How couple built sorghum milling firm after tax scare

A few years ago, when the government tried to impose a 50 per cent levy on sorghum beer, a couple was left stranded with tonnes of grain they didn't know what to do with. But that would be an eye-opening experience for them to never rely on one market.

Today, Daniel Kinoti and his wife Ruth have turned a business they started as cereal aggregation into a milling factory employing several people besides providing ready market to hundreds of farmers.

Mrs Kinoti, the Shalem Investment CEO, says they have contracted more than 40,000 farmers to supply raw materials.

As a social enterprise, she says, they encourage small-scale farmers to organise themselves into groups while selling to them.

"Our prices per kilo are a shilling higher than what is offered in the market, if a group has 10 tonnes, they earn Sh10,000 extra," explains the Asili plus flour proprietor.

Their factory which is located in Meru County processes maize, soya, finger millet and sorghum into flour. The couple has also begun processing pre-cooked maize meal.

"Many consumers like sifted maize flour which has low nutritional value and has to be complemented with a good stew but not many Kenyans can afford such. As a result, we invested in whole grain flour which is very nutritious," explained Mrs Kinoti.

Before starting the flour factory in 2019, the two had been in cereal aggregating business since 1998. At that time they bought maize and a bunch of other grains from local smallholder farmers and sold to schools.

Hindered from accessing the market due to lack of volumes and logistical challenges, local farmers would be stranded with bags of grains for months on end. The couple became just the right plug as a result.

"In 2009 the East African Breweries Limited, came looking for sorghum and they contracted us to source the cereal from farmers on their behalf," explained Mr Kinoti.

He adds that since they paid farmers upfront while the brewer paid his company later, the venture needed a deep pocket. Back then, local banks considered agriculture a high-risk business and didn’t give them financial credit.

Mr Kinoti however recalls they successfully convinced a US-based creditor who offered them a low interest loan to finance the business. The creditor didn't ask for security as the stock and money the market owed them became the security instead, notes Mr Kinoti, adding it was a big break for them.

But just when the business began peeking in 2013, the government announced a 50 per cent excise duty on senator keg, a sorghum beer for the low-income market.

Breweries strongly opposed the move and even threatened to stop producing the beer. Meanwhile, farmers and aggregators like the Kinoti's had been thrown under the bus.

"The proposed taxes caused huge panic in the market. We were left with thousands of tonnes of sorghum we didn’t know where to take and also had loans to repay. It was a difficult time for us," Mr Kinoti pointed out.

While the move was rescinded after serious lobbying, the Kinotis learnt their lessons and began setting up a milling factory in earnest.

A few months ago , the company received a Sh10 million grant from the Global Alliance for Improved Nutrition (GAIN) to enhance the production of fortified maize flour and whole-grain pre-cooked ugali.

The reason for targeting small and medium enterprises is because they form the large chunk that manufacture products serving the low end consumers.

Harold Mate Senior Project Manager at Global Alliance for Improved Nutrition adds that they provide support through technical assistance to enable firms to become investor ready and help them scale their production so that they are able to provide nutritious and safe foods to the base of the pyramid consumers.

"The support has accelerated our growth as a private business. We have acquired new machine with a capacity of 1.5 tonnes per hour, which is quite high compared to what we had initially," says Mrs Kinoti.

Mr Kinoti adds that they ventured into whole grain maize flour after learning that most consumers were looking for whole food yet could not afford it due to high costs.

"With the grant we'll be producing affordable whole grain meal particularly for the low-income consumers," Mrs Kinoti explained, adding that with the pre-cooked ugali one only needs to put in hot water stir then serve.