The company aims to raise $20m this year and is exploring debt and grant funding options, Njuguna says in Nairobi. AFEX started Kenyan operations in June after a pilot phase.
African countries face the prospect of rapidly increasing food prices as the Russia-Ukraine war triggers a global shock. A report from the World Food Programme (WFP) in June says that blockades in the Black Sea region and restrictions on trade mean that the average monthly price of a local food basket in east African countries in May reached $17 per head across eastern African countries, up 18% since January.
South Sudan, Somalia and Rwanda have recorded the highest percentage increases, while Kenya, Djibouti and Burundi remain “highly vulnerable,” the WFP says. In 2021, according to the WFP, Somalia, Djibouti and Ethiopia sourced about 90%, 55% and 40% respectively of their wheat imports from Russia and Ukraine, while Kenya, Uganda and Sudan all sourced more than 30%.
- Even before the war, AFEX says an estimated 7.9m people in Kenya, or 15% of the population, were short of food.
- Challenges identified by AFEX in Uasin Gishu county, where it operated its Kenyan pilot scheme from late 2021, include a lack of affordable storage facilities, and a reliance by farmers on middlemen to access consumers.
- The need to strengthen food-supply chains as prices increase “cannot be emphasised enough,” Njuguna says.
Capital-Intensive model
AFEX was started in Nigeria in 2014. Led by CEO Ayodeji Balogun, the company’s Nigerian exchange trades maize, cocoa, soyabean, paddy rice, sorghum and ginger. It also supports securitization and trade finance for the commodities, and farmers have access to spot markets via a trading platform which has 250,000 farmers. Financial inclusion is a spin-off benefit: many of these people don’t have a bank account.
The company uses its network of warehouses to provide offtake agreements to farmers at market prices, combined with same-day payment. There is no upper or lower limit on the amount of produce they can sell. The information gathered from farmers is also used to generate food commodity price indexes.
The aim is to replicate the Nigerian model in Kenya, Njuguna says. The warehouse network currently stands at eight in Kenya. AFEX says that Kenyan farmers on average have larger holdings than their Nigerian counterparts, and better storage and distribution. AFEX has also launched a $1m loan program to allow 5,000 Kenyan farmers to access seed and fertilisers.
- The company is looking at 10 Kenyan counties where it might expand.
- So far only maize trading has been available in Kenya, and AFEX plans to add rice, sorghum, coffee and wheat by the start of the fourth quarter.
- The company aims to expand into Uganda in 2023, and wants to enter Benin, Togo, Ghana, Côte d’Ivoire, Tanzania, Ethiopia and Zambia within the next 10 years.
- “Commodity trading is very capital-intensive,” Njuguna says. “Every step of the value chain needs financing.”
Bottom line
Food supply-chain security is becoming a matter of life or death for the poorest in Africa.
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