The USAID Feed the Future Kenya Crops and Dairy Market Systems program (KCDMS) uses a market facilitation approach to strengthen systems for horticulture planting in Kenya. KCDMS targets high-value horticulture crops, which rely on quality, disease-free planting materials such as vine cuttings, seedlings, rootstock, scions, and tissue culture.

When KCDMS began in 2017, the demand for quality planting materials exceeded supply, presenting a business opportunity for entrepreneurs to invest in seedling nurseries. Increasing access to quality planting materials would also increase farmers’ productivity and enable them to sell to higher-value export markets. To ground our approach in evidence and ensure the sustainability of KCDMS interventions, we partnered with Kenyan seed sector consulting firm Agri Experience to assess the commercial viability of seedling nurseries as a business model.

The research revealed that seedling nurseries operate at profit margins of 10-40 percent and that several geographic areas within KCDMS focus counties lacked nurseries. Startup costs for new nurseries are relatively low, and the turnaround time to generate revenue is shorter than a full farming season. In addition, the assessment also showed several operating challenges for small and medium-sized nurseries that KCDMS would need to help its partners address, including the following:

• Walk-in business accounts for 80-90% of seedlings purchases. Advance orders are rare. This increases nurseries’ risks and negatively impacts margins because nurseries do not have an accurate estimate of how many seedlings they will be able to sell when they make planting decisions.
• Inspection and certification are required annually through Kenya Plant Health Inspectorate Service (KEPHIS). This process is costly if multiple inspections are required or if the regulation is weak and uncoordinated.
• Protecting seedlings from pests and disease is a key determinant of profit. Therefore, nursery operator technical knowledge and ability impact the profit margin. However, there is limited technical training available for nursery operators.

Based on the results of this research, KCDMS has co-invested in partnerships to expand seedling nurseries using several different business models.

4 Business Models to Expand Seedling Nurseries

1. Vertical Integration: Produce buyers (such as processors or exporters) establish commercial nurseries within their supply networks. For example, KCDMS is working with several partners who have established seedling nurseries in order to increase their supply of quality fruits including VegPro, Biofarms, and Goshen which, combined, have sold over 33,000 seedlings as of mid-2020.
2. Cooperative Nurseries: Cooperatives set up nurseries to avail farmer members with quality seedlings. Through KCDMS, Makueni County Fruit Processors Cooperative Society has established a certified nursery to propagate and supply mango seedlings to over 5,000 members. To date, they have sold 35,000 seedlings. KCDMS is also supporting banana cooperatives Luchendi Savings and Credit Cooperative (SACCO) and 3KM SACCO to scale up banana rapid multiplication centers and integrated ICT for efficient aggregation and farmer payment processes. 
3. Women and Youth Groups: Women and youth groups must be engaged to establish nurseries as a commercial enterprise. These groups sell seedlings to their communities to promote improved productivity and generate income. Bedie, a community-based organization, is establishing two mango seedling nurseries with a combined capacity of 30,000 seedlings, training youth and women to become nursery operators, and promoting mango production among the farmers in its community as an income-generating activity. KCDMS is providing technical support for Bedie to attain KEPHIS certification. In addition, Mumbuni Youth and Sports Group, which operates a small fruit tree nursery, is expanding its nursery capacity ten-fold, purchasing water storage equipment, receiving training on fruit tree husbandry and management and safe pesticide use, and obtaining KEPHIS certification through KCDMS support.
4. Satellite Nurseries: Coverage in target counties must be expanded by establishing satellite nurseries through mid-sized commercial nurseries. For example, Eskay Farm has partnered with KCDMS to facilitate expansion of two remote satellite nurseries with a total of 218,000 assorted seedlings of avocado (10,000), mangoes (8,000), and purple passion fruits (200,000), as well as technical training for nursery managers. Eskay has also adopted the eProd ICT platform both for training and seedling marketing.

KCDMS will continue to partner with county governments, KEPHIS, and the Kenya Agricultural & Livestock Research Organization (KALRO) to expand access to quality planting materials for horticultural crops by providing oversight, nursery certifications, and provision of primary planting materials for bulking by select producers. 

Diversification into high-value crops such as avocado and tree fruits represents an opportunity for subsistence farmers to sustainably increase their incomes. Addressing a key barrier to diversification — access to quality planting materials — through support to self-sustaining, private sector business models will have a lasting impact on both the market system and the livelihoods of farm households.