ImpactAlpha, October 29 – Kenyans spend nearly half their income buying food. The high cost of food reflects the markups from mostly small farmers, though a series of brokers, before produce is sold in local markets and informal kiosks.
Twiga Foods set out to right-size Kenya’s food costs by reconfiguring that inefficient and opaque food distribution. By digitizing logistics and cutting out middlemen, Twiga believed it could deliver better prices to both farmers and consumers, as well as improve farmers’ and the kiosk vendors’ ability to get loans and other services.
In five years, the company has built a logistics network to deliver produce directly from 17,000 farmers to 8,000 informal retailers. Goldman Sachs led Twiga’s $23.8 million Series B equity round to fuel its next phase of growth.
International Finance Corp. TLcom Capita, and French family office Creadev also backed the round. Creadev’s $6.8 million commitment was announced in June. OPIC and Alpha Mundi invested $6 million in debt on top of the equity portion of the round.
Twiga’s Peter Njonjo says the company isn’t changing its impact mission. But Twiga’s growth comes with some strategy shifts that could affect smallholder farmers, who produce 75% of Kenya’s fresh food. The company has largely sourced its supply from small-scale farmers. Twiga was able to capture high-performing farmers early on, but has otherwise confronted a “long tail” of moderate to low-performing farmers.
“It’s not profitable business working with so many small farmers,” Njonjo admits to ImpactAlpha. “The cost of aggregation from the long tail is high.”
That high cost is compounded by an aging and shrinking pool of smallholder farmers. The average age of farmers in Kenya is approaching 60; overall, the population’s average age is just 18. “The younger generations aren’t going into agriculture because it isn’t profitable or sustainable,” Njonjo says.
The company plans to reduce supplier acquisition and cost burdens by integrating larger, commercial producers into its supply chain.
“One thing we’ve been very clear on is the problem we’re trying to solve. That’s the cost of food. We’re not trying to solve a smallholder farmer issue,” notes Njonjo. “We don’t have the capacity or expertise to do that.”
Njonjo says Twiga is rethinking its role in helping farmers’ boost their productivity, efficiency and income so they themselves can become bigger players in the market. “Smallholder farmers will always have their place in the market, but they need a lot more access to capital to scale to the point of being more efficient,” Njonjo says.
To that end, Twiga is helping farmers secure bank loans to help them scale up. Twiga purchases orders can assuage banks’ concerns about risk. The International Finance Corp. has begun to offer loan guarantees to local banking partners alongside Twiga’s offtake agreements. The partners are hoping to catalyze between $10 million and $30 million of small-farmer financing.
“We’re thinking about how many farmers we can help retool and scale up,” Njonjo explains. “When they become better farmers, they create a nucleus that brings in more farmers and builds critical mass.”
“If you remove the friction to accessing the market and make it more profitable, it will attract more employment in the sector,” he adds. “We have to start seeing that farmer age of 59 come down.”
Twiga’s latest funding round includes provisions to swap out early, impact-aligned investors with with more commercially minded capital. One such impact investor, Blue Haven Initiative, is fully exiting from Twiga with the Goldman-led round (Blue Haven executives were not available to comment.)
Now that Twiga has proven its model, Njonjo says it needs more partners in the ecosystem to come behind with other types of support.
“The challenge with entrepreneurship in Africa is that, once you’ve identified a problem, you have to build both your intellectual property and a favorable ecosystem to help you solve that problem. Building that ecosystem isn’t something you have to do in other markets,” he said.
Blended financing, like that structured by Twiga and the IFC, can bridge market gaps and help anchor businesses in social impact. “Without someone like the IFC, I’d never bother trying to figure out the smallholder farmer issue,” Njonjo says. “I’d just look for the easiest way to get product.”