Is Grain Business profitable in Kenya?

A displayof cereal and pulses in a grain business market

Food traders are the most essential service providers in the world. They provide food and nutritional security for millions of people by linking farmers to consumers. In Kenya, they buy, store, dry, re-bag and distribute all food types. But how much profits does a typical grain business trader make? In this analysis, we will determine the business model, costs and profits of buying and selling cereal and pulses grains like maize, beans, wheat and rice.

To determine how profitable is a cereals business, this article will analyze the following aspects of a typical cereals business plan

  • Business model
  • Costs
  • Profits
  • Challenges
  • Profit Tips

The business model of a cereal business

  • Who: sell your grains to individual consumers and other business customers like ike millers and institutional buyers like a boarding school or hospital.
  • What: The value proposition of your business. Includes the products and services you will offer your consumers. examples are free deliveries, aggregation or bulk breaking. Besides. offer diversity by offering a wide range of cereals, pulses, dried tubers and spices products under one roof.
  • 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.
Products Examples
Grains/Cereals Maize, Wheat, Rice, Sorghum, Millet, Oats and Barley
Pulses 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

Costs of running a cereal business

A display of dry and powder food spices and curries
In addition to cereals and pulses, grain stores sell dry spices, dry fish and packaged flour

If you are wondering how to start or expand a profitable grain business, the following are the best steps and their associated costs.

Pre-investment market research

The first step is a rapid market analysis 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.

  • Target consumers: You can sell grains under B2C or B2B 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: Locate your business 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 (kinda)

The cost of a pre-investment market study will depend on the available cash at hand. For argument purposes, we assume a medium cost of KES 5,000 on the lower side and KES 100,000 on the high end. The consultant should give you a business plan to start and run a grain business.

Startup costs

Having decided 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.

Operational costs

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 a profitable cereal business

Wall mounted clear cereal dispensers filled with pulses in a grain business store

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 of running a cereal business in 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.

  • Expensive business licensing and permits making many operate informal businesses.
  • Informal operations like lack of records keeping exclude most traders from accessing formal credit and commercial loans for expansion.
  • Fluctuating commodity prices between the harvest and scarce periods. It affects traders. profitability, planning and ability to invest for business growth.
  • Climate change effects like drought, poor rainfall patterns and floods cause a shortage of grain supply driving costs up lowering trader’s profit.
  • Incidences of informal and double taxation in cess and levies in intercounty boundaries during transport.
  • Food waste from aflatoxin or storage pests like the weevils that infest maize, sorghum and green grams.
  • Under-developed market infrastructures that contribute to cereal losses from rain and moisture or expensive rent costs for good markets.

conclusion

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

Samuel S.K.

S.K is the founder and senior agribusiness development consultant at Agcenture. He can be reached at info@agcenture.com

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2 Responses

  1. Tamu Milele Cereals says:

    This article is very informative! Implementing some of the tips in your article in our Nairobi shop.

  1. April 10, 2021

    […] buy produce from small-scale farmers, process and market at a profit an example is starting a grain business to buy cereals and pulses from farmers and sell to […]

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