TOPICS

Market Access, Rural Finance

SOLUTION TYPE

Innovation (technical or institutional), Methodology, Processes

REGION

East and Southern Africa

"I am now able to pay for tractor services to do land preparation. We managed to put up a store using off-cuts and are in the process of  putting up a better poultry house."

Joan Kirui, maize farmer in Nakuru County, Kenya

BACKGROUND

Food security is an ongoing issue in Kenya, with around 10 million people affected by chronic food insecurity. Erratic rainfall and drought can devastate crop yields.

The KCEP e-voucher programme helps boost food productivity, supporting farmers as they move from subsistence farming to agribusiness enterprise. 

WHAT’S INVOLVED

A digital platform for agribusiness finance

Through the e-voucher platform, farmers can open bank accounts and budget their resources across different e-wallets. The vouchers can be used to buy pre-prepared input packages of seeds, equipment and consumables from selected suppliers.

Expert guidance for smallholders

Input packages are designed and validated by experts from the Kenyan Agricultural and Livestock Research Organization, and are focused on marketable crops. The programme also includes skills training and crop insurance options, which promote sustainable production.

EXPLORE THIS SOLUTION

The KCEP e-voucher project can offer

  • a proven framework for supporting the transition from subsistence farming to agribusiness
  • experience of implementing financial insurance to protect against drought-related crop failure

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Countries involved

Kenya

Project partners

Government of Kenya, Equity Bank (Kenya) Limited with its Foundation Group, Kenya Agricultural and Livestock Research Organization, Agricultural Marketing Development Trust and Eastern Africa Grain Council

Project dates

2013 - 2021

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Summary

Food security remains a major challenge in Kenya, with some 10 million people suffering from chronic food insecurity and poor nutrition. The e-voucher system, introduced by the Kenya Cereal Enhancement Programme (KCEP), provides a potential solution.

The electronic platform was introduced to improve smallholder farmers’ agricultural productivity and develop agriculture as a business enterprise. After registering on a web portal, farmers open bank accounts and are issued with debit (ATM) cards that allow them to purchase 'input packages' including products like seeds, hermetic bags and tarps. At the same time, financial literacy training and a weather-based crop insurance scheme are offered.

 

Challenge

Before the project, Kenyan smallholders in the target areas were farming purely on a subsistence basis. The overall aim of the KCEP project was to help them transition to a market-oriented and commercial agricultural system. Several challenges were addressed, including:

  • A history of difficulties with late planting and erratic rainfall that affected some of the crops;
  • The ongoing drought which has created catastrophic damage in Kenya; and
  • A need to link farmers with financial institutions and output markets, and provide them with risk mitigation against climate variability.

 

Solution

The e-voucher scheme is a component of KCEP, initiated by the European Union (EU) and launched in April 2014. It was designed to scale up gains and lessons learned from the government’s previous programme, National Accelerated Agricultural Inputs Access Programme (NAAIAP), which was also based on a voucher scheme.

The e-voucher scheme was set up to support and train around 40,000 smallholders in eight counties, the majority of them living below the poverty line. To enrol, potential beneficiaries register on a dedicated web portal and open a bank account with the Equity Bank Limited (EBL), a leading bank in Kenya in terms of financial inclusion. The farmers are issued customized debit (ATM) cards containing different 'e-wallets' which they can use to purchase farm products or inputs from selected agro dealers. There is an e-wallet for each of the different products offered, so that farmers can distribute their funds across different expenses.

The product packages consist of certified seed, basal and top-dressing fertilizers, as well as post-harvest items such as hermetic bags and tarpaulins. Based on technical packages developed by Kenya Agricultural and Livestock Research Organization (KALRO), the product packages have been validated by key stakeholders and designed for crops that are adapted to local agro-economic conditions. Moreover, only crops that have viable market outlets are considered.

Farmers using e-vouchers are referred to participating agro-dealers depending on their stocking capacity. This creates a fair distribution system with a good farmer-to-agro-dealer ratio, ensuring inclusivity and coverage. The electronic platform ensures that payments made to the agro-dealers are both immediate and traceable. The agro-dealer's trade is not restricted to programme farmers, and the farmers are not obliged to buy from programme agro-dealers for their other farming activities.

In line with the programme’s approach, eligible farmers are subsidized for three consecutive farming seasons with a contribution of 10 per cent, 40 per cent, and 70 per cent of the package cost, for the first, second, and third season, respectively. At the same time, they are offered financial literacy training sessions, focusing on good agricultural practices, post-harvest management training, linkages to markets, group management and gender mainstreaming.

 

Results

The institutional and technological innovations introduced since early 2016 under KCEP have already produced results in terms of efficiency, transparency and reducing linkages and corruption. Within the first two years:

  • Governments, both national and in the targeted counties, have seen the added value and potential of the e-voucher in terms of agricultural modernization, acknowledging the programme as one of the national flagship initiatives.
  • A total of 23,622 smallholder farmers (48 per cent women, 17 per centyoung people and 35 per cent men) out of a target of 40,000 have accessed e-voucher products.
  • The value of the total transacted e-voucher inputs amounts to KES485.3 million (equivalent to US$4.7 million) over three consecutive cropping seasons.
  • The agro-dealers have reported a doubling or tripling of their sales volume, with some even achieving a KES1 million revenue for the first time in one cropping season. This success has prompted some agro-dealers to expand their business or diversify into other value chain operations. Many more show greater interest in participating in the programme after seeing the benefits and opportunities.
  • 8,338 smallholder farmers out of a total of 23,622 have been trained in financial literacy.
  • Empirical results from a 2014 study conducted by the Government of Tanzania show that farmers with access to vouchers for inputs had higher agricultural productivity than those without.

 

Lessons learned and potential for replication

Although it is too early to draw lessons from this programme, early results are positive. Based on findings emerging from Kenya’s NAAIAP and from similar programmes in other parts of Africa and Asia, input subsidy programmes (ISP) may be highly effective in helping subsistence farmers shift into commercial production and improve farm production, productivity, and incomes. Therefore, there is considerable potential for replication and scaling up. There remains a lack of recent and high quality research to inform policy discussions and guide research on more targeted 'smart' subsidy programmes in Africa.

When planning a project of this type, the following considerations should be taken on board:

  • Farmers, agro-dealers and other stakeholders who have historically experienced bad outcomes from similar schemes will remain sceptical, and may try to undermine the introduction of new schemes. Consequently, the first step in a project of this type is to intensify awareness and rebuild trust and confidence.
  • To ensure the programme’s sustainability, efforts are required to convince participants of the value of purchasing fertilizer and seeds, even without the subsidies.
  • An exit strategy through linkages with credit and output markets is highly desirable.
  • Targeting and flows of funds constitute major challenges in implementation.
  • ISPs are a powerful tool to quickly increase food production, but if they account for too large a share of agricultural spending, they can crowd out other public investments required for sustainable development.


Next steps

  • Focus on linking the e-voucher farmers to output markets, including supporting them with linkages to village collection centres, storage facilities and aggregation centres.
  • Sensitize them to the incremental cost-sharing of the e-voucher package through regular savings.
  • Encourage farmers to expand their farms by buying and using these inputs beyond the one-acre demonstrated e-voucher farms.
  • Advise farmers to intensify their cropping season as the e-voucher is provided for only 1 out of 2 seasons per year.
  • There are plans to add a weather-based crop insurance scheme, pending the completion of a feasibility study. 

Solution Video

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Video Author: IFAD TV

Video Resolution:1280 x 720

Solution Document Downloads

Solution Additional Resources

KCEP - CRAL Official Website

Last update: 09/08/2018