mR 33 - Kenya Impact Assessment: Baseline Research Report

8/14/2019 mR 33 - Kenya Impact Assessment: Baseline Research Report

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Assessing the Impact of Kenya BDandHorticulture Development CenterProjects in the Tree Fruit Value

Chain in Kenya

Baseline Research Report

microREPORT #33

JULY 2005This publication was produced for review by the United States Agency for International Development. It was prepared byDon Snodgrass and Jennefer Sebstad with Action for Enterprise under the Accelerated Microenterprise Advancement Project(AMAP) Business Development Services (BDS) Kenya STTA Task Order. Action for Enterprise is a subcontractor toACDI/VOCA under the AMAP BDS IQC.

DISCLAIMERThe authors views expressed in this publication do not necessarily reflect the views of the United States Agency for Interna-tional Development or the United States Government.


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Accelerated Microenterprise Advancement Pro-

ject (AMAP)is a four-year contracting facility thatUSAID/Washington and Missions can use to acquiretechnical services to design, implement, or evaluatemicroenterprise development, which is an importanttool for economic growth and poverty alleviation.

For more information on AMAP and related publica-tions, please visit www.microLINKS.org.

Accelerated Microenterprise Advancement Pro-

jectContract Number: GEG-I-00-02-00016-00

Task Order: Kenya STTATask Order Number: GEG-I-800-02-0016-00Contractor: ACDI/VOCAOlaf Kula, Program Manager

Tel: (202) 879-0213E-mail: [email protected]

Donald Snodgrass, Ph.D., Institute Fellow Emerit-us at Harvard University, is a scholar of economic de-velopment and an advisor in the areas of small en-terprise development, microfinance, education andhuman resource development, and poverty and eco-nomic growth in developing countries.

Jennefer Sebstadis a consultant working on devel-opment programs that focus on expanding income,employment, and asset building opportunities forpoor people in developing countries.

Action for Enterprise (AFE) is a non-profit organiz-ation dedicated to private sector/enterprise develop-ment based in Arlington, Virginia.

1
http://www.microlinks.org/http://www.microlinks.org/


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ACDI/VOCA is a private, non-profit international de-velopment organization based in Washington, DC.

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Assessing the Impact of KenyaBDS and Horticulture Develop-ment Center Projects in theTree Fruit Value Chain in Kenya

Baseline Research Report

microREPORT #33

Don Snodgrass and Jennefer Sebstad

2005

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CONTENTS

LIST OF TABLES AND FIGURES..............................5

LIST OF ACRONYMS AND ABBREVIATIONS.........7

EXECUTIVE SUMMARY............................................8

I. INTRODUCTIONS DEVELOPMENT ...................12A. Main Features of Program Environment..........12B. Program Descriptions......................................17

II. DESIGN OF THE IMPACT..................................22A. Key Questions.................................................22B. The Causal Model............................................22

C. Hypothesis......................................................22D. Framework of Analysis....................................23E. Data Collection Strategy.................................26

III. BASELINE RESEARCH FINDINGS...................30A. Tree Fruit Value Chains....................................30B. Smallholder Producers of Avocados, Mangos,and Passion Fruit.................................................43

IV. CONCLUSIONS OF THE BASELINE STUDY ANDIMPLICATIONS FOR ROUND TWO OF IMPACT

ASSESSMENT.....................................................62

REFERENCES..........................................................63

ANNEX A. DESCRIPTION OF KENYA BDS ANDFINTRAC HDC PROJECT ACTIVITIES ................65

ANNEX B. ISSUES TO FOLLOW UP IN ROUNDTWO....................................................................69

ANNEX C. CALCULATION OF THE ASSET SCOREGROUPINGS.......................................................71

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LIST OF TABLES AND FIGURES

TABLES

Table 1: Value of Horticulture Exports

Table 2: Baseline Sample Size Table 3: Geographic Location of Sample Table 4: Export Statistics for Avocado, Mango, and Passion Fruit,

Kenya, 2003 Table 5: Survey Respondents by Location Table 6: Number of Trees per SME by Site: Average and Distribu-

tion Table 7: Pieces of Avocado and Mango Harvested in Past Year: Average

and Distribution Table 8: Kilograms of Passion Fruit Harvested in Past Year: Average

and Distribution.

Table 9: Pieces of Avocado and Mango Harvested in Past Year perProducing Tree/Vine Table 10: Kilograms of Passion Fruit Harvested in Past Year per Producing

Tree/Vine Table 11: Earnings from Sales of Fruit in Past Year (Kenya shillings) Table 12: Sales by Type of Customer and Intervention Table 13: Percentage of Contract SalesTable 14: Distribution of Respondents by Amount of Hired Labor Used Table 15: Changes in Cultivation Methods and Planting of Fruit TreesTable 16: Average Expenditure on Fertilizer Used on Targeted Fruit Trees

in Past Year

Table 17: Average Expenditure on Sprays Used on Targeted Fruit Trees inPast Year

Table 18: Percentage of Respondents who are Members of a ProducerGroup

Table 19: Selected Enterprise Data by Asset Score Group (Entire Sample) Table 20: Average Number of Household Members, Earning Members, and

Earner/Dependent Ratios by Intervention Table 21: Respondent Households by Children in School and Inter-

ventionTable 22: Respondent Households by Members with Salaried Employment

and

Intervention Table 23: Percent Distribution of households by number of income

sources Table 24: Average Number of Household Income Sources by Inter-

vention Table 25: Sources of household income (Total sample) Table 26: Percent of Households Ranking Tree Fruit Income #1 or

#2

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Table 27: Proportion of Household Income from Tree Fruit (Estim-ated)

Table 28: Proportion of Household Income from Tree Fruit (Estim-ated) by Intervention

Table 29: Average Monthly Consumption Expenditure per Capita

by Intervention (Ksh)Table 30: Distribution of Respondent Households by Monthly ConsumptionExpenditure per Capita

Table 31: Distribution of Respondent Households by Asset Score Table 32: Distribution of Respondent Households by Asset Score

and Intervention Table 33: Distribution of Respondent Households by Size of Land-

holding Table 34: Distribution of Respondent Households by Size of Land-

holding by Intervention Table 35: Percentage of Woman-headed Households in Study

Sample Table 36: Selected Household Data by Gender of Household Head Table 37: Selected household data by asset score group (total

sample)

FIGURES

Figure 1: Activities under BDS Tree Fruit ProjectFigure 2: Activities under HDC Tree Fruit Project

Figure 3: Causal Model for Kenya BDS and Fintrac HDC ProjectsFigure 4: Framework for Studying ImpactsFigure 5: Kenya Tree Fruit Value Chain.Figure 6: Governance Continuum

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LIST OF ACRONYMS AND ABBREVIATIONS

AGOA African Growth and Opportunity ActBDS Business Development ServicesEAGA East Africa Growers AssociationEPZ Export Processing ZoneEU European UnionEUREPGAP Euro-Retailers Produce Good Agricultural PracticesFPEAK Fresh Produce Exporters Association of KenyaGOK Government of KenyaHCDA Horticultural Crop Development AuthorityHDC Horticulture Development Centre (Fintrac)HIV/AIDS Human Immunodeficiency Virus/Autoimmune Deficiency SyndromeIR Intermediate ResultKACE Kenya Agricultural Commodities ExchangeKADI Kamurugu Agricultural Development InitiativesKARI Kenya Agricultural Research Institute

KHE Kenya Horticulture ExportersKsh Kenya ShillingKWETU Swahili for our home, name of a local non-governmental organizationMOA Ministry of AgricultureMOU Memorandum of UnderstandingMSEs Micro and Small-Scale EnterprisesNGO Non-Governmental OrganizationSITE Strengthening Informal Sector Training and EnterpriseSMS Short Message ServiceSO Strategic ObjectiveUSAID United States Agency for International Development

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UTIVE SUMMARY

THE PROJECTS AND THEIMPACT ASSESSMENT

This study assesses1

the im-pacts of two USAID/Kenya fun-ded projects that focus on de-veloping sustainable solutionsto constraints facing busi-nesses in targeted industriesand the degree to which thesesolutions impact: the competitiveness of the

mango, passion fruit, andavocado value chains;

the integration of micro

and small enterprises(farmers and others) intothese value chains so thatthey contribute to and be-nefit from the tree fruit in-dustrys increased com-petitiveness

The projects are the KenyaBusiness Development Ser-vices (BDS) project implemen-ted by the Emerging Markets

Group and Fintracs Horticul-ture Development Centre(HDC) project. Both projectssupport USAID/Kenyas stra-tegic objective of increasingrural household incomes inKenya (SO 7). They seek toraise smallholder productivity,widen market outlets, facilitatevertical and horizontal link-ages, and promote the sus-tainable development of busi-

ness servicesfor rural MSEs

Kenya BDS, a five-year project,started in 2002 and workedinitially on the tree fruit valuechain. In its first two years,

1 Value chain and sub-sector are usedsynonymously throughout this report.

the project issued tenders andawarded contracts to eightprivate sector and NGO part-

ners. The contracts were de-signed to facilitate the devel-opment of sustainable solu-tions/services that provide ma-terial inputs (agro-chemicalsand seed varieties), appropri-ate technology to upgradeproducts and production pro-cesses, business and skillstraining, and extension and in-formation services. Severalcontracts promote market link-

ages between smallholder pro-ducers and lead firm exportersthrough supply contracts andlead firm provision of embed-ded services, and encourageinter-firm cooperation throughorganization of producergroups and provision of em-bedded services.

The HDC project focuses on awide range of horticulture

products. We study only theirpassion fruit work, which in-cludes plans to: (1) introducenew varieties of passion fruitfor fresh export; (2) improveagricultural practices of localproducers; (3) expand localprocessing capabilities for loc-al market products; and (4)strengthen the farm-to-marketvalue chain, inclusive of busi-ness services to small farmers.

Unlike Kenya BDS, the HDCproject does not operatethrough contracts but carriesout activities directly throughproject staff based in Nairobiand agronomists based in fourfield offices. It works with andthrough cooperating partners,including KARI, existing small-

holder associations, and twosmall businesses producingplant stock. In the future, it in

tends to work through inputsuppliers as well. This five-year project began in late2003 and was in its first yearof operation at the time of thebaseline survey.

The study is longitudinal, witha baseline study includingboth quantitative and qualitat-ive research. This will be fol-lowed up in two years with a

resurvey of the same respond-ents as well as further qualitat-ive research. The major find-ings on the impact of the twoprojects will emerge after thissecond stage of research.

This report presents the findings of a baseline study thatfeatured a survey of 1,947smallholder farmers who growavocado, mangos, or passion

fruit in Central, Eastern, andRift Valley provinces. Thesample included farmers whoare participating in the twoprojects as well as a controgroup of non-participants. Thesurvey was complemented byqualitative research (in-depthinterviews and focus groupdiscussions) with over 60 indi-viduals involved in the treefruit value chain, including

farmers, farmer producergroup leaders, input suppliersextension workers, brokersexporters, and Kenya BDS andFintrac project directors andstaff.

ASSESSINGTHE IMPACTOF KENYA BDS AND HDC PROJECTSINTHE TREE FRUIT VALUE CHAIN: BASELINE RESEARCH REPORT8


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The study design is based on acausal model of impact thatshows how project facilitationactivities to promote sustain-able solutions can addressconstraints to smallholder par-

ticipation and the competitive-ness of the tree fruit valuechain2. These activities in turnlead to sustained access to thesolutions, smallholder upgrad-ing, increased smallholder MSEprofits from tree fruit activit-ies, increased rural householdincomes, and overall sectorgrowth and competitivenesswithin the value chain.

The study tests three hypo-theses about the impact ofdonor interventions in openingup opportunities for smallhold-er MSEs in local, regional, andglobal markets and in improv-ing the competitiveness of theoverall value chain:

Hypothesis 1:Project activit-ies to promote sustainablesolutions in the tree fruit valuechain contribute to better in-tegration of smallholder MSEsinto the value chain.Hypothesis 2:Better integra-tion of smallholder MSEs intothe tree fruit value chain con-tributes to enterprise upgrad-ing, improved performance,and enhanced household well-being.

2 Sustainable solutions here refer to morethan business services from third partyproviders - they also include sustainableaccess to markets, business relationships,TA provided in an embedded fashion fromone firm to another, improved business en-vironment, capacity of industry represent-atives to influence policy, etc.

Hypotheses 3: Greater integ-ration of smallholder MSEs intoproductive value chains con-tributes to improved competit-iveness and growth of the tar-geted value chains.

FINDINGS OF THEBASELINE STUDY

Tree Fruit MarketAvocados, mangos, and pas-sion fruit are among the mostcommon fruit crops in Kenya.Most of the fruit produced issold in the domestic market,

but all three fruits are import-ant and growing export crops.In Europe, Kenyan fruit has acompetitive advantage basednot on volume, quality, orprice, but rather on seasonal-ity. Avocados, mangos, andpassion fruit each have a win-dow when these crops areless available from other sup-pliers. Kenya is also better setup to meet certification stand-

ards than other countries.

The main marketing outlets fortree fruit producers are tradersand brokers, who in turn sell toboth domestic and export mar-kets. In the domestic market,they sell to wholesalers, freshfruit retailers, and small retailshops. Producers also sell dir-ectly to fresh fruit retailers andthe Horticulture Crop Develop-

ment Authority (HCDA).Brokers and traders are themain conduits for smallholdersto formal and informal pro-cessing plants and to export-ers who buy tree fruits. Medi-um-scale growers often linkdirectly to processing plants,

local supermarkets, and ex-porters. Exporters buy fruitproduced by smallholders andmedium-scale farmers andalso produce some fruit ontheir own plantations. Export-

ers have just recently begun tobuy directly from producegroups and to provide embed-ded services to smallholdersthrough these groups.

Constraints to smallholder par-ticipation in the tree fruit valuechain include: Lack of information and

knowledge of the markets Limited access to inputs Limited access to re-

sources for, and/or weakincentives for, upgrading

Weak vertical and hori-zontal linkages within thevalue chain

Lack of trust among pro-ducers, brokers, and ex-porters

Governance in the tree fruit

value chain is characterized bya mix of market and networkrelationships (see page ___ formore detail). Smallholdershave traditionally sold theirfruit to brokers on a spot basis;contractual relationships havebeen marked by distrust. Withincreasing concentrationamong European buyers andrising standards in end markets (especially Europe, but

also in other international, re-gional, and domestic markets)the power of the retailinggroups to impose governancerules on the value chain is in-creasing. Horizontal linkages inthe form of farmers associ-ations exist but need strength-



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ening. The horticulture valuechain has had limited govern-ment involvement and privatefirms have generally been leftfree to organize the trade. Thisdiffers from the pattern that

characterizes some other com-modity value chains in Kenya-- for example, coffee, tea, andpyrethrum, for which officialmarketing boards still controlprocurement and prices. Asproducer groups form to link toinputs and markets, and as ex-porters form associations, thepatterns are shifting more to-ward network relationships.

Tree Fruit EnterprisesWe surveyed five interventionsintended to promote upgrad-ing and raise productivity andincome from tree fruit amongsmallholder producers of avo-cado, mango, and passionfruit. The MSEs included in thesurvey cultivated varying num-bers of trees/vines, with avo-cado holdings the smallest onaverage and passion fruit thelargest. For each fruit, therange of holding sizes waswide. With one exception, pro-duction and productivity werehigher for program parti-cipants than for controls, dif-ferences that may reflect se-lection bias and/or early im-pacts of program participation.Between the two passion fruitsites, Fintrac works with largerfarmers.

Nearly all the farms surveyedsell tree fruit, primarilythrough traders of differentsorts, but most earn only smallamounts from these sales.Contract sales have becomedominant and relatively well

accepted for farmers sellingavocados to EAGA under theKenya BDS project and thoseselling passion fruit in the Fin-trac areas; remaining groupssold their fruit predominantly

in spot markets.

Hired labor was used fairly ex-tensively by richer farmers,while poorer farmers reliedprimarily on family labor. Wo-man-managed farms tended tohire more labor than compar-able farms managed by men.

Producer group membershipwas almost universal among

program participants, bothmale and female. Moreover,nearly all of the farmers whobelonged to producer groupscharacterized them as eithervery or fairly useful.

Few farmers had access to ir-rigation and less than one-halfpurchased fertilizer for use ontheir fruit trees. A larger num-ber said they had boughtpesticide or fungicide sprays.

Considerable numbers of re-spondents had instituted im-proved cultivation or market-ing methods in the past twoyears. Large numbers in someareas had planted fruit trees inthe past year. Farmers lookedto a wide range of sources foruseful technical advice, in-formation, or training.

Tree Fruit HouseholdsHousehold size in the sampleis large relative to the totalpopulation, but about averagefor poor rural households. Thenumber of earning members inhouseholds and the number of

household income sourcessuggest an active workingpopulation among respondents. There are no major differences in earner-dependent ra-tios between men and women

headed households or bywealth level (as indicated byasset scores), suggesting thatthis may not be a major de-terminant of vulnerability fohouseholds in the sample.

The asset scores and consumption expenditure datashow a significant number ofpoor households in thesample, in both the participant

and control groups. This sug-gests the projects are involving poor households andthus, have potential for directimpact on their income fromtree fruits. The sample also in-cludes non-poor householdswhich should provide a goodbasis for comparing impactsacross poverty groups at theend line.

Households are quite diversi-fied in their sources of incomeand tree fruits are an import-ant source. While these figuresmay reflect an upward bias insome respondents who associ-ated the study with the treefruit projects, it suggests theimportance of relatively smalamounts of cash income forrural households.

Gender differences in the divi-sion of labor related to treefruit production, the control oftree fruit income, and accessto productive resources arelikely to play out in the impactof the projects. Producergroups appear to be an effect-



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ive means of reaching womenand poorer tree fruit farmers.

Role of the ProjectsBoth projects facilitate activit-ies to promote upgrading of

tree fruits, primarily product,process, and inter-chain up-grading. The aim is to improvethe capacity of smallholders torespond to changing marketdemand and increase rural in-comes. The baseline researchidentified specific forms of up-grading in the tree fruit valuechain and polled the views ofproducers and other actors inthe value chain on the incent-ives and disincentives to up-grade. All the sub-projects inthe study promote the forma-tion of producer groups as partof their strategy to link small-holders to input, service, andproduct markets. At the timeof the qualitative research,producers groups had beenformed, but most of them (ex-cept the avocado groups) werestill at an early stage in theiractual activities.

Baseline Research Conclu-sions and Implications forRound TwoSmallholders are part of thetree fruit value chain, but theyoccupy a low position withinthat chain. They are numerousand active producers, but theirproductivity is low and they

sell much of their produce un-der unfavorable conditions. In-come from tree fruits plays animportant role as a source ofhousehold income, especiallyfor the poorer farmers, but in-come from tree fruit and totalhousehold income are bothvery low in most cases.

To varying degrees, the five in-terventions included in thebaseline study succeed inreaching low-income farmers.

This means that there is po-

tential for direct impact byraising rural household in-comes through the projects.

Building stronger horizontallinkages by grouping produ-cers and achieving economiesof scale is an important part ofthis potential because it helpspoor farmers link to exportmarkets something theyhave very little opportunity to

do by other means. The projects have been instrumentalin organizing and strengthen-ing tree fruit producer groups.

Vertical links to higher-valuemarkets provide critical incent-ives for tree fruit producers toupgrade. So far, only one ofthe interventions studied theEAGA avocado intervention has begun to realize this po-tential by forging a direct linkfrom farmers to the Europeanmarket. This linkage has in-volved the provision of embed-ded spraying services by theexporter and negotiated MOUsbetween producer groups andthe exporter. The process hasrequired considerable handholding by Kenya BDS andother support from USAID tohelp prepare smallholders tomeet EUREPGAP standards.

Brokers remain alive and wellin all three fruit value chainsand continue to be importantmarketing channels for manyfarmers.

It is too soon to tell whetherthe project activities will resultin "sustainable solutions" tothe recurrent needs of treefruit producers. This includesboth embedded and stand

alone solutions/services thatprovide inputs, TA, or marketaccess. In some cases changesmight take place due to directprovision by the projects but itremains to be seen if embed-ded service arrangements, thecommercialization of nurseryand extension services, or thenetwork broker concept ofEAGA and Kenya BDS will lastonce the project activities end.

While scrupulous efforts weremade to select control groupsamples for the baseline sur-vey that were comparable tothe participant samples, at thetime of the survey the parti-cipants as a group were signi-ficantly better-off and moreproductive than the controlsWhen each group is resurveyed two years hence, carewill need to be taken in analyz-ing the results to ensure thatdifferences in householdwealth and other mediatingvariables are taken into ac-count in determining the impact of the programs.

In the second round it will becrucial to review and docu-ment the interventions carefully. The activities are verydifferent and the scopes otheir activities and the ap-proaches they take are likelyto evolve over time. Finally, itwill be important to analyzethe commercialization issueincluding a careful look at thespecific services/solutions pro-



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moted during the course of theprojects.



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I. INTRODUCTION

This report presents the find-ings from a baseline study ofthe impact of two projects todevelop tree fruit value chainsin Kenya. The study featured asurvey of 1,947 smallholderfarmers who grow avocado,mangos, or passion fruit inthree provinces of Kenya Central, Eastern, and Rift Val-ley. The sample included farm-ers who are participating inthe Kenya Business Develop-ment Services project (imple-

mented by the Emerging Mar-kets Group, formerly known asDeloitte, Touche, Tohmatsu)and Fintracs Horticulture De-velopment Centre project, aswell as a control group of non-participants. The survey wascomplemented by qualitativeresearch involving in-depth in-terviews and focus group dis-cussions with over 60 individu-als involved in the tree fruit

value chain, including farmers,farmer producer group lead-ers, input suppliers, extensionworkers, brokers, exporters,and Kenya BDS and FintracHDC project directors andstaff.

This baseline study will be fol-lowed up in two years with asecond survey of the same re-spondents as well as further

qualitative research. The major findings on the impact ofthe two projects will emergeafter this second stage of re-search. In the meantime, thepresent report will describesmallholder tree fruit cultiva-tion in Kenya, note some ofthe characteristics of parti-

cipants in this activity, andprovide some preliminary in-dications of what impacts theprojects may be having.

A. MAIN FEATURES OFTHE PROGRAMENVIRONMENT

1. DEVELOPMENT INKENYA3

Kenya achieved independencefrom Great Britain in 1963 fol-lowing a nationalist struggleSignificant economic growthwas achieved through the1970s, but growth slowed inthe 1980s and per capita in-come declined in the 1990s

under the dictatorial rule oDaniel Arap Moi. Hopes of na-tional revival were raised bythe free election of 2002which brought to power a gov-ernment headed by MwaKibaki. Yet the economicgrowth rate remained low andper capita income in 2003 wasstill below the 1990 level. Pre-dicted economic growth rateshave recently been revised up-

ward to 3.3 percent in 2005and four percent in 2006based on accelerated disbursement of donor fundsstrong performance by cashcrops and tourism, and risinggarment exports to the U.Sunder AGOA. These rates re-flect improvement on past per-formance but remain far fromthe six percent annual growththat the World Bank believes

to be achievable if planned re-forms are implemented in full.

Slow economic growth hascombined with HIV/AIDS to

3 References for this section include theCIA World Factbook, the Economist Intel-ligence Unit, USAID, and the World Bank



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cause poverty to rise andhealth conditions to worsen.

The poverty headcount in-creased from 49 percent of thepopulation in 1990 to morethan 56 percent in 2003. Life

expectancy fell from 57 yearsin 1986 to 45 years in 2004while the infant mortality raterose from 63 per live births in1990 to 78 in 2002. The estim-ated HIV/AID prevalence rateis currently 6.7 percent.

High fertility and rapidly in-creasing population have com-pounded Kenyas economicproblem. The population grew

from 9.4 million at the time ofindependence to 31.9 millionin 2003, averaging more thanthree percent per annum.However, the total fertility ratehas now declined to 3.3 birthsper woman and the populationgrowth rate in 2004 was only1.1 percent.

Kenya has many natural ad-vantages as well as the largestand most diversified economyin the East Africa. According toUSAID/Kenya, the countrysperennial failure to achievesustained economic growth isattributable to several factors: Governance issues: lack of

democracy; over-concen-tration of power in the ex-ecutive branch with inad-equate checks and bal-ances

Corruption that pervadespublic administration

Inconsistency in policies,laws, and regulations thatadds significantly to costsof doing business and dis-courages investment

Low productivity

Rapid population growth HIV/AIDS Low levels of investment Inefficient and dilapidated

infrastructure

Vulnerability to drought Threats to Kenyas ex-

traordinary environment4

The government that came topower in 2002 pledged to ac-celerate economic growth andreduce poverty. To this end, itformulated a poverty reductionstrategy, known as the Eco-nomic Recovery Strategy forWealth and Employment Cre-

ation, and committed itself toshift public expenditure to-wards programs that benefitthe poor, notably a freeprimary education program.Subsequently, however, polit-ical in-fighting over constitu-tional reform and other issues,together with signs of reluct-ance to tackle high-level graft,have raised doubts about thegovernments ability to reform

and shake off the bad habits ofthe past. Kenya is heavily de-pendent on donor funding,which was withheld during the1990s and is currentlythreatened once more by thegovernance issue.

Poverty and inequality remainsevere, largely because mostKenyans are still low-pro-ductivity farmers. Agriculture

absorbs 75 percent of thelabor force but produces lessthan 20 percent of GDP. Farmsare small on average. Mostfarmers are heavily dependenton rainfall and plant an aver-

4 USAID/Kenya. 2000. Integrated Stra-tegic Plan 2001-2005,pp. ii-v.

age of 1.8 hectares in therainy season. 5 Just over one-half of farmers have a deed totheir land, while another one-third own the land but have noformal title. Many farms lack

good access to markets. Closeto one-half are located withinfive kilometers of a pavedroad. The average farm house-hold has 6.8 members and isheaded by a 53-year old. Malehousehold heads (86 percentof the total) average six yearsof schooling, woman household heads four years.

5 Data cited in this paragraph derive from

the Rural Household Survey carried out byEgerton College, Tegemeo Institute, andMichigan State University in 2000, as re-ported in Nicholas Minot and MargaretNgigi, Are Horticultural Exports a Rep-licable Success Story? Evidence fromKenya and Cote dIvoire. Paper presentedat the InWEnt, IFPRI, NEPAD, CTA con-ference, Successes in African AgriculturePretoria, December 1-3, 2003.



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2. USAID KENYAS STRA-TEGIC OBJECTIVES

Based on U.S. foreign policy in-terests and Kenyas develop-ment constraints, USAID/Kenya

identified four strategic object-ives and one special objectivefor its programming in 2001-2005: Strategic Objective 6:

Sustainable reforms andaccountable governancestrengthened to improvethe balance of poweramong the institutions ofgovernance

Strategic Objective 7:Increased rural householdincomes

Strategic Objective 3:Reduce fertility and therisk of HIV/AIDS transmis-sion through sustainable,integrated family planningand health services

Strategic Objective 5:Improved natural resourcemanagement in targeted

biodiverse areas by andfor stakeholders Special Objective 4:

Critical needs met forKenyans affected by thebombing of the NairobiEmbassy in 1998 and ca-pacity built to address fu-ture disasters

The activities covered in thisreport fall under SO 7. The

Mission justifies this strategicobjective as follows:

Since 80 percent of theKenyan population lives inrural areas, and 75 per-cent are somehow in-volved in agriculture,Kenyas economy is there-

fore heavily dependent onits agricultural productiv-ity. Over the past decade,however, agricultural pro-ductivity has declined andpoverty has increased.

Over the same period,drought has plaguedKenya on an increasinglyfrequent basis, affectingtraditionally drought-prone areas, as well asmany other agro-ecologic-al zones (AEZs) of thecountry. While poverty isfound in both urban andrural areas, 75 percent ofthe poor are in rural areas.USAID/Kenya will, there-fore, focus on increasingthe incomes of ruralhouseholds in selectedhigh and medium poten-tial and arid and semi-aridlands, most of whichalready rely on a combina-tion of on- and off-farmactivities...

Increasing rural householdincomes is essential toachieving a prosperousand democratic Kenya. Tosustain and improve pub-lic services and builddemocratic institutions,Kenyans must have higherincomes. A populationwith higher incomes is apopulation with higher ex-pectations for its futureand the future of its chil-dren. When people areable to pay for health andeducation services, these

services can be sustainedand improved. Likewise,economic growth will cre-ate financial stability andallow Kenyans to take amore constructive interestin the political environ-ment that affects theireconomic well-being.

(USAID/Kenya 2000, pp.65, 83)

Kenyan agriculture is primarilyorganized in smallholdings andis almost exclusively rain-fed

According to the Missions ana-lysis, factors contributing tolow and falling agricultural pro-ductivity include HIV/AIDS, aconfused policy environmentthe survival of marketingboards for a few key commod-ities (coffee, tea, and pyrethrum), poor access to creditand extension services, andweak smallholder organiza-tions.

(USAID/Kenya 2000, pp. 68-75)

The results framework adopted by USAID/Kenya for SO 7includes four high-level inter-mediate results (IRs). IR 7.1calls for increased productivityin three targeted agriculturasub-sectors: dairy; horticul-ture; and maize. IR 7.2 aims toincrease the volume and valueof traded agricultural commod-

ities, especially dairy and hor-ticultural products. IR 7.3seeks increased access tobusiness support services(credit and savings; appropriate technology; skills, andbusiness training) for microand small enterprises. IR7.4targets increased effectiveness of smallholder organiza-tions in providing business ser-vices to members and repres-

enting their business interestsBelow these four IRs, 15 sub-IRs are specified.

As discussed in the followingsection, tree fruit cultivationand other forms of horticultureare important activities for



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Kenyan smallholders. Raisingproductivity in these activitiesand the revenue earned fromthem should therefore contrib-ute significantly to the in-creases in average rural

household income that aresought by the GOK andUSAID/Kenya.

Curiously, given the emphasison raising average ruralhousehold incomes, little in-formation seems to be avail-able on the actual levels ofthese incomes. Tegemeo Insti-tute, on behalf of USAID/Kenya, does track annu-

al movements using a proxymethod that it developed inpartnership with MichiganState University.6

3. BACKGROUND OF THEHORTICULTURE SECTOR

Kenyas tropical and temper-ate climate zones favor cultiv-ation of a wide range of horti-cultural crops. In the coastallowlands, farmers grow man-gos, citrus fruits, cashews, ba-nanas, hot peppers, brinjals,and melons. In the middle alti-tudes, crops include bananas,mango, avocado, pineapple,grapes, passion fruit, pawpaw,citrus, flowers, onions, garlic,tomatoes, kale, cucumbers,pepper, okra, and Frenchbeans. At high altitudes, avo-cado, pears, apples, plums,carrots, cabbages, peas, pota-toes, and flowers are grown.Factors that favor horticulture

6 See David Tschirley and Mary Math-enge. 2003. Developing Income ProxyModels for Use by the USAID Mission inKenya: A Technical Report. TegemeoWorking Paper No. 7.

production in Kenya include aclimate that allows for year-round cultivation, fertile soils,and a competitive labor forcewith good education and tech-nical background.

According to the 2000 RuralHousehold Survey carried outby Egerton College, TegemeoInstitute, and Michigan StateUniversity, almost all farmersin Kenya (98 percent) grewsome fruits and vegetablesand 35 percent of fruit and ve-getable production was sold inthe market. Overall, fruits andvegetables contributed 18 per-

cent of average household in-come. Over 90 percent ofhouseholds across incomegroups grow fruits and veget-ables, although richer house-holds market a larger share oftheir output and account for alarge proportion of total sales.According to a study by the In-stitute of Development Studiesat the University of Sussex,households involved in theproduction or processing of ex-ported horticultural cropsearned higher incomes thanhouseholds that are not, otherthings being equal. This sug-gests that enabling morehouseholds to participate inthe sector could reducepoverty substantially in bothrural and urban areas (McCul-loch and Ota).

While horticulture productshave long been grown forhome consumption, productionfor sale in domestic and exportmarkets began in the early20th century and has recentlybecome one of the few suc-cess stories in an otherwise

lackluster economy (Minot andNgigi 2003, pp. 3-8). Domesticsales through traditional retaiand public wholesale outletsby far, dominate the marketWhile there are two large su-

permarket chains, they com-prised less than five percent ofdomestic market horticulturesales in 2003. Much of what issold in these supermarkets isprocured directly from preferred growers mostly com-mercial farmers and a smalnumber of organized smallholders (Tschirley et al 2004)Only two percent of farmerscurrently produce for export

markets. The HorticultureCrops Development Authority(HCDA) estimates that 40 per-cent of exported fruit is pro-duced by smallholders (citedby Minot and Ngigi 2003, pp10-11), with the remaining 60percent produced by commer-cial farms.

Horticulture Exports fromKenya

Over the past two decadesexport horticulture in Kenyahas grown in importance, almost tripling in value between1996 and 2001 (Table 1). Hor-ticulture (comprising freshfruits and vegetables and cutflowers) has become the na-tions third most important for-eign exchange earner aftertourism and tea.

Kenyan horticulture productsare exported primarily toEurope and the Middle East7

7 Regional exports, especially to neighbor-ing Tanzania and Uganda, are minimal.Overall, Kenya is a net importer of horti-culture from these countries (Tshirley, et al2004).



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where they compete with pro-ducers from EU countries aswell as from other African,Middle Eastern, and SouthernEuropean countries. Consign-ments of fresh cut flowers,fruits, and vegetables are airfreighted daily to various des-

tinations from Kenyas two in-ternational airports. Somebulky produce is shipped fromthe port of Mombassa. TheEuropean Union is the princip-al importer of Kenyas freshproduce. The bulk of flower ex-ports go to the Netherlands forsale by auction. By 1999,Kenya had become the leadingsupplier of flowers to the EU,followed by Israel, Costa Rica,Colombia, the USA, Ecuador,and Zimbabwe. Britain, France,the Netherlands, and Germanyare the major importers of ve-getables. Kenya has been de-scribed as one of the worldsmost successful exporters offresh vegetables to EU coun-tries; in 2002 it ranked secondamong non-members in thevalue of fresh vegetables (Jaf-fee 2003). 8 Beans and peas

8 The $6 billion annual fresh vegetablemarket in the EU was supplied largely byEU producers. Among the $950,000 mil-lion of vegetables imported from non-EUmembers, Kenyan exports account for$100 million (Jaffee 2003). Similar datato show the position of Kenyan fresh

fruits was not found.

are the main vegetables sup-plied to Europe. The leadingdestinations for fresh fruit ex-ports (mango, avocado, andpassion fruit) are France,Dubai, the Netherlands, andthe UK. Overall, nearly 90 per-cent of Kenyan horticultural

exports go to Europe. TheMiddle East is a significantmarket for mangoes. Fruit ex-ports grew rapidly from 1996to 2001 but remained muchsmaller in value than eithercut flowers or vegetables. Theofficial figures are shown in

Table 1.

The demand for horticultureproducts in the European mar-

kets is increasingly concen-trated on fresh produce distri-bution channels in supermar-kets. Another important factorinfluencing demand is increas-ing importance among con-sumers of food safety and theenvironmental and social di-mension of the food supplychain. As a result, the regulat-ory environment is becomingmore stringent, raising the bar

for new entrants and posingnew challenges for existingsuppliers (Jaffee 2003).

Export marketing systems forhorticulture differ by crop.While cut flowers are sent forauction in the Netherlands, ve-

getables and fruit are sold onexport contracts that specifyquantities and prices. Britishsupermarkets took an increasing role in the vegetable tradeduring the 1990s as a way ofensuring the quantitiessafety, and qualities that they

wanted. This shifted the tradefrom Kenyan wholesale mar-kets, where Asian traders areactive, to contracts with largeexporters that obtain their pro-duce primarily from their ownfarms and large contractfarms. The move hurt smalout-growers. Pre-packs for thesupermarkets and Asian veget-ables became increasingly im-portant products during the1990s.

Some 10-15 major export-ing companies dominatethe sector. These compan-ies are very well organ-ized, often with an integ-rated system of produc-tion/processing/transport/marketing.

There is also a quite welldeveloped small/mediumsize exporter sector whoare well organized on pro-duction/transporting level,but less on processing andmarketing due to theirsize of operation. There isa third level of exporterswho still perform more orless in an ad hoc manner,and rely on the prevalent


Table 1: Value of Horticulture Exports (in millions of Kenya Shillings)

Year Fruits Vegetables CutFlowers

Total Horticulture

1996 770 2,577 4,366 7,7131997 805 3,116 4,888 8,8091998 820 4,025 1,856 9,728

1999 1,256 5,713 7,235 14,2042000 1,098 5,293 7,166 13,5572001 1,560 8,035 10,627 20,221Source: Cited in Dolan and Sullivan


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market situation andbrokers for their existence.However, the latter grouphas almost disappearedfrom the flower exportsector in the last five

years, and will, most prob-ably, decline also in thevegetable sector in thenext five years due to theeffects of the Code ofPractice to be implemen-ted. However, brokersmake out an essential partof the fruit export sectorand will continue to be im-portant if Kenya is goingto remain a fruit exportingcountry in the future.(FKAB Feldt Consulting2001, p. 8)

According to a sector studycontracted by USAID/Nairobi(FKAB Feldt Consulting 2001),Kenya has several competitiveadvantages in export horticul-ture: A strong and well organ-

ized private sector A variety of suitable cli-

mates for different species A rather good main roadinfrastructure and goodlocal supplies of inputsand implements

Access to good air cargohanding facilities and air-port services with ad-equate cargo space to ma-

jor destinations Rather simple export doc-

umentation procedures

Incentives for exporters(VAT reimbursement andduty-free imports of mostinputs and implements)

Horticulture production for ex-port has potential to benefitpoor people in several ways:

by increasing employment inproduction, transport, inputsupply, processing, sorting; byincreasing jobs for unskilledworkers, especially women; byincreasing employment on

large farms and plantations;and by building new know-ledge and technology that isvaluable in producing andmarketing other high valueproducts.

Constraints to HorticultureExports

Demand Side Constraints:According to Minot and Ngigi

(2003, pp.9-10), the trans-formation of food retailing andchanges in the structure ofconsumer demand in Europeare serious challenges forKenya and other horticulturalexporters:

The rise of supermarkets:The share of fresh fruits andvegetables sold by supermar-kets in the UK rose from 33percent in 1989 to 70 percentby 1997. Increasingly, super-market chains bypass whole-salers and buy directly fromexporters in Kenya and othercountries. To protect theirreputations, the chains im-pose new restrictions andeven organize production indeveloping countries.

Increasing concern over foodsafety:The demand for horti-

culture products in theEuropean markets is shiftingwith consumers increasinglyaware of the health con-sequences of pesticideresidues and placing moreimportance on food safetyand the environmental andsocial dimension of the food

supply chain. In responsethe Fresh Produce ExportersAssociation of Kenya (FPEAK)9

adopted a Code of Practicefor growers in 1999. TheCode includes a 14-step doc-

umentation procedure for en-suring the traceability of pro-duce handled by the export-er. This is an important stepin establishing a common setof standards regarding safehandling of fresh fruits andvegetables and disseminating the information. Howeversome aspects of the Code im-ply significant costs andthere are currently no en-

forcement mechanisms.(Minot and Ngigi 2003, p.10)More recently, EUREPGAP hassignificantly raised the stand-ard that Kenyan producemust meet to enter theEuropean market, as well asthe cost of compliance.

Competition from other suppliers: Kenyan horticultureenjoys duty-free access toEuropean markets. If andwhen this preference is ter-minated, Kenya will face increased competition fromcountries such as EgyptSouth Africa, Chile, Braziland Thailand. Even withoutsuch a change, horticulturamarkets are highly competit-ive and subject to rapid shifts

9 FPEAK is an organization that represents

than 140 members who are active export-ers and other interest groups. Besides for-mulating and implementing a Code ofPractice to ensure quality produce grownand shipped in an ecology- and worker-friendly environment, FPEAK maintains adatabase of local products and suppliersand provides market leads and contacts tomembers. Its secretariat is assisted byUSAID.



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in export competitiveness.Kenya lost the European mar-ket for fresh pineapple toCote dIvoire in the 1980s,was squeezed out of avocadoexports to Europe by higher

quality products from Israeland South Africa, and alsolost the market for severaltemperate vegetables. It re-sponded by finding new mar-kets and expanding exportsof French beans, Asian veget-ables, and cut flowers. Exportcompetitiveness evolves con-tinuously in response tochanges in markets, techno-logy, and competitors (Ibid).

Supply side constraints: En-hancing the capacity of theKenyan horticulture industry torespond to changes in marketdemand is critical to remaincompetitive in export markets.Small farmers need to becomemore competitive, not onlytoday but also tomorrow. Pro-

jects such as those reviewedhere need not only to createcompetitive advantage butalso to sustain it. At present,however, challenging con-straints exist on the supplyside. Among the most criticalare shortages of the seedlingvarieties needed for participa-tion in exports and the lack(on the part of smallholders) ofthe knowledge, skills, and fin-ance needed to grow fruit inways that will safeguard qual-ity and protect them from dis-ease. The same study identi-fied several important con-straints and areas requiringimprovement: A shortage of irrigation water

in many areas

A general shortage of skilledlabor and qualified manage-ment staff

High air freight rates and aneed for more cargo capacityto London, Paris, and Frank-furt

Inadequate communications,power supply, and rural feed-er roads. Failure to exemptcontract farmers and out-growers from VAT (becausetheir products are exportedthrough a third party)

The industry has perceivedthreats to its prosperity from

both the Kenyan governmentand the EU. Recently therewas a general fear that thegovernment might raise taxesand fees that impact export-ers. There was also a move toincrease government controlof horticulture by broadeningthe role of the HorticultureCrops Development Authority10

from being a facilitator to amore active role in buying and

selling commodities like a mar-keting board -- but this seemsto have been withdrawn fol-lowing the change in govern-ment. (Minot and Ngugi, 2003,p. 5)

Constraints to SmallholderParticipation in Horticul-ture Export MarketsDespite the potential of horti-culture sales to increase

household incomes and reducepoverty, a large majority ofKenyas smallholder horticul-ture producers remain outsidethe more lucrative export andsupermarket segments (Tshir-

10 The HCDA was formed in 1967 and car-ries out a variety of promotional activities.

ley et al 2004; Muendo, Tschir-ley, and Weber 2004)Moreover, recent data suggesta downward trend in the shareof smallholder production inthese markets. Smallholders

share in export horticulturehas fallen from 75 percent inthe early 1990s to perhaps 45percent today, indicating aclear decline and rough chal-lenges ahead (Muendo

Tschirley, and Weber). Becauseexports have soared, this doesnot necessarily imply an abso-lute decline in the quantitiesthat smallholders supply to theexport market, but it does sug-

gest limitations on new oppor-tunities.

In the context of this dualisticmarket, smallholders participate primarily in traditionamarkets, which at present arenot competitive even on a re-gional basis. There are relat-ively few regional exportslargely because of high trans-portation costs. Kenya is infact a net importer of horticul-tural products from Ugandaand Tanzania. While Kenyanexports have been competitivein international markets, thestringent quality standardsthat are being introduced inEU and other export marketsare likely to further raise thebar for small scale producers thus further limiting their par-ticipation in these markets. Asstated in an article from TheFinancial Times:

In the wake of mad cowdisease and other scares,European authorities de-mand ever tighter foodquality controls. A bewil-



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dering array of thesealready apply. There aremore than a dozen qualitystandards across the EU,usually set up and mon-itored by the tradeFor

poor countries like Kenya,the question is whetherthe regulations, or non-tariff barriers, are becom-ing incompatible with thevision of development thatsees small-scale crop pro-duction of export crops ascentral to poverty reduc-tion. (Wallis)

As the Financial Times articlesuggests, large producers and

exporters find it easier andcheaper to comply with suchregulations than do small andmedium firms because largefirms can spread the cost ofcompliance, which is substan-tial, over a larger volume ofsales.

B. PROGRAM DESCRIP-TIONS

The two projects covered bythis assessment are designedto promote growth in Kenyastree fruit agriculture and en-courage smallholder participa-tion in the tree fruit valuechain. USAID/Kenya fundsboth in support of their stra-tegic objective to increase rur-al household incomes in Kenya(SO 7).

The overall goals of the KenyaBDS and Fintrac HDC projectsare to: Increase small farmer and

household incomes Promote growth in final sales

in selected commodities

Increase outreach and sus-tainability of solutions/ser-vices offered by multiple pro-viders to large number of mi-croenterprise clients

Foster a better-skilled andmore competitive MSE sector

The projects seek to: Raise productivity through

market intervention by pro-moting the production ofhigher grade, better qualityfruit by facilitating access toimproved stock and seed-lings, productive inputs,training, extension and in-formation services

Increase market outlets inselected areas by facilitatingdirect links between small-holder producers and leadfirms involved in fruit exportand processing and promot-ing the formation of producergroups

Facilitate inter-firmcooper-ationand organization withinthe overall value chain,between producers, inputsuppliers, producers and buy-ers, by organizing and build-ing the capacity of tree fruitproducer groups, linkingsmallholder MSEs to leadfirms that provide embeddedservices, and facilitating oth-er business arrangementsand relationships

Promote the development ofsustainable business solu-

tions/services for ruralMSEs

The Kenya BDS project focuseson vertical linkages, especiallythe link connecting farmers tolead firms. It is essentially abusiness model, which em-phasizes improved market ac-

cess and incentives for small-holders and enhancement oftheir capacity to respond toprice incentives through embedded services provided bylead firms and input stockists

The Fintrac project includes atechnical component (improved planting stock and cul-tivation methods) and tries toimprove the international enabling environment through itswork with European retailersto shape their standards sothat Kenyan farmers can meetthem and by helping producers meet the retailers risingquality standards.

1. KENYA BDS PROGRESSTO DATE

Kenya BDS, a five-year projectthat started in 2002, was in-tended to work in three sub-sectors; tree fruit was the firstsub-sector selected.11 Duringits first two years, the project

issued tenders and awardedcontracts to eight private sec-tor and NGO partners active inthe production and marketingof tree fruit. The contractswere designed to facilitate thedevelopment of sustainablebusiness solutions that providematerial inputs (agro-chemic-als and seed varieties), appro-priate technology to upgradeproducts and production pro-

cesses, business and skillstraining, and extension and in-formation services. Severacontracts promote market link-ages between smallholder pro-

11 The second sub-sector chosen was LakeVictoria Fish; the third sub-sector has notyet been identified but is likely to be anon-agricultural activity.



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ducers and lead firm exportersthrough supply contracts andlead firm provision of embed-ded services, and encourageinter firm cooperation throughorganization of producer

groups and provision of em-bedded services. Embeddedservices areproducts/services/solutionsthat are provided on a non-feebasis by one firm to another aspart of their commercial trans-actions. Examples include: 1)buyers/exporters who offerpre-financing, technical ad-vice, or inputs to their produ-cers in order to ensure a qual-

ity product that meets marketstandards; 2) input supplierswho provide training/technicaladvice to MSEs in the use ofthe product they sell in orderto ensure correct/successfulusage of the product.

The box below shows therange of activities undertakenunder the Kenya BDS tree fruitcontracts. Annex A detailsactivities by fruit, partner, andlocation.

Kenya BDS initiated on-the-ground project activities in2003, almost a year before thefirst round of data collectionfor this impact study. Over thecourse of that year, projectstaff observed a number ofchanges in the tree fruit valuechain as a result of projectactivities. In order to capturethe full impact of the project, itis important to documentthese activities and the ob-served changes.AvocadoKenya BDS in 2003 negotiateda memorandum of under-

standing with East AfricaGrowers Association (EAGA), alarge horticulture export firmin Kenya, to link with avocadoproducer groups in two loca-tions in Central Province. In

the first year, Kenya BDS mo-bilized 803 avocado farmerswho organized producergroups and, with the help of afacilitator hired by Kenya BDS,negotiated a contract withEAGA to supply avocados thatmeet agreed upon standards.EAGA provides embeddedspraying services, grades thefruit, and transports it to theirwarehouses. Group members

have been trained in the ap-plication of manure and fertil-izers, pruning and orchard hy-giene to upgrade the quality oftheir fruits. Near the end ofthe first year, Kenya BDS mo-bilized an additional 283 avo-cado farmers in 10 groups inseveral new locations. Theseproducer groups are workingwith another lead firm, KenyaHorticultural Exporters (KHE).Farmers began basic pruning,and spraying and had plans tonegotiate contractual arrange-ments with KHE. Kenya BDSalso has plans to work with an-other exporter, Indu Farm(EPZ) Limited in the nextquarter.

At the survey site in Kandara,EAGA activities with avocadogroups during the year prior tothe baseline survey includedthe following: EAGA, with Kenya BDS sup-

port, initiated the organiza-tion of avocado producergroups (the farmers were notpreviously organized).

Contracts were drawn upbetween the producer groupsand EAGA. The producergroups agreed to sell exclus-ively to EAGA, to upgradetheir avocado production

and to follow a good agricul-tural practices protocol.



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EAGA purchased avocados ata negotiated price, providedspraying and grading services for a fee deducted atthe time of sale, transportedfruit to their warehouse in

Nairobi, and paid farmersthrough their group accountsAccording to farmers, spray-ing was not done on timeduring the first year, whichreduced the yield of high-grade fruit.

Kenya BDS encouraged therevival of a processing fact-ory that will buy lower gradefruit to process avocado oiand promoted a linkagebetween EAGA and this fact-ory. If this plant becomes op-erational, EAGA plans to buyall grades of fruit from produ-cers and drop off lower gradefruit at this processing factory on their way to Nairobi.

During this time, project staffobserved the followingchanges:

Avocado brokers have beenless active in the area sincethe contractual agreementwas initiated. EAGA met withthe brokers (who they buyfrom) and asked them not tobuy from group members inthis area. At least one otherexporter has entered the areato compete with EAGA to buyupgraded fruit. Productionand sale of avocados was very

low prior to the EAGA initiat-ive. Since then, avocado salesvolumes have increased dra-matically and the prices re-ceived by producers have alsoincreased. Kenya BDS staff citethis as a critical impact to cap-ture, since avocado income


Figure 1: Activities under BDS Tree Fruit Project

Input supply

Facilitate the provision of inputs,

Establish nurseries,Establish a credit facility link betweenagrochemical distributors and stock-ists, andDevelop a monitoring system to in-form manufacturers and stockists onconsumer trends.

Extension andtraining

Improve commercial extension ser-vices,Create farmer-led extension teams,Launch information campaigns,

Train agrochemical stockists in advis-

ory services and business manage-ment, andRaise farmer awareness on safe use ofchemicals.

Market access

Facilitate market linkages,Improve market information throughSMS technology and trading floors,Establish collection sites,Facilitate improved transportation,


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was almost nil at the begin-ning of the project.

Kenya BDS handholding activ-ities have promoted informa-tion flows, built trust, and

forged linkages between theexporter (EAGA) and producergroup members, betweentraining and extension workersand producer group members,and among producers them-selves.

MangoKenya BDS is working with fourpartners to develop the mangovalue chain.

1. SITE is a local NGO suppor-ted by Kenya BDS. As ofDecember 2004, when thequantitative survey wasconducted, SITE was work-ing with groups of farmersin eight mango productionclusters in four districts ofCentral and Easternprovince. Its work withfarmers focused on buildinglinkages with reliable mar-kets and increasing the ac-cessibility of business ser-vices to increase the qual-ity and productivity ofmango orchards. At thistime, 2,461 farmers grow-ing Apple, Ngowe, Tommy,Kent, and Van Dyke mangovarieties had been mobil-ized through 83 producergroups. During the firstphase of the project, SITEhired five private serviceproviders to offer extensionservices and strengthenthe farmer groups. Theyorganized training for farm-ers in mango as a farmingbusiness and helped link

the groups to input suppli-ers and microfinance ser-vice providers. While SITEwas able to get four export-ers to establish direct link-ages with farmers, only 17

percent of the mango farm-ers in the groups benefited.Nevertheless, throughthese contracts, which of-ten benefit only large farm-ers, small farmers wereable to participate. Export-ers made paymentsthrough the farmer groupsbank accounts, whichprovide a more securemeans of payment for the

farmers. Kenya BDS reportsindicate that prices im-proved from Ksh 3-6 permango to Ksh 7-12.

2. Kenya BDS staff observedthat creating longstandingwin-win market relation-ships between mangofarmers and lead firm buy-ers and exporters is chal-lenging. It requires timeand considerable hand-holding to build trust,change attitudes, and instillwork ethics. In late 2004,Kenya BDS awarded asecond phase of support toSITE, focused on strength-ening producer groups tooperate as units in dealingwith buyers; coordinatingfarmer access to materialinputs; and actually estab-lishing longstanding marketlinkages.

3. KADI and the Catholic Dio-ceses of Embu have con-tracted with Kenya BDS topromote extension servicesfor mango farmers in East-

ern province. These effortsinclude an informationcampaign to raise awareness of farmers on nurserydevelopment and the bene-fits of nursery seedlings

training of nursery operat-ors in mango husbandryand business managementand training of extensionservice providers on graft-ing, budding, and top work.

4. Coastal Development Au-thority provides on-farmtraining of trainers for un-employed extension of-ficers. They also are creat-

ing Farmer Led Extension Teams (made up of leadfarmers and extensionagents) to provide commer-cially viable extension ser-vices; launching an inform-ation campaign to increaseawareness of value of ex-tension services; and es-tablishing a revolving fundto finance adoption of goodagricultural practices

5. KWETU, KARI, and KenyaGatsby Trust are workingwith mango farmers in theWatamu/Msabaha and Malindi areas of Coastprovince. Through a contract with Kenya BDS, theyare forming producergroups and facilitating mar-ket linkages to buyersthrough the developmentof a market informationdata base and brokerageworkshops. They also aretraining private extensionworkers in mango husbandry and business man-agement and launching acampaign to sensitize pro-



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ducer groups to the valueof extension services.

Passion fruitKenya BDS is working withFineline Systems and Manage-

ment Limited, who are now co-ordinating the whole programamong the farmers while EAGAis providing both the exportand domestic market and em-bedded services in terms of in-put supplies and extensionservices. Just Juice is now leftwith the role of providing ademonstration plot and qualityseedlings to help passion fruitgrowers in Meru and Embu dis-tricts. This work was just be-ginning to take off in October2004 when the baseline re-search began. It took sometime to get producer groupsorganized in this area. ByDecember 2004, however, 744farmers had been organizedinto 26 producer groups.

Twenty-three percent of thefarmers were women. Projectactivities include traininggroup members in nursery es-tablishment, land preparationand planting, orchard mainten-ance, and post harvest hand-ling. They also focus on facilit-ating direct linkages with ex-porters through supply con-tracts; regular collections offruit; and exporter-led technic-al advice and spraying for pestand disease management. Theaim has been to ensure regu-lar payments, stable and guar-anteed market prices, andprices that are higher thanthose paid by brokers. A cent-ral demonstration plot andnursery had been establishedwith land donated from Just

Juice, Ltd. and technical and

material inputs provided byKARI -- representing apublic/private partnership. Thesite provides extension ser-vices and quality seedlings.Growing out of this, as of

December 2004, five groupnurseries and 48 individualnurseries had been estab-lished and farmers hadplanted 96,000 passion fruitvines. The plan is to expand to80 groups involving 2,400farmers in 2005.

Kenya BDSs FacilitationRole

The Kenya BDS project is de-

signed to promote efficienciesand growth in tree fruit agri-culture through the develop-ment of business services andother broad facilitation activit-ies. While the approach hasbeen to award contracts onthe basis of competitive bids,for its work with avocado farm-ers in Kandara and passionfruit farmers in Meru andEmbu (which started out as anagreement with Just Juice)Kenya BDS has taken a some-what more active hand hold-ing role in promoting upgrad-ing and market linkages. Foravocados, this had involvedplacing a full-time Kenya BDSstaff person on the ground inthe Kandara area. She hasplayed a role in identifyingproducer group leaders, form-ing producer groups, settingup record-keeping systems,and negotiating contractsbetween the producer groupsand EAGA. Her roles in linkingproducer groups to EAGA andbuilding trust by keeping regu-lar lines of communicationopen has been instrumental.

This approach has led to signi-ficant progress during the firstyear in avocado upgrading andmarket linkages. A similar ap-proach is underway inMeru/Embu with passion fruit

growers.

Market principles underpin theKenya BDS approach.12 Theproject does not cover costsfor spraying, other inputs, oextension services, or subsid-ize producers in other waysNor does it inform producersabout the prices at which ex-porters sell. While some small-holder participants thought

that Kenya BDS would be amore active advocate for themin getting better prices, projectstaff emphasized that this isthe role of the market and thatif they played this role, the in-formation provided would dis-tort the market. They feel thatthe litmus test should bewhether the smallholders arebetter off than they were be-fore, not the price they received in relation to worldmarket prices. Kenya BDSwants to play a very business-like role in the process. Theirmain aim is to diversify marketoutlets and promote competi-tion. Kenya BDS staff membersdo not want to embed them-selves in the supply chain.

Several lessons emerged dur-ing the first year of the KenyaBDS project. From the perspective of Kenya BDS leader-ship, the approach of contract-ing through open bids hasworked well. The short-termnature of their contracts is a

12 Based on interview with Muli Musinga,David Knopp, and Rose Warui.



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positive feature of the projectin that it provides flexibilityand responsiveness in theirapproach. In the case of KACE,for example, Kenya BDS had aone-year contract to promotemarket information on treefruits through SMS technology.

They discovered that KACEhad a number of problems anda business model that they didnot really agree with, and aftera year they decided not tocontinue with this sub-project.Other USAID projects are typ-ically longer (up to five years)and provide much less flexibil-ity to cut losses.

Another lesson is the import-ance of Kenya BDSs handholding role in building trustbetween producers and theexporters. Kenya BDS staffhave brokered the relationship

and facilitated communicationto help each party to under-stand the needs of the other.In the future, as part of its exitstrategy, Kenya BDS wants toexplore the potential for com-mercializing the role that itsstaff currently plays - referringto this role as a network

broker. Its follow-on Memor-andum of Understanding withEAGA is addressing this issue.One question is the potentialfor EAGA or producers groupsto absorb the costs of thisfunction as an embedded ser-vice.

From the perspective of onelead exporter, forward plan-ning is one of the biggest chal-lenges in the horticulture ex-port business. Exporters haveforward contracts so theymust plan ahead for the upliftof fruit and cannot operate adhoc. A challenge in workingwith smallholders, from thisexporters perspective, is pro-

jecting a timeframe of produc-tion, sales, and returns. Theyneed to establish ground rulesand work together to developa commercialization strategy

from day one.

EAGAs experience in linkingdirectly to avocado farmershas had a demonstration ef-fect within the company. Whilethe costs of interacting directlywith groups and providing em-bedded services is more for

EAGA than buying directlyfrom middlemen, it is anapproach that ensuresgood quality and good sup-ply something middlemencannot always provide

Similar models can be usedfor snow peas, sugarsnaps, and French beans.

2. FINTRAC HORTICUL-TURE DEVELOPMENTCENTRE (HDC) PROJECTPROGRESS TO DATE

Fintracs HDC project fo-cuses on a wide range of horti-

culture products, one of whichis passion fruit. This impactstudy focuses only on theirpassion fruit work, which includes plans to: Develop Kenyan varieties of

passion fruit for fresh export Improve agricultural prac

tices of local producers Expand local processing cap-

abilities for local market

products Strengthen the farm-to-market value chain, inclusive ofbusiness services to smalfarmers

Unlike Kenya BDS, the HDCproject does not operatethrough contracts and MOUsbut carries out activities dir-ectly through project staffbased in Nairobi and agronom-

ists based in four field officesIt works with and through co-operating partners, includingthe Kenya Agricultural Research Institute (KARI), exist-ing smallholder associationsand two small businesses pro-ducing plant stock. In the fu-


Figure 2: Activities under HDC Tree Fruit Project

Input supply

Introducing new varieties of passion fruitProducing plant stockEstablishing commercial nurseries

Extension and train-

ing

Establishing demonstration plotsProviding extension services to farmers

Market access

Linking smallholder producers to domesticfresh fruit marketsLinking smallholder producers to processorsof juice concentrate for domestic and exportmarketsTraining in EUREGAP certification

Inter firm coopera-tion

Delivering services through farmer groups


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ture, it intends to workthrough other input suppliersas well. This five-year projectbegan in late 2003 and was inits first year of operation atthe time of the baseline sur-

vey.

The project decided to focuson passion fruit because it isregarded as a relativelyfriendly crop for smallholders.Production carries low risk andthe market potential is high.Initial project activities relatedto passion fruit focus primarilyon product development byaddressing two key constraints

to smallholder production: pro-duction technology and farmerknowledge. To this end, FintracHDC is cooperating with KARIon training and plant produc-tion, and with various smallbusinesses in Eldoret, includ-ing input suppliers and nurser-ies. The HDC project hopes toestablish 30-40 good demon-stration plots and, throughthem, have a ripple effect onpassion fruit productionthroughout Kenya. It is tryingto develop and produce fruitvarieties that will yield more

juice, including the introduc-tion of the jumbo variety fromUganda. It also hopes to find agood investor to build a pro-cessing plant that would re-quire input of 50 to 100 tonsper week.

Training in EUREPGAP certifica-tion also will be an importantproject activity. They will trainproducers and companies onrequirements for export certi-fication. The goal is certifica-tion in 2005. They will trainthree companies who in turn

will train 600 producer groups(with 20 members each).

Progress to DateFintracs HDC activity with pas-sion fruit growers in the El-

doret area prior to the baselinesurvey focused primarily onpromoting input supply andextension activities. These in-cluded: Identifying farmer groups in-

terested in planting graftedpassion fruit, which hasstronger root stock and moredisease resistance

Linking farmer groups with a

nursery operator who pro-duces grafted passion fruitplant stock

Coordinating with HCDA andthe MOA in linking farmergroups to public training andextension resources, some ofit related to compliance withEUREPGAP standards

Activities within the projectarea were just getting under-

way when the baseline re-search began in October 2004.Fintrac HDC had identified pro-ducer groups and had linkedthese groups to a nursery op-erator supplying grafted seed-lings. Producer groups beganreceiving grafted seedlings toplant in demonstration plots inOctober 2004.



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II. DESIGN OF THE IMPACT ASSESSMENT

The purpose of this study is toassess the impacts of the

Kenya BDS and Fintrac HDCprojects on:

1. The competitiveness of themango, passion fruit, andavocado value chains;

2. The integration of microand small enterprises(farmers and others) intothese value chains in a waythat they contribute to andbenefit from the tree fruit

industrys increased com-petitiveness;3. The development of sus-

tainable solutions to con-straints facing businessesin the targeted industries;and

4. Rural household incomes.

The baseline study will be fol-lowed up in two years, withthe major findings on the im-

pact of the two projects emer-ging after this second stage ofresearch.

A. KEY QUESTIONS

The Kenya BDS and FintracHDC projects have taken on atwofold challenge: improvingthe competitiveness of Kenyatree fruit exports in global

markets and increasing theparticipation of smallholders inthe tree fruit value chain. Inthis context, key questions fa-cing both projects is whetherKenya can stay competitive inglobal tree fruit markets andat the same time maintain a

high level of smallholder parti-cipation in the value chain. A

related question is the poten-tial for smallholder involve-ment in the tree fruit valuechain to contribute to povertyreduction by increasing small-holder enterprise profits andhousehold incomes.

Accordingly, this impact as-sessment examines the impactof the project-facilitated inter-ventions in improving the com-

petitiveness of Kenyas treefruit agriculture, integratingsmallholders -- including wo-men smallholders and small-holder households headed bywomen -- into the value chain,and raising household in-comes. A related question iswhether project facilitated in-terventions have led to the de-velopment of sustainable solu-tions to problems faced in tree

fruit agribusiness, which arekey for sustained impact.

Our research design attemptsto address these questions bydefining suitable impact vari-ables and measures. Theseflow from the causal model de-scribed in the following sec-tion.

B. THE CAUSAL MODEL

The study design is based on acausal model of impact thatshows how project facilitationactivities to promote sustain-able solutions/services can ad-dress constraints to smallhold-er participation and competit-

iveness of the value chainThese activities, in turn, lead

to sustained access to solutions, increased smallholdeMSE profits from tree fruitactivities, increased rurahousehold incomes, and over-all value chain growth. (Figure1)

C. HYPOTHESES

We use this causal model totest a number of hypotheses

about the impact of donor in-terventions in opening up op-portunities for smallholderMSEs in local, regional, andglobal markets and in improv-ing the competitiveness of theoverall value chain.

General Hypothesis: Projectactivities can be effective inthe development and improve-ment of sustainable solutions

in the areas of market accessextension services, input sup-ply, and inter-firm cooperationthat result in increased verticaand horizontal integration oMSEs into value chains andgreater competitiveness othose value chains.13

13 In general, program interventions can becharacterized as potentially involving ef-forts to boost product demand, improve

the business environment, strengthen ver-tical and horizontal linkages, and/or im-prove private sector supply response. TheKenya BDS and Fintrac projects emphas-ize linkages and supply response. Exceptfor Fintrac interventions around EUREP-GAP, they seem to do little to improve thebusiness environment for tree fruits inKenya (possibly because major constraintsin this area were not identified).



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Hypothesis 1:Project activit-ies to promote sustainablesolutions in the tree fruit valuechain contribute to greater in-tegration of smallholder MSEs

into the value chain through: Strengthened vertical link-

ages permitting increasedmarket access for smallhold-er MSEs producers

Improved/increased inter-firmcooperation/collaboration(horizontal linkages)

Improved supporting marketso Increased use of appro-

priate inputs (agro-

chemicals, plant stock,and other supplies)o Use of higher quality in-

puts

Improved/increased qualityand quantity of extension,advisory, and informationservices provided by leadfirms (embedded) and fee-based providers

Hypothesis 2:Greater integ-

ration of smallholder MSEs intothe tree fruit value chain con-tributes to improved enter-prise performance and house-hold well-being through:

Increased production in parti-cipating enterprises

Increased revenues in parti-cipating enterprises

Increased employment andemployee earnings in parti-

cipating enterprises Increased income in particip-ating smallholder MSE house-holds

Reduced vulnerabilitythrough diversification of in-come sources in participatingsmallholder MSE households

Hypotheses 3:Greater integ-ration of smallholder MSEs intoproductive value chains con-tributes to improved competit-iveness and growth of the tar-

geted value chains. Increased production by the

value chain as a whole Increased average productiv-

ity

Increased share of productionmarketed

Increased share of productionexported

Improved inter firm coopera-tion (horizontal and vertical

coordination and business ar-rangements)

D. FRAMEWORK OF ANA-LYSIS

As indicated earlier, we willstudy impacts at four differentlevels: participating smallhold-er MSEs; their associatedhouseholds; the tree fruitvalue chain; and the provision

of sustainable business solu-tions. At each level of analysis,we have identified several do-mains of impact and indicatorsof change, as shown in Figure2.

1. PARTICIPATING TREEFRUIT SMALLHOLDER MSES

The study will focus on themain intended beneficiaries ofthe two projects in Eastern,Central, and Rift Provinces,namely smallholders who growmangoes, avocados, or pas-sion fruit for consumption orsale14. The smallholder analys-

14 Further details are given in the sampledesign section.

is will compare a sample osmallholders who participatein the Kenya BDS or HDC pro-

ject with a sample of compar-able smallholders who do notparticipate in either of these

projects. It will study changesassociated with participation inone of these projects in the fol-lowing domains of impact.

Smallholder MSE Integra-tion into Productive ValueChains

This will involve assessing andcomparing changes over timein smallholder MSE participation in the tree fruit valuechain.

Integration into the tree fruitvalue chain will be measuredby the volume and percentageof production that is marketedthe average price received formarketed output, and thussales value. The study will fo-cus on access to and use ofmarket information and salesto different market outletsOther issues related to small-holder integration into valuechains will be exploredthrough qualitative, in-depthinterviews with smallholdersfor example, whether and howparticipation in producergroups provides advantages tosmallholders; the extent towhich access to new marketoutlets changes smallholderrelationships with brokers andthe implications of this ovetime; the nature of smallholderrelationships with lead firms orother buyers or suppliersproviding embedded services.

Participation of lead firmsbrokers, and other buyers in



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marketing smallholder produc-tion and their experience inproviding embedded servicesalso will be examined throughqualitative interviews.

Enterprise Production Pro-cesses and PerformanceChanges in production pro-cesses will reflect changes inskills, knowledge, and prac-tices related to tree fruit pro-

duction and processing (planthusbandry, use of agrochemic-als, etc.); use of market in-formation; use of technologies;and capital investments (e.g.,tools and equipment). Meas-ures of enterprise performancewill include production, pro-ductivity, employment, andtechnologies used. Productionis the total amount of fruit pro-duced in a season. Productivity

will be measured by quantityproduced per hectare or pertree (the more appropriatemeasure is to be determined)over a season. Employmentwill be measured by the repor-ted person/days of hired laborused for tree fruit production,harvesting, processing or saleover a season. Technology usewill be measured by the use ofplanting stock and inputs, andthe watering system.

2. SMALLHOLDER MSEHOUSEHOLDS

This part of the impact assess-ment focuses on the house-holds of smallholder MSEs par-ticipating in the projects andhouseholds of smallholderMSEs not participating in theprojects.15 It studies impactson household well being usinga combination of variables:changes in household con-

15 To the extent possible, we will also fo-cus on smallholder MSE employees de-pending on whether this emerges as a sig-nificant group among participating small-holder MSEs.

sumption (as a proxy for income), changes in sources ofhousehold income ranked byimportance (including treefruit income) and changes inhousehold assets. The use of

several variables allows for tri-angulation in assessingchanges in household well be-ing.

Increased household incomes The measurement of household income



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Physical, Social, and Economic Context

FIGURE 3: CAUSAL MODEL FOR KENYA BDS AND FINTRAC HDC PROJECTS

Pre InterventionActivities

Project Activities Outputs Outcomes Impacts

throughthe

baseline survey is clearly important. Afterthe follow-up survey round, we would liketo be in a position to say whether the twoprojects helped to raise the house-hold incomes of project parti-cipants. Measurement of household in-

come inruralsettingsposes diffi-cult challenges,however: the ex-

ist- ence of multiplein- come sources;the importance of in-

come inkind; irregularity in income flows; lack of

record-keeping; and respondent mis

reporting due to recall error, misun- der-standing,

mistrust.

Consumption is considered by many to a more reliable measure of househoeconomic status than income in contexlike rural Kenya. It is seen to be less su

ject to measurement than income, and is a better proxy meaure not only of current welfare but lon

Select tree fruitsub-sectors mango, passionfruit, avocado

Analyze con-

straints and op-portunities in sub-sectors

Identify prioritysolutions/servicesand other needsfor mango, pas-sion fruit, avocadosub-sectors

Design interven-tions and competeand award tenders

Facilitate integrationinto value chains by:

1) forming/linking pro-ducer groups with leadfirms, promoting inter-

firm collaboration, andstrategic alliances (ver-tical and horizontallinkages)

2) upgrading throughthe promotion of com-mercially viable busi-ness services (privateextension agents, agro-chemical stockists, em-bedded services by leadfirms, private nurseries,training and registrationin EUREPGAP/SPS)

Improve enabling envir-onment, especially inend markets

Market Access

Increase in sus-tainable marketoutlets for mango,passion fruit, andavocado produ-

cers

Training and Ex-tension

Increase in

Documents

mR 33 - Kenya Impact Assessment: Baseline Research Report