This article was originally published on www.caas-initiative.org
SokoFresh is a venture built by serial entrepreneur and venture-building studio Enviu as part of their FoodFlow programme. Through this programme, Enviu aims to develop a showcase 0% loss food chain by creating a professional value chain from farm to shop.
BASE and SokoFresh had a number of conversations related to the implementation of CaaS to enable access to agricultural cold chains for smallholder farmers. “SokoFresh is following an exemplary approach by partnering and transparently communicating with potential adopters to test the feasibility of the CaaS model and to define an optimal and transparent pricing point,” said Thomas Motmans, Sustainable Energy Finance Specialist at BASE. SokoFresh has since joined the CaaS Alliance and BASE is providing support where possible to leverage the good work the team is doing.
Innovative pricing model
Following a comprehensive market analysis conducted by Enviu, SokoFresh was built with the understanding that there is an abundance of cold storage technology providers. The challenge faced was thus one of accessibility, pricing, and adoption rather. SokoFresh’s solution is centered around business model innovation that provides access to those in need of storage.
Similarly, the majority of solutions on the market are targeted towards large scale producers. Though this is an important area of focus, 90% of Kenya’s agricultural produce comes from smallholders, who are currently underserved by cold storage solutions, leading to high post harvest losses for horticulture produce.
Though designing a profitable business model that caters towards smallholders is no small feat, it’s clear that doing so holds the highest impact potential and provides significant market opportunities.
Designing SokoFresh’s Business model
Following lean start-up practices, SokoFresh started a series of small pilot projects in the avocado chain to test the riskiest assumptions of its model. “By onboarding them on our technology platform, we were able to go through the process of harvesting, aggregating, transporting and finally delivering their produce,” explains Denis Karema, CEO of SokoFresh. Through this, they learned a lot about the status quo, inefficiencies and opportunities in this chain. “These learnings are incorporated in our financial model and process blueprints to further refine in the second pilot stage.”
SokoFresh has worked to secure launching customers in the avocado, mango and french bean value chains. With these partners they can now test two main models that we see as working side by side: a buyer-centric model and a farmer-centric model.
In the buyer-centric model, they integrate cold storage into the existing value chain of a wholesaler or exporter already working with smallholder farmers. The buyer pays a fee per kg with a minimum off-take agreement for the seasons that it wants to engage with SokoFresh.
In the farmer-centric model, they support a group of farmers leveraging storage and market linkage to improve the value of their harvest. The farmer pays a fee per kg of stored produce and a success fee percentage on the market linkage enabled sales. “As there will be no guaranteed off-take and minimum usage is key to our profitability, this requires a carefully considered process of region and farmer selection,” says Karema. “However, when fully functional, this will be the more scalable model, fully empowering smallholder farmers to be a stronger market force in the value chain.”
Designing SokoFresh’s pricing model
SokoFresh’s pricing model is designed first and foremost for the end user. As the informal aggregation and harvesting solutions that currently exist in Kenya are priced at 1 shilling per piece or kg, it was logical to price SokoFresh’s storage offerings at the same 1 shilling flat rate. Doing so substantially lowers the barriers for adoption, doing away with the need to explain complex variable pricing rates.
With the pricing clear, the primary objective of the business model was then to dictate the utilisation rate needed to be profitable with such a level of pricing. The current utilisation rate is based on year-round usage of the storage at a margin where the 1 shilling pricing point could be integrated.
The concept of year-round usage also clarified which crops to focus on initially. SokoFresh provides storage for french beans, mangos and avocados – products that all require cold storage and, when combined, represent a full year of storage-use based on harvesting cycles. With crops that could fill the need for year-round storage and the clear 1 shilling price point, SokoFresh’s business model is now based on 10 months of usage.
Pilot Projects: Starting Lean, Learning Fast
SokoFresh is currently piloting three storage sites with three partners. These partners are tied to larger organisations, but following a successful validation, they have a roadmap to expand smallholders via working with other organisations. The end goal is reaching every smallholder that can be served with the current business model, maximising impact and accessibility.
“We’ve certainly experienced some of the challenges of working off-grid, but we’re optimistic that we can adapt our cold storage offering to provide more flexibility and be less reliant on ideal conditions.”
For 2021, they are planning to expand the pilot into new regions, to include farm-level value-add processing, and to develop a platform that will enable market linkage at scale.
“The demand for SokoFresh’s cold storage is there, and the early successes of our business model is very encouraging,” said Karema. In early pilots, they have been able to increase farmers’ income by up to 40%. “We hope to give smallholders ever-increasing access to cold storage, while drastically reducing logistics costs and food loss, and in the long-term, bring SokoFresh everywhere we can!”