SokoFresh is a Kenya-based for-profit social enterprise specialising in affordable pay-as-you-go cold storage and market linkage services for rural communities engaged in perishable commodity production. The shortage of refrigeration infrastructure results in significant product and financial losses for farmers and food producers in off-grid markets. Through its services, SokoFresh aims to manage the entire logistics chain of high-value perishable produce, from farm to market.
Support from PREO in the form of a grant in 2021 played a pivotal role in establishing SokoFresh as the leading cold storage provider in Kenya’s horticulture value chain, following the successful pilot of its farm-level cold storage service, coupled with a digital market linkage platform that integrates small and medium-scale farmers into professional value chains.
Sokofresh collaborated with EcoZen, a developer of climate-smart deeptech who served as a technical partner, on the development of a cold storage prototype – capable of reaching temperatures as low as -18’C. This enabled SokoFresh to pilot its cold storage services for the fish industry. In April 2023, SokoFresh secured additional grant funding from PREO to assess the viability of cold storage as a service for small fisheries on Lake Victoria. While the pilot did not yield the anticipated results, it provided valuable insights and lessons that SokoFresh is eager to share in this interview.
Q: Could you elaborate on your intended project goal and what specific objectives you initially set out to accomplish?
A: SokoFresh, along with incubator and majority shareholder Enviu, invested funding from PREO with the aim of reducing food loss in the fish industry, by deploying sub-zero cold storage technology through a commercially viable model. The model was to provide both cooling as a service and market access to fisherfolk.
Our specific objectives were:
- Reduce food loss through the aggregation of fish from multiple beaches, store them in cold storage, and provide market linkage for the fish.
- Increase fishers’ incomes through supply chain interventions such as cooling, logistics, and use of crates, ensuring streamlined operations and connecting them to markets.
- Access to productive use of energy cold chain solutions, and activation of off-grid cold storages in identified regions.
- Develop a commercially viable proposition for SokoFresh with a clear pathway to profitability.
Q: How did your approach to the pilot evolve from the initial idea, leading to the testing of other business models?
We started by assessing the fish landscape in Kenya to pinpoint areas where cooling interventions would be most effective. We conducted an issue analysis focusing on the post-harvest fish loss, regional production characteristics, systemic gaps, and proposed pilot models. Following that, we developed three models for testing (Figure 1):
- Cold storage as a service
- Cold storage and market linkage as a bundled service
- Leasing the cold storage unit on a monthly basis.
Figure 1
To begin the pilots, we defined their scope. We chose tilapia as it is the most commonly farmed fish in Kenya, representing 80% of total fish production, indicating high availability and stable supply. Homabay County was selected as the initial pilot location because it serves as a primary landing site for fish, particularly tilapia. In addition, Homabay has the highest aquaculture concentration, with over 1,500 cages, due to its deep waters.
We then spent a few weeks observing and documenting beach operations. We quantified the boats at each beach, the volume of fish sold, and the buyers involved.
Once we identified the beaches with high activity, and the fishermen’s needs, we prioritised testing the ‘full-service’ business model, and ‘cooling as a service’ business model, reflecting the demand for such services. The results from this are detailed below.
After the full-service model was disproved, we moved to testing the cooling as a service business model. This was also disproved quickly, prompting us to pivot towards offering the lease solution.
Q: Can you tell us more about the three pilots and what you learned from them?
A: Sure. In piloting our first business model for ‘market linkage and cold storage as a bundled service’, we used lean methodology, which requires running experiments in cycles and using data to measure progress, before investing more resources into additional testing.
We leased space at the intersection of two beaches (also centrally located from other beaches) and began to purchase fish from over 100 boat owners across 7 beaches. We also engaged around 75 cage fish farmers as an option to provide cold storage as a service. Between June and December 2023, we made a total revenue of 18,000 USD and sourced 7,300 kg of fish.
Our pilots with this model showed that there was not sufficient demand for such a solution amongst fisherfolk at this time. The demand for cold storage & market linkage among 144 wild catch boat owners, over a period of 3 months was low. The average purchase of 8kg of fish per week despite high season, proved unsustainable. We were also faced with consistently low retention rates (average 10%, see Figure 2), indicating a lack of interest/ demand for our services.
Figure 2
As for the demand for cold storage & market linkage among 74 cage farmers, we found that 60% of them were vertically integrated. This means that they were able to harvest on-demand, as buyers came to offtake, indicating no need for our solution when you have just-in-time operations. In addition, each farmer could have several market options to choose from, which enhanced their bargaining power.
In piloting our second business model for cooling as a service, we also experienced a lack of demand for such a service due to low adoption and retention.
For fisherfolk during the off-season, the catch is sold as soon as fish arrives on the beach, eliminating any need for cooling. During peak season when fish is abundant, ice and chest freezers serve as viable alternatives, particularly for individual operations with narrow profit margins. In our pilots, we trained and signed up 10 fisherfolk, but only one person actually used our cold storage service, so we ultimately decided to discontinue it.
As for the demand for cooling from off takers, we noticed that some micro traders attract better prices for fried fish compared to cooled fish, prompting them to value-add instead to extend shelf life. We also found that bulk buyers of fish have their own refrigerated trucks and use these to aggregate at shore and transport to markets, obviating the need for our solution.
In our final pivot, we trialled the lease model where the unit is leased to 3rd party suppliers. In this case, we had some traction.
There is demand for sub-zero leasing, mostly among meat/ fish aggregators who want to aggregate produce from multiple farmers. They sell locally and business is fast-moving. They also typically have market opportunities already activated. Currently we are in the process of contracting one client who is a fish farmer/ aggregator at Lake Victoria.
Q: Can you describe some of the challenges faced during the project and how Sokofresh/Enviu adapted to them?
A: We faced several challenges:
Delayed cold storage deployment – Our cold storages were delayed by nearly 5 months due to it being the first unit of its kind produced by Ecozen. We also had shipping delays. This affected pilot timelines significantly. Our work around for this was to use ice as a substitute, and sell fish purchased quickly. For experiments, this work-around was sufficient.
Logistics challenges – Refrigerated trucks were not easily available and when available they were very expensive. We adapted to this by identifying several logistics providers, travelling overnight, planning, and booking in good time.
High costs – The equipment, together with the ice required to ensure fish met required quality standards, comprised 61% of our direct operational costs. This disproportionate figure made the service offering unsustainable.
Lack of documentation on ownership of fish – A surprising discovery was that the fish were owned by boat owners (relatively enterprising and commercial) and all profits on fish efficiencies would be passed to them. This meant that fishermen who were our target beneficiaries would not benefit from Sokofresh’s solution, putting our impact goal at risk.
Seasonality challenges – We faced delays in experiments due to seasonality, as we had to wait months for peak season. This caused substantial delays in our work and conclusions.
Lack of market demand for Kenyan fish – What became evident during the experiments was the preference of Kenyan offtakers for fish from Uganda, perceived as higher quality compared to locally farmed fish, and also cheaper and more consistent. Kenyan-caught fish was primarily sold to micro traders who had a low threshold of price point. Our workaround for this was initially to activate strong business development consultants to help us unlock markets, however these did not produce any key leads.
Local dynamics on the beach – We also learnt of dynamics on the beach regarding access to the fish supply. One aspect is the high competition for fish especially during low season. Another is the tendency of boat owners not to sell their full catch to one client but to distribute fish sales among multiple buyers to keep them “warm” and mitigate risk from losing individual buyers.
Lack of accurate information on post-harvest loss – Whilst there is conflicting information regarding post-harvest loss for fish (thought to be between 40% and 10%), it was only during experiments that the actual lack of loss became apparent. Through market observation, fish purchases, and witnessing the sale of fish, it became clear that all fish, even those of poor quality (an unexpected discovery), were fried and sold. This finding from our experiments prompted us to question whether we were addressing a real problem and if there was demand for our solution in the market.
Q: What lessons can other companies and the broader sector draw from this project, and which unexpected lesson was the most surprising to you?
A: We learned that the industry operates primarily in an informal manner, with 78% of fish caught by small-scale fishermen who are extremely poor, and untrained. As it lands the fish is already purchased by informal brokers, who take it directly to markets. These informal middlemen provide 94% of market linkage. The absence of regulation in these operations makes it challenging to enforce quality control standards among both fishers and traders.
This informality translates into narrow profit margins within the industry. The limited profit margins provide limited opportunities to incorporate cold chain technologies and aggregation services. Ice is widely used as a cost-effective alternative for cooling, and with slim profit margins, it effectively addresses the cooling needs. Margins for aggregation and cold storage hover around 5%, presenting a formidable barrier to market entry. Larger companies circumvent this challenge by vertically integrating their operations, encompassing fishing, aggregation, value addition, and sales to the final consumer.
The problem of aggregation is solved through cage farmers, who supply volumes exceeding 300 kg. Interestingly, in several instances, cage farmers were observed to sell their produce at prices higher than the offtake prices, indicating a lack of demand for market linkage solutions.
The ability to directly impact small-scale fishermen is limited as they are typically employed by boat owners. Therefore, any increase in income for fishermen would rely on a trickle-down effect to benefit small-scale fishermen.
Q: How will you use the findings from this pilot to continue SokoFresh’s impressive trajectory moving forward?
Moving forward, we’ll use the sub-zero cold storage units to trial the lease model and assess its traction, not necessarily within the fish industry, but also in other sectors that could be a lucrative option or new business line for SokoFresh.