Honey Care Africa: A Different Business Model

Kenya: The Background• Largest economy in East Africa• Population: 34.7 million• Real growth rate: 5.8%• Purchasing Power Parity: US$

1100• Unemployment: 40%• Human Development Index:

Rank 152 out of 177

• 75% of labor force contributed 16.3% of GDP and 67% of foreign exchange earning

• Only 8% of the land is arable• Major crops - coffee, tea,

cotton, sugar cane, potatoes, tobacco, wheat, peanuts and sesame

• Small scale farmers – 75% of total agricultural production; they lived on subsistence agriculture

Existing Business ModelsLarge government-owned parastatals – distributed agricultural commodities– forced farmers to sell their produce at pre-set and often rock-bottom prices – farmers were reimbursed 8to 12 months later

Cooperative ventures– produced and marketed– commodities such as tea, coffee and milk, on behalf of their members– Corruption, mismanagement, politics

Long sequence of intermediaries– Farmers have limited market information – Exploited by middlemen

Honey Care Africa: A New Business Model

• Conceptualized by Farouk Jiwa• Shift from long brokerage

chain to direct link between farmers and supermarkets

• Provided farmers with necessary tools

• Packaged and marketed the produces to– Urban consumers – Supermarkets

• Provided training and

technical support• Paid in 48 hours• Helped financially through– private loans – company-sponsored plans – donor agencies – nongovernmental

organizations (NGOs) – micro-financing institutions

• Model very well accepted• Fostered rapid and inclusive

growth

Founding Honey Care

• Initially farmers were not motivated• Government ventures failed due to improper planning,

opportunistic market linkages and poor commercialization

• Honey Care International distributed Langstroth hives but was struggling in the business

• Yusuf Keshavjee and Husein Bhanji bought out Honey Care International and established honey Care Africa

• Farouk Jiwa was the head behind; He ran the business for its owners

Development of the New Business Model

• Based on triple bottom line – economic, social and environmental

• Jiwa convinced NGOs about the sustainability of the project and used their help to reach out to the farmers

• Finance from bank was not an option due to high interests

• NGOs finally agreed to finance with ownership of hives to farmers and some facilities owned at community levels

• Jiwa made sure that the farmers payoff for their hives and draw their attention towards the economically viable opportunity

The Farmers

• Used NGOs for fostering trust• Allowed open interaction with farmers• Promised on spot cash payment• Convinced DANIDA for financing a 100 hive pilot

project• Project success promoted on Daily Nation • Honey Care prepared for training the farmers• Project Officers were employed for handling the

training, production and quality assurance at the community and village level

The Employees

• All the employees were highly motivated and showed high level of commitment

• The vision of the company was shared with them

• Jiwa personally supervised each and every step• Incentive schemes were started for the field

officers; this motivated them more• These helped in perfect forecasting of the

production volume

The Milestones

• Initial problems faced for marketing in super-markets

• Once customer demand increased for good quality honey, marketing became easier

• Jiwa partnered with Rob Hale of Africa Now having similar operations in other parts of Africa

• Both exchanged ideas and refined operations• Both partnered to share operational facilities for

mutual benefits and expansion

The Trust

• Some farmers tried to migrate to more profitable brokers

• But came back once they disappeared• Honey Care’s consistency was appreciated• Made schemes for farmers to own the entire

beehives in contrast to supers owned by Honey Care previously

Unexpected Opportunities

• World Vision requested Honey Care to include the farmers to whom they had their hives distributed through a partner who left in between

• With increasing efficiency of the farmers, Honey Care field officers had more time to devote to newer responsibilities

Operational Challenges (Contd.)

• Financing– Needed new financing sources as the NGOs were not

enough– Africa Now helped Honey Care to partner with K-rep Bank– Business expanded at a very fast pace

• Payment– With higher operations the officers were handling more

cash and was at risk– Higher business volumes required more working capital to

bridge the cash conversion cycle

Operational Challenges (Contd.)

• Collection– Increasing volumes made collection difficult– Community centers were made for farmers to deposit their

harvest and collect cash

• Quality– Maintain stock levels, check the heights of the fill and

prevent crystallization– bottling process needed micro-filtration and improved

honey pasteurization– additional investments needed in technology and human

resources

Operational Challenges (Contd.)

• Partnership– NGO partnership term got over– Africa Now strengthened the relation– Helped in expansion, operational issues and facility

development

Reasons for Success

• Maintained a trusted relationship with farmers– Collection Centers were close to farmer’s home– Training provided was very practical to make the

farmer’s understand easily– Feedback was taken to address the issues faced by

farmers• Leveraging on its collaborating with Africa Now• Followed triple bottom line philosophy and focused

more on sustainable & long term growth of farmers• High Quality products

Opportunities (Growth Path)

Downstream Expansion

Upstream Expansion

Horizontal Expansion

Downstream Expansion

• Product Diversification1. Introducing Flavored Honey variants – to cater to

urban, high income buyers

2. Launching products for farmers – low cost, convenient to get, added flavors

3. Selling beeswax – competitive market

Downstream Expansion (contd.)

• Market diversification strategies1. International Expansion of business

Challenges :• Stiff competition from low cost Chinese products• Rigid regulations• Getting fair trade certifications

2. Regional Expansion of businessChallenges: • Price Sensitive Product – cannot survive competition from

traditional method• Would require high volume production

Upstream Expansion

• Growth in KenyaChallenges• Non availability of Financing facilities• Wanted to lower cost but could not compromise on quality

• Growth in neighboring African Countries Challenges

• Domestic market was very competitive• Faced with operational concerns• Fear of deviating from the traditional business model of ensuring

farmer commitment

Horizontal Expansion

• Replicating Business Model in other industries and countries

• New partnership with international NGOs and Humanitarian Organizations

Q) Whether Honey Care could or should entice rapid growth in its supply network?

• SEKEM was successful in its supply network due to:– Diffusing the idea of organic farming among people– Educating farmers– Supplying directly to large stores and supermarkets– Including proper distribution and warehousing facilities

• Honey Care can also adopt a similar strategy as SEKEM was having a business model comparable to that of Honey Care

• Strengthening both Upstream and Downstream Supply Chain

Q) How would scale change its key relationships with its farmers?

• If Honey care goes for higher scale production then it will strain its relationship with the farmers so it should be cautious in increasing its scale of production

• Farmer training wold become

Q) Should it seek a different way to compete in honey production or distribution?

• Strengthening the company’s marketing and distribution capabilities

• Finding alternative ways to finance the business

• Introducing an efficient collection system & stringent quality control measures

• Achieving economies of scale by increasing its production volume

ThankYou!