A report released by the United States Department of Agriculture (USDA) Foreign Agricultural Service reports that consumption of corn/ maize will surpass production creating a deficit that will have to be supplemented by importing grain. The country already imports maize to supplement its needs. The Minister of Agriculture attributes these low yields both to climate change and farmer’s reliance on rain instead irrigation. The Unga Group is one of Kenya’s largest flour mills. They source maize and wheat from farmers. With decrease in locally sourced maize yield, maize prices have continued to go up. Unga Group has responded by raising flour prices or limiting flour supply. As the largest flour mill in the country, what is their responsibility to ensure that they build a supply chain that does not have maize shortages?
80% of Kenyans live in rural areas and rely on agriculture either directly or indirectly as a source of livelihood. Agriculture accounts for 24% of the GDP and 19% of formal employment. Post-independence in 1963, Kenya’s maize yield steadily increased peaking in 1990 and has been on a steady decline since. The yield increase can be attributed to the adoption of hybrid maize seeds. However in recent years, yield has been decreasing even despite the fact that the amount of land farmed has increased. Kenyan farmers have been slow to adopt modern farming technologies specifically in relation to irrigation. Studies have shown that maize production has been negatively impacted by this climate change. Climate change has led to an increase in temperatures and decrease in rainfall. In a paper examining the economic impact of climate change on maize production, Lewis Wandaka has extrapolated that maize production could fall by 21% in 2100.
Unga group was formed in 1908. In 2000 U.S. based Seaboard Corporation bought 35% of the company. Unga had posted some years of losses. SOMC saw this as an opportunity to turn the company around by infusing capital and better technologies.
However, even with better technology, they still faced the issue of raw material shortage. Unga group is in a position where they can leverage their brand to encourage farmers to adopt advanced and sustainable farming practices. Through access to suppliers they can educate the rural farmers on the benefits of modern irrigation. To combat the issue of the farmers’ lack of capital, Unga can persuade the farmers to consolidate so that they can pull their resources together.
Companies like Unilever have begun to see the importance of a sustainable supply chain. They are investing 4.3 million pounds in this venture. They source a lot of their black tea from the Kericho farms located in Western Kenya. Apart from working with farmers on increase crop yields, they are also working on providing attractive compensation to the farmers. Younger rural farmers are increasingly abandoning farming to move to urban areas. Despite the initial high capital investment, Unilever is securing future tea supply.
In the same way, Unga can see this as an opportunity to improve their bottom line. Investing in maize farming will lead to higher maize yields and prevent the rise of maize prices. They also secure their future by ensuring that they have a constant raw material source.
The biggest hurdle I see here is that Kenyan companies do not have a huge focus on corporate sustainability efforts especially in the agribusiness and food and beverage sector. Sustainability is not viewed as a competitive advantage. If Unga group were to take this approach they would be leading the charge on changing corporate cultures across Kenya.