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Bagging a good deal with onions

Dossier

Report from Kenya

Grouping together to form ‘commercial villages’ is allowing farmers in Nyeri, Kenya, to not only access markets but also obtain affordable credit, amongst other services. Contrary to traditional loans, where interest is paid during the life of the loan, farmers repay only after the products have been sold.

Since 2008-2009 farmers in the Kieni West region of Central Kenya have been supported by Farm Concern International (FCI) to develop the onion value chain using new improved hybrid varieties, along with inputs of fertiliser and pesticides. The farmers are grouped in commercial villages (CVs), made up of small clusters of around 20 to 30 households, to form larger groups of over 300. Buying and selling in bulk, the groups are able to increase their bargaining power with traders to obtain better prices for their onions, and purchase inputs, irrigation kits and quality seeds at discounted prices.

Like many small-scale farmers across the region, a lack of collateral and credit records is a major constraining factor in improving farmer investment and farm productivity. However, with the farmers grouped in CVs, they are able to co-guarantee each other and access credit from Taifa SACCO, a savings and credit organisation.

Prior to the intervention of FCI and Taifa SACCO, the onion farmers traditionally grew low yielding open pollinated varieties (OPV) and staples including maize and beans. Prices for onions at the farmgate were low, reaching only 8 to 12 Kenya shillings (Ksh) (€0.06-0.12) per kg. To allow farmers to gain access to key markets in Central Kenya, FCI introduced superior hybrid seeds and provided links to seed and chemical companies, as well as buyers, enabling them to become more competitive.

However, although Taifa SACCO provided the loans for purchasing inputs and the CV members provided co-guarantee, some farmers were unable to afford the interest repayments. “Poor farmers obtained loans from other sources or sold household stuff to pay the monthly interest,” says Mugo Kamau, Taifa SACCO’s deputy marketing manager, who added that finding money to pay for farm labour was a further burden.

A creditable approach

To overcome the problem of making monthly repayments, Taifo SACCO created a loan package known as small micro-enterprise credit (SMEC), which was tailored to allow farmers to pay back the loan once the onions had been sold. According to Kamau, SMEC particularly helped young farmers interested in taking up onion farming but who lacked start-up capital for inputs and labour.

Taifa SACCO also provided training in financial literacy, entrepreneurship and record keeping. To date, Taifa SACCO has provided over 200 million Ksh (€1.7 million) to onion CV members. As the scheme has progressed, more farmers have overcome their previous financial reservations about taking out loans. “With increased incomes more people are becoming bankable,” Kamau states.

For example, the SMEC has helped 46 year old Daniel Gakuu to expand his onion farming from 1.6 ha to leasing another 1.3 ha since 2009. He initially took a loan of 200,000 Ksh (€1,700) payable after 6 months at 8% interest to purchase inputs and hire local labour. However, when Gakuu’s onions were harvested, the 250,000 Ksh (€2,125) proceeds from 0.4 ha were enough for him to repay the loan before the 6 months elapsed. “There is money in onion farming,” enthuses Gakuu.

An expanding enterprise

Financing has also helped Grace Wanjiku Kingori significantly increase her onion farming from 0.05 ha to 0.8 ha. Previously, when growing three seasons of OPVs, Wanjiku harvested around 900 kg. In 2010, after obtaining SMEC for 10,000 Ksh (€85) she bought hybrid seeds and fertiliser for her small plot of land. Four years later, with the profits she had made, she has been able to expand her farm and production to harvest 6,000 kg during the peak harvest season between October to January.

After their first initial loan, Gakuu and Wanjiku have not needed further credit as their more profitable onion farming has provided enough income to become self-sustaining. However, to prevent other new, low-income farmers in Wanjiku’s CV becoming dependent on loans, there is a rule, made by the CV members, that farmers must first repay the loan and interest and to then prioritise using surplus income to buy inputs for the next year before the remaining money is spent. “It’s a rule to help instill self reliance,” says Wanjiku.

With investment in irrigation pumps and kits, farmers like Gakuu are able to consistently do three seasons in a year. “Onion farming has become commercial in Kieni West and its spillover effect is impacting over 10,000 people here,” says Muchiri. With improved bulking and marketing, buying prices have also improved. “Lately, the lowest we sell a kilogram of onion is 25 Ksh,” says Wanjiku when there is oversupply. When demand is high, according to Muchiri, 1 kg of onions sells locally for 60 Kshs (€0.5).