Livestock sector draws increased investor interest
By Francis Muli, March 19, 2024The livestock sector in Kenya is poised for remarkable growth, with a surge in investor interest and a growing appetite for funding, a new study has revealed.
The study dubbed The Kenya Livestock Investor Landscape conducted by Gatsby Africa, International Livestock Research Institute (ILRI), and AgThrive shows that investors have begun to recognise the vast potential within the industry, paving the way for exponential expansion in the Kenyan livestock sector.
“A range of impact investors are interested in investing in the livestock sector. Investors with an impact focus are looking for promising opportunities and many are at least open to livestock investing, prioritising benefits for smallholder and pastoralist producers,” reads part of the report.
Commercial banks are also looking to increase the size of their livestock and agriculture portfolios, but are risk averse. Some banks are developing tailored products for specific subsectors and business models. For example, working capital loans for feedlot operations in the beef value chain. Banks are also investing in building pipelines and providing technical assistance to businesses to help them improve their investment readiness.
Collaborative opportunities
The study findings were unveiled at the Livestock Investors Convening and Pitch Event, which brought together livestock businesses, investors, and development agencies to share insights on the livestock investment ecosystem in Kenya. The forum provided a platform for industry stakeholders to showcase innovative livestock business ventures, exchange insights, and explore collaborative opportunities to unlock further investment for the Kenya livestock sector.
Available data shows that livestock is a chronically underfinanced sector in Kenya and across Africa compared to the value it generates for Gross Domestic Product (GDP), nutrition, and livelihoods. In Kenya alone, the sector contributes to 25 million livelihoods and 42 per cent of agricultural GDP, with demand expected to rise by 40-50 per cent by 2030. Without the necessary investment, the industry will be unable to keep up with growing demand.
Shirley Tarawali, Assistant Director General, ILRI says that there is a need to unlock more finance for livestock solutions because investments are needed to grow the livestock sector sustainably thereby creating triple wins that benefit smallholder farmers, efforts for climate adaptation and mitigation, and Kenya’s economic growth and sustainable development agenda. “To meet the growing demand for milk, meat, and eggs, unlocking more finance for livestock solutions is critical. The good thing is that there is an investor out there for every livestock business type no matter the risk profile, ticket size, funding mechanisms (debt, equity, other), or value chain,” says Tarawali.
According to the study which assessed over 80 investors ranging from impact investors to commercial banks, though investors are willing to invest in this sector some things are hindering investment traction, such as a lack of structured offtake markets plus informality in the sector. Without clear offtake contracts and reliable pricing mechanisms, investors see too much uncertainty in return on investment.
Another hindrance is the lack of traceability and quality standards. Without traceability, investors find it difficult to use livestock as collateral. Investors mentioned that lack of traceability hinders a company’s ability to access lucrative export markets, reducing the company’s attractiveness. “Risks at the primary livestock-related production level are another hindrance. High production risks related to disease, weather, and theft coupled with low technical capacity to address the risks lead to nervous investors. One investor interviewed halted an investment in a meat processing company as the farmers supplying the processor had lost most of their livestock due to drought and the company had not set up appropriate mechanisms to support these farmers in mitigating such risks,” reads part of the study.
Lack of ‘investor ready’ businesses is also another challenge. Businesses often lack essential documentation, such as business plans financial models, audited financial statements, necessary for investors to evaluate them. And when these exist, business plans and financial projections are often weak, with faulty assumptions.
According to the study, businesses need technical support to become “investment ready,” particularly when trying to manage sector-specific risks and address environmental concerns. Sharing data, analyses, and key learnings on livestock investment opportunities with investors, including details on specific countries, subsectors, and businesses, can help to address the existing knowledge gap and accelerate investment.
Diverse interests
“Capital is plenty, at least in the short term, but identifying viable investment opportunities remains a challenge for investors. Through collaboration with investors and businesses, we can explore new avenues to mitigate risk and reduce financing costs, driving investments across Kenya and the continent,” Arjun Bhoopal from Gatsby Africa reveals.
The study reveals that past investments have been concentrated in more established value chains, such as poultry and dairy, however, investors have diverse interests in all value chains and throughout the supply chain from primary production to processing.
For the last 14 years, there have been seven disclosed deals by impact investors, but no major Development Finance Institutions (DFI) deals. This mirrors trends across Africa, where investors tend to prefer subsectors they are familiar with and have a deeper understanding of, and that have more formal and structured offtake markets. “Dairy and poultry received more than 50 per cent of the deals reviewed in our study, underscoring investors’ perception of lower risk in these value chains. Their established businesses, strong revenue streams, and reliable consumer demand through formal marketing outlets such as supermarkets make them particularly attractive,” noted Kristin Girvetz, Director at AgThrive.
The study proposes that businesses, investors, donors, and other development practitioners collaboratively undertake measures to alleviate the barriers to investment.