Wout van der Sanden, Marco Verschuur
Practice Brief
CSDEK Project 2020-07 CSDEK = Inclusive and climate smart business models in Ethiopian and Kenyan dairy value chains
90 Dairy farmers became clients/members of
financial institutions to utilise payment and transaction services, access to savings and credit products and the option to purchase shares. The most important financial institution for members of GDFCS and ODFCS were GDC SACCO and Mavumo Daima SACCO
respectively, both subsidiaries of the dairy cooperatives. In addition to formal access to finance, dairy farmers had access to finance through informal savings groups, mobile money and mobile banking.
Financial Institutions
Commercial banks, SACCOs and Micro-Finance Institutions (MFIs) provided payment services, credit products, savings products and
insurance products to dairy farmers in Githunguri and Olenguruone. To enable dairy farmers to invest in CSA, commercial banks preferred to utilise non-specific financial products, whereas SACCOs and MFIs were experimenting with specific financial products for CSA investments. The latter, though not all SACCOs and MFIs, therefore, established formal relationships with suppliers of biodigesters and water tanks (Figure 2).
Figure 2. Bilateral Agreements between Financial Institutions and CSA suppliers in the Dairy Value Chains in Githunguri and
Olenguruone
Arguments whether to develop specific financial products for CSA were related to:
- demand for specific financial products for CSA;
- awareness about CSA among dairy farmers;
- target groups of financial institutions;
- and adoption and resilience to a changing climate and culture in Kenya
Financial institutions were in a position to stimulate the adoption of CSA among members of GDFCS and ODFCS. However, due to a lack of cooperation in the dairy value chains, not all opportunities were exploited by financial institutions that operated in Githunguri and Olenguruone.
Value Chain Finance
Both GDFCS and ODFCS aimed to integrate operations and services of other chain actors, e.g. collecting, processing and marketing milk, besides supply of dairy inputs, access to finance, artificial insemination and extension services into the operations of the dairy cooperatives. To enhance the adoption of CSA, both dairy cooperatives should consider applying the principles of ‘value chain finance’
to improve cooperation in the dairy value chains, to address awareness about CSA, to market CSA products and to promote specific financial products for CSA. In the case of GDFCS
and ODFCS, a tripartite arrangement between the dairy cooperatives, CSA suppliers and financial institutions will enhance the adoption of CSA (Figure 3). By doing so, all chain actors will establish a common agenda and align interests, improve communications and manage risks that come with the adoption of CSA (KIT & IIRR, 2010).
Relevance to the CSDEK project Previous studies of CSDEK focussed on identification of value chain actors and supporters in the dairy chains; the creation of business models to enhance the adoption of CSA; analysis of carbon footprints of dairy farmers, farming practices and gross margins
91 of dairy farmers, knowledge about CSA; and
feed value chains (Baars, et al., 2019). So far, however, financial practices of dairy farmers, and the financial environment in which these dairy farmers operate their businesses, remained a black spot for CSDEK. This study was a first attempt to understand financial practices of dairy farmers and expose the role of financial institutions in Githunguri and Olenguruone, to bolster the development of inclusive and climate smart business models for dairy farmers in Ethiopia and Kenya.
Furthermore, the study complements the findings of Odhong et al. (2019) and Wilkes et al. (2019).
In order to scale up the adoption of CSA practices and techniques, and apply value chain finance (Figure 3), this study
recommends that:
1. Dairy cooperatives, financial institutions and CSA suppliers develop, increase or enhance extension services and marketing related to CSA
2. Dairy cooperatives, financial institutions and CSA suppliers get together and align their interests to create a common agenda that aims to stimulate the adoption of CSA 3. Dairy cooperatives, financial institutions
and CSA suppliers should develop incentives for dairy farmers to stimulate the adoption of CSA.
Figure 3. Tripartite arrangements between dairy cooperatives, financial institutions and CSA suppliers to stimulate the adoption of CSA in Githunguri and Olenguruone.
References
Baars, R., M. Verschuur, R. Eweg and J. de Vries (2019).
Practice briefs: Inclusive and climate smart business models in Ethiopian and Kenyan dairy value chains. Velp: Van Hall Larenstein University of Applied Sciences.
Kiiza, A. (2018). Scaling Up Climate Change Mitigation Practices in Smallholder Dairy Value Chains: A case study of Githunguri Diary Farmer
Cooperative Society Ltd, Kiambu County, Kenya.
Velp: Master thesis - Van Hall Larenstein University of Applied Sciences.
KIT & IIRR (2010). Value Chain Finance: Beyond microfinance for rural entrepreneurs.
Amsterdam: Royal Tropical Institute; Nairobi:
International Institute of Rural Reconstruction.
Odhong, C., Wilkes, A., van Dijk, S., Vorlaufer, M., Ndonga, S., Sing'ore, B., & Kenyanito, L. (2019).
Financing Large-Scale Migitation by Smallholder Farmers: What Roles for Public Finance? s.l.:
Frontiers Sustainable Food Systems.
Sanden, W. van der, 2020. Financial construction for dairy farmers adopting climate smart agriculture in the case of Githunguri and Olenguruone dairy farmers cooperative societies in Kenya. Velp:
Van Hall Larenstein University of Applied Sciences, Bachelor thesis International Development Management.
Wilkes, A., Odhong, C., Ndonga, S., Sing'ora, B., &
Kenyanito, L. (2019). Acces to and supply of finance for enhancing dairy productivity.
Wageningen: CGIAR Research Program on Climate Change, Agriculture, and Food Security.
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