information/training on animal

husbandry n=10

Too expensive Dont know where to get i t Quality Others


19

Key demand side constraints and opportunities To establish demand side constraints, farmers were asked to highlight the key problems they experience with their dairy enterprise. Low milk prices (45%), disease outbreaks (31%), inadequate foliage (27%), and unreliable animal health (27%) were some of the constraints identified by the respondents. All in all, for the challenges encountered varied to some extent with the location as shown in the table below.

Problems encountered TOTAL Kipkaren Keiyo

Kipkelion

Siongiroi

Olkalou

Mweiga


%

Low milk prices 45 43 77 39 31 40 42

Disease outbreaks 31 38 37 32 30 25 25

Inadequate foliage e.g. grass, Napier grass etc 27 18 28 20 34 19 42

Unreliable animal health services- treatment, vaccination and drugs 27 46 41 19 23 20 11

Lack of adequate foliage e.g. grass, Napier grass etc 26 35 27 20 31 23 17

Unaffordable animal health services- treatment, vaccination and drugs 26 35 42 11 10 31 26

Unaffordable supplementary feeds e.g. dairy meal 25 37 33 11 11 37 22

Fluctuating milk prices 25 50 46 11 15 15 11

Unaffordable AI services 20 25 45 23 6 11 13

Irregular AI services 15 25 42 9 4 7 4

Delayed milk payments 14 26 37 5 4 5 7

Poor climatic conditions 14 10 14 6 21 11 19

Inaccessible roads 13 34 25 5 2 4 6

Unreliable source of supplementary feeds e.g. dairy meal 11 24 19 9 3 7 1

Low quality foliage e.g. grass, Napier grass etc 11 17 17 5 6 12 7

Exploitation by middle men 10 10 20 2 6 17 2

Unavailability of milk cooling facility 10 7 51 1 - 1 1

High transport cost 9 19 26 2 - 4 3

Inaccessible loan facilities 9 18 18 5 3 7 2

Lack of milk handling skills 8 16 21 1 1 3 4

Lack of feed storage and management skills 8 11 19 2 3 5 5


20

Market Access Across all the sites, farmers were aware of several channels where they can sell their milk. The non-formal outlets appeared to be more popular than the formal channels. Among the non-formal channels, homes followed by brokers and direct to institutions respectfully topped the list in terms of awareness - while in the formal market; Co-operatives followed by cooling plant co-operative had the highest awareness. Majority of the farmers claimed to sell direct to homes, followed by co-operatives and brokers respectifully. However, in terms of preference, a majority stated they would be prefer the formal channels an indication of a dislike to the informal market as shown in the chart below. The table below shows by sites where farmers currently sell their milk.

Places usually sells milk TOTAL Kipkaren Keiyo Kipkelion Siongiroi Olkalou Mweiga


%

Direct to homes e.g. Neighbours or family members 39 30 48 45 45 38 29

Farmers cooperative/group/association 29 16 22 - 36 35 67

Broker at farm gate 27 9 58 10 48 25 7

Cooling plant 26 69 6 68 14 - 1

6

12

23

31

41

45

47

50

76

Base: all farmers n=600

Preferred buyer

Usually sells to

Least preferred buyer Could sell to

Bulking center

Milk bar

Processor

Hawker

Cooling plant

Direct to institutions

Broker

Farmers

Cooperative/group/association

Direct to homes

3

3

10

16

26

16

27

29

39

3

2

12

6

26

4

11

34

3

1

2

2

16

3

5

27

5

34


21

Direct to institutions e.g. school, hospital, food kiosk 16 21 19 19 20 8 10

Hawker 16 14 36 3 23 16 3

Processor 10 8 6 13 6 13 13

Milk bar 3 6 10 - 1 2 1

Bulking center 3 3 11 - 1 2 1

Among those who sell to more than one outlet, cooling plant followed by brokers were rated as the largest buyers in terms of quantity sold. This implies that although, “direct to homes” is a major market for milk, the quantities sold to them could be little compared to cooling plants.

Buys most TOTAL Kipkaren Keiyo Kipkelion Siongiroi Olkalou Mweiga

BASE: All who sell to more than one channel 319 60 71 46 67 40 35

%

Cooling plant 24 67 1 59 12 - -

Broker at farm gate 21 5 41 4 36 20 6

Farmers cooperative/group/association 19 2 18 - 28 30 49

Hawker 8 7 11 - 7 23 -

Processor 8 7 7 7 3 10 17

Direct to institutions e.g. school, hospital, food kiosk 7 3 4 13 7 3 11

Direct to homes e.g. Neighbours or family members 6 5 6 13 4 5 6

Bulking center 3 2 10 - 1 - -

Milk bar 1 2 1 - - 3 -


22

Apart from buying milk, farmers who sell milk to the processors, cooling plant, bulking centre or the co-operative, were asked what other services they received from them, if any, and the extra service they would require. From the study, it was evident that demand for services and inputs from the milk buyers is bigger than they are currently providing. When asked whether they pay for the services, it was evident that apart from inputs, the suppliers hardly charged for the services or farmers were not aware of the charges if they were levied. Where suppliers (milk buyers) levied the charges, the main mode of payment was check off system. In terms of payment of milk proceeds, majority of the farmers claimed they were paid in cash after a specified period. This is mainly due to the fact that informal market leads in terms of milk sale channel.

37

35

27

27

39

31

33

19

22

28

25

22

21

18

16

11

10

6

Animal feeds/supplements

Milk collection from the farm or near farm

Advance on milk payments

Farm inputs - seeds, fertilizer

Animal health services- treatment, vaccination and

drugs

AI services

Training on animal husbandry

Delivery/Transport of farm inputs and animal feeds

Information on market prices

Services required Services received

20 17

5851

1626

4 41 1

Mode of payment Preferred mode

Barter - exchange milk for other

services

Receives a cheque

Cash deposited to a financial

institution

Paid in cash after a specified

period

Paid cash on delivery


23

Asked to explain what they felt about information they had in regard to where they can sell their milk, 25% of the farmers felt they have very little information. See table below.

Feeling on information of where to sell milk Total Male Female Kipkaren Keiyo Kipkelion Siongiroi Olkalou Mweiga


% % % % % % % % %

Very little 25 23 28 19 18 39 44 19 10

Just enough 66 66 66 65 72 57 52 75 76

A lot 9 11 6 16 10 4 4 6 14

Cooling Plant Asked whether they were aware of any cooling plants, 75% of the farmers indicated they were aware of at least one cooling plant within their locality. However, in Keiyo, there were no mentions of a cooling plant but they were aware that plans were underway to put one in place.

Whether aware of any cooling plant Total Male Female Kipkaren Keiyo Kipkelion Siongiroi Olkalou Mweiga


% % % % % % % % %

Yes 75 77 72 97 - 99 92 73 88

No 25 23 28 3 100 1 8 27 12

Below are the cooling plants mentioned including: Siongiroi dairies, Angina, Kipkelion cooling plant, Watuka society,Olkalou dairy farm,Endarasha dairy ,Tuzo cooling plant, Brookside, Kamaus, Tuzo dairies,Ngina Kenyatta ,K.C.C, Kiganjo

When the farmers were asked about ownership of the cooling plants, the majority indicated the facilities were owned by the co-operatives.


24

Asked what services they would like to receive from a cooling plant, farmers indicated they would expect to get a number of services which include: On probing further about what they would feel if they were to pay for the desired services, over 80% of the respondent indicated they would be willing pay to get the services. Information and training needs Across all the 6 sites sampled, majority of the farmers (88%) pointed out that they do not have the skills required to be good dairy farmers. The same trend was observed the two gender slits although, a slightly higher proportion of males felt they were more skilled than their female counterparts. The results below indicate that majority of the farmers are not well equipped to handle dairy efficiently as a business though they are practising it.

To further understand, the skill that they feel was needed to bring them to a level of skilful dairy farmers, the following information need areas were identified by a significant number

Whether feels have the skills needed for a good dairy farmer Total Male Female Kipkaren Keiyo Kipkelion Siongiroi Olkalou Mweiga


% % % % % % % % %

Yes 22 24 18 22 24 25 19 22 18

No 78 76 82 78 76 75 81 78 82

32%

62%

61%

56%

52%

48%

47%

47%

44%

Animal health services-

treatment and prevention

Milk collection from the

farm or near farm

Animal feeds

Farm inputs - seeds,

fertilizer

AI services

Credit facility

Information on market

prices

vaccination and drugs

Training on animal

husbandry


25

of them. The results indicate there is a higher demand for skills that would enable them transform to modern farming.

Apparently, of the farmers who indicated to have attended training in the past (35%), issues that were addressed in the training were the same farmers would like to be trained on.

Record keeping 9 8 9 5 14 13 8 8 3

Information/advice received Total Male Female Kipkaren Keiyo Kipkelion Siongiroi Olkalou Mweiga

Base: Those who ever received information/advice 211 125 86 40 59 15 26 37 34

% % % % % % % % %

Disease identification, treatment and prevention 55 59 48 63 69 20 27 57 53

New animal feeds 53 53 52 58 76 40 38 38 38

Improvement of milk production 43 35 53 50 49 27 27 38 47

Cattle breeding 37 39 35 28 49 40 23 46 29

Drug administration 34 40 24 35 54 20 15 27 24

Dairy farm record keeping 18 17 20 30 31 13 4 11 3

Milk prices 14 18 8 28 20 - - 14 6

Public health issues and requirements 9 10 8 10 15 20 - 11 -

63%

59%

51%

14%

16%

18%

23%

23%

33%

38%

50%

Awareness of government policies

Record keeping Buyers

Buyers

Dairy farm record keeping

Public health issues and requirements

Drug administration

Milk prices

Cattle breeding

Improvement of milk production

New animal feeds

Disease identification, treatment and prevention


26

58

61

56

59

51

27

65

53

50

47

63

8

25

21

30

28

20

32

11

53

50

18

13

21

17

14

73

25

11

17

13

3

4

2

6

7

27

13

16

15

35

30

25

35

30

22

20

7

18

8

4

4

11

9

5

8

17

7

3

Dairy farm record keeping n=38

New animal feeds n=111

Drug administration n=71

Disease identification, treatment and prevention n=115

Cattle breeding n=79

Awareness of government policies n=11

Public health issues and requirements n=20

Improvement of milk production n=90

Record keeping n=18

Buyers n=15

Milk prices n=30

Media Farmers Extension Worker (GOV)

Buyer Supplier NGO

Buyers 7 7 7 - 14 - - 16 3

Awareness of government policies 5 5 6 8 8 7 - 5 -

This could be an indication that either:

• Training needs highlighted by the farmers have already been identified by the suppliers and necessary actions are being taken or

• Those who attended the trainings have to some extent sensitised or influenced the other farmers on the need to have the skills or information.

The table below indicates different training areas/information 35% of the farmers interviews have been exposed to: To be able to reach farmers, the study sought to know where they often sought different types of information from. According to the farmers, the media (mainly radio) was identified as a key source of information. Farmers and suppliers were also stated to be key sources of information. The table below underscores the importance of media, fellow farmers and the suppliers in disseminating information to the farmers. Farmers Sources of Information The study also sought to establish if farmers keep their own record. Results indicated that over 70% of the farmers do not keep farm records. Among those who keep records, it was evident that majority of them keep only some basic records- milk sales and AI services.


27

This reinforces the need for further training on record keeping if farmers were to seriously transform their dairy farming as commercial enterprises.

Finance Overall, 75% of the farmers indicated they need some lump sum capital to finance their dairy farming operations. Asked where they think they can get the money from, Banks followed by co-operative topped the list as shown in the figure below. However, based on the fact that majority of them are selling milk to the informal market, it is clear that financial constraint will continue to derail commercialisation of the dairy among these target farmers unless concerted efforts are put to encourage them to sell milk to the formal institutions which can in return offer the much needed financial support. No wonder, when farmers were prompted on their willingness to pay for services and farm inputs on check-off systems, majority of them, over 80%, indicated the idea was very welcome.

No,

73

Yes

, 28

68%

43%

37%

30%

27%

16%

Milk sales

AI services records

Milk production

Record on animal

births

Treatment and

vaccination records

Feeds record

Do you keep any farm records?

Types of Records Kept?


28

Finance Sources

33%

25%

17%

5%

4%

4%1%

11%

Banks Cooperative SACCO Cooling plant NGOs

Micro finance institutions Family/friends Suppliers No source

Technology and product development Most of the farmers interviewed (65%) attested to owning or at least having some access to a mobile telephone. On follow up on how the technology can be used innovatively, farmers who sell milk to the formal channels were asked the types of information they would like to access on their phones through a short message services alerts (sms). The most desired piece of information was on disease alerts followed by milk prices as shown in the figure below. If the services were to be provided at the current SMS charge, majority of the farmers confirmed they would pay for it. Some respondents disclosed that mobile phones are an important asset in their dairy farming citing incidences where they have had to call veterinary personnel to attend to emergencies in their farms. Some farmers also appreciated that they received a lot of information from friends for example about arrival of milk buyers at the buying centres, availability of feeds and sometimes making orders of feeds through the phones and sending their workers to collect.


29

Policy and Advocacy There are hardly any noticeable policies and advocacy initiatives that are currently taking place in the dairy sector that farmers can identify with. Over 70% of the farmers said they were not aware of any groups/ organizations that represent their own interests as dairy farmers. This could have been occasioned by the fact that only a small number (31%) of them belong to a co-operative movement.

Aware of group/organization that represent own interest as a dairy farmer Total Male Female Kipkaren Keiyo Kipkelion Siongiroi Olkalou Mweiga


%

Yes 31 37 20 37 29 32 33 18 34

No 70 63 80 63 71 68 67 82 66

Information Via SMS

0

10

20

30

40

50

60

70

Cow

disea

se a

lerts

Milk

pric

es

Dai

ry fa

rming

trainings

/ wor

ksho

ps

Ava

ilability

of n

ew p

rodu

cts/se

rvices

New

mar

ket o

ppor

tunitie

s

New

mar

kets

Ava

ilabi

lity of

milk

pay

men

ts

Mar

ket f

or b

reed

s

Sale

of cow

s

Qua

ntity

of m

ilk s

uppl

ied

Milk

reject

ed b

y pr

oces

sor

Acc

ess to

loan

s

0

10

20

30

40

50

60

Required Information

Information Ready to pay for


30

Conclusions on consumer research The following conclusions on the BDS services consumed can be drawn from the research findings:

• Although farmers interviewed practice mixed farming, dairy is an integral source of their household income. Therefore, any effort aiming at raising production in this sector will definitely have a significant effect on these farmers livelihoods

• Whilst milk production across the six sites in below potential, farmers are on average selling milk worth about USD 1.5 per day totaling to approximately USd 45 per month

o However, since majority of the farmers are selling to the informal channels, it is unlikely that payment are received as lump sum denies them the opportunity to make reasonable savings hence minimal access to credit facilities/loans

• Majority of the farmers showed a high inclination towards getting more services from the cooling plant and paying later through check- off system. It would therefore be prudent for the cooling plant to extend these services as a bait to lure farmers into the formal market

• AI services- Although all farmers were aware of the AI services, only 39% of the farmers are using the service currently. Most of them claim the cost of the service is high, however, this does not seem to be the underlying reason for non-use as half of the respondents are not fully aware of it’s benefits

o Education on this will help more farmers attach some “value for money” to the services based on the expected benefits

• From the study a number of farmers stated they are not aware where they can receive training or some information on dairy farming. On being prompted where they usually get information from; Radio, suppliers and farmers were mentioned as key sources of information

o It would therefore be prudent for EADD to: � Bring closer the suppliers and consumers for this mutual benefit � Have more interactive sessions with farmers as the training they give

is likely to filter down to other farmers � Where possible, establish the key media consumed and target to

reach farmers through it o Two thirds of the farmers have access to the mobile phone and in fact, a

good number of them are already using it to communicate with service providers. Further, a majority of them are willing to pay to access certain services via short messages service (sms), although in actual fact, usage of sms have been confirmed to be low among the rural population.

� Despite the limitation, we feel the technology can be used more effectively if implemented in phases

• Phase 1- EADD picks a number of farmers (particularly those who are likely to influence other farmers). Train them and be channeling information through them on non-commercial basis. Through this, the impact of the service can be monitored.

• Phase 2- If phase 1 pick, commercialize the service Other conclusions

• Insecticides and tick sprays are easily available and widely used in the six sites visited.


31

• Veterinary treatment services are available but expensive for many farmers. The high cost makes some farmers in Kipkelion turn to traditional healers for animal treatment.

• Mineral supplements and supplementary feeds are stocked in the Agrovets in the six sites and the consumers are aware though not all of them are able to purchase due to high cost.

• Veterinary vaccination in all the six sites is carried out by the Government periodically when there is a disease outbreak.

• Artificial Insemination is available in the six sites though farmers complained of the high charges and sometimes they opt to get the services from the bulls in their neighborhood.

• Milk collection/ bulking was reported to be working well during the dry season but challenging during the wet season due to poor infrastructure and an increase in transport cost by transporters.

• Milk testing kits were found to be in use only in the cooling plants.

• Milk advance payments or credit services were given to the farmers who requested by the cooling plants in all the six sites.

• Disinfectants - for cleaning and sterilizing were widely used by the farmers to clean the milk churns and other milking equipment.

• Information/ training on animal husbandry were observed to be inadequate in all the six sites.

• Seeds to grow feed were widely used in Olkalou and Mweiga but not so in the other sites.

• Hay bailers and chaff cutters were not in use by farmers in the six sites.

• Information on dairy markets was not adequately available to the farmers in the six sites visited.

• Metal milk churns were used by the farmers to deliver milk though farmers expressed concern on the high buying cost.

Business development services that address those constraints and opportunities The following key constraints can be addressed by the described BDS services1: Key constraints Examples of BDS service required

Low milk prices Identify/ establish new markets Develop input suppliers capacity to offer better, less expensive inputs Identify new technologies to lower costs of production Develop the capacity of enterprises to better plan and manage their operations and improve their technical expertise Establish sustainable infrastructures that enable lower production/storage costs increased sales

Disease outbreaks Identify policy constraints and opportunities for SMEs Promote the interests of SMEs via advocacy

Inadequate foliage Facilitate links between SMEs and suppliers Develop input suppliers capacity to offer better quality inputs Identify and promote new technologies that produce better inputs Develop the capacity of enterprises and suppliers to improve their technical expertise

1 Please refer to recommendations for more in depth solutions that address priority market constraints and market failures


32

Unreliable animal health

Enable suppliers to both expand their outreach to SMEs and develop their capacity to offer better, less expensive inputs Facilitate links between SMEs and suppliers Identify and promote new technologies that produce better inputs Develop the capacity of enterprises to improve their technical expertise Promote the interests of SMEs via advocacy

Specific policy constraints that are affecting MSE product markets

The targeted farmers did not mention any policy issues that affect them. This can be interpreted to mean that the farmers were not aware of the existing policies.


33

SUPPLIER DIAGNOSTIC by location

Existing providers/ services and their locations

Across all the six sites visited, a number of suppliers were mentioned by the farmers, their fellow suppliers and also, as the interviewers visited the local market centre, they came into contact to a number of them. Overall, Veterinary “doctors” and Agrovets were more prominent than suppliers of other services as summarised below. Kipkaren had the least number of suppliers mentioned by farmers or sighted by the interviewers. Number of suppliers by category per site:

AI Veterinary/

clinicals

Agrovets/ Animal feeds

Transporters Cooling plants

Total

Kipkelion 5 14 4 5 1 29

Olkalou 9 9 9 1 1 29

Mweiga 4 8 5 1 2 20

Siongiroi 6 3 10 2 1 22

Kipkaren 4 3 4 1 0 12

Keiyo 7 10 8 1 0 26

Total 35 47 40 11 5 138

A workable data base of the BDS actors A workable data base of these BDS providers is attached to this report (Annexes/Databases). BDS suppliers interviewed

To select the suppliers to be used, a set criteria was followed which was mainly based on:

• Services provided

• capacity to deliver services

• closeness to SMEs,

• commercial focus on services,

• organizational independence As per the table below most of the suppliers interviewed were privately owned enterprises mainly offering retail services.


34

Nature of Business Total

KEIYO KIPKAREN KIPKELION

MWEIGA

OL-KALAU SIONGIROI

Base 64 10 9 13 10 10 12

Cooperative 9 0 0 1 3 3 2

Self help group 5 0 5 0 0 0 0

Private owned 49 10 4 11 7 7 10

Government 1 0 0 1 0 0 0

Although a good number of suppliers had fixed premises a good number of them were also operating as mobile service providers. Almost all had operated their businesses for more than two years. The businesses were mainly operated by 1 person or with the help of the family members.

Business Type Total

KEIYO

KIPKAREN

KIPKELION

MWEIGA

OL-KALAU

SIONGIROI

Base: 64 10 9 13 10 10 12

Mobile 18 3 4 6 1 0 4

Fixed premises 34 7 4 5 6 8 4

Both 12 0 1 2 3 2 4

Types of services and price of services, how providers cover costs, profitability, existing contractual arrangements/relationships and promotional/marketing strategies Types of services offered The suppliers indicated they provide a host of services and products to the farmers. Across all the towns, majority of the suppliers offered multiple services and products to the farmers, for both specialized and non specialized products and services. For instance, a number of veterinary “doctors” operated Agrovets businesses and even offered transport for feed and milk. Some of the Artificial insemination providers also doubled as veterinary doctors as well as Agrovet operators. In the Agrovets, although a number of products were stocked, the majority of them stocked the following:

• Insecticide and tick sprays

• De-wormers

• Disinfectants

• Mineral supplements- mainly “mineral salt”

• Seeds and fertilizers

• Poultry feeds

• Simple farm equipment- pangas, jembes, wheelbarrows etc. Other products stocked though not in many outlets included:

• Animals feeds

• Milk churns

• Drugs for bloat and other minor animal ailments


35

The co-operatives in the areas were also found to be offering several services which included:

• Milk collection – transport and marketing

• Animal feeds supply

• Information and training to the dairy farmers

• AI and veterinary services

• Credit/advance payments to the farmers

• Yoghurt processing (small quantities) Among the AI and the veterinary doctors, apart from offering their professional services – treatment and insemination, were offering other services like:

• Dehorning

• Food trimming

• Bulls castration

• Training on animal husbandry The table below is a summary of key services offered across the six sites: Which services or goods do you provide to dairy farmers Base KEIYO KIPKAREN KIPKELION MWEIGA

OL-KALAU SIONGIROI

Base 64 10 9 13 10 10 12

Supplementary feeds 45 10 9 6 6 7 7

Mineral supplements 42 9 7 7 6 6 7

Veterinary treatment services 41 8 6 10 6 4 7

Insecticides & tick sprays 41 10 8 7 6 5 5

Veterinary vaccination 32 7 3 9 5 2 6

Information/training on animal husbandry 29 4 2 6 6 6 5

Seeds to grow feed 24 3 0 3 6 7 5

Artificial Insemination (AI) 23 5 5 3 4 3 3

Disinfectants – for cleaning and sterilizing 20 3 1 6 0 4 6

Milk collection/bulking 14 0 0 4 4 3 3

Information on dairy markets 11 1 1 4 1 2 2

Milk testing kits 8 1 1 2 0 4 0

Milk coolers 7 0 3 0 2 2 0

Milk advance payments or credit services 7 1 0 1 2 1 2

Metal milk churns 6 0 0 0 2 2 2

Hay bailers 2 1 0 1 0 0 0

Chaff Cutters 1 1 0 0 0 0 0

According to the suppliers, some of the products they considered to be of high cost were only stocked or supplied to the farmers on special request especially farm equipments and animal feeds e.g. dairy meal.


36

Majority of the suppliers also indicated most of the services and products they were offering to the farmers were readily available from other suppliers within their localities - an indication of existence of competitors. The suppliers indicated that farmers who are mainly small scale regularly visit the outlets to buy the services or inputs by themselves. However, for some services especially treatment emergencies, the farmers would call the suppliers from their cell phones. The customer base for most of the suppliers is spread between 3-5 sub-locations, though a few were actually spreading even far further. During the interaction with the farmers when buying their products and services, the key information areas that farmers usually seek from them include:

• Product usage e.g. mixing mineral supplements with other feeds, dossage

• Signs and symptoms of different diseases

• Importance of certain products to their animals e.g. supplements

• How to improve production

• Cost of different services and products especially what is offered by other suppliers

• Milk prices

• Management of diseases e.g. mastitis

• ‘Heat’ detection in cows

• Where to get quality breeds Based on the consumer survey, the above results correspond with the information farmers indicated they seek from suppliers.

Prices of services offered Majority of the suppliers claimed to give information freely as either an after sales service or as a way of building rapport with their customers. This was vividly summarised by an Agrovet operator in Mweiga who quipped, “I need to look knowledgeable to the farmers otherwise they will not have the confidence with what I’m selling to them. The more information I give, the more likely the farmer to come back for more inputs,” Expectedly, in regard to products and services (not information related) suppliers do not charge uniformly but apply a number of parameters to arrive at the cost. Some of the key variable that are usually applied in determining the selling price Include:

• Product origin - Whether the product is local or imported. In the AI service provision the locally produced semen is cheaper than imported semen

• Quality of product

• Competition – If competition existed, the suppliers had to charge reasonable prices

• Prices at which service/product was purchased. Those who bought at wholesale paid less that those buying at retail.

• Transport costs - Transportation of goods and services raised the overall cost of the product and service. This depended on the distance between the farmer and the supplier – the longer distance the more the consumer pays

• Ability to pay for the service - The service providers said they lowered their charges so as to attend to some farmers who cannot afford to pay. One supplier in Kipkelion


37

remarked, “The animal has to be treated. It can’t be left to die as I will have not had a market to sell my drugs. I would therefore better make less profit from some farmers and sustain the business”

• Time of the day - Charges also depend on the time of the day, the fee is higher at night and lower during the day

• Availability of milk in the Market - when the supply of milk is high, the prices go down and vice versa

• In cases where the transporters offer added services such the cleaning of milk churns the farmers pay more.

• Product movement - If the expiry dates for some products drew nearer, some suppliers opted to sell it to farmers at discounted prices, they do not disclose the intention to them

Further, despite the above reasons, farmers were also said to drive hard bargain and prices could range between farmers. How providers cover costs & profitability Just like in many business ventures, suppliers reckoned that they strived to make a profit whenever possible. However, given that costs have to be met and some profit made in order to remain in business, the main alternative to the supplier was to transfer the cost directly to the farmers. To some suppliers, to cover full cost, they were also factoring in some bad debts which they usually encounter as a result of sometimes offering the services to the farmers on credit. Other loses unforeseen loses that suppliers mainly complained about were associated with price fluctuation in the market especially when they had huge stocks. However, according to some veterinary doctors, in some instances especially on vaccinations, the government provided the medicines free and they were only charging for the service. Majority of the suppliers indicated they have expertise and experience to offer more than what they are offering to the farmers. This ranged from products like farm machineries, farm inputs and animals feeds to services like marketing, offering training on animal husbandry and general animal care. The key constraints that inhibited most of them in supplying the products or services was said to be the cost and low incomes among their target market. In their opinion, most suppliers indicated that despite existence of high competitions in their areas of operation, the market is still vibrant and the demand for their products has been growing and sometimes, they do not have enough stock.


38

Existing contractual arrangements To some extent there were contractual arrangements between suppliers and consumers in the six sites. These contracts were either verbal or written although a majority of them were verbal and based on trust. The table below gives examples of contracts signed between farmers and suppliers:

Example of signed contracts between farmers and suppliers

Name of contact person Supplier type Contract with

Reason

Site: Kipkelion

Benard Kirui Transporter 15 farmers To avoid some misunderstanding

Leonard Langat ABS AI Service provider Chepsion

5 farmers To enable them claim their money

Jonathan K. Langat American Breeding Services Kipkelion

3 farmers To avoid payment delays

Joseph Kiteri Transporter 100 farmers To get legal backing for payment defaulters

Jonathan K. Langat American Breeding Services Kipkelion

A B S (supplier)

Get their semen and sell to farmers

Site: Olkalou

Joseph Onganga Olkalou Dairies

4 groups of farmers

To observe regulations of the plant

Kamau Cooler - Ndemi 500 farmers To pay them in time John Chege Equator

Agrovet Olkalou

20 farmers and 3 groups

Offer service with or without ready cash

Site: Mweiga

Endarasha Farmers Association

cooperative A group of farmers

To pay them in time

Siongiroi Stanely Lang’at AI A group of

farmers To commit farmers to pay

Siongiroi Dairy Plant Cooling plant Both Individual and groups

To settle disagreements in case they arise

Paul koech Veterinary services

With individuals

Enhance trust-worthiness

Joseph Bett AI With individuals

Commitment in service and payments

Hilary kibet Agrovet With individuals

To make sure they pay for products they receive on credit

Keiyo


39

Peter sigei Transport With individuals


Kipkaren Kitur Agrovet With an

individual To make sure they pay for products they receive on credit

John Tanui Agrovet With individuals


Promotional/Marketing strategies The suppliers mentioned a number of promotional activities that they engage in to be able to interact and promote their products and services to the farmers. The activities ranged from high level advertising like using print and electronic media to visiting the farmers in their farms. Specifically, here are a number of marketing activities that suppliers claimed to employ in order to get a share of the farmer’s wallet:

• Advertising the services on radio, e.g. Kass FM

• Printing posters

• Advertising new products on the notice board in the shop.

• Having products drawn on the outer walls of the shop

• Printing calendars and business card bearing the name of the business, services offered and location

• Displaying different types of products in the shop to capture the farmers

• Attending farmer’s meetings e.g. chief baraza’s, field days, annual general meetings etc. and introducing their services to the farmers

• Moving from one home to the next introducing oneself and the services offered

• Informing farmers about other services available as one offers the service that the farmer had requested.

• For those offering transport services, parking the transport vehicle in a strategic place in town where it seen by all.

• Organizing farmers’ field days with companies like Kenya Seed.

• Giving farmers telephone contacts through business cards

• Exercising good public relations, giving quality service and fair charges.

• Offering quality products and services

• Asking farmers to inform their fellow farmers

• Liaising with Government workers in the region so that they tell the farmers about the services the supplier is offering (Kipkelion)

• Visiting cattle dips to meet the farmers as they take their cows there ( specifically in Kipkelion)

Some suppliers also claimed to rely heavily on the product distributors and manufacturer to support products awareness creation for the mutual gain.

Capacity gaps of interviewed suppliers Overall, due to the nature of the market targeted - low income farmers - s, a number of capacity gaps were identified amongst the interviewed suppliers in the six sites. These included:


40

• Business size - Most of the suppliers operated relatively small retail shops which offered limited inputs and services. Again because of the capital constraint, products on offer were mainly dictated by cost and not quality

• Technical competence - Due to the nature of the business, sole proprietorship, some business were not professionally managed as any member of the family was left to attend to the farmers in some instances without due regard to the experience they may require in handling some requests from the farmers

• Access to credit facilities - Just like the many farmers they were serving, most suppliers claimed they were cash constrained and therefore they could not expand their enterprises to their desired level. Further, their capabilities were cut by farmers who in most cases came begging for credit facilities

• Due to their size also, some suppliers claimed not to have ever been linked with manufacturing companies and therefore little knowledge on how use some products or even products existence.

o According to them, this limited the amount of knowledge they could pass on to the farmers or services/products they could offer to the farmers

Priority supply side constraints, market failures, and market opportunities In analysisng the priority supply constraints two perspectives are considered; the suppliers understanding of products and service, sourcing limitations amongst farmers and the suppliers own challenges in business operations. 1. Suppliers Business operation challenges: Lack of capital: All the suppliers mentioned capital as one of their main constraints. They said that they had many plans to increase or improve their businesses but this had been hindered by their lack of capital. Some suppliers observed that sometimes they bought products that were moving at a slow pace or that farmers took on credit and delayed payment or never paid at all. This meant that they could not raise money to replenish their stocks as they would like. Price instability: Other suppliers identified price instability as their constraint. They revealed that price instability was the order of the day, meaning that the price of a product bought at some amount goes down within a short period in terms of prices wiping out chances of making some profit. Examples were given of instances where suppliers had no choice but to sell their products either at the buying price or at a loss. Loans/ credit facilities: Some suppliers said they were not in a position to take up credit facilities because they did not meet the requirements. Some of the requirements were that the business should be registered, should have certain daily sales to demonstrate the possibility of repaying back the loans. This they said has denied them opportunities to access loans because their businesses are not registered or that they do not make the required profits. Other suppliers were worried that taking a loan is risking the little they have. Credit extension to the farmers: Their main concern was that most customers can only survive through the credit system because their milk is collected and paid at a particular date. Before their pay date animals get sick or are in need of some goods or services. As a result, farmers find themselves asking for credit. Suppliers observed that their main challenge is that some of their customers do not pay on the agreed on time while other will not pay at all.


41

Legal requirements: All the suppliers interviewed were aware that they were required to meet some legal requirements. However, they were of the opinion that these requirements were not achievable because of the following reasons:

• They were expensive and therefore ate into the business: The suppliers said there were so many certifications required from various parts of the government and none for free.

• Bureaucratic and time wasting: Suppliers did not understand why a simple certificate should go through many offices and why one has to travel for long distances to get it. They did not see a justification to this process.

• Encouraged corruption: Suppliers observed that due to the delays in getting the documents processed, they found themselves paying bribes so that the process can be hurried.

Transport: Suppliers reckoned that the transport network in their areas of operation was very poor. This meant that the price of their goods and services went up to cover the transport aspect. This impacted negatively on the farmers because they had to pay extra coins. On the part of those who had to take their services to the farmers found it very expensive in terms of time and money. Those supplying AI’s were disappointed by the fact that they have to walk for long distances meaning they can only attend to very few farmers. Competition: Some suppliers felt that there was competition from other suppliers especially those who had their own transport. Also depending on where products were sourced from, the prices varied and therefore some suppliers lost their customers. Suppliers felt that dairy farmers face the following constraints as they source for suppliers:

• Poor road network in the area which makes it impossible for the goods and services to be distributed into the farms and when they are they become extremely expensive

• Prices of the goods and services may not be affordable to the farmer • Price fluctuations while milk prices remain fixed at a low price

2. Products and service sourcing limitations amongst Farmers Specifically, amongst the farmers the limitations to BDS purchase are pegged on: Products knowledge: As attested by the farmers, low disposable incomes have limited their choices and they usually buy products and services not because of their (?) but based on the price. This has limited their scope of knowledge and experience with new products and technologies. For instance, the AI services have been criticized by some farmers although a majority of the farmers have stated they are not fully aware of its benefits. This has directly affected suppliers in terms of diversification. Purchasing power: A good number of farmers claimed milk sales contributed to more than 30% of their total household income which is equivalent to about Ksh 100. Due to this a majority of them would not attach “high value for money” of some services that suppliers were offering in the market rendering suppliers to sell their offers at almost the cost price. This limits growth of the suppliers. It is contributes to erratic purchase which in some cases have reduced suppliers to speculators - leading to over stocking which at times have led to some products expiring on the shelf.


42

To overcome the above constraints suppliers gave a number of suggestions as shown below:

Suppliers business operation challenges

Products and service sourcing limitations amongst farmers

• Legal requirements - Due to their small size, it would be prudent to encourage them to form an umbrella organisation to regulate their operations. They can also bargain with both the licensers and financiers

• Training and products offered - the manufacturer and key service provider should educate the suppliers on their products. This will enable them to offer the right expertise to the farmers for greater benefits and thus improved incomes

• Creating linkages with big suppliers who can provide some credit facilities

• Milk marketing - farmers to be encouraged to sell milk through the formal channels. The formal channels can then link the farmers to the suppliers of dairy inputs and services. Due to security offered, the suppliers can give credit facilities as they can recover their monies through check-off system

• Training - By exposing farmers to the benefits of the products and services on offer, despite the income limitations, more farmers are likely to seek these products and services

• Training farmers on best dairy farming practices that can help improve raise their incomes

Market opportunities Despite the limitations and challenges the suppliers are facing, majority of them were optimistic that there is an opportunity to grow their businesses.

1. Most of the suppliers indicated that at some instances they run out of stock for some products an indication of high demand for products and services. However, since the number of market players is relatively high in these area, widening of product offers by the existing suppliers is where the opportunity lies

2. Most businesses in the six sites are sole proprietorships and thus the possibility of having family members being in charge most the time. To ensure the right products and services are offered to the farmers, for increased output, there is a need to train the owners adequately so that they can in return train their assistants

3. Both the suppliers and the farmers are struggling to purchase products and services for sale and for use respectfully. Both have a similar problem of access to credit. There is therefore an opportunity to bring in more players in the market to link the two groups.

a. The cooling plant can effectively act as a link between the farmer and suppliers, while the suppliers can be linked to the manufacturers and big service providers by encouraging them to form some umbrella bodies

Comparison of interviewed suppliers

Comparatively the suppliers interviewed in the six sites during the assessment were generally small scale private business owners. They can be grouped into four categories; Agro-vet shop owners, mobile treatment, AI providers and cooling plant.


43

The interviewers were asked to rate them based on some factors as indicated below. The score ranges from 1-5, where 1 means “does not meet the criteria at all” and 5 means “fully meets the criteria”. However, it is important to note that the exercise was to some degree subjective as the interviewer did not have all the details to enable them make an ideal judgment.

BU

SIN

ES

S N

AM

E

Dis

tric

t

Cap

acit

y t

o

deliv

er

serv

ice

s

Clo

sen

es

s t

o

SM

Es

(In

te

rms

of

un

de

rsta

nd

ing

th

eir

cu

ltu

re a

nd

g

eo

gra

ph

y

Co

mm

erc

ial fo

cu

s

e.g

. le

vel

of

pro

fita

bil

ity

Fo

cu

s o

n

se

rvic

es

, S

ME

s o

r B

DS

Org

an

izati

on

al

ind

ep

en

den

ce

- es

pecia

lly

fro

m

do

no

r fu

nd

s

Leg

ally r

eg

iste

red

Wil

lin

gn

ess/in

tere

st/

ab

ilit

y t

o

part

ner

Murmet Agrovet

Keiyo 2 1 4 4 2 5 1

Kipchemen Agrovet

Keiyo 5 5 3 5 2 5 1

Kauaney Agrovet

Keiyo 3 3 4 3 4 5 2

Ogilgei Agrovet

Keiyo 4 5 4 4 3 4 5

William Agrovet

Keiyo 4 5 4 4 3 4 5

Anac Investment

Keiyo 4 4 3 4 3 4 3

Kaiko Agrovet

Keiyo 4 3 4 4 3 4 3

Emco Keiyo 5 5 5 5 4 5 5

Tachasts Plaza

Keiyo 3 3 4 2 3 4 4

Serkem Keiyo 5 5 4 4 4 5 5

Kogo Business

Kipkaren 4 5 4 4 4 5

Kipkaren Holdings

Kipkaren 5 4 4 4 5 5

Emkoin Kipkaren 5 5 5 5 1 5 5

Kipkaren Holdings

Kipkaren 4 3 4 3 4 3 4

Kipkaren Holdings

Kipkaren 4 4 5 4 3 4 1

John Koech Kipkaren 3 3 3 2 4 5

Chemototin Kipkaren 2 4 4 4 4 4 3

Kapyemit Agrovet

Kipkaren 4 5 4 4 2 5 5

Ndalat Agrovet

Kipkaren 4 4 3 4 2 2 2

Teta Enterprise

Kipkelion 4 5 5 4 4 4 5

Kaplaba Agrovet

Kipkelion 5 4 4 4 4 4 5

Kiletien Agrovet

Kipkelion 5 4 4 5 5 5 5

Tumaini Agrovet

Kipkelion 4 4 3 4 4 4 4

ABS- American

Kipkelion 5 4 4 4 3 4 5


44

Breeding Services

J.A Kipken Kipkelion 4 5 4 4 5 4

Kvs 166 Green

Kipkelion 4 4 4 3 3 3 4

Ainamoi Agrovet And Advisory Centre

Kipkelion 5 4 5 4 4 5 5

Mini Agrovet Kipkelion 3 4 3 3 2 4 3

Abs Kipkelion 5 5 5 5 5 5 5

Wakulima A. Kipkelion 3 3 2 3 3 4 3

Kipkelion Dairy Limited

Kipkelion 4 5 4 5 5 4

Ministry Of Livestock

Kipkelion 3 4 2 2 3 4 4

Endarasha Farmers Association

Mweiga 5 5 4 5 5 5 4

Endarasha Farmers

Mweiga 3 4 3 4 2 3 4

Watuka Farmers Society

Mweiga 3 4 4 3 2 5 5

Classic Agrovet

Mweiga 1 2 3 4 4 4 3

Ndungu Agrovet

Mweiga 4 5 3 4 4 5 4

Gataragana Agrovet

Mweiga 4 3 4 3 3 5 3

Kariuki Vet Services

Mweiga 3 4 2 3 3 4 4

Mweiga Agrovet

Mweiga 3 4 3 2 3 4 2

Emma Enterprises

Mweiga 2 1 3 2 3 2 1

Kasuku Farmers

Ol-Kalau 3 4 3 4 3 4 4

Kasuku Farmers Store

Ol-Kalau 1 1 1 1 3 1 1

Central Agrovet

Ol-Kalau 4 3 3 4 2 4 4

J.K Holdings Ol-Kalau 4 5 4 3 3 5 2

Young Farmers Farm Inputs

Ol-Kalau 3 3 2 3 3 2 2

Ndemi Agrovet

Ol-Kalau 3 3 2 3 3 3 3

Equator Agrovet

Ol-Kalau 4 3 4 4 4 5 3

Farm Factors Ol-Kalau 4 4 4 4 4 5 5

Olkaluo Dairy Farmers

Ol-Kalau 4 4 4 4 4 4 4

Richard Ngetich

Siongiroi 4 4 4 3 4 3 4

Lisma Agrovet

Siongiroi 4 4 3 4 4 4 4


45

J. Kirui Vet Services

Siongiroi 3 5 3 4 5 4 5

Kaptich Agrovet

Siongiroi 5 5 4 5 5 5 5

Bluegrown Collection Place

Siongiroi 2 3 3 4 3 1 3

Olbutyo A.I. Services

Siongiroi 4 4 4 5 4 4 4

Siongiroi Agrovet

Siongiroi 3 3 4 3 4 4 3

ABS Siongiroi 4 3 3 4 2 4 5

Falcon Agrovet

Siongiroi 4 5 5 4 5 5 5

Chirchir Agrovet

Siongiroi 4 4 4 5 4 4 4

Siongiroi Dairy Plant

Siongiroi 4 5 4 3 3 4 5

Peter Sigei Siongiroi 5 3 4 4 5 3 4

The enabling environment for BDS A number of issues were raised by suppliers in connection to the operations of their businesses in the six sites. These included:

� Lack of capital to expand business � High competition from others in the area � Lack of information on where and how to access a loan � Legal requirements:

o Too many licenses required o Issuing of some licenses based in Nairobi which was time wasting o Corruption to be able to get the licenses on time o High costs of licenses

� Poor infrastructure translating to high transportation costs which and an impact on the final product/service cost

� Lack of technical skills especially in treatment and AI provision � Product price fluctuations which affected profits


46

Conclusions

Characteristics of the market for BDS in each specific region in relation to existing supply, demand and transactions

Although there are no set criteria for plotting a location on the matrix, a form of benchmarking has been used that compares the quality (productivity and practices) of one BDS market against another within the country and between locations across the 3 countries. Supply and demand have been evaluated as a one off event during the assessment process in relation to best practice which forms the basis of this informal comparison exercise. The exercise was undertaken during a group discussion between the team leaders of the research teams for each country.

The findings reveal that Kipkelion and Siongiroi are characterized by strong supply and low demand of goods and services while Mweiga and Ol-kalau had strong supply and strong demand. On the other hand, Kipkaren and Keiyo had strong demand and low supply.

STRONG SUPPLY LOW DEMAND

� Kipkelion � Siongiroi

STRONG SUPPLY STRONG DEMAND � Mweiga � Olkalau

LOW SUPPLY LOW DEMAND

STRONG DEMAND LOW SUPPLY

� Keiyo � Kipkaren

The common characteristics of the BDS market are presented in table below:

Supply

Demand

Transactions

Key Characteristics

• Relatively high supply of BDS services and inputs apart from training and finance

• Mainly private players • No subsidies • Relatively strong

marketing/promotional activites though not very professionally executed

• Small enterprises in terms of size (sole proprietorship

• High Demand for BDS services

• Milk market divided between the formal and the informal channels.

• Limited skills in dairy production

• Limited information on milk market

• For BDS especially with regard to milk transportation from

• The transactions are done mainly by cash payments. However members of cooperatives and farmer associations can use check-off system to make payments

• Generally there is poor access to credit facilities among farmers and


47

• A number of the services providers have the skills but are limited capital.

farm gate to collection centres and other markets.

cooperatives. This has tended to limit the transactions they can execute to benefit them.

KENYA CONSUMERS – DEMAND SIDE CONCLUSIONS

• Local breeds are predominant across all the locations however farmers specifically want to improve breeds to enlarge herd size and improve milk production via adopting zero grazing methods, growing feed and AI services.

• Dairy is an integral source of household income and improvements in the sector are likely to impact at the household level.

• The services farmers are most aware of are basic veterinary treatment services, vaccination and products such as mineral supplements, sprays and insecticides. These are also the most acquired services.

• Although farmers are aware of many services and do acquire some services they choose not to purchase specialist services (such as AI) and are not clear as to the benefits they should expect. Demand for basic services exists but is low for more specialised services such as AI and appropriate technology.

• Buyers currently provide few required services to farmers yet the opportunity for such embedded services is apparent.

• Consumers shy away from purchasing services due to the expense involved and the poor quality/unreliability of many products. Some services are also just not available such as information on training. Information and training on animal husbandry, dairy farming and milk advance payments is also non existent. Information on dairy markets is considered to be ‘very little’ across all sites.

• Key problems for farmers include low milk prices and disease outbreaks. • Farmers sell predominantly to homes, brokers and cooling plant/coops. Sales to

formal channels are preferred. Farmers sell on credit but prefer cash. • Farmers are aware of the local cooling plants and would like to receive such

services as health services and milk collection with a high willing ness to pay and to use a check off system. Milk advances are currently offered by existing cooling plants.

• Dairying skills are inadequate especially in regards to disease identification, treatment and prevention, available feeds plus improvements in milk production.

• The media and other farmers are currently the main source of information. • Farmers keep few records and cannot determine the true profitability of their

business activities. • Farmers struggle to self fund their operations as milk production and prices are low.

Few acquire loans or other financial services (despite a desire to do so) due to inaccessible or unaffordable loans.

• Most farmers have access to a mobile phone and are willing to pay for important information via SMS such as disease alerts and milk prices.

• Few farmers are aware of organisations that can support them and few belong to formal groups, cooperatives and associations.

• There is very little knowledge among farmers regarding policy issues and the legal and regulatory authorities and standards/regulations that concern their operations.

• Poor roads hinder transportation and milk collection especially in the wet season.


48

SERVICE PROVIDERS – SUPPLY SIDE CONCLUSIONS

• A broad range of general services such as basic health treatment services from veterinary “doctors” and animal products (health products and feeds) from Agrovets are on offer but more specialised services beyond AI are scarce.

• The key services on offer from the vets and Agrovets include supplementary feeds, veterinary treatment services, mineral supplements and insecticides and tick sprays. Competition between such providers is high.

• The range of visible services across all locations is rather limited and undiversified. • Demand for services is relatively high. • The few coops who are service providers offer a more diversified range from milk

collection to advances and information. • Kipkelion and Olkalou have the most amounts of visible providers and Kipkaren the

least offering different opportunities for intervention to develop supply. • Most of the providers are enterprises privately owned and managed by individuals

mainly offering retail services and the majority with fixed premises. • Fee based stand alone services are the norm but limited embedded services are

apparent such as product benefits and usage. • The business acumen of existing service providers is relatively low but with some

entering into contractual arrangements. Business formalisation is weak and many are not registered and do not understand the requirements or process.

• Most providers are clear regarding how the market impacts on pricing but do not have clear pricing strategies.

• Few are implementing well focused marketing strategies but a broad range of above and below the line marketing is evident.

• Cash payments are the norm but credit services are often required from providers to a farmer which limits business capacity. Defaults are high and payment recovery is often staggered.

• Despite an overall lack of technical knowledge and abilities to delivery more specialised services, some providers have the skills to offer more varied services such as farm inputs, marketing information and training on animal husbandry.

• Capital for operations and expansion is very limited and access to affordable finance is limited.

• Poor roads and lack of public transport hinder service delivery impacting negatively on prices.

• All evident services are focused on production support and non on market support. • Limited of knowledge relating to public health issues, regulations and standards.

An insight into the potential of each target market location

A diversity of potential was exhibited across the six sites visited. Majority of the farmers were keen to improve their milk production through change of breeds and animal feeding habits. Also, majority of the farmers across were unhappy with the current milk buyers and were all showing a higher preference to the formal market. This is a great potential for the cooling plants to collect milk from the farms and offer the farmers the much needed credit facility.


49

Training and information was another key opportunity with high demand among both the suppliers and farmers. Majority of them were ready to pay a fee to access the service even if it is through an ‘sms’ Farmers in Keiyo complained they did not have a cooling plant nearby, a need which EADD can look into. In Kipkaren, the number of suppliers was found to be few and usually and at times they were unable to meet the demand. This presents a growth opportunity to the existing suppliers and new ones.

Level of market distortion

Across all the six sites, the market mainly operated based on market forces with very insignificant traces of subsidies. However, some suppliers indicated some outlets were getting subsidies but on close scrutiny, the differences in pricing were mainly as a result of where products for sale were being sourced.

Comparative information on the in-country sites and the 3 markets

As shown in the matrix, all the six sites could broadly be classified into three groups based on demand and supply levels. Mweiga and Ol-kalau had the highest number suppliers’ compared to the other four. Kipkaren, Keiyo and Mweiga were ahead of the others in terms ownership of pure breeds and incidentally they had the highest milk production compared to the other three sites namely, Siongiroi, Kipkelion and Ol-kalau. Whereas the farm sizes were big in Kipkaren and Keiyo (majority have more than 5 acres), land in Mweiga and Ol-kalau is relatively small. Across the six sites, low milk prices was however a big issue followed by lack of enough feed for the animals. Other common challenges facing the farmers were diseases, lack of capital and skills in dairy farming However, in comparison to Uganda and Rwanda, the dairy market in the surveyed sites was relatively developed in Kenya. The table below shows some comparison between the three markets.

Uganda Rwanda Kenya

Breeds kept Mainly exotic Mainly exotic Mainly cross breeds Use of BDS services Low Low Average Dairy as business At infant stage At infant stage At development stage Market linkages Poor poor Average Market distortion Exist (few compared

to Rwanda) Exist Minimal

Number of Suppliers Very few Very few Relatively high

Milk delivery channels Mainly informal Mainly informal Shared almost equally


50

between formal & informal

Milk market - formal channels

Low Low High

Marketing/promotional activities by suppliers

Very few Very few Relatively high


51

Recommendations2 Other current or proposed dairy sector interventions It is very important to coordinate INGO/donor efforts. It is very difficult, and not at all effective, for one INGO donor funded project to pursue a market development approach if others continue to subsidize transactions and offer publicly-funded services in the same market. Suppliers will almost always choose to work with a donor who will subsidize transactions rather than one advocating market development. Free services also dampen SME willingness to pay. Even if all donors pursue a market development approach, coordination across projects and programmes is critical. In markets with relatively few suppliers, these suppliers can be overloaded or lose their commercial focus if they receive significant financial resources from several donors. EADD must be aware of the other projects supporting the sector and liaise with the facilitators to ensure that efforts are appropriately coordinated. Sustainable solutions to address priority market constraints and market failures The project must ensure that all interventions have a market focus (private sector domination with numerous competitive BDS suppliers selling commercially to large numbers and types of SMEs). It is possible to ensure impact and outreach of BDS if the interventions focus on profitable services, focus on services that are replicable in the private sector and build on what is already being offered by the private sector. Always ask: “What problems do businesses have and why isn’t the market environment providing solutions to these?” The end result of a market focused programme is numerous SME’s buying BDS of their choice from a wide selection of products offered from unsubsidized private sector suppliers in a competitive and evolving market. Remember that the provision of subsidies to particular suppliers may crowd out other, private sector suppliers who do not receive subsidies. Supplier costs must ultimately be appropriate for the SME market and not skewed by donor funding. It is important to promote as many suppliers as the market will bear. That is not to say that subsidies are a bad thing. Subsidies can be used to stimulate demand and supply for a finite period of time with an explicit reason and exit strategy. The project should group services as per the following recognized categories: MARKET ACCESS - These services identify/ establish new markets for SME products. They facilitate the creation of links between all the actors in the market and enable buyers to expand their outreach to, and purchases from, SMEs. They also enable SMEs to develop new products and produce them to buyer specifications. Key dairy sector examples include:

• Linkages to processors and informal markets • Linkages to cooling plants and setting up chilling plants • Linkages to traders for inputs and access to quality requirements • Creating access to market information

2 Some of the narrative and ideas in this section have been drawn from various papers and presentations placed in the public domain

by BDS practitioners and sourced from the following website: www.mmw4p.org


52

• Facilitating milk supply contractual agreements with processors • Linking farmers to steady markets • Creating awareness of available markets • Ensuring stable and reasonable milk prices to farmers • Creating milk collection centers • Forming milk cooperatives • Improving access to reliable and affordable transport

INPUT SUPPLY - These services help SMEs improve their access to raw materials and production inputs. They facilitate the creation of links between SMEs and suppliers and enable the suppliers to both expand their outreach to SMEs and develop their capacity to offer better, less expensive inputs. Key dairy sector examples include:

• Create awareness regarding Agrovet shops selling farm inputs • Facilitate access to Agro-Vet Shops, AI service, Feeds, Livestock Health/Veterinary

(quality, credit services , payment systems, bulk purchase, efficiency, distribution systems, negotiate delivery contracts)

• Avail vet kits to farmers • Facilitate access to quality inputs through CP check off system • Group people together to bring down inputs costs • Increase access of milk cans and coolers • Enhance skills and knowledge about feed and fodder to farmers • Encourage farmers to set up their agro-shops • Facilitate water drilling services

TECHNOLOGY & PRODUCT DEVELOPMENT - These services research and identify new technologies for SMEs and look at the capacity of local resource people to produce, market, and service those technologies on a sustainable basis. They also develop new and improved SME products that respond to market demand. Key dairy sector examples include:

• Facilitate access to Biogas installers, • Facilitate feed formulation enterprises • Raise awareness to feed conservation techniques • Facilitate provision of new milk handling containers/equipments • Improving cooling plant MIS through training and computerization • Facilitate simple milk testing equipment • Development of market information services • Enhance farmers ability to identify enterprises and engage in value addition • Advise processors on how to improve on the product packaging. • Promotion and adoption of new technology • Access and training in adoption of relevant ICT e.g. accounting soft-wares • Raise awareness regarding feeding and feeding systems, housing systems, fodder

production/agronomic practices, milk handling, milk quality testing, milk preservation, water harvesting, milk transportation and milk storage

• Training and equipping AI experts • Use ICT to disseminate information

TRAINING AND TECHNICAL ASSISTANCE - These services develop the capacity of enterprises to better plan and manage their operations and improve their technical expertise. They develop sustainable training and technical assistance products that SMEs are willing to pay for and they foster links between service providers and enterprises. Training and technical assistance may be delivered on any topic. Key dairy sector examples include:

• Cattle registration and milk recording services • Training on feed conservation and fodder crops • Business advisory services on chilling plant management


53

• Technical assistance on improving milk quality • Research on new milk market opportunities • Capacity building for farmers, staff and chilling plan management, BOD plus

management and staff of the Coop societies • Exposure visits and farmer study tours • Dairy cows registration to the Stud book • Training on animal husbandry (feeding, pasture production and conservation, health

management) and milk hygiene/handling, storage and transportation • Group formation • Capacity building on business development • Facilitate access to consultancy services in strategic plans, feasibility studies,

business management training, marketing, auditing and book keeping, record keeping, financial management, governance and group dynamics

• Facilitate TOTs and the development of training manuals • Training on how to advocate for change • Facilitate disease surveillance

INFRASTRUCTURE - These services establish sustainable infrastructures that enable SMEs to increase sales and income. Examples include refrigeration, storage, processing facilities, transport systems, loading equipment, communication centers, and improved roads and market places. Key dairy sector examples include:

• Facilitate access to improved road network, water supply, communication facilities and electricity

• Liaise with Government and private contractors for improvement of road networks, power and water supply

• Organizational management of the dairy hub • Facilitate access to improved storage facilities, milk bulking and cooling and milk

transport, • Building cooling plants • Agro dealer networks • Access to feed analysis facilities and milk testing facilities • Social services • Assist farmers to acquire chilling plants, transport facilities and laboratory equipment • CP start-up and setting up a hub of business services; feed shops, Agro-Vet shops;

hardware shops; transport and village banks POLICY/ADVOCACY - These services carry out sub-sector analyses and research to identify policy constraints and opportunities for SMEs. They also facilitate the organization of coalitions, trade organizations, or associations of business people, donors, government officials, academics, etc. to effect policies that promote the interests of SMEs. Key dairy sector examples include:

• Awareness creation on environmental degradation and traceability • Facilitate business registration • Lobbying for policy change (e.g. milk payment based on milk quality, semen

importation in Uganda governance of operations of CAHWs in Rwanda and Uganda) • Expose farmers to KEDAPO • Facilitate stakeholder collaboration • Facilitate research and disseminate to policy makers • Facilitate engagement of legal services • Facilitate policy makers partnerships • Formation and affiliation to lobby groups to champion farmers interests • Lobbying through regulatory bodies and developing advocacy strategies for farmers • Address disagreements on use of community based animal health workers between

NGOs and Gov


54

• Create awareness of dairy standards/laws and regulations (national and regional) • Production of IEC materials • Lobby to influence road and utilities infrastructure in the areas where new CPs are

sited • Advocate for improvement of Cooperative laws and regulations

FINANCE - These services help SMEs identify and access funds through formal and alternative channels that include supplier or buyer credits, factoring companies, equity financing, venture capital, credit unions, banks, etc. They also assist buyers in establishing links with commercial banks (letters of credit, etc.) to help them finance SME production directly. Key dairy sector examples include:

• Facilitate access to affordable loans, equity funding, credit and capital for Coops and individual farmers

• Linking farmer groups to MFI’s, FSAs, banks and SACCOs • Facilitate CP banking facilities • Auditing books of accounts • Facilitate access to check-off systems for input supplies • Facilitate saving systems and milk payment systems • Train farmers on financial management • Facilitate establishment of microfinance institutions • Facilitate business plan development • Provide chilling plant part-financing

‘Service’ should be interpreted broadly, to include basic, ‘bundled’, ‘embedded’ and other ‘hidden’ services. It is important to focus first on services that will contribute to high-impact, are in high-demand and are the most feasible to deliver. The EADD should combine the prioritization of services that offer SMEs the greatest potential for stabilization or growth with those that appear to have the greatest unmet demand from SMEs. This involves incorporating both impact-driven ideas with demand-driven ideas:

• Impact driven ideas incorporate the ideas of field staff and other informants - without an overview of the business systems in which they operate, SMEs, especially those that are marginalized, do not know which services are most likely to benefit them. Demand for services may need to be stimulated, or services can simply be embedded in market chains.

• Demand driven ideas starts with the consumer research to identify the services or business benefits SMEs want as they often know best what assistance they want from others.

An example of supply-side problems and opportunities:

Service products lack the benefits and features consumers want

• Assist suppliers in developing and commercializing new products

• Bring in suppliers from other countries to adapt and franchise appropriate products

Suppliers are risk averse to targeting new consumer segments, such as women or micro enterprises

• Provide suppliers with information on the viability of selling to SMEs

• Subsidize cost of targeting new consumer segments, e.g., market testing


55

• Use market research to identify promising opportunities to serve new consumer segments

Suppliers lack market information

• Develop or improve marketing research services/suppliers

• Provide suppliers with market information

• Teach suppliers how to gather market information Suppliers lack business or technical skills

• Provide training and technical assistance to suppliers

• Assist training suppliers in developing and selling appropriate products to other BDS suppliers

There is insufficient supply in the market

• Provide venture capital to suppliers to expand

• Design a programme to assist start-up suppliers

Variable service quality harms supplier reputation

• Provide quality assurance services

• Assist supplier to improve consistency in service provision

• Help suppliers form associations with certification processes Supplier cannot manage supplier credit or other purchasing mechanisms

• Build capacity of suppliers to manage supplier credit

• Link SMEs with MFIs or other financial services providers Key solutions that address supply side constraints and increase demand include:

o market research o provision of information for consumers/social marketing o new product development o identifying market niches o supplier training o service demonstrations o improving marketing strategies o monitoring and evaluation of services

An example of demand-side problems and opportunities:

Consumers lack information about services

• Develop a BDS yellow pages

• Open a BDS consumers’ bureau or information center

• Help suppliers improve their marketing

• Implement a voucher scheme Consumers are unable to effectively identify their business problems

• Develop an awareness-raising campaign about typical business problems and BDS that can help

• Help suppliers create marketing campaigns that help SMEs identify business problems

Consumers do not have the capacity to pay for services up front

• Assist suppliers in developing payment options

• Promote embedded services

• Promote services financed by large firms

• Help consumers form clusters to purchase services in groups Consumers are risk averse to trying services

• Provide suppliers with technical assistance to improve trial inducing strategies


56

• Implement a voucher scheme

• Promote business linkages for embedded services Consumers do not see the value of services

• Help suppliers test, demonstrate, and gather information about the quality of services

• Assist suppliers in improving advertising

• Assist suppliers in developing customer referral programmes

• Conduct general advertising for the service Consumers want services packaged together

• Broker agreements among suppliers to develop service packages

• Provide venture capital and technical assistance for suppliers to diversify Key solutions that address demand side constraints and improve supply include:

o awareness raising o provide information about services o linking SMEs with BDS suppliers o forming SME clusters/associations to access services o temporary incentives and financing o temporarily discounting services

An example of transaction problems and opportunities:

Consumers cannot afford to purchase services

• Develop a business model with third party payment such as advertising, or with embedded services

There is a lack of trust between suppliers and consumers; suppliers insist on up-front payment; consumers insist on delivery before payment

• Support entrepreneurs or social enterprises to establish a guarantee or wholesale system

• Establish a temporary guarantee system until there is stronger trust in the market There is no mechanism for exchanging payment or collecting payment due to distance, lack of technology, or banking system

• Help SMEs and others in the supply chain to form an intermediary who is sophisticated enough to access the formal banking system or an international banking system that is functioning

• Promote Smart Cards — electronic banking cards

• Develop money transfer services Consumers are geographically and/or socially isolated from service markets

• Help SMEs form clusters, associations, or cooperatives that can act as intermediaries to reach distant services providers

• Form a social enterprise to provide services An example of market environment problems and opportunities

Free services are distorting the BDS market

• Advocate with government and/or other donors to rationalize BDS subsidies Regulations adversely affect the BDS market

• Advocate for changes in the regulations

• Organize SME suppliers to advocate for changes in regulations affecting the BDS market


57

Solutions that specifically address policy constraints and remove macro-economic constraints to BDS market development include:

o policy research o building the capacity of advocacy groups o helping SMEs engage in advocacy activities o building the capacity of local governments

The programme must focus on facilitative activities such as market research, provision of information for consumers, new product development, supplier training, monitoring and evaluation. These activities are aimed at “facilitating” market improvement by increasing demand and/or improving supply. The main activity of the programme must not be direct service provision. ‘Illustrative’ market based interventions to develop the market for key identified services that are in demand or offer the greatest potential for stabilization or growth Interventions must “fit” the market and be designed to improve a particular market problem or take advantage of a market opportunity. A key principle for choosing and designing interventions is that the intervention should not be any more intensive than required to address the market issue. Interventions have the capacity to both distort and develop the market. By targeting a specific problem and intervening only to address that problem, programmes run the least risk of distorting the market. It is recommended that all interventions follow the best practice and principles of BDS market development. They must facilitate market development rather than providing services. Programmes should be designed to be flexible and responsive to the market and efforts should be made to coordinate with other development actors. It is vitally important to fit interventions to market issues in such a way that employs subsidies primarily for pre and post service delivery activities only. All interventions activities must be aimed at facilitating market improvement by increasing demand and/or improving supply. The EADD project must clearly separate the roles of provider and facilitator. Providers take care of on-going service delivery the costs of which should be covered by the markets. The provider is an integral part of the system. The facilitator performs the temporary function of developing markets (these activities are considered appropriate to subsidize). The facilitator is external to the market system. Interventions must promote competition and efficiency in the market and work toward a clear picture of a sustainable market. As defined by best practice it is important that the interventions:

� Engage the private sector in devising and developing viable businesses and market models that are likely to be copied and to take off in the wider market.

� Involve little financial support to market players and lots of cost sharing opportunities. The project should develop a transactional relationship with suppliers.

� Are flexible, responsive and multi faceted. The project must tread lightly in markets. � Employ an overarching strategy of ‘crowding in’ or ‘getting others to do things’.


58

A variety of interventions have been used by other BDS programmes and each aims to address one or several weaknesses in a BDS market such as:

• Voucher programmes address SMEs lack of information about services and reluctance to try a service. It expands demand by providing information and temporary subsidies to SMEs that do not commonly use BDS, and link them with BDS suppliers who do not normally serve SMEs. This increases awareness and demand among SMEs which stimulates suppliers to develop and improve services. However vouchers may distort a market more than necessary by fostering SMEs dependence on subsidies.

• Information to consumers addresses SMEs lack of information about services and

suppliers. The aim is to expand demand for BDS by making SMEs aware of available services and their potential benefits. Some programmes have commercialized the information dissemination role, which increases the potential for sustainability.

• Collective action through clusters, networks and associations addresses SMEs

inability to pay for services and supplier unwillingness (or inability) to sell services in small enough quantities. The aim is to help SMEs overcome dies-economies of scale by enabling them to purchase services in groups. A major challenge of this approach is how labor-intensive it is to form groups and identify services common to everyone in the group. In general, SMEs do not perceive “group organizing” as a service and are not willing to pay for it.

• Business linkages and promoting embedded services address SME isolation

and inability to pay for services up front. Business linkages also address suppliers’ lack of knowledge about SMEs. The aim is to create or expand BDS embedded within business relationships between SMEs and other firms. Facilitation to foster links focuses on disseminating information about players or promoting sub contracting. Examples include:

o Promoting sub-contracting from large firms to SMEs o Providing opportunities for large firms and SMEs to interact o Supporting SMEs participation in trade shows and trade associations o Developing business associations that include SMEs and larger businesses o Building supplier capacity for enterprises that provide embedded services to

SMEs

• Technical assistance (TA) to suppliers addresses suppliers’ lack of technical or managerial skills. The aim is to address a range of supply-side constraints and build the capacity of new or existing BDS suppliers to profitably serve SMEs. TA lessens supplier risk in diversifying by absorbing the costs of innovation. Suppliers also need help to learn how to profitably meet demand. A key advantage of TA is that it allows facilitators to target specific problems in supply. A disadvantage is it may be difficult for a facilitator to offer equal access to assistance to many providers. Providing TA to only a few may give them an unfair advantage however, the market could be developed if other suppliers copy those business strategies. It is also wise to develop the capacity of the private sector itself to provide technical assistance to suppliers.

• Social enterprise addresses a lack of supply in the market. The aim is to increase

the supply of services by helping new suppliers to enter the market. Developing


59

business service markets when “there is no market,” is a challenge. The BDS market development approach encourages not-for-profit institutions to understand and build on the capacity of the existing private sector market. There is some evidence that social enterprises have the potential to contribute to the development of a competitive, vibrant BDS market but key market development principles must apply.

• Product Development and commercialization addresses a lack of appropriate

service products for SMEs in the market and supplier reluctance to target new consumer segments. Suppliers may not be skilled innovators, lacking the knowledge and experience to develop new service products. The aim is to commercialize new products through existing suppliers by assisting with product development, market testing, and initial marketing. New product commercialization can also be undertaken by promoting franchising of appropriate products. But product development costs can be high and sustainability is a key challenge (some programmes have found that they must also provide on-going support services, such as advertising and branding, quality control, remedial service support, and upgrades).

• Offer matching grants to private sector players for strategic technical assistance to

associations, lead firms, service providers, or for pilot programmes to develop new ways of doing business.

• Support BDS policy and advocacy such as developing appropriate SME policies,

ensuring a supportive business environment, and helping SMEs engage in advocacy activities can be an important part of both economic and democratic development. Try building the capacity of advocacy groups, developing mechanisms for public-private dialogue, building the capacity of local governments and developing business environment (BE) reform support functions.

• Promote access to Information and Communication Technologies (ICTs):

physically and economically isolated SMEs are gaining better access to information and to communication technologies that put them in touch with markets. SMEs use ICTs to communicate with suppliers, customers, workers, transporters, membership associations, BDS suppliers, and policy makers. However it is challenging to find viable ICT business models that target SMEs. Often the information seems like a public good and commercialization can be problematic. Some charge SMEs for services, others embed the information into existing transactions between SMEs and buyers or suppliers, while some information suppliers generate revenue from advertising or sponsorship deals.

Many of these above strategies are effective ways to stimulate markets or launch a systemic process, but without a strategy for sustainability and market replication, they tend to end with the project. The EADD is not designed as a systemic market project but should be aware of the challenges involved with implementing non systemic interventions such as the ones described above:

• Beware of matching grants to selected private-sector firms, with no clear link to employment creation or backward linkages to small-scale farmers or other poverty-reducing mechanisms.

• Beware of “challenge” grants to individual lead firms that do create jobs and/or link to small-scale farmers, but that are one-off investments, not replicable to other firms and not generating or stimulating other economic development.


60

• Beware of grants to service providers on a short-term, subsidized, and small-scale basis, rather than stimulating purchasing power of SMEs through vouchers.

• Beware of facilitating business linkages between individual firms and buyers, firms and service providers, firms and suppliers without an over-arching industry competitiveness strategy or a sustainability strategy for the linkage service.

• Beware of direct value chain development: directly enhancing value chain competitiveness by training value-chain businesses and directly facilitating linkages, rather than stimulating associations, business support markets and other learning systems to strengthen multiple businesses in the value chain on a sustainable basis.

• Beware of targeting all assistance directly to SMEs, ignoring the power of larger firms to generate growth that benefits SMEs and the poor.

Approaches and methodologies

EADD should focus on the market system not individual enterprises and view the BDS market from an external and objective position with the goal of benefiting as many SMEs as possible. As a market facilitator the project should plan for a viable and independent market structure that continues to exist after EADD have exited. This includes visualizing the functions of a sustainable market (offering more benefits to SMEs) and the various types of players who do or might perform those functions. The facilitator should promote competition among suppliers in the market. Business-like relationship between the facilitator and suppliers are more effective in developing markets plus this business-like approach has a number of advantages:

• Requiring investment from private sector suppliers means that the financial scale of the initiative will generally fit the capacity of the market.

• Business-like relationships foster business-like incentives, behavior and attitudes • It is possible to link support to suppliers’ achievement of agreed upon objectives • The approach attaches a value to support • It builds ownership without being overwhelmed by external funds and advice.

It is recommended that the EADD adopt a facilitative approach to implementation which includes employing a light touch to catalyse, initiate, motivate and link. It is less about ‘what a project does’ and more about ‘why’ and ‘how’. Such as approach focuses on using indirect interventions such as networking, player alignment, intelligence and awareness building. BDS best practice defines the facilitator’s role in the following ways:

• NOT playing a direct role in the market system • Demonstrate the business case, benefits and vision to market players via press

conferences, study trips and seminars. • Share information publicly about opportunities/ lessons learnt in open workshops,

on the internet and in the media. • Implement calls to select service provider partners and engage dynamic

commercial service providers where ever possible. • Mentor partners to develop/ test viable models, strategies and approaches. • Facilitate advice and assistance to capacitate service providers. • Cost share to develop, test/ demonstrate, monitor and evaluate approaches and

services. • Facilitate business linkages, partnerships and contracts.


61

• Capture lessons learnt with analysis of the market system and developed models. • Measure systems change and broader market response. • Undertake impact assessment and examination of causal chain. • Replicate successful interventions. • Implement strategies to promote market-driven replication and scale up.

EADD must:

• Be aware of the entire BDS market using both the value chain and BDS survey results: In a market system, service markets are complementary subsystems to value chains. Researching BDS markets provides information that is not readily available through value chain analysis alone. Although a BDS market can exist completely within a value chain a service provider may also be outside the value chain making a case for cross-cutting services.

• Develop a clear offer: a description of what EADD is bringing to the situation will support the development of a sustainable system.

• Define an exit strategy upfront: the BDS markets and transactions must be sustainable when facilitation activities end and certain facilitation activities may need to continue on a commercial basis. EADD can prepare for this by training BDS providers to conduct these activities themselves.

• Manage expectations and establish credibility: communicating the vision for the BDS market and the part the EADD will play in achieving it is critical. Managing expectations will help EADD establish its credibility.

It is strongly recommended that the project pilot interventions early. Some aspects of markets can be understood only after piloting starts and commencing interventions highlights information gaps. An effective programme pilot is an iterative process in which a facilitator tries an intervention on a small scale, learns from the intervention, gathers more information, and adjusts the intervention. Strategies which ensure effectiveness and efficiency

The EADD has adopted a sub sector BDS strategy to support the provision of BDS services to SME players in the dairy sub-sector chains to help them take advantage of market opportunities and earn more profits within the sub-sector. However it is important to recognise that the programme will also promote some “cross-sector” business services. Accounting, computer services, basic legal services, technical training, marketing, and telecommunications services are “cross-sector” services that help firms increase productivity, reduce costs, and access markets. When assessing the performance of the project it will be important to acknowledge how facilitating these services may have impacted on other sub sectors also. It is recommended that the BDS component of the EADD combine all the following key effectiveness strategies. The appropriate strategy should lead for each location:

INFORMING

STRONG SUPPLY LOW DEMAND

Kipkelion Siongiroi

FACILITATING

STRONG SUPPLY STRONG DEMAND

Mweiga Olkalau


62

EDUCATING

LOW SUPPLY LOW DEMAND

STIMULATING

STRONG DEMAND LOW SUPPLY

Keiyo Kipkaren

“Facilitating” (strong demand and strong supply) is advised in the markets that have large numbers of small- to medium-sized firms and some active suppliers. BDS programmes operating here conform best to the ideal BDS market development approach of facilitating BDS markets with lighter interventions, helping service providers:

• Identify market niches and provide market research information

• Develop and commercialize new services plus promote use of new technology

• Improve their marketing strategies and facilitate market linkages and expansion to new markets

• Link SMEs with BDS suppliers

• Remove macro-economic constraints to BDS market development

• Developing new business models and differentiated high quality services

• Develop check off systems

• Develop and test ICT potential

• Networking between suppliers

• Capacity building to increase operational efficiency

• Facilitate hubs to improve transactional efficiency

• Promote provision of embedded services

• Match supply and demand via trade shows, farmer field days, creation of a national trading platform

“Stimulating” (strong demand and low supply). Interventions in the BDS markets with very weak supply should focus on stimulating supply. In order to convince private sector suppliers to enter the market, the facilitator may take on the role of supplier by:

• Developing and testing viable business models for service delivery to demonstrate BDS market opportunities

• Researching demand for BDS and publishing the results or holding investor conferences/forums and business opportunity seminars

• Building the capacity of existing and new suppliers

• Linking existing suppliers to financiers and markets

• Linking SMEs with distant service providers

• Helping SMEs work together (clusters, associations, etc.) to access services

• Conducting policy research to identify barriers to entry for suppliers

• Offering suppliers temporary incentives such as matching grants

• Assisting BDS providers with their initial promotion

• Assisting BDS providers with improving their products and marketing

• Advocacy for favourable investment climate

• Create incentives for service providers “Informing” (strong supply and low demand) is advised in the markets with very low demand. Where there are some BDS suppliers, there may be a fairly large gap between the services the supplier offers and SME understanding of their own need for them. In the


63

BDS markets with very low demand, such as those in rural areas, the EADD should aim at “informing” SMEs about the potential benefits of particular BDS by:

o Devising a social marketing campaign o Improving supplier marketing capabilities o Assisting suppliers to develop a customer referral system o Conducting service demonstrations and product trials for target enterprises -

explain the benefits of services and illustrate to “first-time users” their need for the services and encourage them to purchase the service at full cost in the future

o Provide direct stimulation - use free samples and vouchers as a direct stimulation strategy

o Improve the level of interaction between SMEs and BDS providers – this can encourage SMEs to purchase BDS. Facilitate fairs, trade shows, exhibitions, meetings, and technical clinics plus initiate advertising in print and mass media.

o Introduce links between BDS providers and potential users - providers who are unfamiliar to SME communities have difficulty promoting their services. These links can also assist providers with increasing their outreach or penetrating new markets

This demand stimulation should be coupled with the capacity building of service providers to help them respond better to SME wants and needs. “Educating” is advised in the weakest markets (low demand and low supply), in the “marginal” BDS markets where there are few enterprises or where there are extremely exploitative trade relationships. These markets may have been disrupted or have yet to develop and there are few community organizations or private firms with the potential for delivering services. Interventions in these very weak markets should strive to influence the business culture by helping potential clients understand what business development services are and how they help people start, stabilize, and grow businesses. Activities might include:

• Basic business education

• Skills training for self-employment

• Business awareness creation and opportunity identification to help people identify viable businesses

• Identification and capacity building of potential service suppliers

• Tours to other areas where business is more vibrant and BDS markets exist

• Conduct service demonstrations and seminars

• Promote farming as a business via radio programs, field days, brochures and exchange visits

• Promote model farmers/consumers and success stories

• Implement and disseminate market studies

• Social media campaigns e.g. dramas and road shows for awareness creation It is recommended that after the existing and potential commercial providers are agreed in each location, EADD must firstly persuade them that a market opportunity exists to serve dairy business customers. It is important to share market assessment findings with targeted providers and show providers the demand in the market. Market assessment data can show that SMEs purchase services and are willing and able to pay for services that benefit them. EADD can highlight the percentage of potential customers who expressed interest in the service, provide an estimation of potential revenues, and


64

describe the various features customers expect from the service, including modes of payments for services and delivery mechanisms. Maybe in the future the project can involve BDS providers in the market assessment process by having them perform their own market assessments under supervision - this strategy encourages BDS providers to be committed to entering the market. EADD must also educate the providers on the benefits of commercialized BDS, for example, embedded service providers may not realize that they offer services. They may not have consciously thought about improving their services or offering them on a larger scale. The project must be cognizance of the fact that providers will not enter a new market unless they are reasonably confident that they will make money. Market information can provide much of the data needed to analyze the viability of a new business model or serving a new consumer segment. Market information is useful, and in many cases essential, to assist providers in developing viable business models and a business plan. When considering which business models might work for the delivery of a particular service, the project needs to think broadly and build on existing businesses, business models, or business relationships. The following examples of business models might be viable:

• Independent small service providers • Bigger service businesses subcontracting to small, independent providers • Existing service businesses extending their services to new types of customers • Franchises • Business linkages with embedded services • Previously noncommercial BDS providers, such as vocational training institutions,

government prostates, and NGOs entering the commercial market Even when providers are willing to enter a new market, they may not have sufficient capacity. In particular, providers often need assistance with developing appropriate service products for new types of customers, designing workable payment mechanisms, and promoting their services to new customers. No amount of persuasion will attract commercial BDS providers if no demonstrable demand exists for the service. Indeed, if providers do not see early revenues, they will quickly drop out of the market. Particularly for new or unfamiliar services, demand creation is an essential part of attracting commercial service providers to the market. Service demonstrations and sales agents are two useful strategies for stimulating demand. Country Specific suggestions KENYA CONSUMERS – DEMAND SIDE RECOMMENDATIONS

• Promote existing embedded and fee based services via milk buyers and input suppliers such as health services, milk collection, advances on payments and information on animal husbandry.

• Bring farmers together to access training via local providers on dairy farming and business management issues. This can be subsidized in the short term. Some key areas of concern for farmers are disease identification, milk production and business planning and management. Training and technical assistance should include information relating to the expected benefits of BDS services – this will also help


65

increase demand for services. Increase opportunities for farmer to farmer forums/exchanges and study tours.

• Increase farmer’s strength to actively participate in and influence the dairy chain. Bring farmers together to bulk purchase and access other services such as training and finance. Promote the concept of formal groups, cooperatives and associations.

• Facilitate access for farmers to input suppliers in order to improve of breeds through cross breeding and artificial insemination.

• Facilitate access to markets by linking actors in the chain especially new buyers to small scale farmers. Also support farmers to produce to different buyer specifications.

• Facilitate access to existing sustainable infrastructures for increased sales such as cooling plants and storage/processing facilities.

• Increase access to information for farmers via print, radio and TV. Improve awareness of Internet access and telecommunication opportunities.

• Increase awareness or loan acquisition and use for farmers, buyers and input suppliers. Assist them to better identify and access funds through formal and alternative channels such as credit unions and banks.

• Increase knowledge among farmers regarding policy issues and the legal and regulatory authorities and environment that concern their operations. This may include research to identify policy constraints and opportunities or support to effect policies and regulations.

• Promote existing services that support business such as communication centers, courier services and money transfer services.

SERVICE PROVIDERS – SUPPLY SIDE RECOMMENDATIONS

• Support all existing service providers to better source and offer quality, affordable and consistent products. Facilitate stronger links and relationships between the providers and their own suppliers/manufacturers of products. Support efforts to provide appropriate embedded services such as product benefits and usage. Work with the upstream suppliers/manufacturers to offer appropriate payment mechanisms and transparent pricing mechanisms to service providers.

• Support new providers to enter the market competitively with products/services based on market demand (with a focus on currently unavailable specialist services). Support can include the identification of, development of, testing of, rolling out of, marketing of and monitoring of the new services/products. Use market research to highlight business opportunities. Support as many as the market will bear. Cost share where possible.

• Support existing providers to develop a broader range of services based on market demand. Assist in pre and post delivery of the services on a cost sharing basis.

• Support the development and replication of existing successful embedded services such as milk prices and disease management.

• Work with buyers and input suppliers to develop new embedded and fee based services such as milk bulking, input delivery, information on herd management/improvement and animal husbandry. Subsidize the cost of the new products/services in the short term with vouchers for farmers.

• Offer support to service providers to develop appropriate and transparent pricing and payment mechanisms for clients such as installments and discounts for group purchasing. Customers should be aware of providers pricing decisions.

• Offer support to service providers to increase their own technical ability via training, counseling and mentoring programmes. Organise study tours between service providers.


66

• Support service providers to develop their capacity to better plan and manage their businesses. Facilitate assistance in business planning, strategic pricing and strategic marketing. Offer support to service providers to upscale and replicate appropriate marketing campaigns to create awareness of their products and services. Facilitate this via the private sector where possible.

• Increase awareness or loan acquisition and use for service providers. Assist them to identify and access funds through formal and alternative channels.

• Assist existing financial service providers to promote their services. Work with the suppliers to facilitate new user friendly services such as preferential loans, factoring, equity financing and venture capital.

• Increase awareness among providers as to how to legalise and formalize their operations and support them to do so. This may include research to identify constraints or support to effect change.

• Support advocacy efforts to improve roads • Support service providers to source and offer quality, affordable and consistent

(transparent) breeding services and animal health products. Support existing providers to improve outreach of their services via new outlets and sales teams. Support service demonstrations.

• Increase service provider’s strength to actively participate in and influence the dairy chain. Bring providers together to bulk purchase and access other services such as training and finance. Promote the concept of formal groups, cooperatives and associations.

• Facilitate expansion of existing infrastructures such as cooling plants and transport services. Promote quality stable services via existing bulking centres, cooling plants and processing facilities. Help build the reputation of such facilities to offer reputable and transparent fee-based services via private sector providers.

• Partner with the private sector to facilitate establishment of sustainable infrastructures such as cooling plants, testing facilities and storage/processing facilities in underserved locations.

• Facilitate training providers to develop and offer/market fee-based technical assistance and advice in order to improve knowledge among farmers on dairy farming. Such providers new and existing may include local training institutions, NGOs, individual consultants and local media/print houses.

• Facilitate training providers to develop and offer fee-based technical assistance in order to develop farmer’s ability to better plan and manage their operations and promote ‘farming as a business’.

• Promote ‘farming as a business’ and the benefits of BDS services - via social media campaigns, radio programmes, field days, brochures and exchange visits.

• Increase knowledge among service providers regarding policy issues and the legal and regulatory issues that concern their operations such as public health issues. This may include research to identify policy constraints and opportunities or support to effect policies.

• Identify and introduce new appropriate technologies and link providers to suppliers. • Facilitate private sector providers such as value add companies who handle closed

user groups for SMS services to Interactive Voice Response (IVR) companies who can establish and run call-up voice services. Demand led information such as disease alerts and milk prices can be delivered via mobile phones on a sponsored or user pays basis. Information on quack products and providers may also be useful. This may have to be supported with basic knowledge on phone use.

• Promote the sustainable role of the private sector in service delivery and highlighting opportunities and necessity for reduced/removal of subsidies among INGOs and NGOs.


67

• Few providers exist to support sales. Promote new providers who can perform the role of identifying and establishing markets for milk and milk based products. Fees can be charged for services such as business linkages, research information and organising exhibitions.

• Partner with the private sector to facilitate establishment of new business support infrastructure such as communication centers, courier services and money transfer services.

Strategies which ensure sustainability It is recommended that the following key sustainability strategies be considered within the business models adopted: Fee for services - suppliers offer services that are low-cost and often have a short-term payback period. Costs are reduced by dividing activities — the facilitator performs much of the service development and testing, and suppliers provide standard services on a regular basis. Suppliers become expert at serving SMEs and the facilitator specializes in negotiating and managing funds and developing supplier capacity. Market research costs may be subsidized by the facilitator who helps with technical assistance or conducts research for many suppliers such as in this BDS market assessment. BDS marketing costs may be subsidized by the facilitator who promotes awareness of services. Suppliers are primarily private sector businesses — donor funding is not used to subsidize direct transactions and the presence of donor funding is not publicized, thus minimizing SME expectations of subsidies. Full prices are charged when service design is complete. Many suppliers may use the following promotional, packaging, and payment mechanisms to reach low-income markets:

• Lower costs by delivering services through other SMEs.

• Package services in small pieces or “sachets”.

• Offer introductory services with immediate value-added for a small fee.

• Offer gradual payment mechanisms such as installment payments.

• Offer financing to allow the poor to pay for services.

• Collect payments “on commission” if services help the business make a profit.

• Help SMEs purchase as a group and receive a discount. Benefits of stand alone services Risks of stand alone services

Provides SMEs with more choice Increased competition leads to lower prices and improved service delivery Maximizes outreach Levels power relationships amongst value chain businesses

Lead firms have limitations on quality and standardization Financing constraints may inhibit service delivery Difficult to kick-start in an immature market

A combination of fee-based and embedded service provision is crucial in creating a dynamic, competitive market. Embedded services - many SMEs are reluctant or unable to pay up-front for valuable services. However, they can produce commodities or manufacture products if a buyer


68

supplies raw material, market information, product specifications, or other services. Small enterprises may not be able to afford BDS in any form that requires direct payment and embedded services have excellent potential to reach the poor because they are not fee-based. Services provided by buyers of SME products are more likely to reach the poor as are services embedded in essential inputs that the poor already purchase. Embedded services can act as a natural driving force of market transactions and thus provide programmes with an advantage in developing markets. Such services are well tailored to improving transactions between SMEs and other businesses. Services embedded with another service may stimulate the demand for stand-alone services. Benefits of embedded services Risks of embedded services

Enables lead firms to produce per market specification Overcomes financing constraints among SMEs Useful when support market is immature or non-existent

Heavy investment may over-expose lead firms May inhibit development of stand-alone services Potential to “over-service” leading to market distortions

Cross-subsidies - in cases where services are demand-driven and valuable, but not financially viable, some providers choose to cross-subsidize them with other revenue generating activities. Such as supplying BDS to larger businesses that can pay profitable rates and then using profits to supply smaller businesses with services; or operating a completely unrelated business and using those profits to subsidize BDS activities; or using income from a viable BDS to cover the cost of a non-viable BDS. Third party payment - another strategy is to identify and deliver services that are mutually beneficial to both small and large firms, and charge only the large firms. Another example would be harnessing advertising or sponsorship revenue to provide a service which is seen as a public good such as information delivered by radio, print or mobile telephony. Piggy-backing on microfinance and disseminating a BDS through a microfinance institution - successful programmes use credit meetings to disseminate information about a BDS, but offer it as a separate, non-required, fee-based activity. Usually, loan officers and BDS staff are separate as well. The advantages of this approach is that promotional costs are minimal because there is a captive audience in credit meetings, clients have access to finance to pay the fee for a BDS and training costs can be kept to a minimum and overheads minimized. The disadvantages of this approach are that clients may feel compelled to purchase the service for fear of not receiving a loan, primary clients may not be the same as microfinance clients, staff may have too many activities and skills could be diluted. Plus there is a danger of cross-subsidizing low-demand services with lucrative microfinance services, thus compromising institutional profitability. The following strategies are recommended and focus on the preferences and limitations of SMEs:

• Use installments (or hire purchase, renting, leasing) so clients pay a predetermined fee every week/ month or facilitate bulk purchasing.

• Facilitate a guaranteed payment system (a revolving fund or a check off system via a service hub).


69

• Collect a commission on products sold by the client to recover costs. • Embed the cost of the services into fees for services or products that clients are

known to value. • Educate BDS providers on cost analysis to promote fair and consistent pricing. • Keep the price of the service within the affordability limits of the clients. • Clearly link the services to increased profits for SMEs. • Offer the service over the same time period as the payments. • Determine the installments by assessing the client’s capacity to pay. • Ensure high-quality demand driven services based on market awareness resulting in

concrete benefits for the client. • Ensure continuous improvement of services. • Develop a trusting relationship. Full cost recovery can also depend on the strength

of the existing relationship between the provider and the client. When a trusting relationship exists, greater flexibility in the payment schedule may be possible.

• Monitor payments and follow up with the clients. It is recommended that the project share financial risk only when the market development effects would outweigh the market distortion effects. The facilitator should analyze the potential impact of risk sharing on the market. Will risk sharing distort the BDS market, limiting the entry of potential providers, or expand the market, facilitating the entry of other providers in the market? In the following situations, sharing financial risks is likely to be both essential and beneficial:

o When no or very few existing providers are in the market o When developing new services o In very weak markets o In markets with subsidized providers

To develop a sustainable commercial market for BDS alongside subsidized BDS - commercial services must offer something different, better, or beyond what subsidized services offer; and SMEs must be aware of what these added benefits from commercial services are. The project can use the following methods to meet these conditions:

• Develop unique selling features of a commercial service by understanding the clients’ needs and the gaps in the subsidized services.

• Assist providers with customizing services. • Enable BDS providers to address SMEs’ problems that are not addressed by

existing subsidized services. • Teach commercial providers how to promote their services.

It is recommended that on the demand side, the facilitator may need to realize the following objectives: lessen SMEs’ distrust of middlemen and service providers, increase SMEs’ understanding of how services add value to products, and promote a culture of payment for intangible services. It is recommended that on the supply side, the facilitator may need to realize the following objectives: increase BDS providers’ capacities to price services logically, fairly, and consistently; explain to SMEs how services are priced to increase trust; and develop payment options with input from client SMEs. For SMEs to be comfortable paying for services, some transparency on how those services are priced must exist. Value chain workshops can assist with developing this transparency.


70

Always ask “who would/ should perform this role if the project was not there? The vision is that functions performed by facilitators will either not be needed in sustainable growing markets, or they will be commercialized. Suggested BDS providers/delivery channels to target for future interventions The EADD should ideally work with private sector providers who are business like and willing to invest. This may not be possible in all locations and the project may partner with some of the following types of suppliers: private BDS businesses and individual consultants, informal networks, companies offering other products, farmers’ associations and Coops, religious institutions, employers or business associations, Chambers of Commerce, NGOs, CBOs, research institutions, educational institutions, financial institutions, media houses, publicly funded enterprise development agencies and Government institutions and departments. The project may also partner with members of the supply chain such as input providers who provide embedded services that can be promoted and replicated. The important questions to ask include:

o Who can deliver BDS sustainably and how can the services be paid for? o Which kinds of institutions make highly sustainable providers and how can

services be paid for through commercial channels over the long run and still reach the poor?

o What is the capacity of existing suppliers to expand and/or improve service delivery and potential providers to transform into viable private sector providers?

If the target population is isolated, low-income SMEs, informal sector business may be more appropriate options. In some situations, the dearth of suppliers may require the facilitator to work with community-based entrepreneurs and groups to launch new supplier businesses. But be aware of national level NGOs struggling to define their role. Some NGOs who support the BDS market development approach choose to remain BDS providers, but register as a private company or social enterprise. Others opt to become facilitators. The facilitator may have to support these organisations to define their role clearly. Selecting appropriate BDS providers In order to assist EADD staff in selecting appropriate providers for future interventions a set of criteria has been developed as follows:

• Capacity to deliver services - e.g. existing contracts, marketing strategy & accounting and management systems

• Close to SMEs - in culture, operating environment & geography • Focus on services, SMEs or BDS • Commercial focus - business like with a business vision, profitability (pricing strategy

& pricing mechanisms) & business culture • Organizational independence - especially from donor funds • Legally registered • Willingness/interest/ability to partner – use information, provide minimum investment

capital & expand capacity


71

During the supplier diagnostic interviews each supplier was given a rating against these criteria to enable staff to select partners with the best ability to develop and deliver appropriate services. A workable data base of these BDS providers is attached to this report (Annexes/Databases). BDS performance measurements at the BDS market level It is recommended that the causal chain is firstly made implicit: What does the project expect to happen, and how can the project show that each effect is causally linked back to the original inputs? This describes the overall SME development strategy — the causality between programme inputs, activities, outputs, outcomes, and ultimate impacts. A recommended clear causal link is defined below:

It is further recommended that the EADD adopts the Performance Measurement Framework (PMF). PMF is a common system for measuring the performance of BDS programmes or components of programmes. The goal of PMF is to help improve performance in the BDS field by helping identify best practices and programmes improve their performance. The PMF focuses on assessing changes in supply and demand for services, the development of BDS markets, and how SMEs use services to change business practices. It proposes to monitor results in 3 categories:

1. Household level (measuring impact on SMEs3) 2. BDS market level (measuring the development of vibrant competitive

markets for BDS) 3. Programme level (measuring programme performance and costs

effectiveness) It is designed to be used in conjunction with occasional impact assessment and more frequent tracking of efficiency indictors by suppliers. Remember a performance evaluation is not the same as an impact assessment.

• Inputs are used to undertake project activities • Project activities produce outputs

3 SMEs refer to small holder farmers however the definition of what this term to the EADD means must be clear from the onset.

Strengthening the demand for, and supply of, services leads to a vibrant, competitive BDS market

BDS market development leads to large numbers of SMES using and applying business services to improve their business

practices

Better business practices contribute to SME growth and profitability and, eventually, increased employment and income


72

• Outputs can be evaluated to see if a project achieved its immediate purpose (performance evaluation)

• Outputs lead to outcomes. Outcomes are the final results to show that the project has contributed towards its overall objective

• Outcomes lead to impacts • Impact assessment measures the final results of a project once it has had time to

produce an impact

The PMF is structured to measure common objectives: impact-changes in SMEs, outreach-market development, sustainability and cost effectiveness. The framework proposes objectives that the BDS component of the programme might be trying to achieve: o Impact on SME BDS customers and the wider economic/social environment – to

increase consumer acquisition of BDS, increase customer application of BDS in the business and increase business benefits from BDS

o Outreach, meaning both the number of SMEs reached (scale) and the effort to provide services to people not served by existing markets (access) – to expand the market for BDS, develop a high quality, diverse, competitive market and increase access to BDS by under-served groups

o Sustainability of business service delivery and supplier institutions – to promote sustainable access to services

o Cost-effectiveness of programme activities – to maximize programme cost effectiveness

Goal 1: Increase Impact Assessing BDS Customer, SMES Objective Indicators

Strengthen demand for services and increase customer acquisition of BDS

Total number of firms acquiring BDS by service type (programme level) Percentage/number of women and youth acquiring services Total number of SMEs acquiring BDS from programme supported providers by service % of total BDS purchases subsidized Customer satisfaction with a business development service and willingness to purchase (percentage satisfied) Repeat customers (percentage of customers who buy more than once) Reasons for satisfaction and repeat purchase (supplemental)

Increase customer application of BDS

Percentage of customers who applied the services — as intended by the programme and reported by the client such as:

• Improved productivity/yield on-farm • Improved in sales


73

• Reduction in bacterial counts • Improved efficiency • Increased number of functioning fodder

multiplication plots • Increased number of business plans/FS

Increase customer benefits from BDS

Percentage of customers who experienced business benefits as a result of the service — as defined by the programme and reported by the client such as:

• Increase of productivity/yield on-farm • Increase in sales/business volume • Improved purchasing power

Goal 2: Increase Outreach (Scale and Access) Assessing BDS Markets Objective Indicators (Reported for the Overall Market and for the

BDS Programme)

Expand the market for BDS

Number of SMES acquiring a service through any method and purchasing a service through commercial transactions Amount of sales by BDS suppliers (programme only) Market penetration: percentage of potential SME market acquiring a service through any method and purchasing a service A programmes market share of all services acquired through any method and all services purchased (programme only) Awareness: percentage of SMES aware of a service Reach: percentage of SMES who are aware and have purchased a service at least once

Develop a high-quality, diverse, competitive market

Total number of BDS providers in the market by service (market and programme level) % of private, for private (no donor funds/contracts) sector BDS providers Number of BDS products (programme only) % of high quality, differentiated and appropriate services Retention: percentage of multiple purchasers out of all purchasers (not relevant for some programmes) Satisfaction with last service purchase (supplemental) Reasons for purchase, non-purchase, and choice of supplier (supplemental)

Increase access of underserved groups to BDS

Extent of access: percentage of SME customers purchasing a service that represents targeted populations (women, micro enterprises, and so on) Target market penetration: percentage of potential SME targeted markets (women, micro enterprises, etc.) acquiring a service through any method and purchasing a service


74

Goal 3: Achieving Sustainability and Cost Effectiveness Assessing BDS Suppliers and Facilitators Objective Indicators

Achieve supplier sustainability/profitability

Price for each BDS service % of profitable BDS providers Percentage supplier revenue from SMES Breakdown of sources of supplier revenue (supplemental) BDS supplier financial sustainability (non-donor revenues /total expenses) (supplemental) BDS contribution margin (SME revenues from a service-direct expenses for the service / total expenses) (supplemental) BDS viability (SME revenues from a service / direct expenses for the service) (supplemental)

Improve programme cost-effectiveness

Ratio of annual programme expenses to annual programme sales to SMES Annual programme expenses per customer served Total programme costs per SME (rural households) served Long term outreach growth of programme

The programme must aim to deliver a greater number of differentiated suppliers earning profits from fees (or other commercial sources) with a range of service products available in the market and a gradually increasing numbers of transactions between private suppliers and SMEs. It is expected that service quality and appropriateness will improve with increased competition. Information gathering:

• Much of the information required can be sourced for partner suppliers. However the partners must be clear from the outset as to the information to be collected and at what time intervals.

• Data from consumers must be collected via sample surveys. Depending on the budget available quantitative information should be collected during face to face interviews using a questionnaire plus qualitative case studies and testimonies via client interviews. To reduce costs it is recommended that the project also run a number of tele research panels using the phone numbers in the databases compiled during the market assessment. This would involve developing a short questionnaire to collect targeted information over the telephone from a sample of consumers and suppliers.

• Internal quantitative sample surveys using questionnaires The project should aim to:

• CREATE VALUE: Provide information on what’s working/not working and why

• BE SCALEABLE: Provide evidence/potential to serve larger number of poor people

• BE SUSTAINABLE: Provide evidence/potential of market capacity to sustain improvements over time without continued support


75

It is important that the project capture lessons learnt and provide an analysis of developed business or market models incorporating new and improved business linkages and practices that embody a market development strategy. Specific strategies should be identified for market replication and resilience and systems defined for disseminating information, promoting learning and adaptation and catalyzing market change.


76

Annexes

� Database of SME actors including persons interviewed � Database of BDS suppliers including persons interviewed � Database of targeted suppliers � Itinerary � FIT/RI scope of work � Final instruments � BDS training report � Researcher training report

Business Development Services (BDS) Market Diagnostics in Kenya

Documents

Transcript of Business Development Services (BDS) Market Diagnostics in Kenya