MEMO – Due diligence visit – Embu, Kenya

Company: Alfa

Date:

In the week of 27- 29 November, I visited the premises of InstaLtd and some of the small holder farmers included in its supply chain. The visit were accompanied by an ILO Officer and the CFC Impact Officer, who assessed the social and environmental impact of the project.

INTRODUCTION

Alfa Ltd, (“Alfa”) is a small company that aggregates and trades fresh vegetables. Its client base is composed of local buyers as well as international buyers. Alfa and 30 of the famers included in its supply chain are Global Gap certified, hence Alfa can sell directly to the European market. Approximately 260 farmers are included in Alfa’s value chain, with an average production capacity of 1 acre. One acre usually yields about kg 300 of fresh vegetables. French green beans, baby corn, spinach are the main crops traded by Alfa. The production cycle is of about 45 days. Alfa provides the farmers with seeds and pesticides, the relevant cost is deducted at harvesting.

It has been observed that farmers are usually loyal to one trading company, giving the difficulties in changing the off-taker.

Alfa’s turnover for the year 2019 is Euro 200,000, well below the previous year. The total number of employees are 17, of which 6 are on unpaid leave due to Alfa’s current economic difficulties and slow-down in activities. The poor performance of the year 2019 is linked to a very dry season experienced between January and May 2019.

MANAGEMENT MEETINGS

The appraisal team had several meetings with Mr. xxxx 50% who is the owner and the Managing Director of Alfa. Mr. Ashibon has a lot of experience in the sector and he’s trying its best to run the company, despite the evident difficulties.

The company is 50% owned by a natural person whose identity was not disclosed, nor was possible to meet with him, since he resides in the UK.

OPERATIONS

Alfa premises – land, building and equipment - are 100% leased from the Kenya government. The lease price is of about Euro 800 per month, the premises include one office room, one conference room, one grading and packing room with tables, and small tools (knifes, cranes, scales) 4 cooling rooms. Each cooling room has a capacity of 10 tons. The overall conditions of the building and equipment are poor, small interventions might increase the hygiene and overall conditions of the plant. Changing rooms are deemed inadequate, toilets are in poor conditions.

Grading, and preparation of the fresh vegetable is all manual and executed by temporary workers paid about 250 KSH per day.

The pictures below illustrate the grading and aggregation room:

The Chemical Storage is in bed conditions and assessed unsafe and inadequate

Plant nursery, total cost about USD 3,000.

General conditions were poor and the investment costs excessive

During our visit one dispatch was processed, we had the opportunity to follow the entire process.

The 2 tons French green beans order was from Fresh for You (UK) and was sent via What’s App message. After having received the order, Alfa contacted the farmers in its value chain, aggregated the fresh vegetable, hired the workers for grading and storing of the products in small cranes. Processing was 2 days of work, the produce in cranes was dispatched to Nairobi airport via cooling trucks, property of Alfa. The selling price was USD 1.2 per kg much higher than the selling price to local buyers which is 65 KSH or USD 0.60 per KG.

Marketing is not an organized activity, sales happens mostly through personal contacts of Mr. Ashibon, hence sales are not predictable and supply is hugely affected by seasonality and crop availability.

In terms of organization, the Company looks primitive.

Despite having received a positive report from a Process auditing company, it can be assumed that if an existing or potential client from abroad, visit the premises , the Company might not be able to pass that screening.

Loading the cooling truck heading to Nairobi Airport

within your institution VISIT TO THE FARMERS IN Alfa’s SUPPLY CHAIN

We visited 3 farmers in Alfa supply chain, in all the cases the land was of about 1 acre and the main crop was French green beans. Since the visited farmers were also lead of a group of farmers they also have the aggregation unit, financed with a grant from SNV.

Farmers hire temporary workers for harvesting, average compensation is between KSH 300 and 500 KSH per day . Farmers are paid by Alfa 5 days after harvesting via bank transfer.

All the visited fields were rain fed, no irrigation system, and very small plot, cultivated by using simple utensils.

MEETING WITH ALFA FINANCING BANK - Cooperative Bank

The meeting was held at the local premises of Cooperative Bank (the “bank”). The bank did not disclose any information, and did not print Alfa’s bank account statements, despite the latter have been requested several times.

The bank confirmed verbally Alfa bank accounts and their balances as of the date of the visit, commented briefly on Alfa’s business and explained in details the bank policy on collateral. In the case of Alfa, the existing credit line is secured by a mortgage on the land owned by Mr. Ashinbon, a non edifiable land in the province of Embu. Only 45% of the value of the collateral can be disbursed under the existing credit line. Charged interest rate is 13%. The Government of Kenya put a cap on the interest rate the banks can charge to their customers. The cap will be soon removed, hence the interest rate charged to Alfa may increase.

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