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15 mm margin ROAD MAP FOR DEVELOPING & STRENGTHENING THE KENYAN BIRD EYE CHILI‘S SECTOR

Prepared for International Trade Centre

Geneva, december 2014 ii

This value chain roadmap was developed on the basis of technical assistance of the International Trade Centre ( ITC ). Views expressed herein are those of consultants and do not necessarily coincide with those of ITC, UN or WTO. Mention of firms, products and product brands does not imply the endorsement of ITC. This document has not been formally edited my ITC.

The International Trade Centre ( ITC ) is the joint agency of the World Trade Organisation and the United Nations.

Digital images on cover : © Shutterstock

Street address : ITC, 54-56, rue de Montbrillant, 1202 Geneva, Switzerland Postal address : ITC Palais des Nations 1211 Geneva, Switzerland Telephone : + 41- 22 730 0111 Postal address : ITC, Palais des Nations, 1211 Geneva, Switzerland Email : [email protected] Internet : http :// www.intracen.org iii

LIST OF ABBREVIATIONS

Key organisations and mission

EPC Export Promotion Council : Kenya’s premier institution in the development and promotion of export trade. FPEAK Fresh Produce Exporters Association of Kenya : The Fresh Produce Exporters Association of Kenya ( FPEAK ) is Kenya’s premier trade Association representing growers, exporters and service providers in the horticulture industry. GIZ German Federal Ministry for Economic Cooperation and Development : past project on private sector development in Agriculture ( PSDA ) on potato, meat and mango HCDA / HCD Horticultural Crops Development Authority : ( now Horticultural Crops Directorate ) The Horticultural Crops Directorate is mandated to regulate the horticulture industry through registration of produce dealers as prescribed under the Agriculture, Fisheries and Food Authority Act of 2013HCD also provides specialized advisory and marketing services to the stakeholders in the industry for planning purposes. IFDC International Fertilizer Development Centre ITC International Trade Centre KAM Kenya Association of Manufacturers : is the representative organization for manufacturing value- add industries in Kenya. KARI Kenya Agricultural Research Institute : is a premier national institution bringing together research programmes in food crops, horticultural and industrial crops, livestock and range management, land and water management, and socio-economics. KEBS Kenya Bureau of Standards : is a government agency responsible for governing and maintaining the standards and practices of metrology in Kenya. KEPHIS Kenya Plant health inspectorate Service : is the government parastatal whose responsibility is to assure the quality of agricultural inputs and produce to prevent adverse impact on the economy, the environment and human health. KHCP The Kenya Horticulture Competitiveness Project : will increase incomes for 200,000 small farmers and strengthen the businesses network around them by improving and creating local, regional and global market opportunities. This project will help Kenyans feed themselves by building a countrywide horticulture distribution network that provides a year-round supply of high-quality, nutritious products grown by Kenyan farmers. KIRDI Kenya Industrial Research and Development Institute : is a national research institute established in 1979 under the Ministry of Trade and Industry and mandated to undertake multidisciplinary research and development in industrial and allied technologies. NaHMIS National Horticulture Market Information system : a proposed national Platform for providing production and marketing information on horticulture. ( HCD and USAID-KHCP) PCPB Pest Control Products Board : provide an efficient and effective regulatory service for importation, exportation, manufacture, distribution, transportation, sale, disposal and safe use of pest control products and mitigate potential harmful effects to the environment. PM Production and Marketing Organisation SCOPE Insight Dutch organisation with a methodology to assess and train farmer organisations on access to Insight finance SNV Netherlands Development Organization / long track record of support to farmer organizations and horticulture. iv

RELEVANT DEFINITIONS

Bird’s Eye Chilies Bird’s Eye Chilies ( BEC ) are reportedly from the Capsicum frutescens, a relative of the tabasco chili. They are originating from Mexico, spread by the Portuguese and the Spanish across the world. The BEC are very popular in Asia. They are grown in India, where they are used in traditional cooking, while they are also used in Vietnamese and Thai cooking.

African Bird’s Eye Chili The African Bird’s Eye Chili ( ABEC ) is one cultivar of the capsicum frutescent family. The plants range in height from one and a half to four feet tall ( depending on growing conditions ), and are very bushy. The leaves vary in length from 1 ½ to 3 inches and in width from ½ inch to 1 inch. The chilies generally measure between ½ and 1 inch long and taper off into a “blunt point” ( fiery-foods.com ). ABEC turn from green, to an orange-reddish or bright red colour, depending on the variety, as they mature and become ready for harvesting.

Although originally brought to Africa by the Portuguese ( who call it piri piri ) it has been growing on the African continent for centuries. As of recent it has been produced commercially in a variety of African countries, among which Malawi has been the market leader over the last decade.

Many wild chilies use the word “bird” in their names so to distinguish among them can be difficult. Most of the bird peppers originate from four species : C. annuum, C. baccatum, C. Chinese, and C. frutescens. The best known bird peppers are the Texas chilipiquin and the Mexican chiltepin.( Spicesinc.com ).

The Bird’s eye Chili is known to be one of the hottest types of chilies on the market, with a 100,000-225,000 value on the Scoville Heat scale1. The Kenyan variety of ABEC has an SHU value that can go up to 180,000.2 An indication of the hotness of different peppers is provided in the graphic below.

Figure 1: Scoville Heat Unit ( Chilly-willy website 2014 ) Scoville Heat Rating Type of Pepper 15,000,000 – 16,000,000 Pure Capsaicin 9,100,000 – 9,300,000 Hordi-Hydro-Capsaicin 2,000,000 – 5,300,000 Standard U.S. Grade Pepper Spray 855,000 – 1,041,427 Naga Jolokia 350,000 – 577,000 Red Savina Habanero 100,000 – 350,000 Habanero Chilli, Scotch Bonnet 100,000 – 200,000 Rocoto, Jamaican Hot Pepper, African Birdseye 50,000 – 100,000 Thai Pepper, Malagueta Pepper, Chiltepin Pepper, Pequin Pepper 30,000 – 50,000 Peter Pepper or Chilli Willy 30,000 – 50,000 Cayenne Pepper, Aji Pepper, Tabasco Pepper 10,000 – 23,000 Serrano Pepper 5,000 – 10,000 Wax Pepper 4,500 – 5,000 New Mexican Varieties of Anaheim Pepper 2,500 – 8,000 Jalapeno Pepper 1,500 – 2,500 Rocotillo Pepper 1,000 – 1,500 Poblano Pepper 500 – 2,500 Anaheim Pepper 100 – 500 Pimento – Peperoncini 0 No Heat – Bell Pepper

1.– The Scoville heat scale measures the pungency / spiciness of chilies and other spicy food. The pungency is expressed in Scoville heat units ( SHU ), a function of capsaicin concentration ( Peter, 2001 ). 2.– Interview through e-mail with director of Mace Foods Margaret Komen v

ACRONYMS

Unless otherwise specified, all references to dollars ( $ ) are to United States dollars, and all references to tons are to metric tons.

The following abbreviations are used :

ABEC African Bird’s Eye Chili BEC Bird’s Eye Chilies BRC British Retail Consortium CBI Centre for the Promotion of Imports from developing countries DC Developing countries ECE Economic Commission for Europe EFTA European Free Trade Association EPC Export Promotion Council EU European Union FPEAK Fresh Produce Exporters Association of Kenya FSM Frankfurt School of Management FT Fairtrade G.A.P. Good Agricultural Practices GFSI Global Food Safety Initiative GIZ German Federal Ministry for Economic Cooperation and Development GM Gross Margin GMP Good manufacturing practices GMA Gross Margin Analysis HACCP Hazard Analysis and Critical Control Points HCDA / HCD Horticultural Crop Development Authority / now Horticultural Crops Directorate HS code Harmonized system code IDEA Investment in Developing Export Agriculture IFDC International Fertilizer Development Centre ITC International Trade Centre IFTEX International Floriculture Trade Expo KAM Kenya Association of Manufacturers : KARI Kenya Agricultural Research Institute KEBS Kenya Bureau of Standards KEPHIS Kenya Plant health inspectorate Service KIRDI Kenya Industrial Research and Development Institute : KHCP Kenya Horticulture Competitiveness Project KWFT Kenya Women Finance Trust MFI Microfinance institutions MOA Ministry of Agriculture NAFIS National Farmers Information Service NaHMIS National Horticulture Market Information system NES Not Elsewhere Specified PCPB Pest Control Products Board : PMO Production and Marketing Organisation RA Rainforest Alliance SHU Scoville Heat Units SME Small and medium enterprises SNV Netherlands Development Organization SSI Sustainable Spice Initiative vi

SPS Sanitary and Phytosanitary TSI Trade Support Institutions UNCTAD United Nations Conference on Trade and Development USA United States of America USAID United States Agency for International Development

HS CODES USED FOR RESEARCH

‘090420 Fruits of the genus Capsicum or Pimenta, dried, crushed or ground ‘090421 Fruits of the genus Capsicum or of the genus Pimenta : Dried, neither crushed nor ground ‘090422 Fruits of the genus Capsicum or of the genus Pimenta : Crushed or ground vii

FOREWORD

Agriculture is the leading economic sector, accounting for 25 % of the gross domestic product ( GDP ) directly and 27 % indirectly. The sector also accounts for 65 per cent of Kenya’s total exports and provides more than 18 per cent of formal employment. The horticulture sub sector in Kenya is among the most vibrant in the Agriculture sector after Tea and Coffee contributing to the Agriculture GDP at 33 % and has had an annual average growth of between 15 and 20 % per year. In 2013, the sector excluding flowers contributed KES 177 Billion to the economy while the export earned the Country KES 94 Billion during the same year. The sector has been key to creating employment directly to the rural folk, earning foreign exchange and source of raw material to local industries among others.

In order to grow the sector further, the government has identified the sector among the economic pillars as a means of spurring growth in the Kenya Vision 2030 document, Agriculture Sector Development Strategy and the National Horticulture Policy. Therefore, products that have the potential for investment into value addition and hence create employment have been given attention and support. It is for this reason that the government is collaborating with development partners, private sector players and other stakeholders in realising this potential.

ITC has been a key collaborative partner in enhancing market access for Kenyan Horticultural products through capacity building of trade support institutions and providing market intelligence. Under the “Promoting Intra-regional Trade in Eastern Africa” project, funded by the Government of Finland, ITC is collaborating with Horticultural Crops Directorate ( HCD, formerly HCDA ), Export promotion Council, Mace Foods and relevant county governments with two commodities ( processed mango and ABE Chillies ). The processed Chilli value chain has been identified to create employment among the Kenyan youth by providing a key service of produce aggregation, ensuring food safety and will form an important link between processors and farmers. In addition, the project will enhance the access of these products to the regional and international markets as well all attracting investment into the business. Chilli being a drought tolerant and low cost crop will contribute to the livelihood of those living in marginalised areas of the Country.

However, we recognise the challenges facing the production and marketing aspects of chilli that need to be addressed. The crop is labour intensive and due to its manual harvesting, has made it an unattractive enterprise to some of the farmers. In this regard, it is project has ensured direct linkages between the farmers and the processors to reduce the supply chain thereby ensuring farmers’ benefit from price incentive. viii

CONTENTS

List of Abbreviations iii Relevant Definitions iv Acronyms v HS codes used for research vi FOREWORD vii EXECUTIVE SUMMARY xiii

1. PURPOSE OF THE ROAD MAP 1 1.1. Background and Context 1 2. SITUATION ANALYSIS 2 3. AFRICAN BIRDS EYE ( ABE ) CHILI 3 3.1. Uses 3 3.2. Cooking 4 4. PRODUCTION 4 4.1. Geographical Dispersion 4 4.2. Harvesting, postharvest handling and drying 4 4.2.1. Harvesting 4 4.2.2. Yields 4 4.2.3. Postharvest handling 4 4.2.4. Drying 4 4.3. Collection 5 4.4. Processing 6 4.5. Sampling 7 4.6. Packaging and Transport 7 5. PRICE AND COSTING ( VALUE CHAIN COST ANALYSIS ) 7 5.1. Gross Margin Analysis : 0.25 Acre 7 6. COMMERCIALIZATION OF BEC IN KENYA 10 6.1. Organized Farmer Groups 10 6.2. Production output 10 6.3. Local exporters : 11 7. VALUE CHAIN ACTORS 11 8. FLOW OF SUPPLY CHAIN 12 9. SERVICES OFFERED TO THE CHAIN ACTORS 13 9.1. Input Suppliers 13 9.2. Logistics 13 9.3. Credit and Micro Finance Institution facilities 13 9.3.1. Chama loan 14 9.3.2. Ushirika loan 14 10. ENABLING ENVIRONMENT 15 ix

10.1. The Government 15 10.2. Crop promotion 15 10.3. Research Institutions 15 11. ONGOING DEVELOPMENT PROJECTS IN THE COUNTRY 16 11.1. USAID funded projects 16 11.2. Nuru Kenya Agriculture programme 17 11.3. Other projects relevant to the Kenyan BEC sector 18 12. SUPPLY CHAIN CHALLENGES 22 12.1. Organizational & Logistics 22 12.2. Agricultural practices 22 12.3. Services and infrastructure 22 13. SUPPLY CHAIN STRENGTHS 23 14. SUMMARY OF THE SUPPLY CHAIN ANALYSIS WITH RELEVANT CONCERNS AND RECOMMENDATIONS 23 15. CHILIES IN A WORLD OF SPICES 25 16. PRODUCTION AND TRADE 26 16.1. Production 26 16.2. World trade overview 28 16.3. EU Supply Overview 30 16.4. USA supply overview 31 16.5. Asian supply overview 32 17. MARKET OVERVIEW FOR BIRD’S EYE CHILIES 33 18. MARKETS REQUIREMENTS 34 18.1. Product and appearance 34 18.2. Prices 35 18.3. Regulations 36 18.3.1. Standards 36 18.3.2. Pesticides 37 18.3.3. Aflatoxin 37 18.4. Certification and sustainability 37 18.5. Competition among producer countries 38 18.6. Sourcing constraints 39 18.7. Potential growth of ABEC demand 40 18.7.1. Growing world market demand 40 18.7.2. Competitive advantages over alternative sourcing locations 41 18.7.3. Growing demand by national and regional markets 41 19. PRIORITIES FOR THE IMPLEMENTATION OF THE ROADMAP 43 19.1. Production and volumes 43 19.2. Market access 43 19.3. Communication and organization of the sector 44 19.4. Finance 44 x

20. QUALITY AND QUANTITY COMPLYING WITH INTERNATIONAL STANDARDS 44 20.1. Production, volumes and quality management 44 20.2. Recommendations on production constraints 45 20.2.1. Post-harvest handling and drying 45 20.2.2. Quality standards and accreditation 45 20.2.3. Export procedures and requirements 45 20.2.4. Final Recommendations 46 21. CREATE ACCESS TO RELEVANT MARKETS, DISSEMINATE MARKET INFORMATION & MAKE THE KENYAN BEC VISIBLE AT INTERNATIONAL MARKETS 46 21.1. Market information 46 21.2. Market and product diversification 47 21.3. Final Recommendations 47 22. IMPROVE & STRENGTHENING THE KENYAN BEC SECTOR ORGANIZATION AND INTER-PROFESSIONAL COMMUNICATION 47 22.1. Remarks 47 22.2. Final Recommendations 48 23. PROVIDE ADAPTED FINANCIAL SERVICES TO SUPPORT PRODUCERS AND EXPORTER CAPACITIES 48 23.1. Remarks 48 23.2. Final Recommendations 49

ANNEX DOCUMENT 57

1. ECOLOGICAL REQUIREMENTS 58 2. SITE SELECTION 58 3. CROP PLANNING 58 4. NURSERY ESTABLISHMENT 58 5. SEED BED PREPARATION 59 6. TRANSPLANTING 60 7. CROP MANAGEMENT PRACTICES 60 1. M-LIMA 61 2. THE INNOVATION 61 3. M-LIMA ENVIRONMENTS 62 4. THE THINKING BEHIND THE MODEL 62 5. ROLE OF FINANCIAL INSTITUTION 63 xi

TABLES

Table 1 : Gross Margins in the Coastal Kenya region | GMA-adopted from NAFIS-National Farmers Information Service 2009 8 Table 2 : Gross Margins in the Western Kenya region 9 Table 3: Sample farmer groups ( associations ) 10 Table 4: Export volumes and value of spices 1961-2011 ( item 723, elements 5910, 5922 ) Source FAOSTAT 26 Table 5: Production per region Chilies and peppers, dry ( Source : FAOSTAT 2014 ) 27 Table 6: Area harvested ( ha ) per region for Chilies and pepper, dry ( Source FAOSTAT 2014 ) 27 Table 7: Production ( tons ) per region for Chilies and pepper, dry ( Source FAOSTAT 2014 ) 27 Table 8: Top 15 Countries producing chilies and peppers ; dry ( Source FAOSTAT 2014 ) 28 Table 9: Volumes ( tons ) exported from the world per region 2006-2011 28 Table 10: 15 Top exporter of Chilies and peppers, dry in value 2013 ( Source FAOSTAT 2014 ) 29 Table 11: Imports per region ( volumes tons ) of Chilies and peppers, dry 2006-2011 ( Source FAOSTAT 2014 ) 29 Table 12: Top 15 importer in value of Chilies and peppers, dry for 2013 ( Source FAOSTAT 2014 ) 29 Table 13: Europe main imports per region ( Source : ITC trademap ) 30 Table 14: Main Suppliers to Europe ( 2009-2013 ) in value ( 1000USD ) for HS090420 31 Table 15: Top suppliers to Spain ( HS090420 ) in value ( 1000USD ) for 2011 ( Source ITC trademap ) 31 Table 16: Supplying countries to USA ( 2011 ) : Chilies and peppers dry 32 Table 17: Asian chilies trade ( Source ITC trademap ) 32 Table 18: Exports from China 2011 ( Source ITC trademap ) 32 Table 19: BEC market overview ( Source : interviews ) 33 Table 20: Average prices for ABE chilies ( Source : Public Ledger in USAID 2011 ) 35 Table 21: Maximum and minimum prices for African Bird’s eye and Indian S4. 35 Table 22: Organic BEC on retail markets 36 Table 23: Characteristics of BEC per country of origin 38 Table 24: Importers from Kenya and Malawi 2009-2013 in value ( 1000USD ) and volumes ( tons ) HS090420 ( Source ITC trademap ) 39 Table 25: Roadmap 51 xii

FIGURES

Figure 1: Scoville Heat Unit ( Chilly-willy website 2014 ) iv Figure 2: Mace Foods’ drier | Mace Foods’ drying kitty 5 Figure 3 : ABEC Solar drier-from outside and inside | Chili solar drier on one of the farm site in western Kenya 5 Figure 4 : The process of sorting of chili at mace foods’ factory in Eldoret Kenya 6 Figure 6: Local, Regional and International Distribution Channels 11 Figure 8: BEC Value chain progression ( Source : Kaiser Associates, 2006 ) 34 Figure 9: Prices of chilies on the global market 2007-2011 36 Figure 10: African market shares of dried chilies ( Eurostat in USAID-FINTRAC 2011 ) 38 Figure 11 : Nursery establishment 59 xiii

EXECUTIVE SUMMARY

The purpose of this road map is to outline the opportunities for expanding trade of the Kenyan horticulture products and to provide a strategy for expansion. This roadmap has been produced to serve as a as guide for long-term sector development efforts of the sector in cooperation and it has been developed with the HCD and representatives of the Kenyan horticulture industry including producers, processors, traders and exporters.

This road map for African Bird Eye Chilies ( ABEC ) has been developed as the first step in the Promoting Intraregional Trade in Eastern Africa project, funded by the Government of Finland and implemented by the International Trade Centre ( ITC ), that aims at contributing to inclusive and sustainable export-led growth in Kenya, Tanzania and Zambia by improving the competitiveness of their producers, Small Medium Enterprises ( SMEs ) and Trade Support Institutions ( TSIs ). The objective is to promote the participation of SMEs in selected agri-food sectors in regional and global value chains. It will address value chain inefficiencies combined with measures to strengthen TSIs in all three countries. The intervention should result in increased income and employment for stakeholders along the entire export value chain.

Nationally, regionally and internationally there is little information available of African Bird’s eye chili. Most statistics are aggregates of all sorts of chillies, dried and fresh. Malawi used to be the main African exporter of ABEC, but recently Kenya has also step up in terms of production and exports. Some companies are now specialised in ABEC exports among other products and several projects have been implemented to support the sector. Yet, Kenyan producers face challenges and can hardly meet the exporters’ orders. Production is very labour intensive and rejection rates are still very high. Farmers are responsible of drying the product, which leads to variations of product quality. Production is scattered and collection is difficult to organise for this fragile, light, hence bulky product.

International demand is however difficult to predict. Importers have been sourcing where they can get the best price for the product. A few countries in the region are producing ABEC. While Zimbabwe and later Malawi were the main exporters of the product, Kenya’s exporters are now challenging these countries’ position. Yet, exporters remain opportunistic. Additionally, volumes sources remain small with an international demand estimated at about 500-600T. Volumes are not expected to grow very rapidly in the coming years. The product is exporter whole or crushed, but mostly as a single spice and not as blend because of its high SHU value. Internationally, different segments are covered by different types of chilies ; a lot of substitutes exist to ABEC. The North American market is well supplied by Mexico and Asia while Asia is basically self-sufficient. Europe is supplied by Asia, Latin America and Africa. Regional ( African ) demand for high SHU value chilies is limited.

Current sector issues seem to be very much related to production, quality and aggregation. This should be addressed, while market channels should get secured. For this, exporters can get supported in developing their clients’ portfolio, products diversification and preferred supplier relations. Branding of the Kenyan product and participation in fairs can support exporters in getting recognized on the international market. Sector organisation can be promoted and supported through the creation of an APEX body, although the needs and objectives of such an organisation should be well established before the start. Sustainability and efficiency are important components to keep in mind when creating such bodies. It would make sense, to support the organisation of small groups at grassroots level and later address the needs for an APEX body. A common constraint for actors in the sector is finance. A project on sector development can certainly support the creation of adapted agricultural finance projects services in both formal and informal institutions. xiv

Photo: © shutterstock

An additional concern to be taken into account is that there are no indications that volumes should be increased much more that current demand in order not to affect selling prices which are highly volatile and linked to the availability of the product. Large quantities of the product available all at once on the market are likely to make price drop. This has been experienced before. Introduction 1 –

INTRODUCTION

1. PURPOSE OF THE ROAD MAP

1.1. BACKGROUND AND CONTEXT

The purpose of this road map is to outline the opportunities for expanding trade of the Kenyan horticulture products and to provide a strategy for expansion. The road map has been developed in cooperation with the HCD, and representatives of the Kenyan horticulture industry including producers, processors, traders and exporters.

This report provides a roadmap with specific actionable events and a time frame to attempt to move the industry beyond strategic planning to profitable long-term business and success for the Kenyan horticulture sector. It can be seen as a tool to assist and lead the sector towards the outcomes and outputs of the project, along with the overall strengthening of the sector and of its actors.

The road map is based on existing documentations, and has been complemented by different studies and reports carried out for the purpose of the value chain analysis of the sector. The value chain analysis of the sector has been carried out by a local consultant. The purpose of this sub-report is to distribute and make available information on the processing and marketing of value added products. It is directed at producers as well as small entrepreneurs, extension officers and those involved in small business development. It is hoped that the information provided can lead to more diversified and increased income for the sector’s key stakeholders. It is hoped also that this report will enable the stakeholders to create more opportunities to improve the health, nutrition and the economic situation within Kenya. An international demand analysis has been carried out to assess the current international markets for BEC, along with current and future opportunities for Kenya in foreign markets, being regional and also international. The international survey also focused on identifying gaps that prompt implementation activities needs to enable greater competitiveness of the sector and greater export sales, regionally and internationally. An implementation plan with corresponding activities, has been created from findings from the previously mentioned studies along with the key contributions of the sector’s key actors during the Kenya BEC roundtable that took place in Nairobi, Kenya, in August 2014.

The key audience of the work carried out is the BEC producers and exporters as this value chain analysis would support them in understanding the local, regional and international market dynamic and also support those interested in value chain of the BEC sector. However, the value chain analysis and mapping will also be aimed primar- ily at multiple stakeholders like decision makers, public policy makers and important stakeholders. Introduction – 2

2. SITUATION ANALYSIS

International trade in Africa has outperformed the global average over the past decade, yet intra-regional trade remains low by international standards, at around 12 % of total trade, i.e. considerably less than levels reached in Latin America ( 22 % ), Asia ( 50 % ), or the EU ( 73 % ). However, a recent surge in efforts to integrate markets across the continent by reducing tariff and non-tariff barriers has led to some progress and encour- aged countries to look for untapped export opportunities.

In January 2012, the African Heads of State and Government adopted the African Union Action Plan for “Boosting Intra-African Trade and the Establishment of a Continental Free Trade Area”, which defines projects, activities, outputs, timeframes and key lines of responsibility. The African Union Commission ( AUC ) has recommended the tripartite agenda ( COMESA, EAC and SADC ) be used as the roadmap for aid-for-trade and as an instrument for implementing the AUC policy to create a larger regional market and free trade area.

The debate around food security issues, fuelled by rapid growth in demand for food in the region, underlines the critical importance of intra-regional cooperation and trade in agriculture. Accordingly, regional trade in agricultural goods is also a primary objective for the regional economic groupings ( i.e. COMESA, EAC and SADC ) in the context of efforts to encourage regional economic integration and promote a pan-African development agenda. All African countries thus see the agriculture sector as a high-impact area in which they can build value chains that will contribute to boosting trade within the region as compatibilities in agricultural production between countries offer significant, unrealized potential for intra-regional trade. Variations in climatic conditions within countries and across the region offer substantial opportunities for trade expansion in terms of trading more with existing markets as well as opening up new ones. A growing middle class, mainly concentrated in urban areas, is boosting domestic demand for both staples and products with higher added value. At the same time, the retail sector is evolving from an informal and fragmented environment to a more formal and modern one which in turn requires reliable supply chains. The latter transformation is being driven mainly by investment from larger supermarket chains, which has led to the adoption of more stringent sanitary and phytosanitary ( SPS ) and quality standards for agricultural products. Prioritizing needs and devising appropriate solutions to the above challenges requires a collaborative approach with the private sector.

From 2013, Kenya has also been developing support services for agri-food export supply and value chains. The service sector remains relatively undeveloped despite strong economic growth, leading to a rising trade-in-services deficit and strong demand for greater capacity-building in high-value service activities. Improving the quantity and quality of services would also allow these economies to diversify away from commodity exports. Chapter 1. Supply Analysis of ABEC 3 –

CHAPTER 1. SUPPLY ANALYSIS OF ABEC

3. AFRICAN BIRDS EYE ( ABE ) CHILI

The African Birds Eye ( ABE ) chili, Capsicum frutescens, is closely related to the tabasco pepper and is among the hottest varieties of pepper in the world. Whole peppers are marketed to Asian consumers, who use it as an ingredient in curry and other dishes. It is also sold in powder and oleoresin form to food and pharmaceutical companies.

The bird’s eye chili plant is a perennial with small, tapering fruits, often two or three, at a node. The fruits are very pungent. The flowers are greenish-white or yellowish-white.

The bird’s eye chili is small, but is quite hot ( piquant ). It measures around 50,000–100,000 Scoville units, which is at the lower end of the range for the hotter habanero chili ( scorch Bonet ).

Characteristics of the bird’s eye chili plant

Plant height : up to 2 m Stem color : green Leaf color : green Leaf size : 3-8 cm by 2-4 cm Fruit color at maturity : green, orange, or red Fruit shape : conical Fruit length : 2-3 cm Fruit width at shoulder : 0.5 cm Fruit weight : 2-3 g Fruit surface : smooth Seed color : light tan Seeds per fruit : 10-20

3.1. USES

The Pepper industry is closely interlocked with the food industry, especially processed foods, meats and spices. The hot peppers could be used fresh or processed and the variety of products made from chili peppers and other hot peppers is extensive. Some processed wet products include pepper sauces / hot sauce, salsas, pepper mash, pickled peppers, bottled whole peppers, canned peppers & pepper jelly. Dried products include dried whole or ground hot peppers & pepper flakes. Some value added products include hot pepper oil, hot pepper oleoresins & pepper spray ( UNCTAD, 2013 ). Other products are :

Curry ingredient Pharmacology As organic pest control spray In Tear Gas Chapter 1. Supply Analysis of ABEC – 4

3.2. COOKING

In the Vietnamese cuisine, these chilies are used in soups, salads, and stir-fried dishes. They are also used in fish sauce as a condiment or eaten raw.

In Thai cuisine, these chilies are highly valued for their fruity taste and extreme spiciness. They are extensively used in many Thai dishes, such as in Thai curries and in Thai salads, green as well as the ripe red chilies ; or they can just be eaten raw on the side, with for instance, khao kha mu ( stewed pork trotter served with rice ).

4. PRODUCTION

4.1. GEOGRAPHICAL DISPERSION

In Africa, African Bird’s Eye chili is mainly produced in Malawi, South Africa, Ghana, Nigeria, Zimbabwe, Kenya and more recently, Uganda. In Kenya, the crop is grown in the Coastal region, Parts of Easter, Rift Valley and western Kenya.

( Refer to the Annex 1 for detailed production management practices )

4.2. HARVESTING, POSTHARVEST HANDLING AND DRYING

4.2.1. Harvesting Crop is ready for first fly picking between 2½ to 3 months after planting Picking continues for 3 to 6 months Red Ripe Chilies should be harvested as soon as they appear Chili sizes vary from 1 centimeter to 3 centimeters long Continuous, prompt and complete picking optimizes production while poor harvesting can reduce yields by as much as 50 percent Do not pick chilies with the stalks Picking Rate : Harvest laborers are paid 10 Ksh to 20 Ksh per kilo An average laborer can pick as many as 6 kilos per day 4.2.2. Yields 1,000 kg to 4,000 kg per acre ( depending on management ) 4.2.3. Postharvest handling Picking must be done with clean cups and buckets and the pickers must wash their hands with soap and water before and after picking. A bucket of soap and water must be in the field at all times.

4.2.4. Drying Dry in open air, spread on well-aerated polysacks on raised racks. Or use special solar cabinets that enclose or seal shut to ensure efficiency and hygiene. Do not use metallic / iron sheet. Drying must reach a moisture content of 13 percent before storage to avoid growth of Aflatoxin. Storage should be in gunny bags in dry, well-ventilated stores and should not be handled to limit irritation and maintain pungency. Chapter 1. Supply Analysis of ABEC 5 –

Figure 2: Mace Foods’ drier | Mace Foods’ drying kitty

Drying equipment

USAID-Kenya Horticulture Competitiveness Project ( KHCP ) which is coming to a close latest February 2015 introduced solar dries through demonstrations as indicated on the photos below to prevent aflatoxin contamination. Through these demonstration sites, only 315 farmers out of the current 7 000 farmers have so far managed to adopt the technology to up to 75 %. The rest of the farmers still do direct sun drying on polythene sheets on the ground, thus posing contamination challenge, and contradicts good drying practices.

Alternatively, companies have provided the farmers with driers. ( Mace Foods for example has provided 2000 driers to the farmers ). In this scenario, famers harvest and dry the produce, grade the dried produce before it is collected following more less the same procedure explained above. In this case, the price is higher than when the produce is collected fresh. The farm gate price for dry chili is Ksh. 125, while for fresh is Ksh. 70.

Figure 3 : ABEC Solar drier-from outside and inside | Chili solar drier on one of the farm site in western Kenya

4.3. COLLECTION

About 50 % of the chilli small holder farmers in Kenya are contracted for collection of the chilli. The traceability system in place is GAP and GFSI. A study done by André and Hans, ( 2009 ) on Equator Products’ mode of collection reveals that for effective collection of the produce, fixed collection routes which are well communicated to the farmers and coordinated by the field staff are followed. In the Kenya’s coastal region where equator dominates the routes are as follows : Monday to Malindi, Tuesday to Kilifi, and Wednesday to Lamu. This is a similar model that is used by companies operating in the Western Kenya region, i.e. Chemtrade and Mace foods accept that they differ in days of collection. For Mace Foods, they collect as follows : on Monday from Migori, Tuesday from Homabay and Wednesday from Siaya, while Chemtrade collect from the same region on Thursday and Friday. Chapter 1. Supply Analysis of ABEC – 6

The collection routes can be summarized as described below :

Location Monday Tuesday Wednesday Thursday Friday

Kenya’s coastal From Malindi From Kilifi From Lamu region Western Kenya Region For Mace Foods From Migori From Homabay From Siaya Chemtrade collects from the same For Chemtrade region as Mace foods but on Thursdays and Fridays.

The study by Hans ( 2009 ) further suggests that a quality expert accompanies the collecting team to assist farmers do first grade their product at the group level based on issues such as color, physiological impurities and weight a certain percentage is rejected. On average only ca. 5 % gets rejected after first grading. Other companies grade collect the produce and do first and final sorting at the factory.

4.4. PROCESSING

In Kenya, ABE chili is exported whole. All postharvest handling practices can be simply be said to processing activities. This ranges from drying, storage, sorting, weighing and packaging for export. There are two categories of the produce sold at farm gate depending on whether it is dry or fresh chilies. According to André J. and Hans N., ( 2009 ), for fresh chilies, after the produce is loaded on the truck the quality expert informs the factory manager on the amount of kilograms and expected time of arrival. Upon arrival at the factory, produce is weighted and crates with produce are lined up in rows representing the groups. A sample is taken from each crate of each group and a report made per group, indicating the determined quality. The produce is then measured according to the required kilograms per tray. Each tray receives a number and is then directed to the cold store ( specific code ) or the dryer ( different code ). The produce is either stored or processed, depending on whether the volume of that day is sufficient to fill the drier.

Figure 4 : The process of sorting of chili at mace foods’ factory in Eldoret Kenya

According to Koigi, ( 2013 ), a new dried chili milling technology has found its way into Kenya. Borrowed from Ethiopia, the technology allows pepper farmers to save hours of labor in chili processing. In the end, there are increased returns to investment from dried pepper. The machine was developed by Stanford University students for the more than 400,000 Ethiopian women who process pepper by hand turns fresh peppers into higher-value dried flakes, seeds, and powder. The small-scale pepper grinder consists of a pair of rollers made of interlocking disks. One of the rollers is driven by a hand Chapter 1. Supply Analysis of ABEC 7 –

crank and draws the dried peppers between the two rollers using small teeth on the larger disks. It has been noted that in Ethiopia, the machine costs Sh2, 175 ( $ 25 ) with which four times more peppers can be processed, thus increasing annual income by Sh15, 399 ( $ 177 ). This machine according to the pilot users will realize a seven-fold return on investment in one year while reducing pepper processing time by 75 per cent. Because of the Kenyan Ethiopia border trading activities, this machine has found its way into Kenya through Moyale at $ 40. Though Kenya doesn’t enjoy the same scale of pepper farming as Ethiopia, according to Bridgenet Africa, areas like Moyale are actively engaged in pepper farming and trading. ( http : / / www.standardmedia.co.ke / business / article / 2000090829 / technology-pepper- flakes-turning-a-hot-profit-for-farmers )

4.5. SAMPLING

After drying the processed produce is laid out on cleaned metal tables for recording. Based on the cards per tray the produce is double-checked on quality before final bagging. This quality check may result in three types of reject : pre-mature ( orange ), over-ripe ( black ), and broken or dirty. Here a correction on final payment is done and feed-back forms to farmers are prepared. The final bagging process involves manual grading on the steel tables and bagging the produce at group level. Two final samples of 50 grams each are taken – one for own records and one for the laboratory. With a container containing 190 bags, the mix of these 190 samples times 50 grams then represents the ‘master representative sample’ ( André and Hans, 2009 ).

4.6. PACKAGING AND TRANSPORT

After drying, chilies should be stored in a covered basket or a gunny sack and kept in a dry place off the ground. On the bottom of the bag, place some small pieces of charcoal wrapped in a cloth. Farm storage without adequate storage facilities is highly discouraged. Prior to export packaging, it is essential that the chilies be packed in bags or containers that allow for adequate air circulation ( IDEA 2001 ).

Hot peppers must always be transported in non-collapsible, well-ventilated crates, because feed and mesh bags cause damage. Packaging for export requires perforated boxes, which hold approximately 8 lbs. of berries. Boxes must always be kept in cool locations, and stacked on pallets no more than 10 boxes high to prevent compaction ( UNCTAD, 2013 ).

5. PRICE AND COSTING ( VALUE CHAIN COST ANALYSIS )

This section offers an analysis of the various cost elements in the BEC value chain.

5.1. GROSS MARGIN ANALYSIS : 0.25 ACRE

In order to make the analysis, the example of a quarter acre piece of land is taken along with the following assupmptions. Chapter 1. Supply Analysis of ABEC – 8

Assumptions

Land was never hired. Water source : Rain fed Area under production : 0.25acre Spacing : 1X1 M Plant population : 2000 plants Yields per plant : 2-5Kg fresh chili per year. Yield losses : 2-5 % Price per Kg : Ksh 60 ( Fresh chilies ) The higher costs were factored in while the lower production / yields ( 2kg per plant ) were considered In practice, most of the labor is provided by family ; hence the profit margin is even higher

Table 1 : Gross Margins in the Coastal Kenya region | GMA-adopted from NAFIS-National Farmers Information Service 2009 ITEM COST( KES ) Mpeketoni Witu Hindi Mean Production costs Nursery stage Seeds 100 100 100 100 Bed preparation 200 200 250 217 Manure / and DAP 100 120 120 113 Pesticides 100 100 100 100 watering ( labor inclusive ) 750 1380 1680 1270 Field stage Land preparation 1000 1800 1450 1417 Digging holes 600 400 250 417 DAP 20kg 1600 1600 1600 1600 Manure 5000 2000 4000 3667 Transplanting labor 600 400 750 583 Watering 1000 1450 1850 1433 Top dressing CAN 2000 2000 2500 2167 Labor t / dressing 350 500 1250 700 Pesticides 2500 3000 3000 2833 Pesticides labor 1800 2400 2400 2200 3 Weedings 1200 3200 2000 2133 Harvesting 15 / Kg 60000 60000 68000 62667 Transport costs 4000 5200 1350 3517 Total costs 82600 85550 92300 86817 Total revenue ( 3800Kg @ 60Ksh ) 228000 228000 228000 228000 Profit 145400 142450 135700 141183 Profit Margin ( % ) 64 62 60 62 {( Profit / income )*100} Net profit per Kg sold ( KSh ) 38 37 36 37 Chapter 1. Supply Analysis of ABEC 9 –

The Gross Margin below is based on the current assumptions in ABEC production in the western Kenya region.

Assumptions

Land was never hired Water source : Rain fed Area under production : 0.25acre Spacing : 1X1 M Plant population : 2000 plants Yields per plant : 2-5Kg fresh chili per year. Price per Kg : Ksh 125 ( Dry chilies )

The higher costs were factored in while the lower production / yields ( 2kg per plant ) were considered, and no percentage loss considered.

Table 2 : Gross Margins in the Western Kenya region ITEM COST( KSH ) Busia Siaya Migori Homabay Mean Production costs Nursery stage Seeds 400 400 400 400 400 Bed preparation 180 240 250 250 230 Manure / and DAP 150 150 150 150 150 Pesticides 100 100 100 100 100 watering ( labor inclusive ) 600 750 750 750 712.5 Field stage Land preparation 800 1000 1000 1000 950 DAP 20kg 2000 2000 2000 2000 2000 Manure 3000 2500 3000 3600 3025 Transplanting labor 800 600 700 900 750 Top dressing CAN & Labor 2000 2000 2500 2100 2150 Pesticides 2500 3000 3000 2800 2825 Weeding 2200 3000 3000 3200 2850 Harvesting kshs.10 / Kg 40000 40000 40000 40000 40000 Drying 3000 3000 3000 3000 3000 Storage 1500 1800 1800 2000 1775 Total costs 59,230 60,540 61,650 62,250 Total revenue ( 1,330 Kg @ 125 ) 166,250 166,250 166,250 166,250 Profit 107,020 105,710 104,600 104,000 Profit Margin ( % ) 64 64 63 63 {( Profit / income )*100} Net profit per Kg sold ( KSh ) 80 79 79 78 Cost of production per kg sold 45 45.5 46 47 47 ( Ksh. ) Chapter 1. Supply Analysis of ABEC – 10

Table 2 above shows the replica scenario of the GM in the western Kenya region, where farmers sell dried chili, as opposed table 1 which shows GM from the Coastal region where farmers sell their produce fresh. When the two tables are compared, table 2 shows net profit per kilogram sold than table 2. This could be as a result of the assumptions assigned in both cases. In the western Kenya region the cost of production is lower as the crop is purely rain fed, and there are less agrochemical usage. The other assumptions here are that the land is owned by the farmer and so there are no leasing costs, and that all the production operations are done by the farmer and that no hired labor is used. According to the calculations in the table above, it can be seen that it costs a farmer approximately of Ksh. 46 to produce one kilogram of dried ABEC at farm level. The price given by the middle men at farm level is between Ksh. 90-105, while the exporters pay between Ksh. 120-150 at farm level depending on the volume and quality. Due to economies of scale it is assumed that higher volume implies higher price.

6. COMMERCIALIZATION OF BEC IN KENYA

Companies involved in the BE value chain in Kenya have an almost similar business model based on processing Chilies, involving close to 7,000 smallholders in the Eastern, Coastal Western and Nyanza regions. The average size of land in production is ¼ of an acre. This gives an average 105 tons per year, against the market demand of close to 400 tons. Companies indicated on the table below process the produce on behalf of the farmers. All the BEC from Kenya are sold dry.

6.1. ORGANIZED FARMER GROUPS

A collection of farmer groups are normally affiliated to certain processors as indicated in the table below.

Table 3: Sample farmer groups ( associations ) Company Groups Region MACE foods Ohero, Ototo, Kaguria, Migori, Siaya, Bondo, Emase, Asing’e Nyanza and Western Equator Kiffnet, Laffsnet and Codo Malindi Chemtrade 20 cluster groups Taita and Vol

6.2. PRODUCTION OUTPUT

An overwhelming percentage of the production output is destined for the export market, as indicated below.

Figure 5: Production output

Total Production 105 Tons (100 %)

Domestic market Export Market for Dry Chilies 5% (sold at farm gate @ kes. 125/ kg) 95% (price per Kg is 4.5-6 USD) Chapter 1. Supply Analysis of ABEC 11 –

6.3. LOCAL EXPORTERS :

Below is a non-exhaustive list of local exporters.

1. Mace Foods Ltd. 2. Equator Kenya Ltd. 3. Chemtrade 4. Alpha Fresh Produce Exporters

One can see below where the exporters are active in the representation of local, regional and international distribution channels.

Figure 6: Local, Regional and International Distribution Channels

Individual smallholder farmers Contracted smallholder farmers Contracted farmer groups

Marketing agents Exporters of fresh/Dry Chilies middlemen/brokers

International markets

Local Consumers

International consumers

7. VALUE CHAIN ACTORS

The Farmers

Farmers are the most important actor in any Agricultural value chain. They have a pivotal role in shaping the value chain. Being the owner / manager of the enterprise, the farmer mobilizes all the required production resources, seeking for the technical direction from the experts. For any agricultural value chain to succeed, it imperative the farmer is supported by the other actors otherwise that value chainwill not achieve the desired levels and quality of production.

The groups / associations

Farmer groups and associations arethe pulling force towards achieving the desired levels of production in what can be referred as Q2C– the desired Quantity, the required Quantity and expected Consistent to the customer satisfaction. In groups, farmers are better placed to receive production or marketing training as they can easily be reached. Moreover, in groups,the farmers have robust bargaining power in either input purchasing or even during collective marketing of their produce. Chapter 1. Supply Analysis of ABEC – 12

Buyers and Brokers

To the ABEC smallholder farmer, there are three types or scenario markets.

a. Farm gate buyer / broker : This is a very important type of market to individual farmers who are not in any group / association. This model takes the market to the producer’s door and business is done directly between them and a price decided. In most cases, the producer-farmer is at the mercy of the buyer since s / he might not have information regarding the production status and market forces at any given time. In preying on the situation, the broker fixes the price at will. This is what happens to most ABEC smallholder farmers who are sparsely populated, thus making it impossible for them to be in groups.≤ b. Market place / collection centers : Farmers who are in groups or farmer associations have a common place where they deliver their production for easier collection by the buyer. After drying their produce, they pre-sort for good quality before delivering to the collection centers. At the center, the field agronomist ascertain for the required quality of the produce before it is weighed and pre-packed for collection to the factory. c. Regional market : Kenya never sells ABEC to any regional market. Instead, in order to satisfy the market demand in terms of quantity, Mace Foods for example sources its products from Uganda ; and repackages it before re-exporting it. d. International market : Kenya sells ABEC to Germany, Italy, UK, and France Spain. There is however no literature on how much sold to which country. e. Domestic market ? f. As indicated above 5 % of the 105 tons produced is sold locally at kes. 125 / kg ).

8. FLOW OF SUPPLY CHAIN

Below is a depiction of the supply chain of BEC starting from the farmer and ending in the household / consumer. The flows of the product, money, and information are also shown along with the support services and the business environment. Chapter 1. Supply Analysis of ABEC 13 –

9. SERVICES OFFERED TO THE CHAIN ACTORS

9.1. INPUT SUPPLIERS

These are suppliers and stockists of agrochemicals, planting materials ( seeds and seedlings ) and fertilizers among others. They usually stock and distribute their products of trade depending on the market forces. The young plant raisers ( nursery operators ) raise seedlings for farmers on order or on speculation that they may be required in the next planting season. In chili production, agro-stores mainly stock seeds of the preferred varieties, diseases control chemicals such as fungicides, nematicides for control of nematodes and bacterial infection controls, insecticides for pest infestations. They also offer agro-extension services to the farmers, while they receive their earnings from sales made to the farmers. Thus, there is a mutual relationship between farmers and the input suppliers.

However, with all these elaborate inputs for chili production, there are a number of issues comes with it. First smallholder farmers of BEC are indeed smaller even to afford some of the inputs. Some do selection of seeds from a season’s crop to re-establish in the next season instead of going for certified seeds which to them are expensive. This reduces the productivity. Secondly, the use of disease and pest control chemicals is in minimal. This can be attributed to ignorance of the farmers or luck of money for the same. Those who use these chemicals either overdose to cause impurity of the product in form of MRLS or under dose to insignificantly control the intended pest or pathogen. This leads to loss of product as rejects or to disease and pests. As synthetic fertilizers have been used over the years, the acidity levels have increased. Soil treatment chemicals are in low supply and famers are not capacity built on the same. This has equally seen the productivity going down. For the nursery operators who raise seedlings in speculation of market risk making loses should the intended market fail to prevail. Thus, they need to do contract oriented seedling production.

9.2. LOGISTICS

Transport is another very integral aspect of the ABEC value chain success. The product needs to be transported from the farm to the collection center or from the collection center to the factory and even from Kenya to the international market. In Kenya, this can be a challenge due to poor or insufficient infrastructural development i.e. roads and railway network respectively. Most of the ABEC growing areas are impassable even by motorbikes. This poses a challenge to the field officers in their quest to reach as many farmers as possible.

9.3. CREDIT AND MICRO FINANCE INSTITUTION FACILITIES

Kenya is endowed with a number of financial institutions which provide services to formal and informal sectors of the county’s economy. Many smallholder farmers operate accounts with these institutions. Equity Bank Ltd, Faulu Kenya, Family Bank and the Kenya Women Finance Trust Bank are among the friendly institutions to farmers in terms of their terms and conditions of running an account. Mobile money transfer is widely used by the marketers to pay the famers who do not operate a bank account directly.

Each of the above mentioned credit institutions have unique products taking into con- sideration the gender parity issue. Most of the start-up entrepreneurs especially women form common business interest groups commonly known as “chama” – a Kiswahili term meaning welfare or investment group. Chapter 1. Supply Analysis of ABEC – 14

According to Faulu Kenya, ( 2014 ) the following products are offered :

9.3.1. Chama loan Target / purpose

Family chamas : a group of between 5 and 25 members Table banking groups Investment groups

Features / purpose

Savings for investments A convenient savings account to pool resources together. Flexible investment loans Access to loans up to 350M Loans as interest rates as low as 9.5 % Long loan term up to 72 months

9.3.2. Ushirika loan Target

Church and eligible groups. ( Chamas, investment clubs, CBOS, Self-help Group )

Features

For development projects and purchase of assets for both churches and registered groups Low loan interest rates Repayment term as long as 60 months, and longer grace period

The Kenya Women Finance Trust ( KWFT ), in conjunction with AMIRAN-the Agribusiness service and inputs provider offers farmers a greenhouse designed for the KWFT clients to provide clients with a complete solution and access to modern farming methods ( KWFT, 2010 ).

Features :

Farmer’s greenhouse with a family drip system. Flexible loan repayments of up to 18 months Monthly loan repayments Complete solution with agricultural inputs

Benefits :

Access to modern agricultural methods and technologies High crop yield Delivery service available Automatic grace period Chapter 1. Supply Analysis of ABEC 15 –

10. ENABLING ENVIRONMENT

10.1. THE GOVERNMENT

The government of Kenya is the policy maker in relation to Agricultural sector. Policies are made by various stakeholders who latter channel them to the National assembly for legislation. Once the legislative bills are accented by the president, they become laws-acts of parliament. These laws must not contradict the Kenyan constitution or the international treaties in which Kenya is a signatory. The Ministry of Agriculture, Livestock and Fisheries has 5470 technical extension staff, which in partnership with the private sector agronomists provides services to large and smallholder farmers ( MOA, 2008 ). To implement the legislated policies, the Government through the Ministry of Agriculture uses the following organizations :

10.2. CROP PROMOTION

Horticultural Crops Directorate formerly Horticultural Crops Development Authority ( HCDA )

It is a parastatal body established under the Agriculture, Fisheries and Food Authority Act, 2013 of the Laws of Kenya. The statutory objective of the Authority is to promote and develop the production and marketing of horticultural produce. At the time of its establishment, the horticultural sub-sector was seen as a viable solution for the country’s need for cash crop diversification, enhanced food nutrition, income generation, employment creation and foreign exchange earning in addition to providing raw material for agro-processing industries ( HCDA, 2013 ).

10.3. RESEARCH INSTITUTIONS

Kenya Plant Health Inspectorate Services ( KEPHIS ) : this is the government parastatal whose responsibility is to assure the quality of agricultural inputs and produce to prevent adverse impact on the economy, the environment and human health. According to the ECE 2012, Africa Birds Eye ( ABE ) Chili is one of the varieties exported from Kenya. The Kenyan crop has one of the highest qualities among African suppliers, with consistent good color and pungency. In July 2012, KEPHIS suggested that the ABEC be considered for adoption as new / revised UNECE Standards. ABE quality considerations include coloration i.e. red / orange, length of not more than 2cm, and have less than 8 percent moisture content. Capsaicin content ( pungency ) is the largest determining factor of chili quality, with suppliers earning a premium for chilies with higher capsaicin contents i.e. pungency.

Kenya Agriculture Research Institute ( KARI ) : KARI is the national agricultural research institute in Kenya with centers with different mandates all over the country. As of now, there is not yet any documented study showing any findings from any study on ABEC in Kenya.

Kenya Industrial Research and Development Institute ( KIRDI ) : KIRDI is a research institution focusing on commercialization of research and development and innovations through the incubation process. KARI provides networks and resource for incubatees through workshop, seminars, etc. both in-house and virtual. KARI recently completed a project on amaranth and sorghum processing and has market-ready products that need up-scaling. Chapter 1. Supply Analysis of ABEC – 16

11. ONGOING DEVELOPMENT PROJECTS IN THE COUNTRY

11.1. USAID FUNDED PROJECTS

According to USAID, ( 2009 ), ABE production was in full production with exporters competing to buy from the then Kenya Horticulture Development Program- a USAID initiative that was meant to improve the livelihoods of smallholder farmers. To improve performance and bulking up the seed, Moi University embarked on a process of seed selection in Kilifi, Kwale, Nyanza and Western regions. This was never concluded due to lack of funds. In the Month of May 2014, Mace Foods, Magpenear Investments, in conjunction with department of seed, crops and Horticultural Sciences, University of Eldoret restarted the process under the auspices of USAID KHCP. With KEPHIS as the supervi- sor, this was expected to be finalized by February 2015. With this lead, the idea is to have a hybrid certified seed that will enhance high productivity of the ABEC value chain.

Such a program is important as it aims at boosting productivity. It is likely that training, knowledge and demonstration will be necessary for farmers to adopt the new varieties.

Fintrac Inc. is a US-based consultancy company that develops agricultural solutions to end hunger and poverty. The company is implementing the Kenya Horticultural Competitive Program ( KHCP ), a 5-year project funded by USAID, started in the year 2010. The goal of the project is to help smallholder farmers ( target 200,000 farmers ) and allied businesses in the horticulture industry to take advantage of local, regional and global markets opportunities. They focus on the whole value chain including : 1. Production 2. Value addition and post-harvest 3. Value chain coordination, marketing and trade promotion 4. Improved business environment and institutional capacity.

Current activities : the project focus is on horticultural value chains including flowers, fruits ( passion, mangoes ), vegetables, and Chilies ( USAID, 2012 ). In the year 2012, USAID-KHCP’s commercial partner Mace Foods Ltd purchased 5.86 MT of chili in the month of July, valued at Ksh 468,735 ( $ 5,716 ), from 189 farmers in Rift Valley and Western regions. By that time, annual chili export demand was expected to reach 150 MT. In order to satisfy the demand, the company established a system for villages to operate commercially, recruiting community partners.

Fintrac Inc. has been privileged to implement horticultural projects in Kenya on behalf of USAID. Between 2003 and 2009, the company implemented HDC ( Horticultural Development Centre ). In partnerships with local commercial partners, Fintrac led an ef- fort towards making Kenya a reliable source for ABE chilies. Most activities of the project took place in the western parts of the country, Coast Province, Rift Valley Province, and Central Province. The interest in ABE chilies grew rapidly as farmers realized that there was a ready market, both local and international, for the crop. Mace Foods had a target of 20 tons per month for ABE chilies ( Fintrac, 2009 ).

Farmers act as leaders to facilitate the production and collection of African Bird’s Eye chili in remote areas of Teso, Migori, Homa Bay, and Busia counties. This model enhanced Mace Foods to reach more farmers in fairly reduced operational costs, thus passing the benefits on to farmers by increasing prices for their produce by 20 percent ( KHCP, 2012 ). It is important to focus on the extent with which this project has gone in the value chain, sharing their experience and learn from past experiences.

The project is supporting the ABEC value chain, and in Migori, Keiyo and Bongoma. Already more than 3000 famers have been drawn into the project. Furthermore ITC can learn from this model, its opportunities and constraint to support sector development. Other initiatives and projects can learn from this model. Chapter 1. Supply Analysis of ABEC 17 –

Photo: (CC BY-SA 2.0) Birds Eye Chilli, aislinnv.jpg

11.2. NURU KENYA AGRICULTURE PROGRAMME

In order to provide the smallholder farmers of Kuria East and Kuria west sub-counties with the income generation activity, Nuru Kenya, the NGO operating in the region piloted the African Bird’s Eye ( ABE ) chili in 2013. Through the NGO’s two programs : Social Enterprises ( SE ) and Nuru Kenya Agriculture program, Nuru purchase and distribute high quality inputs to the inaugural group of ABE chili farmers. Later on, during the harvest, SE will use their market knowledge and experience to buy the farmer’s produce and market the chilies.

The Nuru Kenya Agriculture program was tasked with farmer mobilization, training and field support. By December of 2013, the Agriculture team had recruited 371 smallholder farmers into this new venture, to grow a half an acre of ABE chili. They train farmers understand how to meet quality standards and aim to maximize yields. This is to be realized through regular field visits to assess the progress crop and give advice to farmers. An input loan of between 51-57 USD, was given from Nuru, i.e. seeds, fertilizer, foliar feeds and sacks for drying, among other inputs. On loan repayment, the farmers do not make cash payments to Nuru Kenya as they do rather, farmers’ loan balances will be reduced as they bring their ABE chili harvest to sell to Nuru Kenya. After clearing the loan, the farmers will receive cash from Nuru for their produce. Nuru Kenya’s SE will buy the produce from farmers and aggregating it before marketing it to generate income for the organization. The NGO has secured a contract for selling the produce to Mace Foods to lessen the marketing burden to farmers ( Sherwood, 2013 ).

While the model is interesting marketing through an NGO is not sustainable in the long run. Other initiativescan learn from these experiences, but also make sure that organizations that are supported become professional enough to do business independently. Chapter 1. Supply Analysis of ABEC – 18

11.3. OTHER PROJECTS RELEVANT TO THE KENYAN BEC SECTOR

Bird’s Eye Chili - Projects in KENYA by other Development / International Organizations, 2014 any complementarity Funding Project Name between current project Components Activities organization and Duration and east and southern Africa project ? The project has 3 components : ( A ) Irrigation Development Component : including rehabilitation of existing and new smallholder irrigation It is highly likely that the schemes with a total area of 2 ,886 ha benefiting 5,812 beneficialy farmers of HH ; Small scale Horticulture De- Smallscale Horticulture velopment Project ( B ) Farmer Support Programme : with 2 sub-compo- Development Project nent ( Horticultural Production and Marketing Sub- in Marakwet, Keiyo and African Duration : 2007 - ongoing component and Financial Services Support Sub-com- Machakos will benefit from Development ponent ) which will promote : formation of 90 women the ITC project as it Keiyo Bank ( AfDB ) http : / / www.afdb.org / en / and Machakos. Special projects-and-operations / IGA groups to carry out agro-processing activities and more than 45 women’s groups to participate in poultry focus therefore should project-portfolio / project / p- be placed on the lessons ke-aaz-002 / rearing activities ; construction of 9 storage / grading sheds and 9 market sheds ; strengthening the farmers’ learnt from the Smallscale capacity in production and marketing of horticultural Horticulture Development crops and link them to financial institutions ; Project. ( C ) Project Coordination : will provide resources for coordination and management of project activities Description i ) Irrigation System Development and Management : a ) Formation of Water Users Association ; b ) Irrigation scheme development and management, c ) environmental mitigation and monitoring. ii ) Marketing and Extension : a ) Support to farmers ; training farmers in entrepreneurial skills, good crop husbandry practices, quality control, irrigation system management involving up to 400,000 households using farmers field school approach. b ) Support to exten- Kimira-Oluch Smallholder Ir- sion workers ; up to 120 extension Staff will be trained rigation Development Project based on the training needs assessment report ; c ) Due to the fact that Reference : P-KE-AAZ-001 Market linkages : this will enhance and incorporate Homabay borders Migori African small scale producers into local, regional and global County-one of the areas Development Duration : 2006 - ongoing supply chains through innovative technical interven- where the ITC Project shall Bank ( AfDB ) tions in the field as well as market analysis ; Linkages be implemented, there shall http : / /www.afdb.org / en / with commercial buyers, training through partnerships projects-and-operations / be a likelihood of spill over with buyers using service providers with various skills, effect of the project. project-portfolio /project /p-ke- market identification ; local, Regional and overseas aaz-001 / markets to get about 400,000 households access to potential markets, via commodity groups, including quality control and timing of production to hit peak market prices. iii ) Project Coordination : This component will ensure efficient and effective implementation of the Project through provision of national technical assistance to form the Project Coordination Team ( PCT ). The PCT will be accountable to the stakeholders through effective milestone-based participatory monitoring and evaluation system. Chapter 1. Supply Analysis of ABEC 19 –

Bird’s Eye Chili - Projects in KENYA by other Development / International Organizations, 2014 any complementarity Funding Project Name between current project Components Activities organization and Duration and east and southern Africa project ? The project aims to improve the livelihoods of small- scale African farmers by increasing their access to local, regional, and international markets. This would be achieved by : 1 ) working with industry stakeholders and farmers to facilitate the adoption of social and environmental trade standards for up to four high-value commodities Enhancing Farmers Access ( coffee, cocoa, palm oil and cashews ) ; Although crops of interest to Markets in East and West in the project are coffee, Africa 2 ) Working in partnership with the private sector to cocoa, palm oil and CIDA integrate women and men smallholder farmers in key cashew, in Kenya coffee ( Canadian Project Number : A034030-001 agricultural value chains using innovative techniques and cashews farmers such as contract farming to ensure more stable access International Duration : 2014-2018 especially from central and Development to markets for farmers. Migori will benefit through Agency ) http : / / www.acdi-cida.gc.ca / Expected Results application of the lessons cidaweb / cpo.nsf / vWebC- learnt, and apply them in SAZEn / 98C656CBCAD- Expected results include : value chain actors are able Mango ABE chilies, the 291D185257C1B003B19A8 to meet the social, environmental and trade standards ITC’s crops of focus. requirements of four high-value commodities ( coffee, cocoa, palm oil and cashews ) in select countries of East and West Africa ; and improved integration of women and men smallholder farmers in key agricultural value chains based on reliable partnerships with the private sector. Kenya : 3 % of total To respond to the challenge of food security across Africa, the Pan-African Agriculture Program contributes to the goal set by the African Union ( AU ) and the New Partnership for Africa’s Development ( NEPAD ) through the Comprehensive Africa Agriculture Development Programme ( CAADP ) to achieve a 6-percent growth per year in the agricultural sector Africa-wide by 2015. Through such activities as training and workshops, the project aims to disseminate, at the grassroots level, The Project’s focus was on ACORD’s Pan African Agricul- agricultural policies, information, and sustainable prac- small-scale farmers and ture Program tices in small-scale farming and pastoralism in order pastoralists across sub- to build the capacity of African farmers and pastoral- Saharan Africa, aiming at Project number : A033873-001 CIDA ists. The project supports the Agency for Cooperation improving their knowledge ( Canadian Duration : 2010-2014 and Research in Development ( ACORD ) in facilitating and skills in crop and International the active engagement of over 200 organizations of livestock production Development http : / / www.acdi-cida. small-scale farmers and pastoralists in two processes methods, sustainable land Agency ) gc.ca / cidaweb / cpo.nsf / that have significant impacts on their livelihood : the and water management vWebCSAZEn / B3BA718E- implementation of the CAADP and the development of practices, and access to D93E33BA852576B- the AU’s Pastoral Policy Framework ( PPF ) for Africa. markets. The ITC Project 6003C92A0 shall benefit from the Sectors : lessons learnt. 1. Democratic governance : Democratic participation and civil society ( 015150 ) : 20 % 2. Private sector development • Agricultural extension ( 031166 ) : 40 % • Agricultural policy and administrative management ( 031110 ) : 40 % Chapter 1. Supply Analysis of ABEC – 20

Bird’s Eye Chili - Projects in KENYA by other Development / International Organizations, 2014 any complementarity Funding Project Name between current project Components Activities organization and Duration and east and southern Africa project ? Progress and Results Achieved Through training workshops, short courses, on-site coaching, peer-to-peer learning and farmer exchanges, over 3500 small-scale farmers and pastoralists across sub-Saharan Africa have improved their knowledge and skills in crop and livestock production methods, sustainable land and water management practices, and access to markets. Farmers in such countries as The Project’s focus was on ACORD’s Pan African Agricul- Mozambique, Burundi, Kenya and Mali are already small-scale farmers and ture Program using the knowledge and skills gained to increase pastoralists across sub- Saharan Africa, aiming at Project number : A033873-001 their production and income. Over 120 representa- CIDA tives from farmer and pastoralist organizations and improving their knowledge ( Canadian Duration : 2010-2014 networks across East, West and Horn of Africa have and skills in crop and International also increased their competence in participating in livestock production http : / / www.acdi-cida. Development the Comprehensive Africa Agriculture Development methods, sustainable land gc.ca / cidaweb / cpo.nsf / Agency ) Programme and Pastoral Policy Framework processes, and water management vWebCSAZEn / B3BA718E- gaining valuable and relevant information and engag- practices, and access to D93E33BA852576B- ing in dialogue with policymakers. These results, from markets. The ITC Project 6003C92A0 the project’s first year, are contributing to improving the shall benefit from the livelihoods and food security of African farmers and lessons learnt. pastoralists at the community level. Beneficiary countries : Kenya 12.5 % Other : Burkina Faso, Burundi, Ethiopia, Mali, Maurita- nia, Mozambique, Tanzania. Kenya Rural Development Water is such a scarce Programme ( KRDP ) resource for life. KRDP The general objective of the Kenya Rural Development project in Kenya is on European Duration : N / A Programme will be to contribute to improved food drought management. For Union ( EU ) security in Kenya. The project purpose is to increase the ITC project to be fruitful, http : / / eeas.europa.eu / productivity and efficiency of food systems in Kenya. delegations / kenya / projects / KRDP’s lessons learnt and list_of_projects / 22067_en.htm or direction is key. This programme aims to improve farm productivity and incomes, and the health and welfare of rural Kenyans, by increasing the quality and consumption of fruit and vegetables. The programme covers 8 of Kenya’s 35 horticultural districts and was designed as a pilot Smallholder Horticulture Mar- initiative for possible replication throughout the country. International keting Programme It targets poor rural households and unemployed The project provides a Fund for and underemployed people in areas of Kenya where good stepping stone in Duration : 2007-2013 Agricultural horticulture is an important source of income, as many Value chains and market Development http : / / www.ifad.org / opera- poor small-scale farmers in these areas sell a portion channels and infrastructure ( IFAD ) tions / projects / regions / pf / of their output on the domestic market. for the ITC project. factsheets / kenya.pdf The programme invests in value chains and market infrastructure in order to improve the supply of inputs and the functioning of marketing chains. It also seeks to build the capacity of private-sector service providers, government institutions and farmers’ organizations. Chapter 1. Supply Analysis of ABEC 21 –

Adoption of market and good agricultural practice There is interregional trade Fresh produce small standards by the region’s horticultural growers. This going on within the East will in turn increase competitiveness for East African African region. This project holders EAGAP certification horticultural products. is important in levelling Duration : 2011-2014 This project is therefore aimed at developing a local- the standards that should Trade Mark ized version of GlobalGAP ( Good Agric. Practices ) be adhered to especially East Africa http : / / www.trademarkea. called East Africa GAP ( EAGAP ) that is available in in ABEC Value Chain. com / wp-content / uploads / Swahili. Developing auditors and trainers on EAGAP Remember sometimes 2012 / 05 / Fresh-Produce-Ex- and supporting groups of farmers producing fresh pro- companies from Kenya porters-Association-of-Kenya- duce in each of the East African countries to become source the produce from FPEAK.pdf certified in EAGAP. Certification will increase the selling Uganda repack it and price earned by smallholder farmers. export. Chapter 1. Supply Analysis of ABEC – 22

12. SUPPLY CHAIN CHALLENGES

Throughout the supply analysis research, a number of challenges have been raised by the main actors of the sector. They can be categorized in 3 themes :

12.1. ORGANIZATIONAL & LOGISTICS

a. Lack of organized sourcing structure : The major problem of the ABEC marketers and producers is lack of organization in terms of an efficient sourcing structure. Although,the marketers have tried to cluster small holder farmers into groups through which they can raise the required volumes and quality consistently, the loyalty of the farmers to this kind of engagement is lacking as they end up selling to other actors in the value chain. b. Logistic costs : farmers who are sparsely distributed are interested in the value chain find it difficult to transport their produce to the nearest collection centers or to the factory. c. Lack of sufficient volumes to satisfy market requirements : By 2009, Equator products for example had an average of 2 kg of produce per farmer per week, from 2,000 farmers that were supplying the fresh ABEC of which a total of 4 tons of dried exportable produce would be achieved per week. This was below their breakeven point which required 5 tons per week. Just like Equator, the main challenges for the sellers of ABEC is to arrive at a business model that ensures required quantity, quality consistently and effectively linking the actors and activities of the supply chain. A model that enables them to link to thousands of smallholders, making use of their existing organizational structures. The marketers have either identified or formed a number of farmer organizations in which smallholders are organized.

12.2. AGRICULTURAL PRACTICES

d. The changing climatic conditions ; this has lowered the ABEC’s productivity in Western Kenya as rains are erratic unreliable these days. e. Competing food crops ; ABEC and spices in general are not products that can be consumed alone. As a result, the campaign towards achieving a food secure nation doesn’t favor the crop. f. Relatively high production ; despite the fact that there are less input demands towards producing ABEC, many smallholder farmers cannot afford especially the cost of selected seed and fertilizers. They plant seed from their previous crop, thus compromising the productivity. g. Depletion of soil micro-nutrients : Many farmers have been producing without using fertilizers and no regard to the GAP that shall have enhanced nutrient replenishing

12.3. SERVICES AND INFRASTRUCTURE

h. Poor road networks also have contributed to delayed or untimely collection of produce from each of the organizations’ farmers ; i. On-site field inspections : It is reported thatTtere are inadequate field personnel from the Government to inspect and give technical advice to the farmers. The few that are thereconcentrate on food security oriented crops such as cereals, tropical fruits and root crops. This has made it impossible to obtain any documented data on ABEC even from the government. Chapter 1. Supply Analysis of ABEC 23 –

13. SUPPLY CHAIN STRENGTHS

Despite of the many challenges discussed above, this study finds the following as the major strengths of the supply chain, mostly related to agricultural practices.

a. Less input requirements. This enables the producers to get higher returns to their investment. b. BEC can be an intercrop with other crops. When the crop has not developed a deep canopy, maize for example can be sparsely intercropped to enhance moisture retention. c. Return on investment can be realized from a small piece of land. Basing on the GMA, from a ¼ of an acre, one is likely to earn more than Kshs.100,000 as compared to maize which can hardly yield Ksh. 20,000 in a year from one acre. d. Family labor can be used to aid farm operations especially in harvesting, in linewith the fair trade requirements ; children should not be allowed to work.

14. SUMMARY OF THE SUPPLY CHAIN ANALYSIS WITH RELEVANT CONCERNS AND RECOMMENDATIONS

STAGE OF PRODUCTION CONCERNS RECOMMENDATIONS • Research on clean seed to be done Certified seed acquisition • Lack of certified BEC seed. considering the various agro-ecological zones • The marketing companies and govern- • Minimal technical expertise on the nurs- ment agencies to help farmers in estab- ery bed preparation and convenience to Nursery preparation lishing the nurseries. supporting environment for the chosen sites • Nursery preparation manual to be developed. • The marketing companies and govern- • Lack of tools and equipment used in the ment agencies to capacity develop farm- Nursery management nursery bed management. ers on nursery management. • Lack of technical knowledge. • Nursery preparation manual to be developed. • Encourage farmers to invest on irrigation • Dependence on rain delays transplanting facilities. sometimes. Transplanting • The Government to subsidies irrigation • Lack of the required tools and equipment kits, tool and equipment for smallholder during the exercise. farmers • Use of integrated weed control meas- • Labour intensive in weeding. ures. • Lack of knowledge as to which chemi- • Capacity development on pests and Field management practices cals to be used in controlling pests and diseases control measures diseases • The Government to subsidies irrigation • Dependence of rains reduces yields. kits, tool and equipment for smallholder farmers. • Labour intensive. • Research on harvesting machinery and Harvesting • Lack of harvesting equipment to reduce scoville pain into the injured parts of the equipment such as gloves etc. hand e.gwithin the finger nails. • Lack / inadequate drying equipment. • Aflatoxin contamination. • Labour intensive especially during sorting • Processing and storage, infrastructure and technology improvements should Post-harvest handling / processing • Lack of equipment that can measure the be incorporated early on in the value and storage required moisture content during drying. chainThe analysis revealed that PH • Biotic contamination. activities were too few and too late. • Lack of the required storage equipment and or facilities. Chapter 1. Supply Analysis of ABEC – 24

Photo: © shutterstock

STAGE OF PRODUCTION CONCERNS RECOMMENDATIONS • The marketer should organize farmers into production groups of close proxim- • High transportation costs from the farm ity to raise enough volumes for easier to the factory, or marketing outlet. collection. Transportation • Lack of the required packaging material • since marketers transport the produce in during transportation. the gun bags, they should compartmen- talize the track with rafters so as to minimize physical damage to the produce. • Lack of the market information to the • Farmers should be trained on what farmers. the market requires in terms of quality, quantity and when. • Low price due to quality-to the farmer Marketing and the marketer. • Field agronomists, farmers and the marketers should be trained on Good • Competition from other spices. Agricultural Practices ( GAP ), to improve • Rejection of the produce due to contami- on the competitive edge and reduce nation. rejections • Low consumption rate in Kenya as compared to India for exampleThis leads to dependence to international market. Consumption • Its high scoville units results into usage in small amounts, thus reduces the rate of value chain flow. Chapter 2. International market analysis 25 –

CHAPTER 2. INTERNATIONAL MARKET ANALYSIS

15. CHILIES IN A WORLD OF SPICES

Spices are used and traded around the world. The sector is composed of a large variety of importers : traders ( e.g. Catz ), semi-finished processors ( e.g. Olam ), flavor houses, food industry ( e.g. Unilever, Verstegen ), retail ( e.g. Ahold ). Only 35 % of all spices traded are sold in retail markets. Most go into food processing 55 % ( mixes ), and 10 % into catering. The largest player is McCormick ( US processing company ) which accounts for 50 % of all spice traded. Many processors are small or medium enterprises.

The industry has a diverse product range with 400-500 spice / herbs products. All have their own supply chain challenges ; 50 products are of major importance ; 90 % of all spices are produced by smallholder suppliers with little negotiating power in supply chains. Local supply chains are complex consisting of : farmers – collectors – wholesal- ers – local markets / exporters. Spices are subject to highly volatile price systems defined by buyers, based on international supply and prices.

There is quite stiff competition for production capacity with other, more valuable crops such as palm oil, cocoa, and coffee. Spices are usually not much supported locally, since there are other higher value commodities cultivated. ( Boomsma et al. 2013 )

In the past 50 years, there has been strong growth in global spice production and export. India and China are the world’s major producers and exporters, but experience growth in their domestic consumption. The United States of America and Europe are major importers. Several non-producing countries act as spice trade hub : e.g. Singapore, the Netherlands, and Germany. Africa produces and exports many different spices, from many different countries, including Kenya. Africa’s total share of exports has decreased by 2 % in volume and remained stable in volume in the past years due to strong growth in Asia and Europe. Africa is a global player in vanilla and cloves. Fairtrade and organic markets are growing fast yet are still a small share of the total market. Organic agriculture is still small in Africa, and spices are a small part of organic production. ( Blok and Tulleners 2009 ) Chapter 2.International market analysis – 26

Table 4: Export volumes and value of spices 1961-2011 ( item 723, elements 5910, 5922 ) Source FAOSTAT Export volumes ( tons ) Continents 1961 Share 1971 Share 1981 Share 1991 Share 2001 Share 2011 Share World + ( Total ) 40,651 58,021 99,781 126,396 204,428 417,297 Africa + ( Total ) 2,183 5 % 4,666 8 % 3,676 4 % 5,007 4 % 7,228 4 % 19,760 5 % Americas + ( Total ) 869 2 % 6,058 10 % 10,319 10 % 6,416 5 % 11,311 6 % 20,400 5 % Asia + ( Total ) 34,382 85 % 42,146 73 % 72,663 73 % 96,108 76 % 141,331 69 % 314,074 75 % Europe + ( Total ) 3,215 8 % 5,111 9 % 12,767 13 % 18,022 14 % 40,193 20 % 61,714 15 % Oceania + ( Total ) 2 0 % 40 0 % 356 0 % 843 1 % 4,365 2 % 1,349 0 % Export Value ( 1000$ ) World + ( Total ) 16,143 39,059 146,011 225,693 413,024 1,463,937 Africa + ( Total ) 1,001 6 % 1,672 4 % 3,552 2 % 7,337 3 % 10,458 3 % 57,879 4 % Americas + ( Total ) 421 3 % 7,667 20 % 26,116 18 % 18,040 8 % 30,906 7 % 63,500 4 % Asia + ( Total ) 11,245 70 % 18,103 46 % 67,069 46 % 104,837 46 % 209,899 51 % 912,874 62 % Europe + ( Total ) 3,474 22 % 11,578 30 % 48,331 33 % 92,991 41 % 157,831 38 % 421,872 29 % Oceania + ( Total ) 2 0 % 39 0 % 943 1 % 2,488 1 % 3,930 1 % 7,812 1 %

16. PRODUCTION AND TRADE

16.1. PRODUCTION

Unfortunately there are no international statistics available with regard to production and trade of BE chilies specifically. BEC and African Bird’s eye chilies are included in a large commodity category ( HS code : 090420 ). FAO does have statistics on ‘Chilies and peppers, dry’. Yet these include a whole range of chilies : Red and cayenne pepper, paprika, allspice, Jamaica pepper ( Pimenta officinalis ) and chilies ( Capsicum frutescens ; C. annuum ).3 BE belongs to the latter category. Yet even within the Capsicum category there are different types, among which BE chili is only one of them. The same holds true for statistics from EUstat. Hence, it is very difficult to establish precise trends with regard to BEC. Hence, the main source of information specific to ABEC and BEC is based on interviews.

FAO, EUstat or ITC Trademap do not take into account ground or crushed chilies and peppers that might be exported after use in processed products ; although these numbers might be negligible. Food processing for exports market is still limited in Africa, but more advanced for local and regional markets.

Some market and value chain studies specific to BEC have been conducted based on statistics of dried chilies, but present the same limitations with regard to ( the lack of ) disaggregated statistics.4, 5 If such figures hold some truth a comparison can be made with trade statistics of spices. The table below displays the total production of dried chilies and pepper per region estimated by the FAO over 2011.

3.– Uncrushed or unground fresh pimentos are considered to be vegetables ( FAOSTAT 2014 B ). 4.– See for example Fintrac ( 2004 ), a study in which trade statistics are not provided for ABE chilies specifically. As such the statistics in the study” also contain capsicum or pimenta varieties other than ABE”. 5.– Another example of the problems that might arise when using general dried chilies and peppers statistics for BE chilies is demonstrated by a study conducted by the Centre for the Promotion of Imports from developing countries ( CBI ), an Agency of the Ministry of Foreign Affairs of the Netherlands. It shows that price levels have been steadily on the rise for chilies ( CBI Product Factsheet ). However interviews with stakeholders reveal that prices for ABE have been declining recently and are highly volatile in general. See also section 3.7.2 Chapter 2.International market analysis 27 –

Table 5: Production per region Chilies and peppers, dry ( Source : FAOSTAT 2014 ) Production 2011 Region Dried chilies & peppers ( MT ) Percentage of total Africa 454.495 17 % Americas 161.765 6 % Asia 1.862.098 72 % Europe 122.550 5 % Oceania 0 0 % Total 2.600.908 100 % Estimation of demand Bird’s Eye Chili1 600 0,00023 %

Worldwide, area under cultivation and production of chilies has increased since 2006 ( see Table 2 and 3 underneath ). For the Americas, the area harvested has reduced while the total production has increased sharply by 19 %, suggesting gains in productivity and efficiency. More stability is observed in Asia with an increase in area cultivated of 2 % and production of 4 %. Africa has increased its area under cultivation and production by 7 % and 11 % respectively. Europe has increased significantly both area under cultivation and production, however the total production in 2012 only accounted for 3 % of the world’s production which is rather insignificant.

Table 6: Area harvested ( ha ) per region for Chilies and pepper, dry ( Source FAOSTAT 2014 ) Area Harvested Regions 2008 2009 2010 2011 2012 % change World + ( Total ) 1,918,835 2,035,261 1,974,846 1,976,351 1,989,664 4 % Africa + ( Total ) 512,525 630,106 551,019 518,042 547,016 7 % Americas + ( Total ) 57,177 54,323 48,465 50,438 52,044 -9 % Asia + ( Total ) 1,297,659 1,289,198 1,306,400 1,337,814 1,320,190 2 % Europe + ( Total ) 51,470 61,631 68,959 70,054 70,411 37 % Oceania + ( Total ) 4 3 3 3 3 -25 %

Table 7: Production ( tons ) per region for Chilies and pepper, dry ( Source FAOSTAT 2014 ) Production Regions 2008 2009 2010 2011 2012 % change World + ( Total ) 3,123,443 3,035,148 3,053,545 3,244,251 3,352,163 7 % Africa + ( Total ) 555,683 490,167 520,107 558,688 618,595 11 % Americas + ( Total ) 212,594 230,863 202,655 247,541 253,420 19 % Asia + ( Total ) 2,281,435 2,218,262 2,227,469 2,323,677 2,363,200 4 % Europe + ( Total ) 73,723 95,850 103,309 114,340 116,943 59 % Oceania + ( Total ) 8 6 5 5 5 -38 %

India is by far the largest producer of dried chilies and peppers in the world, although the majority of production is sold domestically. Other Asian countries also produce a fair share of the dried chilies and peppers with China, Bangladesh, Thailand, Myanmar and Vietnam ranked in the top 10 producers in the world in 2012 ( FAOSTAT 2014 ). Top African production countries are Ghana, Ethiopia, Benin Egypt and Nigeria – but it is impossible to quantify the proportion of ABEC in these figures, although Nigeria (and Ghana to a lesser extent ) is known producers of ABEC. Chapter 2.International market analysis – 28

Table 8: Top 15 Countries producing chilies and peppers ; dry ( Source FAOSTAT 2014 ) Rank Country Production ( 1000$ ) Production ( MT ) 1 India 1423,990 1299,940 2 China, mainland 317,674 290,000 3 Peru 191,699 175,000 4 Bangladesh 188,413 172,000 5 Pakistan 164,314 150,000 6 Thailand 158,837 145,000 7 Myanmar 140,214 128,000 8 Ghana 109,542 100,000 8 Ethiopia 109,542 100,000 10 Viet Nam 10,1874 93,000 11 Benin 7,4226 67,760 12 Egypt 7,1202 65,000 13 Nigeria 6,7916 62,000 14 Mexico 6,5725 60,000 15 Romania 5,3128 48,500

16.2. WORLD TRADE OVERVIEW

A modest demand is also supported by statistics at the EU-level ( which is the main importing market for spices and chilies ). Exports from Africa to EU markets of chilies have been structurally low at around 3 % ( CBI Product Factsheet ). Taking into account numbers for other dried chilies and peppers exported as well from the African continent this provides another indication of the marginal share of BE chilies as part of the total trade in chilies, at least to the EU. Hence, it is fair to state BE chilies are a niche product. The main export market of BE chilies is the EU.6 The Asian markets are well served by local or Asian production. The EU imports both African and Indian BEC.

Asia is by far the largest exporter of chilies and pepper with over 70 % of the world’s export shares. The exported quantities from Europe are a result of imported products and re-exported after processing as Europe only produces 3 % of the world’s chilies and peppers ( dried ).

Table 9: Volumes ( tons ) exported from the world per region 2006-2011 Export ( quantity tons ) Areas 2006 2007 2008 2009 2010 2011 % world 2011 Africa 16.784 19.588 17.912 17.742 17.197 20.476 3.82 % Asia 314.047 361.532 358.78 375.961 393.505 383.323 71.49 % Caribbean 345 564 555 617 931 593 0.11 % Central America 16.452 12.818 10.19 11.861 12.662 15.201 2.84 % Europe 49.854 49.649 50.867 55.165 56.22 58.818 10.97 % Northern America 4.387 3.242 3.069 3.35 4.007 5.057 0.94 % Oceania 21 37 61 55 42 82 0.02 % South America 63.556 55.752 69.132 67.667 49.406 52.613 9.81 % World 465.446 503.182 510.566 532.418 533.97 536.163 100.00 %

6.– For example in the case of The EU imports around 350 MTs annually of Malawi birds eye chilies, as was estimated by the Public Ledger. In addition, the US and Japan each bring in around 50 to 100 MTs annually. The relatively smaller volumes produced by Zimbabwe, Uganda and South Africa are generally shipped to traders in Europe, while non-exported product is typically sold to local manufacturers of chili sauce ( The Public Ledger ). Chapter 2.International market analysis 29 –

In terms of value, Vietnam, India and Indonesia are the biggest exporters. Malawi and Kenya are ranked far below the top 10 occupying rank 49 and 63 respectively in 2013. The European countries present in the top 10 process the raw material sourced from supplying countries and sell process products to their clients around the world.

Major importers are Asia, Europe and North America. Africa exports as much as it imports ( 3.5 % ), while Asia imports 45 % of the world’s chilies and peppers traded. Europe and North America both import just over 20 % of the quantities traded internationally.

Table 10: 15 Top exporter of Chilies and peppers, dry in value 2013 ( Source FAOSTAT 2014 ) Top 15 Exporters, including Exported value in 2013 in Share of world’ exported value Malawi and Kenya thousand US Dollar World 3428,638 Viet Nam 774,642 22.59 % India 534,302 15.58 % Indonesia 354,712 10.35 % China 264,672 7.72 % Brazil 204,204 5.96 % Germany 146,297 4.27 % Spain 132,462 3.86 % Singapore 123,086 3.59 % Sri Lanka 102,522 2.99 % Netherlands 95,592 2.79 % Malawi ( no 49 ) 3,077 0.09 % Kenya ( no 63 ) 524 0.02 %

Table 11: Imports per region ( volumes tons ) of Chilies and peppers, dry 2006-2011 ( Source FAOSTAT 2014 ) Import Quantity ( tons ) 2006 2007 2008 2009 2010 2011 % world 2011 Africa 10.156 13.312 17.617 20.668 20.748 19.423 3.55 % Asia 209.087 282.574 224.931 248.806 264.705 251.326 45.96 % Caribbean 829 604 407 317 336 599 0.11 % Central America 21.577 25.573 48.088 41.609 29.495 28.05 0.51 % Europe 96.727 98.811 115.905 127.597 117.041 124.321 22.73 % Northern America 105.382 96.872 109.13 111.571 110.969 116.395 21.28 % Oceania 2.662 2.86 2.801 3.083 3.1 3.023 0.55 % South America 1.856 2.496 2.6 2.386 2.026 3.716 0.68 % World 448.276 523.102 521.479 556.037 548.42 546.853 100.00 %

Table 12: Top 15 importer in value of Chilies and peppers, dry for 2013 ( Source FAOSTAT 2014 ) Imported value in 2013 Share of imported value as % Top 15 Importers in thousand US Dollar of world’s imports World 3490,983 United States of America 791,863 22.68 % Germany 305,180 8.74 % Viet Nam 143,797 4.12 % Singapore 143,616 4.11 % Spain 137,813 3.95 % Japan 137,333 3.93 % United Kingdom 128,531 3.68 % Netherlands 126,929 3.64 % Malaysia 108,133 3.10 % India 98,442 2.82 % Chapter 2.International market analysis – 30

Figure 7: Imports from developing countries (CBI)

Main suppliers of chillies 2008-2012 in 1,000 tonnes 20 18 16 14 12 Asia 10 Africa 8 Latin America 6 Other In 1,000 tonnes 4 2 0 2008 2009 2010 2011 2012 Years

Numerous Asian countries are represented in the top importing countries. Chilies are used to flavor dishes but are also imported from the region, processed and re-exported to other countries, including Europe. Some European companies have their processing plants in Europe, while others process their products in Asia where they can be more cost efficient and export directly to consumers around the world. ( Boomsma et al. 2013 ) The graph prepared by Eurostat clearly demonstrates that Asian and Latin America are dominating chilies and pepper trade.

16.3. EU SUPPLY OVERVIEW

Europe’s main supplier is Asia. Africa’s supply to Europe is marginal at about 3.5 % – accounting for all chilies. Nevertheless, Europe is the main importer of ABEC.

Table 13: Europe main imports per region ( Source : ITC trademap ) Europe’s imports from world Product code Value in 2011 Value in 2012 Value in 2013 % of total exports ( 2013 ) ‘090420 : dried, crushed or ground 412,684 6,303 6,564 78.54 % ‘090421 : Dried, neither crushed nor ground 178,300 164,816 34.39 % ‘090422 : Crushed or ground 179,796 196,684 30.49 % Europe’s imports from Africa Product code Value in 2011 Value in 2012 Value in 2013 % of total imports ( 2013 ) ‘090420 : dried, crushed or ground 7,148 67 7 0.11 % ‘090421 : Dried, neither crushed nor ground 5,557 5,635 3.42 % ‘090422 : Crushed or ground 1,723 1,677 0.85 % Europe’s imports from Asia Product code Value in 2011 Value in 2012 Value in 2013 % of total imports ( 2013 ) ‘090420 : dried, crushed or ground 158,625 4,068 4,891 74.51 % ‘090421 : Dried, neither crushed nor ground 74,975 79,082 47.98 % ‘090422 : Crushed or ground 59,852 72,057 36.64 % Europe’s imports from America Product code Value in 2011 Value in 2012 Value in 2013 % of total imports ( 2013 ) ‘090420 : dried, crushed or ground 78,386 1,497 1,060 16.15 % ‘090421 : Dried, neither crushed nor ground 62,196 43,405 26.34 % ‘090422 : Crushed or ground 8,964 7,563 3.85 % Chapter 2.International market analysis 31 –

China dominates exports ( in value ) to Europe when it comes to chilies. In the past 5 years, India, Mexico and Peru also systematically ranked high. Spain is an important hub for chilies in Europe. There are no trade data available for 2012 and 2013 but in 2011, Spain mostly sourced from China and Peru ( 90 % of imported spices together ). Malawi and Uganda are both in the top ten exporters of chilies to Spain, but with a weak 0.7 and 0.3 % of Spain’s imports shares of the top 10 exporters.

Table 14: Main Suppliers to Europe ( 2009-2013 ) in value ( 1000USD ) for HS090420 Exported Exported Exported Exported Exported Exporter value in Exporters value in Exporters value in Exporters value in Exporters value in 2009 2010 2011 2012 2013 1 China 62414 China 73780 China 117634 China 2986 China 3782 2 Spain 54663 Spain 56368 Spain 75053 Mexico 1033 Mexico 870 3 Peru 40959 Peru 38258 Peru 55331 India 522 India 700 4 Brazil 21374 Germany 22598 Germany 25494 Uzbekistan 515 Uzbekistan 376 5 Germany 18936 India 21155 India 24957 Spain 384 Spain 374 6 India 15365 Holland 11176 Mexico 14247 Honduras 169 Peru 98 7 Netherlands 13467 Serbia 10607 Holland 13840 Guatemala 125 Germany 90 8 Serbia 10321 Mexico 10500 Hungary 10496 Austria 106 Estonia 78 9 Hungary 9312 Brazil 10134 Serbia 9318 Peru 103 Honduras 50 10 Mexico 9024 Hungary 9433 France 9149 South Africa 61 Brazil 29

Table 15: Top suppliers to Spain ( HS090420 ) in value ( 1000USD ) for 2011 ( Source ITC trademap ) Top importers to Spain ( 090420 ) in 2011 Value ( 1000USD ) % of total world imports World 94880 100 % 1 Peru 48700 51.3 % 2 China 40552 42.7 % 3 Germany 899 0.9 % 4 India 817 0.9 % 5 Malawi 636 0.7 % 6 Europe Other. Nes 458 0.5 % 7 Netherlands 425 0.4 % 8 United States of America 422 0.4 % 9 Zimbabwe 394 0.4 % 10 Uganda 331 0.3 %

16.4. USA SUPPLY OVERVIEW

The USA mostly source their chilies from China and Latin / South American countries, from which different kinds of chilies and peppers can be sourced at low costs – many of which exhibit similar characteristics to BEC. Africa is not well positioned to supply this market. Chapter 2.International market analysis – 32

Table 16: Supplying countries to USA ( 2011 ) : Chilies and peppers dry Supplying countries Chilies and peppers, Supplying countries Chilies and peppers, to USA dry ( value ) - 2011 to USA dry ( volumes ) - 2011 1 China 73788 Mexico 33885 2 Peru 58718 Peru 22389 3 India 47977 China 18460 4 Mexico 42976 India 17833 5 Spain 24080 Spain 6765 6 Chile 3940 Colombia 1744 7 Israel 3918 Israel 1494 8 Colombia 3441 Nicaragua 1094 9 Republic of Korea 3133 Republic of Korea 861 10 Germany 2933 Honduras 829

Source : Chilies and peppers dry ( value in 1000$ ) FAOSTAT 2014

16.5. ASIAN SUPPLY OVERVIEW

In 2013, most of Asia’s imports were also from Asia. There is no room for Africa to enter this market. Indian BEC is available on these markets and is also traded internationally.

Table 17: Asian chilies trade ( Source ITC trademap ) Asia’s imports Asia’s imports % of imports from from Asia from world Asia of total imports Product code Value in 2013 Value in 2013 % of 2013 ‘090420 : dried, crushed or ground 4,713 5,518 85 % ‘090421 : Dried, neither crushed nor ground 278,850 284,013 98 % ‘090422 : Crushed or ground 127,399 142,119 90 %

China is the main exporter worldwide. Most important partner countries are Malaysia, Korea, the USA, Mexico and Japan. India predominantly exports to the USA and to neighboring countries. ( ITC trademap )

Table 18: Exports from China 2011 ( Source ITC trademap ) Export from China 2011 Countries Chilies and peppers, dry ( Quantity ) Chilies and peppers, dry ( Value ) Malaysia 13,933 41,799 Republic of Korea 13,351 37,420 United States of America 13,255 42,101 Mexico 11,474 29,924 Japan 9,631 40,910 Thailand 8,092 20,962 Democratic People’s Republic of Korea 5,690 13,765 Indonesia 4,877 10,339 Spain 4,675 11,230 Germany 1,948 4,471 India 907 2,360 Singapore 788 2,273 Chapter 2.International market analysis 33 –

17. MARKET OVERVIEW FOR BIRD’S EYE CHILIES

The table below provides some insights onto the level of importance of BE chili for the companies that were interviewed. With a relative high SHU value and cheaper alternatives, BEC are only used marginally for processing and / or as food ingredients. BEC is used in very small amounts to flavor products (meat for example ) or curries. Hence BE chilies are not a ‘main’ spice, like nutmeg or black pepper which is crucial to a spice trader’s portfolio. Companies interviewed for this research trade BEC, but it only occupies between 0.5 % and 10 % of the total chilies they trade, hence very small quantities if compared to the volume and value of spices traded yearly.

Table 19: BEC market overview ( Source : interviews ) Reporters BE as a % of spices / chilies Sourcing location

Trades 2000 MT of chilies per annum ( figures for Malawi through a contract with a Company 1 spices unknown ), of which 15 MT BE ( 0.75 % of large-scale agri-business ( farm workers chilies ) instead of smallholders )

Chilies represent 6 % of turnover of spices division. Sourcing directly from small holders in Company 2 % of BE is unknown but marginal. Also conducts India. further processing and mixing with other blends 20.000 MT of spices per annum*

1000 MT are chilies Malawi and Kenya depending on prices Company 3 of which 100 MT is BE and availability of supply. ( as such 0.5 % of spices traded, 10 % of chilies )

Trades 20 000t of chilies Sourcing directly from small holders in Company 4 5-10 tons of BEC ( 0.5 % of chilies ) India

* The definition of what are spices also differs across companies

Two representatives of two large trading companies, both active in spice and chilies trade for more than a decade, estimated – independently from each other-global demand for BE chilies to be between 500-600 tons. A Fintrac Study from 2004 estimated trade ( which is technically not the same as demand ) around 500 MT and this seems to be confirmed by a USAID-Fintrac study in 2011. Demand used to be higher in the past, but companies faced sourcing issues and have moved to other chili varieties. There are many cheaper alternatives and substitutes to BEC for food products and blends – reducing the potential for growth. Overall, demand for BEC is small and prospects for an increase in demand are limited to 5-10 tons per year ( interviews ). Company representatives admitted that a discontinuation of BE chili in their portfolio would not significantly impact their business. BE chilies could be replaced by Indian BE or the other types of chilies like cayenne peppers. Chapter 2.International market analysis – 34

18. MARKETS REQUIREMENTS

18.1. PRODUCT AND APPEARANCE

Chilies can be of different qualities. Usually the primary grade is sold as whole chilies while secondary grades are often crushed or grounded for blends. Preferably, BEC are sold as whole. Chilies are not only used for food ingredients, they are also part of pharmaceutical products, organic pest control and in tear gas. Most Bird’s Eye chilies are processed to extract the oleoresins for sale to the food and pharmaceutical industries ( ADC, 2001 ). The market requires a consistent product – both in quality and in quantity. The European Union, the United States, and Japan are the largest markets of high pungency dried chilies in the world, but quantities demanded are limited. ( Makoka 2010 )

Whole dried ABE should be red / orange in color and no more than 2 cm long. Products should be dried to a least 8 % of moisture content The quality of the products is largely determined by its appearance and pungency / SHU ( Scoville Heat Units ). Closure : seed to no fall of the fruit

Harvesting of ABE Chili is a highly labor-intensive, mostly done by hand. Packaging is generally between 20 to 35 kg. Storage conditions should be cool and dry, away from direct sunlight and / or source of heat and for no more than 12 months from original packaging date. ( USAID-Fintrac 2011 )

Sources for the study had different estimations of the percentage of BE chilies sold without intensive processing and chilies that are used for blends, powder, seasoning etc. One source estimated that around 50 % is used for blends and 50 % for whole chilies. Two other sources pointed out that the SHU value of BE is very high which makes further processing for chili powder an option but to ground chilies to add to other foods products is difficult.7 Below it displays some of the different ways in which chilies may be used :

Figure 8: BEC Value chain progression ( Source : Kaiser Associates, 2006 )

Bird’s Eye Chillies’ Value Chain Progression

VALUE CHAIN PROGRESSION

BASIC PRODUCTIONS INDUSTRIAL INPUTS / INTERMEDIATES CONSUMER GOODS

Fresh Chillies Chilli Paste Branded Chilli Spices

Fresh Bell Peppers Chilli Powder Chilli Paste

Chilli Seed Dehydrated Chillies Chilli Sauces (Mixed)

Chilli Dried Oleoresins Sundried Chillies

Pickles and Jams

• Sun Drying • Milling • Milling • Sterelizing • Mixing • Seasoning • Dry Milling • Pulping • Cooking • Dehydratation • Preservation with vinegar /

KEY PROCESS • Extraction with solvent acetic acid

7.– One spice company representative said a SHU value of 70.000 is usually considered the maximum for ground chilies used for further food processing, while ABE have an SHU value of at least 100.000 going up to 180.000. Chapter 2.International market analysis 35 –

18.2. PRICES

Spices prices are in general volatile and difficult to predict ( Boomsma et al 2013, Blok and Tulleners 2009 ). Failed production or overproduction in one country has major implications for other producing countries. In the past, African countries entering the market and producing BE chilies as well as high production volumes from market leader Malawi have had a negative pressure on price-levels ( Ntale 2011 ). This can be contrasted with a market situation of some years ago when there was a lack of supply and prices were on the rise. It is difficult to establish a trend with regard to prices, but there are no indications of constant demand pushing prices to higher levels. Fluctuations are mostly the result of failed production years in India. Even slight overproduction of ABEC in Africa seems to drive prices down and quantities are not fully absorbed by the market. For local markets ABEC are possibly too expensive and not very appreciated ( spicy food is not in demand on East African markets as of yet ). ( interviews )

Table 20: Average prices for ABE chilies ( Source : Public Ledger in USAID 2011 ) Average Prices for ABE Chilies ( US $ / MT, CIF Europe ) Year Low High Notes 2010 $ 6,200 $ 6,200 No movement recorded 2009 N / A N / A No Data Available 2008 $ 6,940 $ 6,940 Data Not Available After March 2008 2007 $ 3,500 $ 6,940 Jump occurred in November 2006 $ 3,500 $ 3,500 No movement recorded

International price levels were said to hover between 4-7 dollars per kg for African BE chilies over the last years. International trading companies estimated prices to be around 4 dollars per kg last year. Indian BEC are cheaper at about 1.5 $ per kg. Prices in Malawi were recorded at 3.5 $ per kilogram last year ( 2013 ), cheaper than in Kenya. ( Interviews ). Table 18 provides a comparison in prices for the ABEC and Indian S4 ( lower pungency ).

Table 21: Maximum and minimum prices for African Bird’s eye and Indian S4. APEDA statistics ( USD / T ) Max Price Min Price African bird’s eye, CIF NW Europe ( USD / t ) 4,100 4,100 2014 Indian S4, CIF NW Europe ( USD / t ) 2,500 2,500 African bird’s eye, CIF NW Europe ( USD / t ) 5,000 4,100 2013 Indian S4, CIF NW Europe ( USD / t ) 2,500 2,500 African bird’s eye, CIF NW Europe ( USD / t ) 6,500 1,811 2012 Indian S4, CIF NW Europe ( USD / t ) 2,500 2,500 African bird’s eye, CIF NW Europe ( USD / t ) 6,200 5,500 2011 Indian S4, CIF NW Europe ( USD / t ) 2,500 1,800 African bird’s eye, CIF NW Europe ( USD / t ) 6,200 6,200 2010 Indian S4, CIF NW Europe ( USD / t ) 2,000 1,700

In the past as a result of oversupply on the market, especially as Malawi produced more chilies than expected, market prices dropped considerably. In fact, two companies ( Mace and Equator ) complained about the price drop and the problems it has caused for their business. Farmers also complained about low prices and some consider leaving BE chili production. As such there does not seem to be much room for further competition on pricing. One source said discouragement among farmers also had to do with relatively price levels from a few years ago when there was a lack of supply in BE chilies related to failed production in India.8

8.– A drop in price was also confirmed by secondary sources. Take for example the article in the Daily Monitor ( February 2014 ). Chapter 2.International market analysis – 36

Figure 9: Prices of chilies on the global market 2007-2011

5000 4500 4000

3500

3000 Africa birds eye

tonne 2000 / India S4 variety 1500 In € 1000

500

0 2007 2008 2009 2010 2011 Years

Source Public ledger 2012 in CBI fact sheet

Prices for organic products are not available per kg. Organic production of BEC is still very limited. In Tanzania processor paid between 4000 to 15000 shillings per kg, which ranges between $ 2.30 and $ 8.90 per kg ( Profound – BTC 2012 ). Some processors pay a prices premium for organic products to encourage farmers to produce. When sustainable production practices are applied at a larger scale of production, end buyers and lead firms rarely pay premiums for the products ( SSI, Boomsma et al. 2013 )

On the internet some suppliers offer the following retail products :

Table 22: Organic BEC on retail markets Origin Product Quantity Price Retail price per kg* Uganda Whole dried** 25 g 4.15 $ ( 2.45 £ ) 166 $ India Whole dried*** 28 g 8.99 321 $ India Flakes**** 30 g 4.69 156.33$

* Calculated. ** http://www.steenbergs.co.uk/product/74/chilli-birds-eye-whole-dried-organic-25g/1/2 *** http://store.indianfoodsco.com/shop/organic-bird's-eye-chili,--ajor00506 **** http://www.organicfair.com/organic-chili-flakes-p/hschilflak.htm

18.3. REGULATIONS

18.3.1. Standards A number of standards are appreciated on the EU, USA markets – the Japanese market also tends to be quite demanding. These include Good Manufacturing Practice ( GMP ), HACCP and sometimes ISO. EU standards that may be applicable to imported ABE chilies include the EU Commission Regulation on Microbiological Criteria for Foodstuffs ( PLW 05-292 EG / mc ) and Commission Regulation ( 2001 / 466 / EG ). They set the maximum levels of contaminants in food products. ( USAID 2011 )

Border control in the EU is strict and has become stricter in the past few years with the implementation of Regulation ( EC ) No. 669 / 2009. It classifies chilies as a high-risk product and food safety controls have increased. Complying with this legislation is increasingly hard for new suppliers and is may impact on new market entrants. In addition, adhering to the requirements of HACCP ( Hazard Analysis and Critical Control Points ) is a crucial requirement for many buyers of spices and herbs but not easily achieved by small companies in Africa. Pesticides and Aflatoxin are often mentioned as two constraints to comply with food security requirements of western companies. Chapter 2.International market analysis 37 –

18.3.2. Pesticides The use of pesticides is an important issue for the spices and chilies industry, especially in India, where use of pesticides has traditionally been much higher. Since pesticide use in Sub-Saharan Africa is substantially lower, trading companies mentioned excessive use of pesticides is not yet a challenge with regard to BE from African producers when importing from Kenya or other African countries. Pesticides used comply with the default MRL of 0,01 mg / kg.

18.3.3. Aflatoxin Aflatoxin can be a serious challenge faced by the spices industry depending on how the chilies are dried and handled. For chilies contamination is linked to drying processes ( sun in open fields ) and poor storage conditions ( CBI Product Factsheet ). However for BEC, aflatoxins are generally not considered a major problem. All companies interviewed did not remember a serious case in which containers had to be sent back, with one exception. One company representative said one container with BE chilies from Kenya had an amount of aflatoxins which was higher than the maximum allowed. The issue was resolved and is considered an exception to the rule. Companies are increasingly concerned about providing a food safety standard compliant product to their consumers. Many of which have engaged in backward integration or coordination.

18.4. CERTIFICATION AND SUSTAINABILITY

Organic trade information is not available. A study from BTC in 2013 suggests that 27 tons of organic ABEC was exported from Tanzania to Europe in 2010 ( Pro-Found BTC 2013 ). Only a marginal proportion of the BEC are certified. Small volumes are produced in India and in Uganda for niche markets in the EU. Products are sold as flakes or whole. Infused oil with flakes is also available on the market. Currently certification is not as relevant for BE production as it is for other crops. Spices in general are not as scrutinized as high volume crops like cocoa and cotton since spices often reach the end-market as blends added to other products and not as standalone product.

Moreover, spice trading companies note that certification by third parties brings about additional costs for them while certified products do not necessarily earn back these costs through additional sales or a premium paid for by consumers. Finally, whole BE chilies are only a niche market. This makes them less susceptible to critical consumers, which would put certification higher on the agenda.

For example Rainforest Alliance, one of the major certification labels, was not aware of certification of BE chilies although they did not preclude the possibility of some certified chilies either as they certify farm areas, as such BE chili producing areas might be included as well.9 As of yet however there are no certified BE chilies available in supermarkets.

Nevertheless sustainability as a broader trend of which certification is only one aspect, is becoming more important for the spices industry, as it is for other commodities ( Boomsma et al. 2013 ). All spice traders confirmed this trend and were engaged in efforts to increase sustainability. Sustainability is not just part of Corporate Social Responsibility in order to cater to consumer demand but also a deliberate strategy to strengthen the relations with farmers to control and ensure a food safe product while reducing volatility of supply.

End buyers and lead firms such as Unilever, McCormick or Catz do not necessarily have their own programs for sustainable spices, but are increasingly interested to source from sustainable sources. Other companies such as ITC India and Olam, both sourcing from India directly from farmers are engaged in sustainability efforts like extension services and community projects with the aim of sourcing a food safe product.

9.– An attempt was made to contact the Kenyan representative of RA to verify this but no contact at the time of the research could be established. Chapter 2.International market analysis – 38

18.5. COMPETITION AMONG PRODUCER COUNTRIES

Traditionally Malawi has been the African market leader in terms of production of BE chilies. Other producing countries however are Kenya, Ghana, Uganda, South-Africa, Mozambique and Zimbabwe. Zimbabwe at some point even took over from Malawi as the number one producer on the continent, production stalled as a result of internal rife and conflict. Nowadays Malawi has regained the number one position in the region in terms of production. Figure 10 shows how exports have changed in the past years. USAID study from 2011 estimated Malawi’s market share to be 80-90 % of ABEC with 300 tons in 2010 and 42 % of chilies exports to the EU. Kenya, in 2010 produced about 100 tons of ABEC, marketed on the European market. ( USAID 2011 ) Some of the neighboring countries’ production such as Uganda and Tanzania is also commercialized through Kenya. Yet, the African exports are dependent on the results of the Indian production – the main exporter to EU.

Figure 10: African market shares of dried chilies ( Eurostat in USAID-FINTRAC 2011 )

The Malawi variety is considered the best for its consistent and small size, color and closure ( the seeds do not fall out ). Table 3 attempts to provide some of the characteristics of the Malawi, Kenyan and Nigerian variety ( although not many reliable figures are available ). The Kenyan variety seems to demonstrate somewhat similar characteristics to the appreciated Malawi ABEC variety.

Table 23: Characteristics of BEC per country of origin Production country Characteristics Market leader in BE chili production. The Malawi variety is generally regarded as the best one in terms of : • size ( not larger than 2cm centimeters for mechanized packaging and large size differences ) Malawi • color ( pleasing to the eye of the customer when sold as whole chilies ) • Seeds hardly fall out when cut Estimated to ship around 400-500 MTs of peppers abroad ( Fintrac 2004 –USAID 2011 ) Varieties almost as much favored as the Malawi variety. 2-2.5 cm of length which leads to a small amount of chilies not able to be packaged by machines. Kenya Kenyan variety is a little bit more reddish. Seeds do not fall out like the Malawi variety. The red color is an appreciated trait. Larger and softer ( not appealing to the eye when put in a package ), seeds will fall out thereby Nigeria reducing the taste. Total production volumes unknown

Malawi and Kenya’s export are varying significantly from one year and one country to the other. Patterns are difficult to establish. Exports are highly influenced by international trade in terms of volumes and prices. Formal exports from Malawi have been volatile in the past few years and close to zero in 2013. Kenya’s export destinations have also been quite volatile, also in volumes and value. Chapter 2.International market analysis 39 –

Table 24: Importers from Kenya and Malawi 2009-2013 in value ( 1000USD ) and volumes ( tons ) HS090420 ( Source ITC trademap ) Exported Exported Exported Exported Exported Exported Exported Exported Exported Exported Importers from value in volume in value in volume in value in volume in value in volume in value in volume in Malawi 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 World 295 210 23 22 206 179 34 39 1 1 South Africa 104 72 14 7 0 0 34 39 1 1 Canada 41 28 0 0 0 0 0 0 0 0 Indonesia 0 0 0 0 89 108 0 0 0 0 Kenya 46 23 0 0 0 0 0 0 0 0 Netherlands 23 37 9 a 15 38 22 0 0 0 0 Russia 41 22 0 0 0 0 0 0 0 0 Saudi Arabia 40 28 0 0 0 0 0 0 0 0 UK 0 0 0 0 41 25 0 0 0 0 USA 0 0 0 0 37 25 0 0 0 0 Exported Exported Exported Exported Exported Exported Exported Exported Exported Exported Importers from value in volume in value in volume in value in volume in value in volume in value in volume in Kenya 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 World ------105 30 Afghanistan - - - - 77 37 - - - -

Egypt 26 21 ------

Eritrea 31 7 99 21 14 3 49 16 7 3 Germany 38 9 ------Italy 25 7 130 22 83 17 - - - - Netherlands 26 15 31 15 ------Pakistan 1 2 1 1 1 3 1 1 1 1 Ship stores and 61 45 67 26 ------bunkers Sudan ------24 5 - - Tanzania - - - - 83 28 - - - - Turkey 148 64 ------UEA 31 64 - - - UK 31 7 - - 397 - 12 - - -

18.6. SOURCING CONSTRAINTS

A constraint for many buyers is the lack of stability of supply. BE chilies might not arrive in the requested quantity or delayed, especially when sourced from small scale farmers. Some of this has to do with weather conditions, yet some of it also relates to the invariability with which farmers produce BE chilies.

As noted price competition due to oversupply in Malawi has led to a drop in prices on the African market. This had led farmers to stop producing. One source said discouragement among farmers also had to do with price levels of a few years ago when there was a lack of supply in BE chilies and prices were higher. Farmers still expect those prices to be paid and end up being disappointed.

A company sourcing BE from India commented that India holds the advantage of being a large country. As a large multinational company with considerable infrastructure across the country sourcing is less of a problem since spice blends can always be adapted and use ingredients from specific regions based on supply, which is determined by weather circumstances, prices, etc. Oppositely, in Kenya, infrastructures and sourcing are often important constraints for the exporters. Local use of ABEC is limited and a few spice blend use ABEC, with the exception of piri piri. Chapter 2.International market analysis – 40

18.7. POTENTIAL GROWTH OF ABEC DEMAND

In order to increase production and productivity of BEC by Kenyan smallholders there needs to be demand. Possibilities for increased demand for chilies can be a result of three developments which will be discussed hereafter :

Growing world market demand Growing demand by national and regional markets Competitive advantages over alternative sourcing locations

18.7.1. Growing world market demand World demand for many food products is on the rise, including spices and more specifically BEC. There are several reasons for this development :

18.7.11. Growing world population and emerging middle-class The world population is expected to rise to 9 billion people in 2025. These people need food to eat. Simultaneously in many developing economies a growth of the middle- classes can be witnessed. The demand for more processed foods which use chilies for additional taste will rise.

18.7.12. Growing demand for ’spicy’ food in non-Asian markets Asian and Mexican dishes, like noodles and curries, are increasingly become popular around the world. For these spicy types of food chilies are often an important ingredient both in restaurants and home-cooking.

18.7.13. Home cooking trend Home-cooking consumers are increasingly focusing on fresh products, at the same time wanting to spend less time on preparing food and thus increasing the demand for ready prepared mixes and pastes that will reduce the preparation time. Both dried and fresh chilies are used to prepare sauces and pastes

18.7.14. Preference for naturally added flavors A growing number of Western consumers are eating more consciously. This means natural added flavors are more and more preferred compared to artificial ones.

18.7.15. Seasonal The use of chilies can be strongly influenced by weather conditions. For example, chilies are often used as a spice for barbeque meat. ( CBI Product Factsheet )

All trading companies interviewed confirmed these long-term trends mentioned above. One company representative ( with close to two decades of experience in spice trading ) estimated a maximum growth of 5-10 tons per annum. However they did not automati- cally foresee a significant increase in global demand for BE in the short-term. ( interviews )

This is mainly due to two reasons :

1. High SHU value When ground or crushed and used in blends, with a SHU value above 100.000, ABEC are only used marginally. Chapter 2.International market analysis 41 –

2. Cheaper alternatives Due to the low concentration of ABEC necessary for blends, characteristics like taste and color which might render ABEC distinct from other chilies, are becoming less important. As such there may be many other hot chilies that can be used instead of the African BEC. One large trader mentioned that Indian BE chilies are sometimes than half the price ( 2$ / KG ) of African BE chilies ( 4$ / Kg ) and can be a worthy alternative.

Specialty product

The food industry and consumers have not yet demonstrated their commitment to paying a price premium for spices ( Boomsma et al. 2013 ). ABEC prices and volumes have shown to be unstable ( section 2.7.2 ) ; in general spice prices are volatile and highly influenced by the market, making it difficult to establish a branded, specialized product without a core production intended for the conventional market. In the category of specialized products, ABEC would also have to compete from other African origins and India. Again, there are many other chilies available on the market.

18.7.2. Competitive advantages over alternative sourcing locations Another way through which demand for ABEC produced in Kenya could increase would be through competitive characteristics in comparison to other countries producing BEC in the region.

The main selection criteria buying and supplying companies of BE chilies mentioned were price, some quality characteristics ( such color, thickness / strength and size ) and sustainability of supply. In this case, Kenya should establish a reliable yet efficient supply chain of quality chilies.

Reliability of Supply when working with small-holders.

Companies mentioned that reliability of supply was sometimes an issue. Besides weather conditions price variations heavily impact the production volumes of farmers and thereby the supply offered by Kenyan buyers of BE chilies. This issue seems hard to solve. Since further processing of BE chilies is unrealistic ( use for further food processing is marginal, see section 4.3 ), value addition in home markets in order to reduce dependence on export and to stabilize prices is not an option.

This can be contrasted with the Indian market where export of spices is mostly a result of government intervention ( to generate a surplus of dollars ). However, when export prices fall, there is still always the guaranteed domestic market, something unknown to Kenyan buyers and producers. Guaranteed uptake through contracts are an option to stabilize demand somewhat but spice companies said they are only willing to guarantee a limited amount since lower prices will lead them to buy somewhere else ( which is what happened last year when prices were low in Malawi ).

In the end the reliability of supply is mostly linked to prices. Since prices have not risen dramatically and traders argue that supply is up to par with demand in most years, reliability of supply is likely to continue to remain an issue. Diversification strategies by farmers to create some sustainability in production are necessary to spread risks and avoid discontinuation of ABEC production.

18.7.3. Growing demand by national and regional markets Regardless of international market trends a growing demand on national and regional markets could be foreseen. Such growing demand can manifest itself in two ways. On the one hand,whole chilies could increasingly be consumed by Kenyan and East-African consumers. However various sources confirmed that whole hot chilies are not sought after and do not fit the current dietary preferences. Chapter 2.International market analysis – 42

Photo: © shutterstock

Another option would be the use of chilies in further food processing, using blends. Yet as was noted BE chilies are only used marginally in blends because of their high SHU value. Furthermore, different types of chilies can be used to spice up dishes, not only BEC. ABEC is not the only option for consumers ; many substitutes are available such as Tabasco and Cayenne. In addition, food processing in Kenya is relatively developed compared to other African nations but still in its infancy compared to European food processing. Finally, East-African consumers do not like their food very spicy. This is in contrast with West-African markets, where chilies are used in noodles and curry dishes that are becoming ever-more popular. However Senegal, Ghana and Nigeria, which are also producing limited amounts of BE chilies, are geographically better positioned to cater to such markets. Chapter 3. Road Map Recommendations 43 –

CHAPTER 3. ROAD MAP RECOMMENDATIONS

While at this stage decisions have not been made on the approach and investment to make in the sector to strengthen it, there are a few key recommendations can be given to optimize implementation. The recommendations are focused on quality, volumes, access to markets and sector organisation.

19. PRIORITIES FOR THE IMPLEMENTATION OF THE ROADMAP

Participants have indicated priorities related to the different activities required to support the sector.

19.1. PRODUCTION AND VOLUMES

Production, volumes and aggregation are a serious issue. Exporters indicated not being able to satisfy their current orders because of their inability to source sufficient chilies of the desired quality. The farming systems need to be better understood as well as constraints and incentives for farmers to produce chilies in order to implement effective interventions. Group drying should be prioritize over individual drying for quality purpose and consistency of the product. Because current volumes are relatively low and exporters already can export internationally, certification and export procedures are of a lesser importance. If in the future if trade relations and volumes grow, it will be necessary to address these issues as it will be more difficult to operate without certification.

19.2. MARKET ACCESS

The priority with regard to access to market lies in product diversification and marketing of these products is key. Exporters could be supported in developing different product according to market’s demand ( e.g. flakes, powder, and paste ) as well as branded whole chilies from Kenya. Market information was not ranked as a priority by the participants. Nevertheless, market information and international trends are important to consider when investing in a sector, especially because so little information is available specifically on it. Hence, it is necessary to monitor and gather more information disaggregated by chili type to orient business activities. Additionally, participants mentioned the need for the market information and market requirements to be shared with farmers. It has been said that a better understanding by farmers of these aspects would support them in producing quality products. Chapter 3. Road Map Recommendations – 44

19.3. COMMUNICATION AND ORGANIZATION OF THE SECTOR

In terms of communication and organization of the sector, the participants to the workshop would very much appreciate the formation of an APEX body for chilies. This apex organization would be constituted of exporters. Another option would be to create a platform with a wider audience where actors work in consultation to seize opportunities and eliminating constraints at system level with the ability to influence policy. Such a platform could also seek to establish partnerships and networks with similar entities in the region. A wider platform of actors is also a possibility, but it is a difficult process for which in a Kenyan context it is wiser to upscale existing interventions where there are needs.

19.4. FINANCE

In terms of access to finance, access to informal source of funding were given priority by the participants have farmers express a real need to access to finance to improve production and marketing. While access to finance remains difficult for exporters, they are more acquainted with the formal financial sector and its requirements. Funds can be used among other things to secure lower interest rates for clients, develop tailored tools for agriculture, increase awareness and improve contractual arrangements between stakeholders. Farmers and farmer groups also need capital for production and aggregation of their products. Pilots with MFIs can be conducted to test financial products for farmers.

20. QUALITY AND QUANTITY COMPLYING WITH INTERNATIONAL STANDARDS

20.1. PRODUCTION, VOLUMES AND QUALITY MANAGEMENT

The current national demand of ABEC is unmet ; current exports are around 300t while exporters have reported to have orders amounting to about 500T. Sourcing the required volumes with the necessary quality is apparently a challenge. Exporters are working with a large number of farmers who are responsible for harvesting and drying the product individually. This can lead to great variations in product specifications and quality once aggregated. Clustering has been tested as a solution, but not proven very effective in solving the sourcing problem. Side-selling is also an issue with exporters having difficulties securing their supply.

With the current 7000 farmers involved in ABEC production, the required volumes by the industry of 500T should be met. Based on the following calculation :

Assumptions ( as reported in national survey research ) • 3 kg of fresh chilies = 1 kg of dried chilies • Average area under cultivation : 0.25acre • Plant population : 2000 plants • Yields per plant : 2-5Kg fresh chili per year

Calculations • Average productivity = average yields of fresh chilies per plant * plant population • 7000 kg fresh chilies = 3.5 kg * 2000 plants • 7000 kg / 3 = 2 333 kg dried chilies, 2.3 T per 0.25 acre Chapter 3. Road Map Recommendations 45 –

Theoretically as little as 250 well trained farmers with 0.25 acre of ABEC would be sufficient to supply the demand of the industry. The current supply gap clearly expresses constraints of farmers to meet the industries’ requirements or that the ( financial ) incentives provided by the industry are not sufficient to make it an attractive business for farmers.

Current production issues

Access to land does not seem to be an issue : chilies can be grown on marginal land, intercropped. The required area is small. Both men and women can grow the crop. It is currently reported that input use is low, minimizing production costs : simultaneously fertility of the soils and nutrients are mentioned as yield limiting factors. Costs of input should be calculated in future production assessments. Workshop participants were keen to have access improved varieties and hybrid varieties. It is likely that fertilizers will be necessary to unleash the full productive potential of the new varieties, especially hybrids, while increasing costs and labor needs. Certified seed would also increase the costs of production. Alternative access to quality seed can be sought, other than certified seed. During the workshop, it has been argued that ABEC is a women’s crop. Labor, time and ultimately the capacity to hire labor are usually important constraints for women. Chilies’ harvesting require high intensity and timely work. This can result in difficulties for women to harvest and process their crop at its full potential. Access to inputs ( and money to purchase ) is also a common constraint for women.

20.2. RECOMMENDATIONS ON PRODUCTION CONSTRAINTS

20.2.1. Post-harvest handling and drying Few farmers have adopted improved drying practices according to the national survey. Pragmatic solutions need to be implemented for farmers to use improved practices at low costs. Simple traceability mechanisms could be implemented jointly with small group drying facilities to ensure the maximization of the facilities and limited personal investments. Additionally work can be divided among farmers instead of each farmer relying on its own resources to handle the product. Such small working groups are used for example to dry shea nuts in West Africa by women. Organizations such as SNV have long experience is assisting groups and access to markets.

20.2.2. Quality standards and accreditation Because of the small volumes traded, it might be possible for exporters to operate without certification and accreditation at the moment, although it is an asset and provides an edge on the market. In the future, it is necessary to support exporters in HACCP certification and GAP as a first step towards ensuring a food safe product, developing and maintaining trade with Europe. HACCP is common in Europe and appreciated by buyers. If volumes get larger for European buyers, it might be worthwhile to create a chain of custody control mechanism to ensure the traceability and safety of product from the farm’s gate to the consumer. Trainers are specialized in supporting entrepreneurs in certification and planning to obtain certification.

20.2.3. Export procedures and requirements Market information should be made available to exporters, possibly on an internet portal and easily accessible to exporters. A few practical seminars could be organized on key topics such as aggregation, logistics, traceability, food safety, packaging and branding. Farmers also need to be made aware of the export requirements to understand the rationale behind certain procedures and actions required to make it more tangible. The information feedback to farmers should come from exporting companies, accompanied by some training provided by FO supporting organizations ( SNV, Technoserve ). Chapter 3. Road Map Recommendations – 46

20.2.4. Final Recommendations There are a few options to tackle production constraints. First of all, participatory variety selection can be done to address production issues, including developing varieties adapted to the agro-ecological zones, agricultural practices, but also buyers’ requirements. It is necessary to involve research institutions, extension services, farmers and exporters in the PVS process. A cost benefit analysis and experimentation should be conducted to assess results of the ‘old’ and improved varieties under various fertility treatment and agricultural practices. Demonstration and training on agricultural practices is required for adoption.

Currently the use of fertilizer is very low, but has soils get depleted or hybrids get introduced, practices may have to change. Soil fertility analysis and research on best fertility management practices for the selected areas should be done.

Because of the current high losses and the intensity of the labor requirements, it is required to conduct an in-depth assessment of labor requirements at farm level to better target farmers for production. At the moment, only 315 farmers have adopted improved drying technologies according to the studies. Factors hindering adoption need to be assessed and addressed. Based on this assessment, key support activities required are training and capacity building of farmers to adopt good agricultural practices as well as post-harvest and drying practices.

At the end of the chain, it would be useful to support exporters to set up a private extension service to farmers who are engaged in chilies production. It could be done through a PPP. Current extension is already insufficient for priority crops ; hence it would be wishful thinking to expect public extension to deliver quality services on ABEC. To access production credit, exporters could offer forward contracts for farmers to use a guarantee for production credit.

Current losses are high at about 40 %. This may be related to a number of factors : the fact that chilies are not harvested at the right moment, available manpower, inadequate handling and drying which leads to rejections when the product is sorted and graded by the exporter. Special attention needs to be given to food safety. Farmers should be trained on handling the chilies in an appropriate manner to avoid contamination with pesticide residues and aflatoxin. European buyers are particularly concerned about offering a good safe product to their consumers. For this purpose, assisting farmers and exporters in setting up a traceability system can be well appreciated on the European market. Again farmers and exporters can be supported by Bossy or organizations such as Technoserve and SNV.

21. CREATE ACCESS TO RELEVANT MARKETS, DISSEMINATE MARKET INFORMATION & MAKE THE KENYAN BEC VISIBLE AT INTERNATIONAL MARKETS

At the moment, there is little information available to exporters on the market, its segments and requirements. Limited data is available specifically on ABEC nationally and internationally, preventing producers and exporters to tailor their marketing strategy.

21.1. MARKET INFORMATION

Market information allows exporters to target market segments better. Market information, as noticed during this research, both a national and international level is lacking. Even at national level, statistics on the production and trade is limited. It is important for the Ministry of Trade, the Bureau of Statistics and HCD to gather disaggregated data Chapter 3. Road Map Recommendations 47 –

chilies on production, imports and exports figures to better assess production issues, regional and international trade flows and market opportunities.

These statistics should be made available to exporters. Market information could be made available online on a dedicated platform. Existing factsheets, market information and articles could be made available on this platform. Such a platform could be hosted by HCD with support from ITC and USAID to combine the existing information.

21.2. MARKET AND PRODUCT DIVERSIFICATION

It is important to support exporters in accessing markets. One way to do so is to support exporters in presenting their products in trade fairs and developing tailored products to the need of their clients ( e.g. powders, flakes, paste and sauces ). BSO can help companies in branding and marketing their products. Trade fairs are a good opportunity for exporters to showcase their products and establish relations with importers. Furthermore, it allows exporters to learn about market trends and requirements. Participation in fairs should not only be focused food ingredients but also technologies and packaging, allowing exporters to be up to date with the latest and most suitable tools available. Since it is not possible to attend all the fairs, it can be interesting to map the different fairs and assess which ones offer the best opportunities and for which exporter. It is important to be well prepared for these fairs, the conception of a nice and professional kiosk to present the products can help in attracting new clients. Having samples ready to distribute to potential customers is also important. These can be first steps in establishing relations with importers. After a few successful deliveries, it can be interesting for both exporters and importers to establish ‘preferred relations’ where both parties make investments in securing supply and demand of the products and working closely on product development. While it is attractive for exporters as it provides a stable market, importers benefit of a secure and traceable supply.

21.3. FINAL RECOMMENDATIONS

To improve access to markets and visibility of Kenyan exporters on these markets a few things can be done. First, specific information on ABEC should be gathered ( volumes, characteristics, market segments ). Second, in-depth market research should be done by exporters, possibly with the help of Bossy to develop and understand the market for ABEC. Promotion of the Kenyan products can be done through fairs and product diversification. Product diversification should be done on the basis of the outcomes of the market research. Establishing preferred supplier relationship with the buyers can be advantage for exporters, but this usually takes time and demand must be constant.

22. IMPROVE & STRENGTHENING THE KENYAN BEC SECTOR ORGANIZATION AND INTER-PROFESSIONAL COMMUNICATION

22.1. REMARKS

Currently the ABEC sector is poorly organized. The sector could benefit of the creation of an APEX body. The APEX body could represent the various exporters. Strong training on governance and financial management will be necessary to make this APEX functional and sustainable. Chapter 3. Road Map Recommendations – 48

APEX members can be assigned different roles according to their background. For instances, some may work on establishing regional partnerships, others on policy and enabling environment, others on brokering international trade deals and others focusing on capacity building. The role of such an APEX would be to trigger change at system level rather than for autonomous actors. The creation of such platform is difficult and should be done step by step. Collaboration should start at small group level, where operations are working well and scaled up as needs is growing.

With a platform or APEX body being stirred by a project, it is important that from the start an exit strategy be identified for its operation not to be discontinued when financial support stops. Ownership of participating actors needs to be fostered through collaboration and actions.

22.2. FINAL RECOMMENDATIONS

The sector could also benefit of a platform which could spearhead the sector’s activities, but also liaise with the ministries and similar bodies in the East African region. For this purpose it is necessary to identify a facilitator which is independent enough and well recognized within the sector to facilitate and stir the body. Additionally, key stakeholders should be invited to join the platform. Making sure the right stakeholders are participating in the platform is crucial to have a dynamic organization which is representing stakeholders’ needs instead of having people participating for the per diems and other opportunistic reasons. Having the ‘right’ stakeholders on board should also mean appropriate policy linkages and representation of the private sector. For instance, the APEX could be a member along with farmer organizations, financial institutions, transporters, and exporters, NGOs, among others. A strong facilitator will support the stakeholders in identifying opportunities and constraints for the sector as well as required actions.

23. PROVIDE ADAPTED FINANCIAL SERVICES TO SUPPORT PRODUCERS AND EXPORTER CAPACITIES

23.1. REMARKS

It is no news that access to finance remains a problem in agriculture, especially for smallholder farmers. There are many ways by which finance can be improved depending on the purpose for finance. For production credit, it is useful to support IMF and saving associations in offering lower interest rests to farmers by providing them with funding to do so. Lower interest rates would support farmers’ participation in the credit schemes and investments in the sector. Fostering linkages with sms payment systems such as M-pesa could also support both exporters and farmers to process payment and provide proximity financial services to farmers.

Saving associations such as SACCOS can be promoted on the basis of small farmer groups already working together to dry and market their products. Farmers can also buy inputs or hire casual laborers collectively to reduce individual financial burden. It is possible to explore partnering with organization offering Chama and Ushirika loans and see how the products could be used by chilies farmers.

Another approach is to work with formal financial institutions and create awareness on the realities of the agricultural sector to develop tailored product. The contrary is also true : it is also necessary to work with potential clients of financial services such as exporters and large( r ) farmers to sensitize them on the requirements and procedures of formal services. Additionally, as for informal credit sources, funds can be made available to financial institutions to mitigate risks and reduce interest rates offered to clients of the Chapter 3. Road Map Recommendations 49 –

sector. Equity Bank in Kenya is a frontrunner in the sector when it comes to access to finance in agriculture.

For farmer groups who wish to obtain credit, financial audits or assessments could be conducted to evaluate their credit worthiness, and what kind of capacity building is required to support the organizations in obtaining credits. Such assessments can be made by organization such as SCOPE insight. Specific skills can then be identified and strengthened through training.

At another level, it is possible to support exporters in developing forward contract to be offered to producers. This helps exporters to secure their supply, while farmers can use the contract to access credit in financial institutions, the contract acting as a guarantee.

23.2. FINAL RECOMMENDATIONS

A mixed approach to finance : formal and informal would be optimal as needs at producers and exporters’ level varies greatly. Training and information are important components of finance as well as developing tailored products for the sector and facilitating access and reducing risks by lowering interests rates. This is where a project can have added value. Chapter 4. Implementation Plan – 50

CHAPTER 4. IMPLEMENTATION PLAN

Part of the roadmap for the BEC sector designed by the supply and demand analysis carried out, an implementation plan was produced. This plan was complemented during the national workshop held on the 14 th of August 2014 at Ole Sereni Hotel in Nairobi, Kenya. The exercise was conducted in a participatory manner with the sector’s key stakeholders present. Limited time was available to fill in a set of pre-established questions. Participants were separated in 4 groups to discuss key topics, and propose activities, beneficiaries and partner organizations for each activity. After the group work, participants were reunited in a plenary session to discuss the results of the group work. The outcome of these discussions is available below. During the workshop inputs from the participants were gathered on the sector to support the supply and demand analysis. The following section outlines the key activities to be implemented as well as a prioritization done by the participants of what requires special attention first to develop the sector.

Topics discussed were as described below and divided into four key strategic objectives :

Key Strategic Objective 1 : Increase quantity & quality of Kenyan processed ABEC complying with international standards.

Key Strategic Objective 2 : Create access to relevant markets, disseminate market information & make the Kenyan ABEC visible at international markets.

Key Strategic Objective 3 : Improve & strengthening the Kenyan ABEC sector organization and inter-professional communication.

Key Strategic Objective 4 : Provide adapted financial services to support producers and exporter capacities. Chapter 4.Implementation Plan 51 –

Table 25: Roadmap 1. INCREASE QUANTITY & QUALITY OF KENYAN PROCESSED BEC COMPLYING WITH INTERNATIONAL STANDARDS Potential Direct implementing Priority & Type of activities Recommended activities recipients Partners & Ranking other initiatives • Identify the ABEC varieties favored by the international markets ( pungency, color, size, closure ) • Carry out participatory selection of varieties • KARI • Ensure access to planting material of favored varie- • Extension ties by farmers by supporting interested entrepre- officers Production and neurs in seed production • Producers • SNV 1 volumes • Finalize process of ABE seed certification • Exporters • Private sector • Develop private extension services by companies to • Agro-input support farmers in production through PPPs dealers • Research on production constraints and the inability • IFDC of trained farmers to meet demand and address constraints • Enhance capacity building farmers ( selection quality seed, planting, post-harvest quality management / drying ABE ) • Improve access to ABE driers by small scale farm- • Extension ers : group or individual access, adapted technol- officers ogy Quality • ITC • Producers 2 management • Enhance traceability of products ( farm to consum- • USAID ers ) : paper system with codes, dates, suppliers, volumes to trace product through post-harvest and • CHAD marketing • SNV • Train farmers on food safety and handling of product to avoid contamination with Aflatoxin, including food safety issues in tracking mechanisms. • Enhance capacity building on good agricultural practices of producers, harvesting practices and • Extension drying quality requirements officers Quality standards • Producers • Support exporters in HACCP certification for their • Private sector, 3 and accreditation • Processors facilities ( developing code of conducts, paperwork, specialized training of staff ) consultants • Integrate traceability system • Identify needs for storage and logistics and ag- • Producers Storage and gregation. • CHAD • Extension 4 logistics • Support exporters in establishing effective collection • Private sector officers routes or systems • Developing information material, research tools, for exporters on the international market • Support exporters in meeting market requirements • EPC Export procedures and explaining these requirements to the farmers • Exporters 5 • NGOs • Train farmers on export procedures to foster understanding of reasons behind the procedures and requirements of exports. • Identify preferred packaging per consumer segment • Processors • Local compa- Packaging Adapt current packaging for labelled and branded 6 exporters nies chilies from Kenya for the ‘specialty product’ market Chapter 4.Implementation Plan – 52

2. CREATE ACCESS TO RELEVANT MARKETS, DISSEMINATE MARKET INFORMATION & MAKE THE KENYAN BEC VISIBLE AT INTERNATIONAL MARKET Potential Type of Direct implementing Priority & Recommended activities activities recipients Partners & other Ranking initiatives • Train and support entrepreneurs in diversifying their product base : techniques and tools : whole / crushed / powders • Produc- • Ministry of ers Market and • Create and assist broker linkages between new buyers Agriculture Product and exporters • Proces- 1 • CHAD diversification • Support entrepreneurs to participate in trade shows, fairs sors • KEPIS on chilies • Exporters • Train sector’s actors on food technologies • Brand Kenya • Government • Research and enhance packaging and branding of the of Kenya Kenyan product • National • Research different packaging for different market seg- • Proces- Horticulture ment : bulk, food processors and consumer markets Marketing sors Marketing In- 2 formation Sys- • Identify key selling points : characteristics of ABE of Kenya • Exporters specifically : e.g.” homogeneity of color” or “grown by tem ( Names ) smallholder farmers” or “free pesticides,” “SHU level- - multi taste.” “product of Kenya” stakeholder initiative • Private sector • Prioritization / categorization of trade fairs by importance, topic, market segments • Processors • Assist and support entrepreneurs in participation of regional and international trade fairs ( financial, logistic ) • Exporters • Assist and support entrepreneurs in developing ‘exhibi- • Proces- • KARI Trade tion kiosks’ and sample products to distribute to potential sors 3 promotion • ITC consumers • Exporters • Ministry of • Support exporters in developing ‘preferred supplier’ rela- Trade tion with importing companies in Europe • Bossy • Organize trade mission with European countries, E.g. Spain, Germany and the Netherlands • Assist and train to raise awareness creation of export procedures via a webpage ( including requirements per country ). • Kenya Plant Health • Organize training seminars to share information with Inspector- exporters. ate services Export • Create practical guideline for exporters how to comply • Exporters ( KEPIS ) 4 procedures with these export procedures / keep updated / review of the • CHAD procedures. • Business Sup- • Train and provide practical support for exporters to port Organiza- establish the necessary mechanisms ( traceability, HAACP tion certification ) to comply with export procedures and requirements • Enhance distribution from processing to the market – challenging : Central trade hub in the international market ( EU ), for Kenyan BEC. ( E.g. warehouse in Germany • Logistics where different exporters can rent space in warehouses in compa- • Ministry of Europe from where it can be distributed to the custom- nies Foreign Affairs New ers ). distribution • National • Logistics 5 • Create ‘preferred provider’ relations with spice traders in channels and inter- companies Europe ( brokering relations, fairs ) through for instance national providing training to exporters on how to deal with buyers compa- • CHAD etc. nies • Organize trade mission to European countries, E.g. Spain, Germany and the Netherlands Chapter 4.Implementation Plan 53 –

3. IMPROVE & STRENGTHENING THE KENYAN BEC SECTOR ORGANISATION AND INTER-PROFESSIONAL COMMUNICATION Potential Priority implementing Type of activities Recommended activities Direct recipients & Partners & other Ranking initiatives • Assist in bringing stakeholders together to • Producers create a body spearheads sector • Processors • Ministry of Create an effective • Identify an organization strong enough to • Exporters Agriculture APEX body facilitate and stir the body • Traders HCD mandate to bring • Identify / Make an inventory of potential • ITC 1 actors together ( USAID, participants • Financial insti- • USAID GIZ ) tutions • Assist stakeholders to define strategy of • GIZ the body, mandate, sustainability business • Interested value strategy chain actors • Ministry of Agriculture • Provide training on bargaining and man- • Producers Strengthening the local agement • Agro-proces- • SNV 2 BEC Association • Provide capacity building on management, sors • USAID governance, • Exporters • Technoserve • CHAD

Improve • Assist organization of stakeholder forums • Ministry of communication and • where key information is provided right on Agriculture coordination for the spot. • All stakeholders • CHAD 3 BEC production & • Assist an ABEC body should be able to link • ITC processing issues up with policy makers : make sure the right between ministries stakeholders are involved in the body • APEXORG • Policies : Develop Public and • Assist to create enabling environments that • Ministry of Private Partnership support business and growth. • All value chain Agriculture 4 for the BEC sector in players • Assist creation of potential PPP – Bird Eye • Private sector Kenya Chili in Kenya : potentially on extension services • Create network information • Private sector, Develop national • Support and develop SMS use to dissemi- • All value chain ministries, networks & nate information 5 players NGOs and partnerships • Assisting and support the Apex in generat- organizations ing information and dissemination Chapter 4.Implementation Plan – 54

• Assist to enhance international trade pro- • CHAD motion for sector’s stakeholder Develop regional and • Producers • USAID • Assist and support participation of the international network • Processors 6 APEX in trade networks • ITC and partnerships • Exporters • Assist and support APEX links to the Horti- • Ministry of cultural crops directorate. Trade

4. PROVIDE ADAPTED FINANCIAL SERVICES TO SUPPORT PRODUCERS AND EXPORTER CAPACITIES Potential implementing Priority & Type of activities Recommended activities Direct recipients Partners & other Ranking initiatives • Financial support to credit institutions to provide cheap credit to producers, lowering interest rates • Farmers • Government of • Provide support the creation of savings and Kenya credit associations ( SACCOS ) • Traders Micro-credit • County govern- • Link up to mobile banking systems like m-pesa • County Gov- and savings ment 1 ernments schemes • Identify, encourage farmers to enter micro • Trade support credit and savings schemes through informa- • Input suppliers institutions tion sessions • MFIs • ITC and donors • Promote collective buying inputs through farmers groups. Farmers groups based on drying and aggregation of products. • Provide and support awareness creation tar- geted at farmers, to understand what financial products are available and how to access • MFI them. Promotion of these products could be • Mobile service supported through the media, mobile services. • providers • Assist strategic discussions with financial sec- • Media tor to develop financial products adapted to the agricultural sector • Government of Improved access • Farmers Kenya • Conduct farmer group solvability assessment, 2 to formal credit training to understand requirements of the • MFI • Training institu- formal financial sector tions ( e.g. ATC ) • Assist to provide financial support to credit • Kenya institute for institutions enabling access to cheap credit to business training producers, at lower interest rates • Equity Bank • Support exporters in establishing forward • SCOPEinsight contracts and linkages with financial institutions for farmers to access loans. Chapter 5. Conclusions 55 –

CHAPTER 5. CONCLUSIONS

The main outcome of the supply and international demand analysis presented during the workshop is that exporters have had difficulties sourcing their raw material for a number of reasons. ABEC is a labor intensive crop with very high quality requirements. The disaggregated production and drying process makes logistics difficult to source the raw materials by exporters. A number of solutions were proposed to support the development of the sector :

Involve the farmers when organizing for the produce sourcing structure. Capacity development and production support The field inspections and visits by agro-extension can support producers in production. Need to develop market information dissemination structure for farmers Provide a feed-back mechanism to producers to know the fate of their produce Practice good agricultural practices to help replenish the depleted soil macro and micronutrients. Support farmers in engaging in commercial horticulture and mitigating risks of engaging in different practices Capacity building on soil replenishing strategies, & principles of production should be given a priority. Access to finance Strengthen the PPPs to enhance Agro-extension services and with private exporters.

The outcomes of the demand survey outline that the international trade of dried chilies and peppers is characterized by large volumes traded by India, China and other Asian countries among each other. They are well established suppliers of the European and American markets. Many European companies have their own processing plants in Asia, from which they process and market large volumes of various spices including chilies ( SSI experience ) to consumers around the world. Economies of scale and efficiency are more easily reached in Asia than in Africa ( interviews ). The American market is also well supplied by Mexico and other countries of Latin and South America offering a wide range of products which can easily substitute African BEC. Traded volumes from Africa are marginal and are expected to remain relatively low.

Organic and fair trade products are niche markets. Very few spices are currently certified ( Interview RA ). Additionally, only a small percentage of all spices traded are sold whole, most are blended and processed in other products for which certification of such small quantities is not necessary. As for conventional products labelled as specialty product, ABEC would have to compete with other branded BEC and chilies from various origins, while price premiums for spices remain low.

Although trade indicators show an increase in demand for chilies and potentially BEC, volumes of BEC remain low and companies interviewed for the study do not seem to think it is worthwhile to support BEC exports from Africa. It is not a major spice in companies’ portfolios. The small volumes of BEC and the unlikeliness that volumes will grow significantly would make the potential impacts of a project limited. Many alternatives and substitutes to bird’s eye chilies exist including the Indian BEC which is much cheaper at half the price of its African counterpart. Competing chilies are described as Chapter 5.Conclusions – 56

more reliable in terms of supplied volumes and quality, making it hard for African BEC to compete. ( USAID-Fintrac 2011 ) Many cheap alternatives to ABEC are available on the market and companies interviewed only estimated a potential growth of 10 tons a year. ( interviews )

Although chilies and peppers consumption has increased worldwide in the past few years there are currently no clear indications that an increase in production and or support to exporters would results in trade and benefits to the stakeholders in the chain. On the contrary, because of the inelasticity of ABEC demand, it might yield negative results, pushing prices down on the regional market and putting Malawi’s farmers and exporters out of business. In the past few years, buyers have been sourcing from both countries interchangeably according to the quality and the price of the supply. A study by ICCO for Uganda reaches similar conclusions : “There are numerous countries in the region that produce the African red eye chili. Zimbabwe, Malawi, South Africa, Kenya among others. Production from all these countries is and competing for the same markets. Unfortunately the demand in these markets is growing at a slower rate than the production. Ultimately there has been a steady fall in the price of chili on the world market from about US $ 6,000 per ton five years ago to the current US $ 4,000 per ton.” ( Ntale 2011 :48 ) It is unlikely that the local market will absorb large( r ) quantities of African Bird’s Eye Chilies.

In light of the stakeholders’ workshop and the studies, the main focus of a future initiative would be to enable producers to supply quantity and quality volumes to the exporters. The international demand survey has shown that the bulk of the demand for ABEC is in Europe and those standards and expectations will become stricter over time. Demand on the international market is not secured yet. While current demand is estimated at about 500-600 tons, it is not certain how much more it will expand in the future. Pragmatically, an intervention should first focus on securing the necessary supply to fulfil current demand before thinking of market expansion. Because the demand is rather inelastic and because of substitutes available on the market, it seems like market prices would fall further if supply was to increase dramatically, with potential negative consequences for the farmers involved – especially when talking about small, subsistence women farmers. It is important to assess what it is in it for farmers and why the current demand is not met.

To meet current demand and operate in changing markets it is recommended to :

Support production and reduce farmers constraints : seed, inputs and labor Improve drying process, favor collective drying rather than individual Enhance collection and aggregation logistics Strengthen GAP and GMP Promote HACCP accreditation, traceability with the chain of custody Gather market information Increase promotion through fairs, branded products, diversity of products Facilitate access to finance by strengthening linkages, awareness and capacity building

Finally, it is important for any intervention to mitigate expectations of farmers and make sure that both farmers and exporters can benefit from their activities. To mitigate negative consequences on farmers and the sectors, it is necessary for a future project to undertake a serious analysis of the current production situation to assess the constraints of farmers. Before introducing new technologies, research and pilots should be undertaken to ensure that the proposed intervention is adapted to the beneficiaries. Coordination between the stakeholders in the sector as well as support organizations will be key in developing a strong chili sector in Kenya. ANNEX DOCUMENT

ANNEX I. AGRONOMY...... 58

ANNEX II. INNOVATIVE COMMUNICATION...... 61

ANNEX III. INTERVIEWS FOR INTERNATIONAL MARKET SURVEY ...... 64

ANNEX IV. WORKSHOP PARTICIPANTS...... 65

ANNEX V. PRESENTATION OF INTERNATIONAL DEMAND DURING VALUE CHAIN ROUNDTABLE...... 66

ANNEX VI. PRESENTATION OF NATIONAL STUDY DURING THE VALUE CHAIN ROUNDTABLE...... 81

BIBLIOGRAPHY ...... 100 ANNEX DOCUMENT. – Annex I. Agronomy 58

ANNEX I. AGRONOMY

1. ECOLOGICAL REQUIREMENTS

a. Altitude Ranges from coastal lowlands to lower-midlands i.e. from sea level to 1,500M. In Kenya, the coastal region, around Lake Victoria and the Kerio Valley form part of the described range.

b. Temperature Optimum range : 20 degrees to 30 degrees Celsius Minimum : 16 degrees Celsius Maximum : 32 degrees Celsius

c. Rainfall Can survive a wide range of rainfall, generally very draught resistant Optimum range : 600 ml to 1,200 ml per year Excess rain can defoliate crop and cause rotting Extreme water deficits can stunt growth and cause flower abortion and fruit drops

d. Soil Ranges from light-sand to heavy clay Ideally suited for well drained, aerated and light- to medium-textured sandy loams Ideal pH : 5.8-6.5, but can tolerate slightly higher pH levels

2. SITE SELECTION

Site should not be intercropped with any Solanum related crops ( such as tomatoes, potatoes, Managu etc ). Site close to water source is an advantage but not a requirement. NB : On slopes follow the contour rule

3. CROP PLANNING

In rain-dependent areas, time planting to coincide with rainy seasons Plan fields to enable crop rotation, fertility maintenance and disease control

4. NURSERY ESTABLISHMENT

a. Site selection Choose a site with rich, friable soil. Till well to loosen the soil Choose an area near a water source Choose an area protected from animals If possible, use an unfarmed land ANNEX DOCUMENT. – Annex I. Agronomy 59

b. Preparation and sowing Soil bed : 1 meter by 3 meters by 15 centimetres high Till until soil is fine Sterilize soil with an airtight cover of polythene for 1 to 3 months Remove and mix soil with 10 to 15 kilograms of potent manure per square meter Sow the seeds 1.5 centimetres deep in holes that are 6 to 7 inches apart Seed rate : 75 to 100 grams per acre Cover the bed with mulch and water Use of seedling trays is more accurate and recommended especially for expensive hybrid seeds, and because they offer more uniform germination and growth.

Figure 11 : Nursery establishment

c. Nursery management Water every morning and evening with a fine rose shower. When possible, check soil moisture before watering As soon as seeds start germinating, remove mulch and create a temporary shade of about 50 percent, using shade net or grass mulch. Monitor for disease and pests regularly and react accordingly The most common nursery disease is damping off Typical pests include aphids, thrips, mites and whiteflies Germination is complete after 1 to 3 weeks Crop is ready for field 5 to 6 weeks after emergence in nursery

5. SEED BED PREPARATION

Plough deeply or double dig 2 to 3 weeks before and harrow well in dry weather to eliminate most perennial weeds. Prepare raised contour beds, 1 meter wide – leaving a 50 centimetre pathway Incorporate properly cured manure into field at 10 tons per acre. ANNEX DOCUMENT. – Annex I. Agronomy 60

6. TRANSPLANTING

Transplant after 5 to 6 weeks, when the seedlings are 6 to 10 centimetres long. At 4 weeks, start hardening off. Transplanting should be done during rainy season or irrigate well before and after transplanting Spacing within bed can vary as follows : 60×60 cm, 60×45 cm,1×1 m, depending on cropping period and the soil nutrients. Mulch crop immediately after the rains as it reduces time spent at first weeding

7. CROP MANAGEMENT PRACTICES

a. Fertilizer application Use DAP / TSP at planting depending on soil sample test results Manure rates : 10 kilograms per square meter is adequate. Will not need any chemical fertilizer supplements if well-rotted and repeated every 4 to 6 months

b. Pest control Common Pests Cutworms, thrips ( Sciothrips dorsalis ), Aphids ( Aphis gossypii ), and Red spider mites ( Polyphagotarsonemus latus ).

Use name-based extracts as repellents and as drenches against flying insects and cutworms, and soap solution

c. Common Diseases and their control Mainly rots and diebacks, caused mostly by Colletotrichum Capsici and bacterial wilts ; others include blights, mildews and rust.

Careful seed selection and phytosanitary measures will keep most ABE diseases in check :

Practice crop rotation to prevent crops of the Solanaceae family from being planted in the field at the same time e.g. tomato, potato, sweet pepper, black nightshade, etc. Apply Copper Sprays like Kocide DF, Cuprocafaro, Funguran and Copper ox chloride, which are easily available Seed Treatment : Use root Guard. Gaucho is also used to prevent “damping off” at the nursery stage

d. Weed control Shallow weeding, roughing and mulching are recommended to reduce root damage, and minimize frequency of weeding. ANNEX DOCUMENT. – Annex II. Innovative Communication 61

ANNEX II. INNOVATIVE COMMUNICATION

1. M-LIMA

This is new information ; aggregation and marketing scheme that seeks to transform the market system for agricultural produce in Kenya and generally enable more efficiency in linking farmers with markets. The scheme exploits all forms of emerging technologies to share information on produce available or under cultivation in farms across Kenya.

Basically, farmers will benefit from a range of services covering market assessment to negotiation and fulfillment while using the mobile phone as a center piece in transaction verifications and payments. Ultimately, the intention is to establish greater use of online platforms in trading of agricultural commodities and innovative business models that deliver greater value to farmers while ensuring transparency in all transactions.

The broad objective is to help domestic and global distributors of fresh produce and cereals plan their sourcing, buy directly from farmers and ultimately save costs while transferring some of the savings to the farmer.

In the case of exports, the scheme will incorporate quality assurance by accredited institutions before transfer of the produce to transporters for warehousing, packaging, shipping and eventually delivery to buyers.

2. THE INNOVATION

The innovation is in the convergence of institutions, each providing a critical service but jointly enabling an efficient, transparent and secure scheme.

i. The range of services includes : ii. Provision of market information iii. Marketing of farm produce ( Both domestic and export markets ) iv. Supply of inputs ( fertilizer, chemicals, certified seed, etc. ) v. Financial services – These will include secure payments, credit and warehouse receipts vi. Logistical support for both inputs to farmers and produce to markets including insurance, transport and warehousing. vii. Quality assurance including inspection, grading, verification, etc. ANNEX DOCUMENT. – Annex II. Innovative Communication 62

3. M-LIMA ENVIRONMENTS

The following diagram demonstrates a broad view of the markets and fields that m-lima is expected to impact.

SERVICE ENVIRONMENT

Financial Institutions Crop Insurance Market Information

Farmer group Corporate Renewal Centre Research (Cooperative) – (Central Hub)

Suppliers Logistics Buyers (inputs / equipment) (warehousing & transport) (Institutional) Individual farmers TRADING ENVIRONMENT

4. THE THINKING BEHIND THE MODEL

Easy access to market information has been cited as the key to efficient functioning of any marketing system, especially information related to product prices, as the pricing system is not only an indicator but also a regulator of demand & supply. But beyond information, there needs to be the infrastructure and processes that actually directs flow of commodities from producers to buyers in a way that effectively accomplishes the function of supply and demand.

In Kenya there is neither sufficient access to information nor efficient processes that enable effective delivery of commodities from farmers to markets and as such, small scale farmers are persistently at the mercy of rent seeking middlemen who make windfall profits, creating price instability and distortion in the process. This exploitation has consigned millions of farmers and their families to lives of poverty.

Further, liberalization has not only forced the termination of the protective shield once provided by the government but also exposed producers to international competition.

To resolve some of these challenges, numerous projects have been undertaken by NGOs and development organizations and in recent times, private sector, with varying levels of success but none has delivered wide scale benefits.

An important observation is that most projects viewed the problem purely as an access problem that required linkages to markets, often including technology, but ignoring the reality that farmers operate in market systems that are controlled by the power of volumes. Overcoming the challenge of access therefore must include tackling the question of scale. ANNEX DOCUMENT. – Annex II. Innovative Communication 63

Photo: (CC BY-SA 2.0) Photos ITC, ZEO-5.tif

M-lima was designed with these realities in mind with the elimination of unnecessary middlemen being a priority. The strategy is to instead help strengthen the capacity of grassroots institutions ( chamas, self-help groups, cooperatives, etc. ) to enable greater participation and control of their produce and ultimately improve the return on their investment.

5. ROLE OF FINANCIAL INSTITUTION

Financial services are a central pillar of the M-lima scheme as it is not only crucial for securely remitting proceeds of sale to farmers but also for collection of charges and fees for all services rendered. In essence, all transactions will be channeled through the financial institution in which the farmer groups all have accounts thereby making it a secure scheme for all actors. ANNEX DOCUMENT. – Annex III. Interviews for international market survey 64

ANNEX III. INTERVIEWS FOR INTERNATIONAL MARKET SURVEY

Company Interviewee Responsibility

OLAM Europe BV Roel van Poppel General Manager Spices & Vegetable Ingredients

McCormick Jean-Marie Schouvey Director Commodity Management

Catz International BV Albert Berisa Spice trader

Rainforest Alliance Martine Willems Manager Sustainable Agriculture Relations

Senior program manager of the Sustainable Spice IDH Sustainable Trade Initiative Jan Gilhuis Initiative

ITC Spices Sanjeev Bisht Business Head Spices

Equator Kenya Ltd( by e-mail ) Almut van Casteren General Manager

Mace Foods Ltd. Margaret Komen Director ( by e-mail )

KIT Experience Participation in the SSI, learning trajectory ANNEX DOCUMENT. – Annex IV. Workshop participants 65

ANNEX IV. WORKSHOP PARTICIPANTS

EAST AFRICA : Promoting Regional Trade Kenya : Stakeholder roundtable and VC Consultations for Processed mango & Bird’s Eye Chili ( BEC ) sectors Ole Sereni Hotel, Nairobi – Kenya : 14th of August 2014 FIRST NAME FAMILY NAME ORGANIZATION POSITION Johnson Irungu Ministry of Agriculture Director of Crops Leonard Maina Ministry of Agriculture Asst. Director of Agriculture Charles Tumbo EPC Trade Officer Jared Nyaundi Ministry of Trade & Industry Senior asst. Director of Trade Marjaana Pekkola Embassy of Finland Counsellor ( Rural Development ) Meghan NJOROGE Macefoods Ltd OPERATIONS ASST. Justus Muteti Green Forest I.T and Admin Mercy Nyaruai Stawi Foods Dickson Mbando Technoserve Project Lead, Nurture Carol Mlumbi HCD Syprose Wanyama HCD ( Machakos ) Horticultural Officer Carolyn SOITA HCD ( Bungoma ) Horticultural Officer Nicodemus Ngeka HCD ( Makueni ) Horticultural Officer David Mbarire HCD ( Muranga ) Horticultural Officer Athenas Matheka Green Forest CEO Paul Omanga USAID-KHCP Deputy Director Josephine Simiyu HCD Horticultural Officer Genevieve Audet-Belanger ITC International Consultant Lisanne KIT Beatrice Ngayu ITC Local Consultant- Mango Denivas Onyancha ITC Local Consultant- Chili Sylvia Mbaabu USAID -KHCP George Ochuodho USAID -KHCP Field Manager Rakula Okoth ITC. Local Coordinator Mary Muteti Makueni County Government County Director. Agric Arlington OMUSHIENI Bungoma County County Director Agric. Scolasticah Atieno MBANDAR HCD-Horticulture Development County Directors Office JOSEPH M GACHINGIRI Muranga County CHIEF OFFICER AGRICULTURE Griphase Masinde ITC Local Consultant M&E Jacinta Kinyili ITC Local Consultant- Institutional Mapping Kevin Musa ITC Associate Programme Adviser Peter Ngori Kaari Fruit Cooperative Society Economic Projects Kanana Mjuguna Transformational Facility ( EPTF ) Economic Projects Ann Njuguna Transformational Facility ( EPTF ) ANNEX DOCUMENT. – Annex V. Presentation of international demand during value chain roundtable 66

ANNEX V. PRESENTATION OF INTERNATIONAL DEMAND DURING VALUE CHAIN ROUNDTABLE ANNEX DOCUMENT. – Annex V. Presentation of international demand during value chain roundtable 67 ANNEX DOCUMENT. – Annex V. Presentation of international demand during value chain roundtable 68 ANNEX DOCUMENT. – Annex V. Presentation of international demand during value chain roundtable 69 ANNEX DOCUMENT. – Annex V. Presentation of international demand during value chain roundtable 70 ANNEX DOCUMENT. – Annex V. Presentation of international demand during value chain roundtable 71 ANNEX DOCUMENT. – Annex V. Presentation of international demand during value chain roundtable 72 ANNEX DOCUMENT. – Annex V. Presentation of international demand during value chain roundtable 73 ANNEX DOCUMENT. – Annex V. Presentation of international demand during value chain roundtable 74 ANNEX DOCUMENT. – Annex V. Presentation of international demand during value chain roundtable 75 ANNEX DOCUMENT. – Annex V. Presentation of international demand during value chain roundtable 76 ANNEX DOCUMENT. – Annex V. Presentation of international demand during value chain roundtable 77 ANNEX DOCUMENT. – Annex V. Presentation of international demand during value chain roundtable 78 ANNEX DOCUMENT. – Annex V. Presentation of international demand during value chain roundtable 79 ANNEX DOCUMENT. – Annex V. Presentation of international demand during value chain roundtable 80 ANNEX DOCUMENT. – Annex VI. Presentation of national study during the value chain roundtable 81

ANNEX VI. PRESENTATION OF NATIONAL STUDY DURING THE VALUE CHAIN ROUNDTABLE ANNEX DOCUMENT. – Annex VI.Presentation of national study during the value chain roundtable 82 ANNEX DOCUMENT. – Annex VI.Presentation of national study during the value chain roundtable 83 ANNEX DOCUMENT. – Annex VI.Presentation of national study during the value chain roundtable 84 ANNEX DOCUMENT. – Annex VI.Presentation of national study during the value chain roundtable 85 ANNEX DOCUMENT. – Annex VI.Presentation of national study during the value chain roundtable 86 ANNEX DOCUMENT. – Annex VI.Presentation of national study during the value chain roundtable 87 ANNEX DOCUMENT. – Annex VI.Presentation of national study during the value chain roundtable 88 ANNEX DOCUMENT. – Annex VI.Presentation of national study during the value chain roundtable 89 ANNEX DOCUMENT. – Annex VI.Presentation of national study during the value chain roundtable 90 ANNEX DOCUMENT. – Annex VI.Presentation of national study during the value chain roundtable 91 ANNEX DOCUMENT. – Annex VI.Presentation of national study during the value chain roundtable 92 ANNEX DOCUMENT. – Annex VI.Presentation of national study during the value chain roundtable 93 ANNEX DOCUMENT. – Annex VI.Presentation of national study during the value chain roundtable 94 ANNEX DOCUMENT. – Annex VI.Presentation of national study during the value chain roundtable 95 ANNEX DOCUMENT. – Annex VI.Presentation of national study during the value chain roundtable 96 ANNEX DOCUMENT. – Annex VI.Presentation of national study during the value chain roundtable 97 ANNEX DOCUMENT. – Annex VI.Presentation of national study during the value chain roundtable 98 ANNEX DOCUMENT. – Annex VI.Presentation of national study during the value chain roundtable 99 ANNEX DOCUMENT. – Bibliography 100

BIBLIOGRAPHY

National supply analysis

Andre de Jager, Hans Nijhoff, ( 2009 ). Development of smallholders’ production and supply chains in Kenya.

Bob Koigi, ( 2013 ). Technology : Pepper flakes turning a hot profit for farmers. Read more at : http : / / www.standardmedia.co.ke / business / article / 2000090829 / technology-pepper-flakes-turning-a-hot-profit-for-farmers

ECE / TRADE / C / WP.7 / 2012 / INF.1, ( 2012 ) Comments by Kenya – Proposed Standard for Whole Dried Chilli Peppers

Faulu Kenya, ( 2014 ). Faulu Kenya’s Market-led Products.

Fintrac, ( 2009 ). USAID-KHDP- Kenya Horticultural Development Program, Oct. 2003-Mar. 2009. Final report. April 2009.

Frankfurt School of Management ( FSM ), ( 2012 ). Transforming Micro-Finance in Kenya the : Experience of Faulu Kenya and Kenya Women Finance trust Feb. 2012

HCD, ( 2013 ). Role of Horticultural Crops Development Authority and Horticulture Sector Performance Report

IDEA, ( 2001 ). ADC Commercialization Bulletin #3-Dried Bird’s eye chilies.

IFTEX, ( 2014 ). African Bird’s Eye Chilli : a New High-Value Crop for Kenyan Smallholders. The East African Fresh Produce Journal, Horticultural , Agricultural News and the Latest in the field of horticulture.

KHCP, ( 2012 ). Chili volumes are on the rise. Grow Kenya Monthly July 2012 Issue No. 22

KWFT, ( 2010 ). Agriculture Loan Products-Green House Farming

MOA, ( 2008 ). The Ministry at a Glance. Ministry of Agriculture, Republic of Kenya, Office of the Permanent Secretary, April 2008. http : / / www.kilimo.go.ke / kilimo_docs / pdf / moa_at_glance.pdf

NAFIS-National Farmers Information Service, ( 2009 ). Lamu District Farmers to make Money from ABE Chilies Production.

Sherwood Amy, ( 2013 ). Nuru Kenya Agriculture and Social Enterprises Combine Forces to Pilot African Bird’s Eye Chili Project.

UNCTAD, ( 2013 ). Information and Market Transparency-Hot Pepper Capsicum spp.

USAID, ( 2009 ). Update on Kenyan Horticulture – Kenya Horticultural Development Program, Nov. / Dec. 2009 issue.

USAID, ( 2012 ). USAID Kenya Horticulture Competitiveness Project ( KHCP ), Monthly highlights.

Wikipedia, ( 2014 ). the free encyclopedia. – Aug. 2014 ANNEX DOCUMENT. – Bibliography 101

International demand analysis

ADC. 2001. Dried Bird’s Eye Chilies, ADC commercialization bulletin#3, Agribusiness Development Centre, Kampala, Uganda

APEDA 2014 : APEDA agri-exchange : international market prices http : / / agriexchange.apeda.gov.in / int_prices / international_price.aspx

Blok A, Tulleners B. 2009. The African Spice Sector : An overview of exports : trends, figures and barriers, Commissioned by KIT

Boomsma M, Audet-Bélanger G, Delnoye R. 2013. Spice enterprises on a sustainability journey, KIT and IDH

CBI Product Factsheet : Chilies in the EU. Accessible through: http : / / www.cbi.eu / system / files / marketintel_documents / 2013_pfs_chilies_in_the_ eu_-_spices_and_herbs.pdf

CBI Product Factsheet : Chilies in Germany Accessible through: http : / / www.cbi.eu / system / files / marketintel_documents / pfs_chilies_in_germany_-_ spices_and_herbs.pdf

Daily Monitor ( February 2014 ) International Chili prices drop. Accessible through: http : / / www.monitor.co.ug / Business / Prosper / International-chilli-prices- drop / - / 688616 / 2200484 / - / c1jdrj / - / index.html

Fintrac. 2004. Horticulture Marketing News April 2004. Accessible through: w w w . fi n t r a c . c o m / c p a n e l x _ p u / K e n y a % 2 0 K H D P / APRIL_NEWS.pdf

Kaiser Associates. 2006. Chilli Value Chain Analysis : Current Kwazulu Natal and South Africa Value Chain, Global Market and Competitor Analysis, Kwazulu Natal Department of Economic Development.

KIT and Symbeyond. 2009. The African Spice Sector, ‘Specerijen in Afrika : nieuwe kansen op een oud continent’ Koninklijk Instituut voor de Tropen, Mini conference, 2 december 2009

Makoka D, Chitika R, Simtowe F. 2010. Value chain analysis of Parprika and Bird’s eye chilies in Malawi, University of Malawi, Centre for Agriculture Research and Development.

Ntale C. 2011. Red Bird Eye Chilli Value Chain Analysis, For ICCO and Kerk in Actie, Kampala, Uganda.

Peter, KV, eds. 2001. Handbook of Herbs and Spices 1, CRC Press, p. 120.

Profound, BTC ( 2012 ) Organic spices in Tanzania : Opportunities for producer of organic ginger, chilli and vanilla, commissioned by BTC

USAID-Fintrac. 2011 The European market for African Bird Eye Chilies, Market survey #02, in collaboration with Fintrac, May 2011

Statistics

ITC Trade map –Trade statistics for international business development: http : / / www.trademap.org /

Food and Agricultural Organization of the United Nations – FAOSTAT http : / / faostat3. fao.org / faostat-gateway / go / to / home / E ANNEX DOCUMENT. – Bibliography 102

Websites

Fiery-foods.com. Pepper Profile Birds Eye Chili. http : / / www.fiery-foods.com / index.php ?option=com_content&view=article&id=107 : pepper-profile-african-birdseye&catid=92 :pepper-profiles&Itemid=149 Accessed on 26-06-2014.

Indian food store.http : / / store.indianfoodsco.com / shop / organic-bird’s-eye-chili,- -ajor00506 Accessed on 26-06-2014.

Organic fair. http : / / www.organicfair.com / organic-chili-flakes-p / hschilflak.htm Accessed on 26-06-2014.

Spicesinc.com http : / / www.spicesinc.com / p-291-dried-birdseye-chiles.aspx Accessed on 26-06-2014

Steenbergs. http : / / www.steenbergs.co.uk / product / 74 / chilli-birds-eye-whole-dried-organic- 25g / 1 / 2 Accessed on 26-06-2014. 103

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