There are three types of producers operating currently in Kenya: Informal home producers that cook in a pot at home with 1-2 people; artisanal small scale producers that do hand peeling, cutting, frying, weighing, and packaging with about 5-10 people; and the industrial producers with formal businesses and automatic production lines that produce 100kg or more crisps/hour. Given the growth in demand, the fast development of supermarkets and growing food safety concerns of middle class consumers, industrial processing is likely to grow at the expense of artisanal and home production. Given the economies of scale in production and marketing, it is likely to have a concentration to fewer larger producers in the future.

Furthermore, industrial producers are better able to give formal contracts and they also source by far the largest volumes. As seen in the figure, the investment cost per unit of product decreases dramatically at higher production levels. For modern efficient production lines 200kg/hour is minimum. Many producers in Kenya achieve around 100kg/hour. Total investment for a new factory is between 2.2 and 3.2 Mio USD which divides into equipment (USD 1.3 – 1.8 Mio for 200kg/hour) and land and buildings (USD 0.9 – 1.5 Mio depending on location of land and fittings such as aircon, cold storage, waste water treatment plant etc.). Only an existing business with experience in the market can qualify for such a 2 – 3 Mio USD investment.

The estimated direct production costs to produce 1kg of crisps in Kenya are shown above and the respective distribution of factors needed for the production of 1kg of fresh-cut chips. The efficiency (units) shown in the table are based on what is practically possible with a new automatic 200kg/hour line, a good management and quality of potatoes. Prices per units are based on actual prices paid by factories at this moment. The indirect production costs and investments are shown in the table.

The estimated fixed cost per kg of crisps are USD0.55 for a new 200kg/hour plant, operating 6.5 days per week, 50 weeks per year and producing 1560 tons of crisps per year. With the estimates of direct and indirect costs, it can be seen that industrial crisps production in Kenya is sufficiently profitable from 100kg/hour. At full capacity (200kg/hour; 1560 tons/year) the profit margin is 36% decreasing to 26% if the factory operates at 50% capacity.

There is a large demand for crisps in Kenya and it can be shown that industrial crisp production is profitable even at lower production volumes. Producers can start as a small scale processor to gain experience and qualify for finance later. But high input prices (oil, potatoes, packaging etc.) keep the final product expensive, thereby limiting sales. However, industrial crisps production is a business model worth promoting. Key intervention areas are price and availability of potatoes, prices of packaging material, and frying oil.

FINANCING STRATEGY FOR INDUSTRIAL CHIPS PROCESSING

Potential sources for 2.2 Mio. USD loans are local banks. Kenyan banks are interested and used to invest in agricultural processing SMEs. The building and equipment can be used as collateral. However, the nominal interest rates are high (17%– 20%). In order to go for this option, the business needs to be running already and a consortium of two banks may be needed to realize this.