Cold storage and transportation
Cold storage and transportation
Business Model Description
Develop and operate affordable and energy efficient pre-cooling and cold storage facilities for small and medium size farmers and cooperative societies, and provide refrigerator transportation systems to large cold storage facilities.
Expected Impact
Reduce post-harvest losses and generate higher incomes for farmers.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Kenya: Central
- Kenya: Coast
- Kenya: Nyanza
- Kenya: Eastern
Sector Classification
Food and Beverage
Development need
According to the Sustainable Development Report, SDG 2 - Zero Hunger is a major challenge in Kenya and the overall score for this goal is stagnating. The COVID-19 crisis contributes to price fluctuations, food insecurity and supply chains disruptions. Food inflation in Kenya reached 10.6% in March 2020, compared with 2.8% in the same month in the previous year.(1)
Policy priority
Policy documents and initiatives such as the Third Medium Term Plan, the Kenyan Vision 2030 and the Agricultural Sector Growth and Transformation Strategy highlight the potential of agriculture for national development. Achieving food security is among Kenya's top four policy priorities according to its 'Big Four Agenda'.
Gender inequalities and marginalization issues
Women constitute almost 80% of agricultural workers in Kenya. Yet, they often do not have any ownership of farming lands or production equipment. They also suffer from an unequal access to relevant agricultural loans.(28)
Investment opportunities introduction
Accounting for 34% of Kenyan gross domestic product (GDP)(2), agriculture is the main employer of the Kenyan population. Total sales in agriculture reached USD 26.5 billion in 2019 and are expected to grow at an average rate of 1.52% in 2020-2025.(3)
Key bottlenecks introduction
Some critical bottlenecks include poor education and management skills among farmers, business atomization, supply chain deficiencies, limited access to capital and inputs, lack of storage and poor handling practices, low access to information and ICT (information and communications technology) services, as well as the aging farming population.
Food and Beverage Retail
Development need
An obstacle to achieving food security in Kenya is post-harvest losses. An estimated 5% - 50% of agricultural produce is wasted at various stages of the supply chain. The handling and storage stage accounts for 37% of all losses.(4) It is essential to establish efficient cold chains, registry, distribution and retail structures to prevent food waste.
Policy priority
Food security is one of the main goals of the 'Big Four Agenda' in the Kenyan Vision 2030. Post-harvest management is essential for achieving this objective. The Agricultural Sector Transformation and Growth Strategy states the government's aim to raise the incomes of smallholder farmers by providing storage facilities, improving post-harvest best practice and scaling-up market access. These measures will increase the growth and competitiveness of the agriculture sector.
Gender inequalities and marginalization issues
Women play a key role in Kenya's agricultural sector, often the only ones in rural households harvesting and selling crops. Despite this, they usually work in informal settings and receive lower sales revenues.(5) They need additional tools to connect them with potential buyers and the market.
Investment opportunities
The government is open to public-private partnership (PPP) projects in post-harvest handling and food registry technologies, as outlined in the Third Medium Term Plan. Companies in Export Processing Zones have some geographical incentives. Benchmark examples and estimates suggest investments in market connectivity and cold storage chains generate market rate returns.
Key bottlenecks
A key bottleneck in this sector and subsector is the cost of logistics. Currently, transport costs account for approximately 28% of the final market price of agricultural goods in Kenya, compared with 13% in other emerging markets.(6)
Food Retailers and Distributors
Pipeline Opportunity
Cold storage and transportation
Develop and operate affordable and energy efficient pre-cooling and cold storage facilities for small and medium size farmers and cooperative societies, and provide refrigerator transportation systems to large cold storage facilities.
Business Case
Market Size and Environment
5% - 10%
The cold storage market in the Middle East and Africa has an estimated compound annual growth rate (CAGR) of 7.4% between 2020 and 2025, taking its value from USD 24 billion to USD 35 billion.(7)
Indicative Return
> 25%
A solar powered cold storage facility tested in Nigeria (a regional benchmark) achieved an internal rate of return (IRR) of 48% within 3 years.(8)
The estimated return rate for investors is 7.2% - 21.2%. This rate is a benchmark calculated as a cost of equity with country risk premium, reflecting an average return required by investors active in the storage and packaging infrastructure subsector. (10)
Investment Timeframe
Short Term (0–5 years)
ColdHubs, a company providing cold storage in Nigeria, can pay back its investment cost of storage in 1 year. It is fully utilized and currently making a profit.(11)
The benchmark example from Nigeria estimated an investment in solar powered cold storage has a 3-year payback period.(8)
Ticket Size
USD 1 million - USD 10 million
Market Risks & Scale Obstacles
Market - Volatile
Capital - Requires Subsidy
Business - Supply Chain Constraints
Impact Case
Sustainable Development Need
In Kenya, SDG 2 - Zero Hunger is a major challenge, while SDG 12 - Responsible Production and Consumption is only moderately improving. The indicators show problems with access to sufficient amounts of food and low cereal yields.(2)
Post-harvest losses in Kenya greatly reduce the incomes of farmers. An estimated 5% - 50% of agricultural produce is wasted at various stages of the supply chain. The handling and storage stage accounts for around 37% of all losses.(16)
In developing countries, insufficient cold storage reduces the income of around 470 million smallholder farmers falls by 25%.(17) This leads to high price variations between harvest season and off season. Some crops were reported to cost 5 times more during off season.(11)
Gender & Marginalisation
Women constitute almost 80% of agricultural workers in Kenya. Yet, they often do not have any ownership of farming lands or production equipment. They also suffer from an unequal access to relevant agricultural loans.(28)
Expected Development Outcome
Reduced post-harvest losses and food waste
Increased opportunities for agro-processing and value adding, increased resilience during price fluctuations
Increased income for small farmers
Gender & Marginalisation
Increased employment opportunities especially for youth and females due to the development of the agricultural sector
Primary SDGs addressed
2.1.1 Prevalence of undernourishment
2.3.2 Average income of small-scale food producers, by sex and indigenous status
2.4.1 Proportion of agricultural area under productive and sustainable agriculture
29.4% (29)
N/A
N/A
0%
N/A
N/A
8.2.1 Annual growth rate of real GDP per employed person
2.4% in 2018 (29)
N/A
12.2.1 Material footprint, material footprint per capita, and material footprint per GDP
Domestic material consumption per unit of GDP: 2.76 kg/USD (29)
N/A
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Indirectly impacted stakeholders
People
Outcome Risks
Growing demand for power and fossil fuel combustion (if renewables are not available to power active pre-cooling and cooling systems) (18)
Increasing greenhouse gas emissions (due to e.g. hydrofluorocarbons) (18)
Soil sealing and degradation e.g. by removing the topsoil upper layer to develop a strong foundation for buildings, which affects soil-related ecosystem services. This may reduce soil water holding capacity (affecting flooding), pose a threat to soil biodiversity and interfere with the carbon cycle (due to topsoil and vegetation removal).(19)
Gender inequality and/or marginalization risk: Any negative environmental outcome will predominantly impact the main source of income for women and rural households; that is, farming lands.
Impact Risks
Gender inequality and/or marginalization risk: Stakeholder participation risk - Because women account for the majority of the farming workforce, their expectations need to be considered.
Impact Classification
What
Investments in this investment opportunity area are likely to have a positive impact because they will contribute to reducing post-harvest losses and generate higher incomes for farmers.
Risk
Electricity blackouts can significantly damage the stored output. Additionally, if not managed properly, some negative environmental impacts may happen.
Impact Thesis
Reduce post-harvest losses and generate higher incomes for farmers.
Enabling Environment
Policy Environment
Third Medium Term Plan of 2018-2022: Under this plan, the government wants to increase food security by boosting post-harvest management. The government is ready to attract investments through public-private partnerships (PPPs) in post-harvest handling.(20)
Agriculture Sector Transformation and Growth Strategy: This strategy aims to increase the incomes of smallholder farmers. The initiative includes providing storage facilities and spreading post-harvest best practices among farmers.(21)
Kenya Cold Chain Assessment: Together with the Global Cold Chain Alliance, the Kenya Cold Chain Assessment was carried in 2015 to provide insights about developing cold chains. This document recommends actions for the government.(22)
Financial Environment
Fiscal incentives: Companies in Export Processing Zones (EPZs) receive incentives such as: a 10-year corporate income tax holiday and a 25% tax rate for 10 more years; perpetual exemption from the value added tax (VAT) and customs duty for inputs; exemption from stamp duty fees; and 100% investment deductions in EPZ building and machinery investments for 20 years.(25)
Regulatory Environment
Agriculture, Fisheries and Food Authority Act (No. 13 of 2013): This Act establishes the Agriculture and Food Authority as the key administrative body alongside the Ministry of Agriculture. The Act consolidated previous regulations and responsibilities in the sector.(22)
The Department of Public Health and the Kenya Bureau of Standards supervise food safety. Existing regulations such as the Meat Control Act, the Food, Drugs and Substances Act and the Public Health Act provide food requirements for consumption and penalties.(22)
Food Crops Industry Bill 2020: This Bill introduces the Food Crops Regulatory Authority, which aims to promote good agricultural practices including storage practices.(23)
Storing roots and tubers in Kenya requires complying with several requirements (e.g. proper location and storing conditions), as listed under Warehousing and storage of roots and tubers — Requirements, 2018 published by Kenya Bureau of Standards.(24)
Marketplace Participants
Private Sector
Cold Solutions, Wakati, Panalpina Global, Raino Tech4Impact, Solar Freeze, InspiraFarms
Multilaterals
Global Cold Chain Alliance, Food and Agriculture Organization of the United Nations (FAO), Shell Foundation, US Agency for International Aid (USAid), UKAid, Factor[e] Ventures, Energy Access Ventures
Public-Private Partnership
Savings and Credit Cooperative Organizations (SACCOs), Kenya Export Promotion and Branding Agency, Kenya Plant Health Inspectorate Service (KEPHIS), BASE
Target Locations
Kenya: Central
Kenya: Coast
Kenya: Nyanza
Kenya: Eastern
References
- (1) World Bank (2020). Kenya Economic Update: Turbulent Times for Growth in Kenya.
- (2) World Bank database, 2020. https://data.worldbank.org/
- (3) ISIC Classification Revision. Comparative Industry Forecast Tables - Agriculture.
- (4) International Food Policy Research Institute (2018). Post-Harvest Losses in Fruits and Vegetables: The Kenyan Context. http://ebrary.ifpri.org/utils/getfile/collection/p15738coll2/id/132325/filename/132536.pdf
- (5) World Economic Forum (2019). Challenges facing Africa's female farmers. https://www.weforum.org/agenda/2019/10/challenges-facing-africas-female-farmers/
- (6) Mercy Corps (2020). Agricultural Logistics in Kenya: Landscape and Solutions. https://www.mercycorpsagrifin.org/2020/09/08/agricultural-logistics-in-kenya-landscape-solutions
- (7) Market Data Forecast (2019). Middle East And Africa Cold Chain Market. https://www.marketdataforecast.com/market-reports/middle-east-and-africa-cold-chain-market
- (8) Badelt, G. (2019). 'De-carbonizing the post-harvesting phase of the agri-food chain Viability and smart business modeling', GeoCode International. https://unfccc.int/sites/default/files/resource/UNFCC_pptHandout.pdf
- (9) Nair, S. (2015). Investment Viability of Cold Storage Infrastructure for Agricultural Produce in Telangana State. State Agricultural University. http://krishikosh.egranth.ac.in/handle/1/80309
- (10) PwC analysis based on Prof. A. Damodaran data, 2020.
- (11) Farmers Review Africa (2020). Cold Solutions Kenya to invest US $70 in state-of-the-art storage warehouses in the country.
- (12) Okoth, E. (2020). Kenya: Revealed - If You Live Here, Power Outages Will Likely Dim Your Life. allAfrica.com. https://allafrica.com/stories/202009180832.html
- (13) World Bank (2018). Kenya Charts Path To Achieving Universal Access To Electricity. https://www.worldbank.org/en/news/feature/2018/12/06/kenya-charts-path-to-achieving-universal-access-to-electricity#:~:text=Kenya%20now%20has%20the%20highest,still%20lack%20access%20to%20electricity
- (14) Global Cold Chain Alliance (2015). Kenya Cold Chain Assessment. https://www.gcca.org/system/files/Kenya%20Cold%20Chain%20Assessment%20final%20report%202%2016%2018.pdf
- (15) Sainathan, P. (2018). 10 Potential Risks in Cold Chain Management. Blog.roambee.com. https://blog.roambee.com/supply-chain-technology/10-potential-risks-in-cold-chain-management
- (16) International Food Policy Research Institute (2018). Post-Harvest Losses in Fruits and Vegetables: The Kenyan Context. http://ebrary.ifpri.org/utils/getfile/collection/p15738coll2/id/132325/filename/132536.pdf
- (17) Cold Hubs. In developing countries, 45% of food spoils mainly due to lack of cold storage. http://www.coldhubs.com/
- (18) James, S. and James, C. (2010). 'The Food Cold-Chain And Climate Change', Food Research International, 43, 1944-1956. https://ucanr.edu/datastoreFiles/608-150.pdf
- (19) Smith, P., House, J., Sobocka, J. et al. (2016). 'Global Change Pressures on Soils from Land Use and Management', Global Change Biology, 22(3), 1008–1028. https://hal.archives-ouvertes.fr/hal-01444070/document
- (20) Republic of Kenya (2018). Third Medium Term Plan 2018 – 2022 Transforming Lives: Advancing Socio-economic Development Through The 'Big Four'.
- (21) Ministry of Agriculture (2019). Agricultural Sector Transformation and Growth Strategy: Towards Sustainable Agricultural Transformation and Food Security in Kenya 2019-2029.
- (22) Global Cold Chain Alliance (2015). Kenya Cold Chain Assessment. https://www.gcca.org/system/files/Kenya%20Cold%20Chain%20Assessment%20final%20report%202%2016%2018.pdf
- (23) Food Crops Industry Bill 2020. https://www.kilimo.go.ke/wp-content/uploads/2020/10/DRAFT-FOOD-CROPS-INDUSTRY-BILL-FINAL.pdf
- (24) Kenya Bureau of Standards (2018). Warehousing and storage of roots and tubers — Requirements. http://www.puntofocal.gov.ar/notific_otros_miembros/ken629_t.pdf
- (25) KENIvest. Investment Incentives. http://www.invest.go.ke/starting-a-business-in-kenya/investment-incentives/
- (26) Match maker Associates (2017). Horticulture Study - Phase 1: Mapping of production of fruits and Vegetables in Kenya. https://www.agroberichtenbuitenland.nl/binaries/agroberichtenbuitenland/documenten/rapporten/2017/03/01/mapping-of-production-of-fruits-and-vegetables-in-kenya/Scoping-horticultural-study-Kenya-2017.pdf
- (27) Energy Base (2020). Transforming Kenya's cold chain. https://energy-base.org/news/transforming-kenyas-cold-chain/
- (28) Deutsche Welle (2013). Women take over Kenya's farming sector. https://www.dw.com/en/women-take-over-kenyas-farming-sector/a-16716322
- (29) SDG Tracker (2021). End poverty in all its forms everywhere. https://sdg-tracker.org/no-poverty