Whole nut value chain Current situation

The prices of the whole nut in the country have been low (average of KES 13.7 per kg) and mainly depend on the seasonality of the crop. About ten years ago when the interest in the industry was at its lowest, farms were virtually abandoned and a kilogram of coconut fetched less than KES 6. This however changed with the entry of the Tanzanian traders and the formation of KCDA. The Tanzanians have made the prices to move from KES 6 to KES 16 per kilogram (Figure 6.3). Most Kenyans however do not consume the whole nut and therefore local prices are lower than export prices. Although most of the whole nut is latter processed into other products, focus is placed on selling of the whole nuts only as value addition and by-products have been identified as different specific value chains. Thus this is the shortest coconut value chain in the subsector.

Currently, this value chain earns the highest income for farmers. In 2012, about 3.39 billion nuts were sold, earning farmers and traders approximately KES 2.9 billon. For the country whole nut has also been the leading subsector export commodity in terms of value, accounting for over 54%

of all coconut exports. About 61% of the nuts are sold to traders who probably later channel them to the processing value chains.

Figure 6.3: Whole Coconut Value Chain

The Coconut Farmer

By-products Mature Fresh / Whole

16

Fresh Mature Coconut Trader

20

Local Market for

Fresh Export Market for Fresh

Value addition and processing Mature Coconut Mature Coconut

30 40

Consumers of Fresh Mature Coconut

--- Not part of the chain Numbers represent prices in KES/kg Source: own

presentation Expected Situation

Production

Although coconut production for this value chain is projected to increase by 5% annually, this Master plan will endeavor to maintain the current sales of fresh coconuts as extra nuts will be channeled to value addition chains. Thus the percentage contribution to exports and subsector GDP of this value chain is likely to decrease as investments in coconut processing increase. All imports of whole nut will be eliminated by 2018 as there will be enough fresh coconuts in the country.

Marketing and distribution of whole nuts

With increased coconut production, more local, regional and international markets will be explored. The expanding East Africa Community market where members are allowed to trade freely across the boundaries will be exploited. Expansion of international markets will target UAE and USA among other countries.

Value chain Enablement

Research on new coconut varieties and particularly hybrids will be up-scaled in order to increase the fresh coconut production. New high yielding, early maturing and drought resistant coconut tree varieties are expected to be introduced to farmers in major coconut growing areas. More coconut seedlings will be grown and nursery operators increased. Farmer cooperatives will be established in order to increase the bargaining power of producers at the marketing stage. Farmer demonstration plots will be introduced to exhibit possible agronomic practices that farmers need to undertake to increase coconut yields. Some of the organizations that will help farmers and traders are KCDA, KALRO and county governments.

Value chain support

Coconut producers and traders will be made to access more funding from banks and credit institutions. These funds will be used to enhance fertilizer application and increase number of nursery operators, and support agronomic activities. Coconut development fund will also be established to avail more funds to farmers and coconut traders.

6.4.3 Coconut oil

Copra is very easy to process at the cottage level. It is currently being processed by farmers and sold directly as copra oil. However, local prices are low due to the poor quality. Currently the price of copra at the farm level is about KES 40/kg (Figure 6.5). To many farmers, it makes more business sense to sell the dry nut even at the lowest price of KES 8/kg. Despite these challenges, in some instances, traders amalgamate their coconuts and crush them into copra and sell direct to the millers. About 8 main industries that used to deal in copra before 2006 have closed down and those in operation are now largely dependent on imported palm oil from Malaysia. Some also buy dry nuts and produce copra at the factory level. Some of the companies still processing Copra oil,

but at a small scale, are Amua, Serendi, Kentaste, and Malindi Industries.

The process of making virgin coconut oil (VCO) demands that the source of raw coconut is carefully controlled. This is done in order to have the finished product comply with the strict international standards that favor organically produced nuts. The nuts selected for virgin oil production fetch higher farm gate prices than those sold for other uses. Currently, a number of firms are making their entry into processing VCO and are heavily engaged in contracting farmers who have to meet certain agronomical standards.

The oil produced is sold directly to end users and other manufacturers who use it as raw materials for cosmetics, cooking oil, soap, pharmaceuticals and other products. At the moment there are just a handful of virgin coconut oil producers that are exporting their products. These include Navida, BICODE, Kentaste and Serendi (K). Approximately 30% of what these firms process is sold locally and the rest is exported mainly to Europe and USA. Currently Kenya is a net import of virgin coconut oil though it is processing approximately 35 tons annually. According to Figure 9.5, these processors derive more income/benefits than producers participating in this value chain.

Figure 6.5: Coconut Oil Value Chain

Copra

The Coconut

Coconut Farmer

40 16

Coconut Trader Copra

Trader

20

Copra 20

Trader

Consumers of Coconut oil & Coconut Oil Products

Numbers represent prices in KES/kg

Source: own presentation By-products e.g., Husks

Expected Situation Production

It is expected that farmers will produce enough nuts for processing products of this value chain. Approximately 17 nuts are usually required to extract a litre (approximately 1 kg) of coconut oil. The weight of an average piece of coconut is about 0.8 Kg. Thus 13.6 kg of nuts are required for the production of 1 kg of oil. In the country, the amount of coconut oil currently being imported is 4,659,415 Kg (KCDA, 2013). This is the amount targeted to be produced by local processors by 2018.

However, it is important to note that the demand for oil will continue to rise due to population increase, lifestyle changes and increased preference for health foods such as coconut oil. It is assumed this increase will be 5% per year.

To offset the current annual coconut oil imports by 2018, farmers will be expected to increase their produce gradually and eventually achieving 76,041,652.80 kg or 95,052,066 pieces of coconut by that year. This converts to a total of 1,357,886.66 trees (assuming that a single tree produces 70 nuts per year) for coconut oil only. If this trend is maintained the country will even be exporting some surplus coconut oil by 2019 (Table 6.3).

Table 6.3: Projection of Expected Production of Nuts and Oil (2014-2018)

2014 2015 2016 2017 2018 2019

1. Mature trees

harvested 452,629 678,943 905,258 1,131,572 1,357,887 1,584,201 2. Amount of nuts

processed (pieces) 31,684,022 47,526,033 63,368,044 79,210,055 95,052,067 110,894,077 3. Amount of nuts

processed (kg) 25,347,218 38,020,826 50,694,435 63,368,044 76,041,653 88,715,262 4. Oil produced

4,659,415

and sold (kg) 1,863,766 2,795,649 3,727,532 5,591,298 6,523,181 5. Oil imports

(kg) 4,892,386 5,137,005 5,393,855 5,663,548 5,946,725 6,244,062 6. Oil imports less

oil produced in kg

(5-4) 3,028,620 2,341,356 1,666,323 1,004,133 355,427 - 279,119 The oil produced and sold in 2017 is the current import volume (see

KCDA, 2013)

Source: own projection Processing

The extraction of the coconut oil is a complex process which requires use of various technologies.

It is therefore expected that by 2018 processors will have formed common interest groups/associations to scale up oil extraction to medium and large scale levels and to increase their bargaining power. They will be expected to produce 5,591,298 kg of oil by this year (see Table 6.3). It is therefore expected that they will be accessing machinery for medium scale and large processing depending on the size of the group. Through support from financers or creditors, processors or processor groups will be expected to acquire a set of machinery which has a screening machine, boiler, digesters, press, clarifier and generator. This machine produces 0.5 tons of coconut oil/hour. Large scale processors could acquire a refinery which would comprise elements such as hammer mill, bucket elevator, screw press and conveyor, centrifuge, vibratory sieve, micro filter, filtered oil storage tanks, crude coconut oil tanks and volumetric filling machine. The refinery produces 1 ton of coconut oil/ton.

Distribution and Marketing

The coastal region serves as the main coconut oil consumption area due to the tradition of relying on coconut products. Thus most of the coconut oil will be distributed in this region. To expand the market, awareness creation of the nutritional value of coconut oil and its health benefits will be done in other parts of the country. For the sale of the surplus, additional markets will be explored in Uganda, Tanzania, Rwanda, and Ethiopia. Some of the strategies to be used to increase sales and consumption of coconut oil and its products will include advertisement in print media, TVs,

radios, road shows and trade exhibitions. Quality coconut oil will also be promoted in foreign markets (mainly through trade shows) in order to capture emerging markets in the European Union and sub-Saharan Africa.

Value chain enablement

Farmers, processors and traders will be mobilized to form cooperatives/associations to facilitate training and accessibility of external resources such as credit. Through private-public partnerships, a standard for coconut oil will be developed. Awareness creation of coconut oil standard will be done through workshops, brochures, pamphlets, local print media, radio and TVs. This will be

done to enhance harmonization of local, regional and international trade of coconut oil and its acceptability. Government institutions will also be involved in setting up demonstration models for farmers and processors in order to enhance transfer of necessary knowledge and thereby increase productivity of the value chain.

It is expected that KCDA and KALRO will build capacity of farmers and processors by enabling them to access quality seeds and oil processing machinery. KEPHIS is expected to test the quality of coconut seedlings in order to ascertain that they are of the high quality and eliminate any risk of pest and diseases. KEBS is expected to ensure maintenance of quality of coconut oil and train processors on proper packaging in order to attain the desired internationally accepted standards. The organization will also be involved in providing quality standard stickers to processors in order to promote regional and international marketability of the coconut oil products. Infrastructure conditions in the production and processing areas will need to be improved in order to facilitate coconut transportation and also enhance marketing of coconut oil in both locally and regional markets.

Value chain Support

Credit services from banks, farmer cooperatives, NGOs and other organizations will be required to promote coconut oil production. Input suppliers such as nursery operators, agro-chemical and fertilizer traders will be provided with necessary incentives in order to enhance input accessibility by farmers. In particular, the government will be advised to continue providing subsidized fertilizers to coconut farmers. Coconut tree nurseries will be increased in number as demand for seedlings increase.

6.4.4 Coconut by-products

Coconut by-products considered in this value chain include shell, husk (coir/firbre) and cake.

The husk will be used to process coco peat and copra cake (also referred to as coir pith, coir fiber pith, coir dust, or simply coir).

Current Situation

The current technology of processing coir fibre involves mechanical extraction of fibre from the husk using a decorticating machine. The fibre is then classified into three classes: the long, medium and short fibre. Coir fibre is of much value because of its natural resilience, durability,

resistance to dampness and anti-termite characteristics.

The current biggest market in Kenya for coir fibre is the Prisons Department. There are efforts to expand the local market to include manufacturers of mattresses, mat weavers and car upholstery manufacturers. Some stakeholders are also exploring weaving of geo-textiles. These will target greenhouse farmers, dam and road constructors (for use in the prevention of soil erosion), and sport stadia management (growing grass in stadia). The price of the fibre ranges from KES 15-40 per kg depending on the nature of the final product (Figure 6.6).

Coco peat‟s market share of plant growing media (coco peat, peat moss, etc.) in Kenya amounts to approximately KES 120 million. Currently the country imports coco peat amounting KES 94 million annually. However, the country has also annual imports of about KES 5 million (KCDA, 2013). The demand for coco peat has been increasing due to environmental concerns in the flower industry. To-date most flower producers are using biodegradable products and coco peat is one of them. Thus the Kenyan flower industry is the main consumer of this product. As Figure 6.6 indicates processors of coco peat have higher benefits than other actors in the value chain.

Figure 6.6: Coconut By-Products Value Chain

Coconut

Fresh

Coconu t for Other

Uses

Coconut

Coco Peat Block Trader Coconut Fibre Trader

110 40

Flower & Seedling Gro

wers

Numbers represent prices in KES/kg

Source: own presentation

Copra Cake

Producers of mats, car upholstery, flower holders, chairs etc

The copra cake is important as an ingredient of animal feeds. Currently the level of production is very low due to low processing capacity and competition with other animal feeds. In particular, demand for copra cake in the coastal region where most of the coconut is produced is very low.

Expected Situation

De-husking and processing

The production of coconut by-products through de-husking and processing is expected to increase and offset imports by 2018. This is because more coconut oil, desiccated coconut and coconut milk products will increase whose by-products will form the raw materials for this value chain.

This means that as the volume of processed fresh coconut increases, more husks (coir/fiber), cake and shell will be produced. Among the by-products produced, cocopeat is expected to be prioritized due to the high local demand in the flower industry.

The by-products will be processed at all levels: local (household), medium (mainly individual entrepreneurs and small groups) and large scale (large companies) levels. Machinery for washing, heat-treatment, screening and grading will be availed in the market and full accessibility is expected to be achieved by 2016.

Marketing and distribution channels

Local, regional and international markets will be targeted. Emerging regional markets in Burundi, Rwanda, Uganda and Tanzania will be identified. Awareness will also be created through continuous advertisements in order to reach more consumers in different parts of the country.

Value chain enablement

Research will be done on the awareness of and perceptions on locally processed by-products.

Other forms of research to be conducted will be on achievement of zero waste and its linkage to climate change. Trade and road shows will be conducted to promote the by-products in the local markets. Storage yards for the husks (fibre/coir), shells and cakes will be constructed through public-private partnerships. Farmers will also be mobilized and trained on local processing of the by-products in their farms.

Value chain support

Besides benefiting from financial and credit service providers, this value chain will need support from non-governmental organizations and other private sector players involved in capacity building of actors in the coconut industry. This will help in improving skills of processing coconut

by-products.

6.4.5 Coconut (palm) wine and related products

Wine production involves tapping, fermentation and marketing. Over the years, toddy demand has been constant while supply has been dependent on the rainfall patterns. During the rainy season, toddy production is generally low. The production steadily rises as the long rains subside. The low production level during the rainy season increases the demand, pushing toddy prices upwards, while during the high toddy production season supply is higher than demand. This at times leads to post harvest loses and poor prices at the farm level.

Current Situation

Coconut wine (toddy) is regarded as one of the main traditional products of the coconut tree. In some cases it is viewed as controversial product (mainly after fermentation) and therefore embroiled in traditional, faith-based (religious) and legality issues. Toddy is tapped by special traditionally skilled people who are paid about KES 50/kg. The traders (middlemen) sell it at KES 100/kg. It then retails at KES 150/kg (Figure 6.7). It is estimated that there are over 6,500 toddy pubs (Mangwes) in the coastal region. On average each Mangwe sells an average of 60 litres or kgs of toddy per day.

In 2012, approximately 153,311,377 litres of toddy were produced and sold at a total value of 7,236,523,322 (KCDA, 2013). KCDA has made efforts to modernize the distribution and consumption of toddy through legislation and regulation, though not everything has been streamlined. The toddy pubs (Mangwes) are required by legislation to meet certain minimum hygiene standards before they are licensed to operate. However some operators have failed to comply.

64

Regarding the coconut sap or sugar syrup, there are no commercial quantities being tapped despite the huge potential for income generation from this activity. The main hindrance has been lack of a consistent market for sugar syrup. However, there is some tapping done by individual households, mainly for home consumption.

Figure 6.7: Coconut Toddy Value Chain

The Coconut

Farmer

Tapped Toddy

50

Toddy Traders

100

Toddy Clubs / Ba

150

Consumers of palm wine

Numbers represent prices in KES/kg

Source: own presentation

Expected Situation

Since palm wine is neither exported nor imported, it is difficult to predict the production level to be achieved by 2018. Thus, pessimistically, it is recommended that the current production level be doubled by 2018.

Tapping

To double the current production level by 2018, farmers are expected to be equiped with better tapping skills. Thus they are expected to be trained on important practices like how to make incisions on coconut trees and how to cut the flourescent from the base in order to prevent toddy from clogging. Farmers will also require training on good agronomic practices such as regular weeding, application of manure/fertilizers as well as pests and disease control. The focus will be to scale up the current tapping that uses few specialized tappers to large scale tapping that will rely on a pool of well trained individuals who will be employees of brewing companies. These companies are expected to initiate long term tapping contractual agreements with farmers.

Fermentation

The fermentation of toddy will be scaled up as the process will be done at the factories and not at homesteads or Mangwes. Toddy will be distilled to yield high quality alcoholic drinks with high nutritional value and sold at premium prices. It is expected that through public-private partnerships equipments such as distillers, stabilizers, coolers, storage and packaging machines and bottles will be accessed by palm wine investors.

Marketing and distribution

With large brewing companies being involved in the industry, more local markets at the Coast

With large brewing companies being involved in the industry, more local markets at the Coast