Up to 50% of all horticultural produce in Kenya fails to make it to market due to lack of cold storage facilities, which are often unaffordable to smallholder farmers. Not only does this affect their ability to earn a decent living, but it also has an impact on the country’s food security.
In an effort to reduce post-harvest losses, Kenyan company SokoFresh is offering solar-powered off-grid cold storage services that smallholder farmers can afford.
Through PREO funding, SokoFresh has piloted farm level cold-storage as a service, coupled with a digital market linkage platform to integrate small and medium scale farmers into professional value chains. This mobile cold storage solution and pay-as-you-store business model, gives farmers, traders and exporters a risk-free opportunity to safeguard the quality of their produce and increase their bottom-line.
PREO has interviewed Paul van der Linden, Region Director East Africa & Head of FoodFlow Program at SokoFresh, to find out how the piloting of two off-grid cold storage units and a market linkage platform in Kenya has enabled the company to develop a scalable, replicable and financially sustainable business model making it a reality for thousands of low-income farmers in Kenya.
SokoFresh – Project Closure Q&A
Q: What were you hoping to achieve with the PREO support, and do you feel it helped you achieve your objectives?
A: Support from PREO has been crucial in the start-up of SokoFresh. SokoFresh was ideated by Enviu after a thorough issue analysis on food systems in Kenya. One of the key market inefficiencies that we identified was the lack of access to cold storage, and access to market to capitalise on professional cold chains. The problem was not in the availability of a viable technology, but in figuring out a business model that makes the technology accessible, affordable and reliable for rural smallholders. Our solution involved setting up a one-stop shop for cold storage, transportation, and market linkage to replace a multitude of intermediaries, thereby achieving reduced food loss, improved shelf life and a 100% traceable supply chain.
Through a feasibility study we validated our above understanding, determined the ideal value chains and regions to start in, and the partners to kick-off with. Coming out of the research phase, PREO gave us the opportunity to actually set up the first pilots. We were able to purchase the first 2 cold storages with PREO funding, build an MVP for the market linkage platform, and get the concept from the paper into reality. Once we were up and running, it was quite easy to convince others of the need and viability of what we’re doing. PREO was absolutely catalytical to proving the concept in real-life and bringing us to the next stage.
Q: Can you describe the different approaches you devised for the B2B and B2C business models (explaining the critical differences)? What were the main challenges that you faced during the project implementation phase in both B2B and B2C markets?
A: Our key focus is on increasing the income of smallholder farmers and reducing agriculture’s strain on the environment, by eliminating post-harvest losses. Since ~80% of produce in Kenya and most of Africa is grown by smallholder farmers, we’ve focused on developing a business model that works for this target group. As smallholder farmers are often cash-strapped, it’s impossible for them to move away from brokers who pay on the spot, to quality off-takers who pay more, but later. Let alone for farmers to invest in proper aggregation and logistics to ensure they get the highest price possible for their produce. Therefore, we have designed a cashflow positive experience through which farmers are paid immediately when they store the produce in the cold storage. Then, after we transport the produce to the market and sell it to buyers, we deduct our fee for the services and transfer the remaining amount to the farmers.
With this full-service model (B2C) we facilitate trades through our market linkage platform and charge a fee per kg for cooling and logistics. Within the B2C model, SokoFresh’s hub operators manage the cold storage, farmer engagement and harvest throughputs.
While developing this concept, we also got a lot of requests to lease out units to value chain players such as exporters and Agro processors who work with groups of smallholders through contract farming schemes. This is where we also developed a B2B proposition, where we customise the cold storage unit with value chain-specific, optimal operational parameters for the client – often an exporter, processor, or wholesaler. This includes optimal temperature and humidity, and aggregation and storage protocols, as these are different for each value chain. With the B2B model, the client mostly manages the cold storage themselves.
Q: Focusing on the B2C model, what are your key achievements from the project? Can you provide specific impacts? (Please explain the impact at the company’s level, the farmers’ level (growth, income) and at the industry level)
A: We were able to validate the financial model, commercial viability, willingness to pay, and scalable operations model. During the project we have onboarded ~1,500 smallholder farmers in the avocado, mango, and French bean value chains. We traded over 110tn of produce for them through the platform and using cold storage. With these trades we had less than 2% post-harvest loss, compared to 30-40% that’s common in horticulture value chains, and increased their income after costs with an average of 20%.
Q: We understand that market linkage was your USP in attracting smallholder farmers. What success have you had to-date in building this service offering, and how do you plan to scale it up?
A: Absolutely, farmers won’t use cold storage unless they are sure that they will earn back the costs of it. Therefore, providing market linkage to buyers that value quality is essential. We have trialed cold storage solutions for export, processing, wholesale, and retail. Initially it was quite challenging as each crop has unique harvesting, aggregation, storage and logistics requirements, and each buyer unique quality requirements. After the initial trials our team has become quite the expert in our core value chains of Avaocado, Mango, French beans, and we could start building up volume. We’re currently harvesting over 10tn of produce per week, building up to 30tn per week in peak season this year. As a first mover we had to prove the value of our services and the impact on the quality of the produce, which is now clearly converting into more and larger orders.
Q: With your B2C model, what experience did you have focusing on different value chains. What challenges did they pose and how did you overcome them?
A: We have chosen to first focus on avocado, mango and French beans value chains. The reason is that cold storage has a lot of value for these crops, the margins are reasonable, the volumes are growing and their combined seasonality builds up to year-round utilization. We learn by doing, so I can definitely say we made a lot of mistakes the first time. Mistakes led to opportunities, like the time when we supplied an exporter and 90% was rejected, after which we had to quickly activate the retail market to not let anything spoil. This became the start of linking farmers to the retail market. We’ve also learned a lot about the correct processes for harvesting, storing and logistics. By now we have a very skilled team, and excellent partners to figure out the needs for new crops. This is why we’ve comfortably added bananas to our portfolio in the last months and are exploring a couple of new use cases.
Q: How did PREO support help to de-risk and prove your B2B and B2C business models? How will this help your future business development strategy, and can you share details of your fundraising plans?
A: We had a very solid plan and feasibility study, but it was all on paper. Not yet a moment in which an investor or debt provider dares to step in. By allowing us to set-up the demo sites, do the first pilots, and prove the actual operations and commercial viability, PREO support helped us to get to investment readiness since we were able to gather critical business and operational data through the PREO project. Because of it, we’ve been accepted by EEP to scale up our demonstration efforts, started an origination trajectory with Dutch Fund for Climate and Development (DFCD) that will provide us with scalable debt finance, and soon will close our first seed investment.
For more information visit www.sokofresh.co.ke