4 Mapping the Value Chains
4.3 Mapping Kenya
4.3.2 Tomatoes in Kenya
4.3.2.2 Costs, Prices and Profits
Seed costs for Onyx, Cal J and Riogrande range between 720 – 960 KSH (10.59 – 14.12 USD) per kg. This is relatively cheap compared to the Valoria hybrid seeds, which cost 14000 KSH (205.88 USD) per kg. The researcher interviewed from KARI explained that although Valoria seeds have greater resistance to pests and diseases as well as higher yields, the majority of the farmers select the cheaper seeds. In making this decision they do not consider other necessary production costs (e.g.
amount of fertilizer and pesticides), amount of yield and product quality. Total costs of input per season (including seeds, fertiliser, pesticides and technology such as irrigation) range between 1.33 and 1.39 KSH (0.02 USD) per kg of yield, of which fertilizer and pesticides account for a significant share of these costs. In both seasons, input costs remain almost the same.
In addition to input costs farmers also incur costs for workers on their fields. One worker is paid between 150 to 200 KSH (2.21 – 2.94 USD) per day, depending on season, work required (e.g. planting, harvesting, spraying) and working hours.
Analyses of labour costs per season and acre result in median 26000 KSH (382 USD). These labour cots have the highest impact on the production costs.
The median of the total production costs of tomato farmers in Mwea Division is 0.11 USD per kg of produced yield in both seasons.
The selling price of tomatoes fluctuates widely between high und low supply season.
It depends mainly on the supply situation at the markets, which is influenced by weather conditions (seasonality!) and diseases, leading to high yield losses and scarcity of supply. Demand is less important, as it seems to be constant during the year, with only a slight increase in holiday time. The following table 21 shows median selling prices in high and low supply season as well as costs and profits for farmers.
Table 21: Costs, prices and profits of Kenyan tomato farmers in 1st and 2nd season.
Figures on Production Level
per kg (in USD) 1st Season 2nd Season
Costs (Median) 0.11 0.11
Variation 0.04 - 0.18 0.27 - 0.71
Selling prices
Median 0.11 0.57
Profit (Median) 0.00 0.46
(Source: Quantitative survey of VC actors, own computation) It is becoming obvious that farmers do not make any profit in high season, but make a large profit in low season when prices at the farm gate are high. However, it has to be taken into account that this applies only farmers with access to irrigation, who are able to cultivate in the drier season, when there is low supply at the markets. Other producers, especially small scale farmers, who live far from irrigation canals or do not have the financial basis to buy a pump, have to find an alternative source of income and thus cultivate crops that do not need irrigation (e.g. maize). In high supply producers sometimes are not able to sell their entire yield. Since storage possibilities are limited, the percentage of waste produce increases.
Trade Level
The following costs, prices and profits relating to the trade level are based on information from tomato traders at Gikomba and Wakulima markets in Nairobi, who mainly work as wholesalers and intermediaries. As described in chapter 4.1.2 (relations) brokers, wholesalers and intermediaries play an important role in the value chain for both farmers and retailers. Since they are well organised, their bargaining position is relatively strong, which is reflected in the purchasing and selling prices.
Furthermore, they incur fewer costs and trade a high amount of goods in one season.
Main costs mentioned by the traders interviewed are paid labour (carriers and cart drivers on the market), transport costs and market fees. Traders have to pay 25 KSH (0.37 USD) per day to enter the market and 100 KHS (1.47 USD) per crate of traded tomatoes. The latter costs are paid by intermediaries who deliver the tomatoes from the farmer. That means that costs for wholesalers who even do not possess a market stall and thus do not have to pay stall fees, are very low. Local wholesalers in Mwea Division who work at Kutus market have to pay 5 KSH (0.07 USD)/ crate of 32 kg. An overview of the buying and selling prices, costs and wholesalers profits is shown in table 22.
Table 22: Costs, prices and profits of Kenyan tomato intermediaries in high and low supply.
Figures on Trade Level
per kg (in USD) High Supply Low Supply
Variation 0.08 - 0.25 0.35 - 0.79 Purchasing prices
of wholesalers at
markets Median 0.19 0.59
Costs (Median) 0.08 0.06
Variation 0.21 - 0.53 0.37 - 0.87 Selling prices of
wholesalers on
markets Median 0.31 0.74
Profit (Median) 0.04 0.09
(Source: Quantitative survey of VC actors, own computation) In times of low supply the wholesalers’ profit per kg is higher than in high supply, though purchasing prices at farm gate are already high. However, there is still a wide price margin from farm gate price to selling price at the wholesale markets. In high season wholesalers’ profit is slightly lower, because the amount of goods traded rises as well as the number of trading wholesalers at the markets. Therefore competition between wholesalers increases and they depend more on brokers’ knowledge to contact supply intermediaries as well as with demand retailers.
Marketing Level
The profit for market retailers mainly depends on purchasing and selling prices at the markets, which are determined by the supply situation. When there is an oversupply of tomatoes at the markets retailers have to sell at such a low price that they sometimes do not make a profit at all. Non-existent record-keeping makes the situation worse for retailers who do not know how high the daily income has to be in order to reach breakeven. Furthermore, it seems that in high supply retailers are not able to raise prices to the same extent as wholesalers, because wholesalers’
bargaining power is greater whilst at the same time consumers’ willingness to pay high prices in high supply is lower. Besides, it can be assumed that in high supply the percentage of products that retailers have to write off as waste is much higher than in low supply, although this was not confirmed by the persons interviewed.
During low supply retailers’ work is more profitable. This is explained by the bigger margin between purchasing and selling price, although it should be taken into account that price information concerning selling prices might be unrealistic since they differ a lot from prices given by consumers.
Retailers’ costs are divided into expenses for labour, transport, market fees and entrance as well as for rent of selling location. Market fees for retailers are the same
as for wholesalers (see above). Transport costs account for the largest share. The costs are more or less the same in both seasons.
Table 23 gives an overview of purchasing and retail selling prices, costs and the median profit for retailers.
Table 23: Costs, prices and profits of Kenyan tomato retailers in high and low supply.
Figures on Trade Level
per kg (in USD) High Supply Low Supply
Variation 0.25 – 0.38 0.61 – 0.89 Purchasing prices
Median 0.29 0.74
Costs (Median) 0.01 0.02
Variation 0.28 – 0.42 0.74 – 1.18 Selling prices of
Median 0.32 0.88
Profit (Median) 0.02 0.12
(Source: Quantitative survey of VC actors, own computation) Overview of profits of operators in the Tomato Value Chain in Kenya
Figure 14 gives an overview of the profits per kg of farmers, wholesalers and retailers in high and low season. This comparison shows clearly that in high supply wholesalers take the most out of the chain, while farmers profit in median is zero.
They nevertheless continue to cultivate tomatoes in high supply to maintain business contacts with other VC actors, who are even more important in low supply. Retailers gain only half of the wholesalers profit per kg in high supply. In low supply this picture changes. Farmers, who are able to cultivate, are now in a good bargaining position because demand is higher than supply. The farm gate price rises while farmers’
costs remain almost the same. Their profit per kg is extremely high compared to wholesalers and retailers. The analysis results show that wholesalers this time receive the smallest piece of the cake with respect to profit per kg. On the one hand this is understandable given the intense competition at the markets. But on the other hand competition between retailers is not weaker, since there are also as many retailers as possible on the markets and streets. Therefore, the higher profit per kg for retailers in low season can preferably be explained by unrealistic price information concerning selling prices when comparing prices given by retailers with prices given by consumers.
0,02 0
0,04 0,46
0,12 0,09
0 0,05 0,1 0,15 0,2 0,25 0,3 0,35 0,4 0,45 0,5
Farmer Wholesaler Retailer
US$
High season Low season
Fig. 14: Profit per kg in high and low season for farmers, wholesalers and retailers.
(Source: Quantitative survey of VC actors, own computation)
To appreciate the real profit distribution among the actors, it is necessary to also consider the volumes traded and thus examine the share of profit per season, which is shown in figure 15. Wholesalers trade high quantities, in median 10 to 15 times more per season than farmers and retailers. That means, that the profit per season for a wholesaler increases compared to farmers and retailers. In high season when wholesalers’ profit per kg is already higher than the other actors, this unequal profit distribution is further accentuated. Wholesalers gain 99 % of the share of profit per season, in comparison retailers only 1 % and farmers in median do not make any profit, thus their profit share is zero.
0%
99%
1%
26%
67%
7%
Farmer Wholesaler Retailer
Fig. 15: Share of profit of different actor groups per season.
(Source: Quantitative survey of VC actors, own computation)
In low season again wholesalers are the ones who achieve the highest profit share (67 %) due to quantities traded. During this period farmers receive a very high profit per kg, which leads to a profit share of 26 %. Retailers gain 7 % in low season, though their profit per kg is higher than the wholesalers profit per kg. This is explained by the lower quantities traded per person. There are many more retailers on the markets than wholesalers. So they have to share the total volume of goods and thus the profit.
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