Cereals Business in Kenya; How much money can you make?
Food traders are the most essential service providers in the world. They provide food and nutritional security for millions of people by linking farmers and food processors to consumers. In Kenya, they buy, store, dry, re-bag and distribute all food types. But how much profits does a cereals business make? In this analysis, we will give you a n ideal business model, costs and profits, challenges and profit making tips for a cereal business that buying and sell different types of cereals and legumes like maize, beans, wheat and rice.
To understand how profitable is a cereals business in Kenya, This article will cover the following aspects of a starting and running a cereals business.
- An ideal Cereals Business model
- How to start a cereals business
- How to grow a cereals business in Kenya
- Challenges facing cereals businesses in Kenya
- Profit Tips
The business model of a cereals business
- Who: sell your grains to individual consumers and other business customers like flour millers and institutional buyers like a boarding school or hospitals.
- What: The value proposition of your business. It includes the products and services that you will offer to your consumers or clients. For products, offer a diversity or a wide range of the most nutritious cereals, pulses, dried tubers and spices under one roof. These types fast moving cereals are more profitable for you. For examples see the table below. In terms of services, you can give your clients free deliveries, aggregating small quantities or bulk breaking large volumes to smaller quantities customers can easily afford.
- How: It’s the value chain or the operations you will undertake to produce or provide your goods and services for sale. Examples are transport, storage, grading and re-bagging before sales.
- Why: Your revenue model, its how you will price, market, market, sell and collect payments or value from your customers. For instance, you can use free Social media sites like mobile Apps, Facebook and WhatsApp to market your goods. In turn, they can pay you using m-banking.
|Grains/Cereals||Maize, Wheat, Rice, Sorghum, Millet, Oats and Barley|
|Pulses/Legumes||Beans (kidney, black, yellow, mung), |
Green grams, soybeans, black turtle beans
Lentils (red, green, brown, yellow) Garden peas chickpeas
Nuts (peanuts, veal nuts, cashew nuts, groundnuts)
|Flour||Wholegrain/brown flour, Sifted flour, Mixed/blended flour|
|Dried Tubers||Cassava, Sweet potatoes Bananas|
|Spices||Black pepper, Turmeric, Cinnamon & Cloves|
|Others||Omena, Dry fish, package bags & containers|
How to start a cereals business in Kennya
If you are wondering how to start a cereals business in Kenya? The following are the best tips and steps you need to follow before you can launch a grain store business in Kenya.
- Conduct a cereals industry market research and feasibility study; It will help you to
- Explore and understand the market dynamics of your cereals market, such as volume and value, potential customer segments, buying patterns, competition etc.
- Answer whether cereals business is a viable venture for you to invest in given your capabilities, resources and a consideration of risks
- Draft your cereals business plan. Draw a road map of how you actualize your cereals business idea into a thriving business. It will focus on financial projections, marketing plan etc.
Cereals business feasibility study
The first step, the market and feasibility analysis is to identify target consumers, products, suppliers and business location. You can carry out one on your own or hire (recommended) an agribusiness consultant like agcenture for professional insights. The questions to answer include
- Target consumers: You can sell your cereal products under B2C (retail) or B2B (wholesale) models. The key buyers of grains and cereals in Kenya under B2C are individual or final consumers and institutional ones like boarding schools and hospitals. In the B2B model, you will target other grain traders or brokers maize millers and restaurants.
- Products; as illustrated above, a grain store can stock different brands and varieties of whole grains and pulses, flour, dried cassava. To settle for the best research into the consumer preferences, the buying and selling prices to get your profits projections.
- Suppliers: Identify the sources of your shop products. You can buy from farmers directly or rely on local or importers who source quality grains from Tanzania, Uganda and Ethiopia. Look for one who is reliable for long term contractual arrangements to deal with price and volume fluctuations.
- Business location: identify the best areas to locate your business. An ideal location in a busy town or estate. Around Nairobi, the main grain markets are in Nyamakima in the CBD, Kariobangi and Githurai markets. You can set one in an open-air food market, a shop/store or roadside grocer (kibanda)
- Financial and Resource Availability; This step will help you to put into a perspective both the Startup and operational costs of a cereals business The start up costs including securing business premises and getting business permits. Besides outline your skills and experiences and those of your family that will assist in running the business.
The market and feasibility study will give you an informed conclusion of investing in cereals or business. While you are the best suited to conduct it, consider hiring a consultant like Agcenture advisory for technical areas like cash modelling and competitor analysis. The studies ranges from as low as Ksh 10000- 10,0000 depending on your goal. The consultant should give you feasibility study recommending your next steps.
Cereals Business plan
The second step is drawing a an implementation plan on how you want to start your business idea and grow it to a profitable venture. The final output is a cereals business plan to start and run a grain business. Its major components are;
- A description of your cereals business; wholesale or retail, location, products range, vision and mission etc.
- Environmental Analysis; including the SWOT & PESTLE analysis of factors likely to impact your success.
- Competitive environment; identify your rivals like supermarkets and outline your competitive advantage of what you will do different.
- Marketing plan; Identify how you will brand, market, package and price your products.
- HR (people requirements); identify the skills and experiences of the key people who will run the business including the gaps of what you will hire or get consultants.
- Financial Projections. Have the start-up financial documents like the balance sheet (1st 3 years) cash flow and profit and loss (monthly for 1st year and yearly for year 2 and 3)
Launching your cereals business
Having completed the the above, the next step is to start up your business. It will involve you acquiring business licenses and secure the business premises before you can bring in the cereals.
Before you can operate, get a single business permit to run a food store from the county government. The cost is around KES 10,000 in most counties, and it is renewable each year.
To secure business premises, you will need to pay rent in a business store and construct raised cereal stacks and shelves for dry storage of maize. Rent in towns in Kenya range from one to the next. You can get one at a cost of around KES 5,000 per month in a busy town that can hold 50 bags of 90 kgs of cereal. Constructing a raised stand made of timber can cost around KES 10,000. The stands will keep your maize free of pests like rats and mice or the moisture from the floor.
The grains business model operates on a “buy low, sell high” model. You will buy cheap grains during harvest season; store awaiting prices to raise and sell later. As such the following are operational costs of operating a grain store in Kenya.
- Buying costs; It is the price you pay to buy products. You can access real-time prices of a 90 kg bag of maize, beans and other cereals and pulses each day. These are published by the NAFIS, NCPB or the Ministry of Agriculture in Kenya.
- Transport costs: the cost you will pay to transport commodities from your supplier to your grain store. It includes the costs of loaders and off loaders. It is charged per bag or a lorry. It will depend on the distance and cost of fuel.
- Cess & Levies; the cost you pay at county boundaries to be allowed to trade your goods in the county.
- Storage costs: the cost you will pay to operate a store. Similar to the rent costs. To get the cost per bag, divide the total rent per year by the number of bags you bought and sold in the year.
- Labour costs: The total amount of salaries and wages for store attendees, drivers and other store workers.
- Package costs: The cost you will pay to buy hermetic bags and sacks to store and sell your cereals.
These costs are highly flexible and depend on your shop size and the amount you can handle in a year.
How to run and grow a profitable cereals business in Kenya
In addition to the mentioned ideas under value proposition, the following are business recommendations or tips for making extra profits as a cereal trader.
Direct sourcing from farmers: it is costly to source goods from brokers. Instead, buy direct from farmers. The best time is to buy cereals during the harvest season when prices are low.
Transport: Consider owning your own transport or hire a lorry together with other farmers to cut on costs of transport.
Hermetic Storage: buy airtight and moisture-proof hermetic bags and small silos to store grains dry and free of storage pests. Besides, lower costs of operation by storing commodities at home stores and operate from a small store in town.
Institutional buyers: Apply for tenders and respond to bids to become a grain supplier for the school feeding programs and public firms like hospitals and colleges and private schools.
Diversify: sell a wide range of cereal products instead of focusing on maize and beans only. The table above gives you a list of different cereals, pulses, spices etc. Besides, diversify in brands and or varieties of each commodity. For example, if you are selling rice, you can diversify by selling basmati, pishori or brown rice.
Food processing: food processing or value addition is an ingenious way of making extra profits in the grain business. One cheap method is grain milling. To diversify further, mill and package pure or blended maize, wheat and porridge flours.
Challenges facing cereal businesses in Kenya, Africa.
Which challenges are you likely to encounter as a maize broker or trader in Kenya, Uganda or Nigeria? Gathering feedback from secondary data, the following are the key challenges that face SME cereal traders in many parts of Africa.
- High cost of doing business due to expensive business licenses and permits.
- Most cereal business are informal without records keeping or formal banking limiting their access to formal credit and commercial loans for expansion.
- Fluctuating commodity prices between harvest and scarce periods affects traders, profitability, planning and investing for growth.
- Climate change effects like drought, poor rainfall patterns and floods causes supply challenges driving costs up and lowering the trader’s profits.
- Incidences of informal and double taxation in cess and levies in intercounty boundaries during transport.
- High incidences of food waste from aflatoxin or storage pests like the weevils that infest maize, sorghum and green grams.
- Inadequate storage infrastructures that contribute to cereal losses from weather exposure.
Grain business remains one of the most profitable agribusinesses you can start today. Cereals, pulses and flours make a large component of food demand for individual and business consumers. The analysis above gives you the perfect business model for a successful grain store, the steps and costs of starting or expanding a grain business and the challenges grain traders in Kenya’s face. The post concludes with recommendations on how to run a profitable or successful cereal business for extra profit