Kenyan slang/sheng for 'all good'
Someone Asked We Aswered
LishaBora's business model has been in an innovation and re-design stage over the last year. Throughout these changes we've gotten many questions from our investors. It made us realize, that if our investors have these questions, it's likely the general public does too! So we've compiled all of these questions and have developed this SAWA Series (Someone Asked We Answered) in spirit of the Kenyan culture where we hear "sawa sawa" on the daily. This month we're starting with a question posted regarding our business model.
Question: Your business model is too complex, can you break it down for us?
To answer this question properly, it firstly requires an understanding of the current situation in the informal dairy market in Kenya. The dairy sector is filled with many different stakeholders, in a complex integrated system. Let's firstly review who these stakeholders are and what their needs are. Below is a map showing how all of these stakeholders are interconnected.
Demographic: There are over 2 million smallholder dairy farmers in Kenya. LishaBora defines a smallholder dairy farmer as someone who owns between 1-5 cows and is earning less than 2 USD/day from their cows' milk production. Smallholders in the informal market contribute up to 85% of Kenya's entire dairy industry.
Needs: Smallholders are spending an estimated 1.5 billion USD annually on dairy feeds, supplements and inputs for their cows. They are being taken advantage of by macro-level economics and the monopolistic behaviour of large industry players. Farmers believe that dairy feeds are the sole driver of milk production, when in fact it is multi-faceted. The problem is that cow milk production is affected by many other factors including weight, water, grass and comfortability. The fractured distribution network of dairy feeds leads to many producers using lesser quality ingredients, resulting in farmers receiving below standard product. To further this problem, the domination by large scale producers of the dairy sector results in the fluctuation of milk prices and the price of inputs throughout the different growing seasons, making it very hard for smallholders and other value chain stakeholders to determine when they are making a profit or losing money. What farmers need is consistent, transparent and authentic partners so they make the best decisions to increase their profitability and livelihood.
Demographic: There are an estimated 45,000 dairy traders (likely more) in Kenya's informal dairy sector. They dairy traders LishaBora is partnering with collect on average 50 farmers milk per day. They are processing 1.2 billion USD annually in cash given to famers for the payment of milk collection and for micro-loans for household amenities and other farming needs.
Needs: Currently, all records in the informal market are paper based leading to loss of cash due to errors, lost records and manual repetitive tasks. They are unable to participate in the formal market due to lack of access to milk chillers and processing facilities which would make their product meet the KDB (Kenya Dairy Board) standards. The costs of obtaining an official dairy trading license are disproportionate to their earnings, thereby forcing them to operate illegally without a license. They need systems to build their business and clear, easy and affordable access to formal markets.
Demographic: Exact numbers are not known. There are many duka (small shop) owners in rural settlements who typically sell animal feeds among many other items. They often sell large varieties of feeds, pushing sales for whatever feed makes the most money for them, often the low quality, high price feeds that can give them the best margins. They do not have any formal training or understanding of how to use feeds properly.
Needs: There are many animal feeds on the market, therefore stockists are looking for the most competitive pricing to attract their customers. They need training and incentives that will align the interests of the farmers and the feed manufacturers. Currently, their interests are in contrast of those of the farmers.
Demographic: Exact numbers of animal feed producers can not be established as many do not have formal business' and work informally. This is because of a proliferation of many small/medium millers to fill the gap left by large formal feed millers who are trying to do the best business they can but can not reach the remote regions. The decentralized and remote nature of the smallholder population makes it hard for large distributors to make profits in those places.
Needs: Feed Manufacturers are looking to make a high profit margin on their feeds and are restricted by selling through third party distributors who are also looking to make a high profit margin. Thereby, leaving no incentive to create high quality products. This comprehensive report from the Kenya Market Trust offers a detailed analysis of the animal feeds in Kenya: http://www.kenyamarkets.org/
Demographic: There are a lot of MFIs (micro-finance institutions) in Kenya, some more established than others. These institutions are lending to farmers as little as 10 USD.
Needs: Within the informal market, they are dealing with smallholder customers who have no credit history. Meaning they offer loans but only at a high interest rate and demand collateral of 150% the value of the loans. What they need is good data on the cashflows of the farmers that are validated by an independent third part or bank as well as a good (and affordable) way to collateralize their loans that are acceptable by farmers.
Demographic: This includes agriculture vets, animal health experts, cow feed experts and dairy experts in Kenya offering any farm input services to smallholder farmers.
Needs: There is a disjointed connection between animal service providers who are knowledgable in animal health and the companies who are producing the animal feeds.
So how is LishaBora's business model transforming the broken connections of the map above?
We do this in a few key ways:
We simplified it as LishaBora takes over both the role of Feed Manufacturer and Distributor, reducing the margins that need to be taken along the way, and making feeds of a guaranteed quality available at a consistent price to smallholder farmers.
By digitalizing the milk collection done by the traders, we are able to share that information with Lenders and open up access to large-scale loans for smallholders.
Digital records allow the trader to pay for services requested by the farmer and make available products to the farmer that can be paid over time through check-off of milk collected, just like in the formal market.