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ISSUE 07 JAN - MAR 2019
Are businesses value addition conveyor belts or real creators of value? Sweet & Dried: creating jobs through solving food waste The importance of value addition for emerging economies
Value Addition for a Sustainable Future
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Are businesses value addition conveyor belts or real creators of value? By Ernest Chitechi
Most businesses operate in a highly competitive market and compete for the same customer. Therefore, if everyone is offering the same thing, then these products or services become the basic minimum, or the expected norm in the market. In my daily work, I meet a lot of entrepreneurs offering different products and services. At KCIC, these entrepreneurs are able to receive business advisory from us. One of the biggest questions we pose to them is how would customers recognize value in a situation that is highly competitive with every player focusing on the same customer. The answer is normally simple: if you want to stand out as a business, you will need to have those few extra
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things you are doing that differentiate you and make your customer recognize your business and your offerings as superior compared to your competitors. One way to achieve this is through value addition. Increased competitiveness through value addition Value addition can take on a variety of forms. You can simply add value to a product or service by improving the packaging or the design. You can increase its value by simplifying its method of use. For instance, mobile phones have transformed the entire world of telecommunication by making them easy to use for the unsophisticated person. Simplicity has become an enormous source of added value for
countless companies that have followed this route. By increasing the convenience of purchasing and using your product or service, you can have added value. In Kenya, for example, mobile money transfer has made it easier for people to transfer money and pay for goods and services. This has forced many businesses to adopt this service because of the convenience that comes with it. Kenya has also witnessed the increased patronage of fast food stores by the thousands, which is an example of how much more people are willing to pay for convenience. The same applies to online shopping that is gaining traction in Kenya. Offering better quality than your competitors at the same price is another way of staying ahead of competition. While talking of quality, I am not talking about the pragmatic interpretation as the non-inferiority or superiority of something. But rather, quality as whatever the customer says it is. The secret lies in finding out what your customer wants and giving it to him or her faster than your competitors. Quality does not just mean greater durability or excellence in design. Quality refers, first of all, to utility, to the use that the customer needs to put the product or service. It is the customer’s specific needs that defines quality in his or her mind. Adding value for consumers’ changing tastes Currently there is a trend toward sustainability, and this is associated with environmental and social sustainability in production, use, and disposal. Traditionally value was commonly understood as monetary value; however, sustainability requires a more comprehensive view of value that includes social and environmental benefits. To effectively integrate sustainability into their business models, companies must consider benefits to the environment and to society as valuable; that is, they must integrate sustainable value
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into the other sources of value they consider. Currently we are operating in a global economy, which means what is produced in one country can be consumed in another country. People are also experiencing a change in lifestyles- for example, through increased urbanization. This change in lifestyle is having an impact on customer purchasing patterns and behaviors. Today’s tastes are very different from the tastes of people a generation ago. Changing lifestyles and demographics have created opportunities for businesses to offer a product or service to a clearly distinct market segment. By understanding this market segment and providing products and services to meet their tastes and preferences, then you are creating value.
Kenya Climate Innovation Center Strathmore Business School, P.O. Box 49162-00100 Nairobi, Kenya. +243703034701 About KCIC The Kenya Climate Innovation Center (KCIC) provides holistic, country-driven support to accelerate the development, deployment and transfer of locally relevant climate and clean energy technologies. KCIC provides incubation, capacity building services and financing to Kenyan entrepreneurs and new ventures that are developing innovative solutions in renewable energy, water and agribusiness to address climate change challenges. Editor Alise Brillault info@kenyacic.org Contributors Ernest Chitechi Zachary Mikwa Elizabeth Kago
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Building a climate-resilient value addition By Alise Brillault Promoting value addition activities is one key way of helping to lift a country out of poverty. As such, many development agencies, governments, and private sector actors are investing in the expansion of agricultural value chain economies- essentially helping developing nations move beyond raw commodity exportation. However, with the effects of climate change already being felt, this is a potential threat to the sustainability of the entire value chain. The effects of climate change on the value addition chain The whole chain link, from the farmers to the processors, to the retailers and finally the consumers, are all vulnerable to the effects of climate change either directly or indirectly. To begin with, rising temperatures and unpredictable rains can be devastating for crop yields. Particularly, in Kenya, temperature changes have had a negative effect on crop yields. To be more specific, decreases in the annual rainfall has perversely affected tea plantations in the highlands (Ochieng et al 2016). Smallholder farmers suffer the most serious consequences in that their incomes and food security are directly dependent on harvest outputs (Dazé and Dekens 2016). However, losses experienced by farmers have adverse effects on every player on the value chain. If processors and retailers have a reduced supply, then their activities suffer as well. Transporters, for their part, are affected by climate change
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if floods or other extreme weather occurrences disrupt their transportation networks (Dazé and Dekens 2016). Finally, all who are employed by the agricultural value chain are also, of course, consumers of food themselves; lower incomes and higher food prices heighten their risk of food insecurity (Dazé and Dekens 2016). Going forward, it is thus vital that sustainability be a key factor in the development of the value addition industry. Mitigating climate change at each link of the value chain There is a need for all farmers to implement smart, climate-resilient agricultural practices to ensure greater outputs without compromising the health of the soil. Several KCIC clients are already innovating in this regard. For instance, Ujuzi Kilimo uses sensors to precisely capture soil and farm data from which farmers get real time, actionable, and easy to understand advice on fertilizers, seeds, weather and best practices. Another example is Jackie’s Army Worm Killer, which uses an effective organic solution to combat the army worm pest, helping to save maize and bean crops without the use of harmful pesticides. Further along on the value chain, processors can implement sustainable actions into their operations. One area in which this can be done is through utilizing renewable energies. For example, KCIC clients Sweet & Dried and Kikai Foods use solar powered methods to dry fruits and vegetables that would other-
wise be wasted in the agricultural chain. Not only does this offset carbon emissions, but it also retains the nutritional value of the produce (which can be another concern in the processing of foods). Exotic EPZ, another client, has a circular method of sustainability; in processing macadamia nuts, they use the discarded shells as fuel for their machines. Adapting to climate change in the agricultural chain In addition to such efforts to mitigate climate change, it is also the reality that the value addition chain must adapt to the effects of climate change already being experienced. A lot of this entails
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knowledge enhancement and risk assessment. For farmers, it can mean evaluating how their crops perform in various weather conditions and adjusting accordingly. For transporters or traders, they can look into alternative sources for products and different transportation options (Dazé and Dekens 2016). Investing in value addition is a powerful way to boost economic growth in countries such as Kenya. However, to ensure that the new industries developing are able to last, they must become resilient to the threats of climate change and prevent further environmental degradation as much as possible.
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Sweet & Dried:
Value addition as an opportunity for entrepreneurship Mercy Mwende is an entrepreneur from Chuka who was alarmed by the enormous amounts of food waste in the region. While working as a farmer with Mageria Migue, they noticed that much of the fruits they were cultivating never made it to the market because they were spoiled. Simultaneously, with her entrepreneurial spirit, Mwende wanted to create jobs for herself and her friends- but she was starting to see that selling traditional fruits and vegetables would not be the most viable route. She thus began to think about how to increase the shelf life of the produce to both prevent wastage and provide a more profitable business opportunity.
creating jobs through solving food waste By: Alise Brillault
Upon consulting with the Ministry of Agriculture, Mwende learned about the process of produce drying as a way of confronting post-harvest losses. Along with Migue, they went on to build a small dryer, which led to the creation of their company, Sweet & Dried, in 2009. The company now produces dried fruits and vegetables- including mangoes, pineapples, bananas, and leafy green vegetables- in addition to flour. Their target markets are both international and local. The Mount Kenya region tends to produce an abundance of food. Unfortunately, much of it actually ends up getting wasted due to spoilage. This is concurrent with data that says that almost half of all food produced in Sub-Saharan Africa gets lost along various points of the agricultural chain (Obi 2017). This can be due to lack of
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proper refrigeration, farmers hoarding produce if the market rate is too low, or poor transportation methods, to name a few. Or, produce that is perfectly fine to eat might get tossed if it doesn’t meet certain aesthetic standards- especially when destined for the European export markets.
Sweet & Dried creates a positive impact on the community Since the birth of the company, Sweet & Dried has been beneficial to both the environment and the community. First of all, the dryer that they created is solar-powered, which helps to mitigate carbon dioxide emissions. The solar dryer preserves the nutrients
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in the produce, and they don’t add any sugars to their products- which ensures that they are producing healthy snacks for consumers. Furthermore, Sweet & Dried has positively affected the local economy, with a particular focus on empowering women. As their company has grown and they have built their own processing facility, Sweet & Dried has created jobs for 30 local women. Additionally, their 10 distributors are also women. With Mwende as the face of the company, she is also able to set an example and inspire other women to start their own businesses. Finally, Sweet & Dried works with a network of 300 farmers, allowing the farmers to expand their markets and thus boost their own profitability. Future prospects for Sweet & Dried Sweet & Dried has been a client of Kenya Climate Innovation Center since July 2018. Mwende looks forward to getting more help from KCIC especially in terms of obtaining international certification as well as assistance with marketing to further upscale the business. As for the future of the company, Mwende says, “We envision being the biggest producer of dried fruit in Kenya and East Africa, focusing on the export market in places like the EU, Japan, and UAE. To do so we want to focus on improving our production process to increase outputs.”
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A brighter five-year plan in agriculture
infrastructure, equip a Tea Research Factory and standardization of hides and skins. Furthermore, the government will offer incentives for integration of youth and women into agribusiness value chains such as market guarantees, incubation training and scholarships for modern agriculture trainings. In addition, the government will support farmers to access agricultural insurance as a coping mechanism for weather– related risks and rebuilding of livelihood support systems in drought prone areas. Research and capacity building activities will be strengthened to be more informed on new technologies that tolerate and withstand drought/ water stress, hence increasing food security and productivity. Farmers will also be encouraged to diversify the food production base through development and adoption of new crop varieties and assorted seeds.
By: Elizabeth Kago
One of the priority areas in the Big Four Agenda is enhancing food and nutrition security for all Kenyans. The plan is to increase agricultural productivity among smallholder farmers; in doing so, the government of Kenya will upscale crop and livestock insurance with the goal of cushioning farmers against climate related risks. Policy to enhance value addition and food security In the last phrase of Vision 2030 review i.e. Medium Term Plan II (2013 – 2017) some of the lessons learned include: global climate change has adversely affected the agricultural
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and livestock sector due to increased frequency of severe droughts and floods and outbreak of pests and diseases; there is low agricultural productivity due to low application of modern technology and innovation, including inadequate capital and demand-driven research; there is an underdeveloped agricultural value chain, among others. The response to these climate change effects is to come out with a robust plan. In the next five years, food and nutrition security will be improved through enhancing agro– processing and managing post-harvest loss. A programme on value chain aims to advance dairy value chain
Public-private partnerships in value addition There will be an opportunity for private-public partnerships, specifically to invest in the reduction of post– harvest loss and market distribution. Such partnerships will also entail disseminating large scale agricultural technologies such as cereal dying equipment, grain silos, fishing and aquaculture equipment and feed. Furthermore, the manufacturing sector strives to promote value addition in agricultural products including dairy, tea, meat, fish, animal feed, sugar, poultry, piggery, fruits and vegetables. Some of the expected outcomes are to establish
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a food hub and agro park at Nakuru and Taita Taveta; identify seven new international markets; develop fish plants and provide agro-processing entrepreneurship training. One key policy reform was to develop the Climate Smart Agriculture Strategy. The Kenya Climate Smart Agriculture Implementation Framework 2018 – 2027 was launched on Wednesday, 31st October 2018 in Nairobi. The purpose of the framework is to promote climate-resilient and low-carbon, sustainable agriculture that ensures food security and contributes to national development goals in line with Kenya Vision 2030. One of the main components focuses on agricultural productivity and integration of the value chain approach. This component aims to support the development of new safe and commercially viable products for priority value chains in each agroecological zone. Most agricultural commodities are sold in their raw form and are thus bulky, of low value and have short shelf lives. There is also no traceability mechanism for produce and products from farm to folk. Value addition will ensure longer shelf life, reduced transaction costs and higher incomes. It is clear that Kenya has a huge opportunity in value addition with support from the government. This is attractive for both small-scale and large-scale farmers, the private sector, investors, and SMEs, among others stakeholders. Indeed, value addition is a climate-adaptive and resilience measure for food security and nutrition.
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The importance of value addition for emerging economies By: Alise Brillault
In my economics class at the Institut Barcelona d’Estudis Internacionals (IBEI), my professor summed up one of the main reasons why the world is divided into poor countries and rich countries: “poor countries export mangoes, and rich countries turn the mangoes into juice and bottle it.” As such, he claimed that poor countries will cease to be poor once they start bottling up their own mango juice. Although I learned in that class- and in my time at IBEI in general- much more about the greater nuances and complexities of global poverty, this statement from my economics professor was one of my key takeaways. If developing countries can go beyond the cultivation and exportation of raw materials, it will help them to diversify their economies and ultimately raise income levels. A key method for doing so is through value addition. Adding value to raw commodities Generally speaking, value addition entails changing or transforming a product from its original state to a more valuable one. In agriculture, one example is wheat: by converting wheat into flour- a more valuable product- one is able to sell the product to customers and thus receive greater profits. Many raw commodities, such as fruits and vegetables, do not have a high value as a result of their inherently short shelf life. Likewise, farmers oftentimes suffer
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losses due to spoilage of produce. This is further exacerbated when small-scale farmers in developing countries lack access to proper refrigeration, storage facilities, and good roads for transportation (FAO). In fact, in Sub-Saharan Africa, 3050% of the food produced is lost along various points of the agricultural chain (Obi 2017). If there is a way to extend the shelf life of this produce, then its value will increase which, in turn, raises profits at every point of the agricultural chain. Commodity dependence and poor economic performance Furthermore, evidence shows that countries who are heavily dependent on raw commodity exports tend to suffer compared to more diversified economies. According to the United Nations Conference on Trade and Development, such countries are vulnerable to shocks such as fluctuations in commodity prices and technological changes resulting in lowered demand for the products they specialize in. This results in reduced economic growth and poor development performance. On the contrary, value addition offers an opportunity to create new industries and, consequently, new jobs. As the jobs that value addition creates are more varied (as opposed to simply more jobs in farming), it can employ people from numerous backgrounds and result in better
paying occupations. Value addition in Kenya Kenya is a prime example of a country that can benefit from value addition. Kenya’s economy is highly dependent on agriculture; according to the United Nations Food and Agricultural Organization (FAO), it directly accounts for 26% of the GDP and an additional 27% indirectly through its connections to other sectors. Agriculture also employs 40% of the total population and 70% of rural Kenyans. The country is also held back by the aforementioned problems associated with dependence on raw commodity exportation. For one, Kenya has similar levels of post-harvest losses as compared to
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the rest of the continent. In fact, in 2017, Kenyan farmers lost KSH 150 billion due to food waste (Kenya National Bureau of Statistics). Methods such as using solar-powered driers to dry fruits and vegetables offer an innovative and profit-earning solution to this issue. Another example is the fact that Kenya is missing out on huge earnings associated with the value addition of tea. Although the second largest tea producer in the world, 97.3% of the tea that Kenya exports is in bulk form. If Kenya were to simply put the tea into tea bags and then sell it, the country could earn at least 500% of the value of the raw exports (Kenya Association of Manufacturers).
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LIVE GREEN Creating an enabling environment for value addition It is thus important that both policymakers and the nonprofit space create an enabling environment for value addition in Kenya and other emerging economies. The national government of Kenya has already begun by including manufacturing in their Big 4 Agenda. Specifically, President Uhuru Kenyatta is seeking to boost manufacturing’s contribution to GDP from 9% to 15% by the year 2022. Under the plan, agro-processing should lead to the establishment of 1,000 SMEs and 200,000 jobs (Wambugu 2018).
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Striving for market leadership through value addition: A focus on innovation and coordination By Zachary Mikwa
Furthermore, organizations such as KCIC are playing a vital role in supporting SMEs in the value addition sector. Some examples of such clients we are incubating include: • Kikai Foods, who uses a solar drier to dry fruits and vegetables that would otherwise be wasted in the agricultural chain, converting them into healthy and tasty snacks • Full Spoon Limited, who processes peanuts into natural, delicious and smooth peanut butter under their brand name Tamuu Nut • Exotic EPZ, who processes macadamia nuts and oils for the export market The world doesn’t have to be divided into rich and poor. By supporting emerging markets in developing their value addition industries, we can offer one solution for boosting economic growth and raising income levels in those countries.
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In recent times, the importance of developing and maintaining competitive advantages amongst green-growth oriented entrepreneurs has been reiterated by numerous researchers working in the ecopreneurship space. Like any successful enterprise, green-growth oriented enterprises have to develop strategic
advantages to give them an edge over other conventional enterprises and to thrive in the ever changing and competitive marketplace. Value addition is among such strategies.
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Competitive advantages of greengrowth enterprises Green-growth oriented entrepreneurs have been referred to as ecopreneurs, climate entrepreneurs, sustainable entrepreneurs, green entrepreneurs, among other names. All in all, they comprise a class of enterprises which fulfil two major
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LIVE GREEN prerequisites: One, they offer bankable solutions to ecological problems in areas of their operation and, two, they are recognized as market leaders within such ecopreneurship ecosystems through provision of environmentally friendly goods and services. This means that ecological challenges are a part of their core business activity, hence the need to integrate them with critical elements in their business models in order to gain market leadership through a competitive strategy. Apart from value addition, other competitive advantages that can be exploited by green-growth oriented firms include brand enhancement, optimum pricing of goods and services, technological advancement, supply chain innovation, brand credibility, easy access to supply, trend-setting, amicable relationship with customers, innovation, ability to deliver expected environmental benefits, and reliable after-sales service. In this article, I will explore the strategies for exploiting value addition as a path to market leadership in the global eco-friendly marketplace. According to the European Union, the global market for low carbon environmental goods and services is estimated at â‚Ź4.2 trillion. Again, a 2014 report found that 55% of consumers across 60 countries across the world are willing to pay higher prices for eco-oriented goods and services. This presents a tremendous opportunity for African enterprises. However, to get a fair share, they must compete effectively within the space. The EU enterprises, for instance, already control 21% of the
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market share. How sustainable entrepreneurs can utilize value addition Although the opportunities presented above may seem within grasp, they just represent a statistical snapshot. To make a concrete move towards exploiting them, green-growth oriented enterprises in Kenya and beyond should consider adopting the value addition strategies outlined in the next sections. They apply for both young start-up sustainable enterprises and the established ones. A broad definition of value addition is to change or transform a product from its original characteristics to that which is more valuable in the marketplace. A specific example would be the process of turning wheat into flour which is more valuable to consumers (households and bakeries). Value addition can be achieved through numerous pathways, but in general, it involves two key elementsinnovation and coordination. According to Tilley, value addition van be simply achieved by assessing and addressing the what, how, where and, who can integrate the marketing needs of a product. The innovation component of value addition narrows down to the strategies for enhancing the existing business model, operations, products, and services. It can also involve re-modelling or recreation of a new business strategy altogether. Green-growth oriented enterprises seeking to reap more from their innovation capabilities should focus more on very narrow, highly technical,
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and larger markets where competition is sparse. Enterprise leaders should also encourage sharing of innovative ideas and R&D to create a conducive environment for value-added activities to thrive. Another key element in achieving value addition within an enterprise is coordination. It deals with the arrangements among the green-growth oriented entrepreneurs which comes in two forms: horizontal and vertical coordination. Horizontal coordination involves pooling among sustainable enterprises that operate within the same level in the supply chain. For instance, when briquette producers combine their biomass to fill the capacity of a briquetting machine, a horizontal coordination is achieved. Vertical coordination, on the other hand, comprises strategic decisions such as strategic alliances, contracting, and licensing agreements among others. Due to the dynamic nature of the sustainable marketplace, vertical coordination makes a critical component in linking production processes and product characteristics to fit customer preferences. It is obvious that very few ecopreneurs possess all the diverse skills required for processing, marketing, and managing their enterprises while remaining ahead in production efficiency and innovation. In that regard, a coordinated effort as well as constant innovation is required to achieve leadership in the ecopreneurship space through value addition.
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Value Addition for a Sustainable Future
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