Two weeks ago, we took a trip to Mau Narok (Kenya) to onboard truckers for a new client. The client’s aim is to move produce directly from farm to end buyer, eliminating all the middlemen. Mau Narok is a scenic and fertile part of Kenya, lush and home to many flower and produce growers. I find that local road trips are always good for buying rural produce which is usually multiples cheaper than in Nairobi, Kisumu, Mombasa and other major Kenyan towns. This time, I bought organic spinach at Ksh5 ($.05) a bunch; I typically buy the same for Ksh40 to Ksh50 ($0.4. to $0.50) in Nairobi. 1kg of farm fresh unshelled green peas cost me a total of Ksh35 per kilo ($0.35) in Mau Narok; in Nairobi, the same costs me Ksh180 per kilo ($1.80).
Sample costing structure of unshelled peas moved from Mau Narok to Nairobi (the customer wanted to move a different product; we have changed the detail for their privacy)
More explicitly, even if unshelled peas are bought at wholesale prices after sourcing from a farm in Mau Narok — meaning that harvest and aggregation fees are accounted for — it would cost Ksh 37.16 per kilo by the time it arrives in Nairobi (non-Senga transport prices would add 35 cents to 80 cents per kilo, on average, in this example). However, we pay about Ksh 142.84 more per kilo, greater than a 3.8X margin multiple, to vendors. What accounts for that? The price difference is mostly attributed to produce brokers and aggregators, transportation costs, transport brokers, and produce resellers.
This summarizes two of the key problems we observed in the market that drove us to start Senga. Two of the main reasons why goods prices are high in the local market – from produce to finished goods to manufactured products – are broker fees and transportation costs. Information asymmetry also plays a large part; it’s difficult to tell what is the correct or fair price for many goods and services since there’s little visibility across the value chain. In agriculture particularly, produce brokers reap most of the margins. In obtaining transportation service, brokers mark-up the already high transportation costs.
Senga is focused on an outcome in which truck transportation services are easier and cheaper to acquire so that any business can go directly to its sources and end customers. Shaving off a shilling or two per kilo may not sound like much; add streamlining the chain and the difference is significant. Consider that in the simple example above, the customer can save up to Ksh 8,500 per trip. At ten trips per week, that can add up to Ksh 85,000, with the cost savings shared across the chain, ultimately reducing the cost of doing business and consuming goods in Kenya and across Africa.
