Impacts of COVID-19 on Kenyan horticultural SMEs – May 2020 survey

A COLEACP survey on the impacts of COVID-19 on companies’ operations in May shows that despite all the measures taken to cut costs and secure revenues, almost three-quarters of companies responding did not financially break even in May, an increase on 64% that failed to do so in April. Many companies will struggle to survive if this situation persists.

This survey, covering May 2020, was carried out among the 65 horticultural companies in Kenya that benefit from COLEACP’s technical assistance programmes. A total of 23 companies (35%) responded. This is the third survey in a series that started in March 2020. The objective is to gather first-hand information on the impact of the COVID-19 crisis on Kenyan operators of horticultural businesses, and assess how support from COLEACP and other partners could best be redirected as a response.

Regarding impacts on trade, the majority of respondents (65%) report impacts on French beans, followed by snow peas and sugar snaps. Avocado is mentioned by half of the companies, and to a lesser extent passion fruit (22%). The majority of negatively affected markets are in Europe, mainly the Netherlands, the UK and France. The impact on the Netherlands market (cited by 83% of respondents) has increased on March and April, which could be due to reduced logistical routes, or to the importance of avocado exports where the Netherlands are a hub for further distribution across the EU market. 26% of respondents also note a relatively high impact on Kenyan domestic markets.

52% of respondents state that they have not been able to honour existing contracts due to logistical challenges, compared with 46% in April and 79% in March. Orders from prospective clients reduced in May for 52% of respondents, and 70% have seen falling orders from existing clients. Disruptions to both local logistics and air freight have been a major bottleneck: 96% of respondents mention negative impacts of local measures such as curfews, checkpoints and exit passes. 70% of respondents mention that overall high cargo costs are having an impact on their operations, down from 92% for April.

52% of respondents say that market demand in May was reduced compared to April; a quarter mention demand being similar; and 21% see an improved market. Half of the respondents state that produce not exported is going to waste (including dumping and composting). And 57% highlight they are not buying from their suppliers as a result, pushing the losses along the value chain – a rise from one-third of respondents not buying from suppliers in April.

The total lost revenue due to the crisis for May, for 18 respondents, is estimated at 105 million KES (€900,000). Total combined losses for March (19 respondents), April (26 respondents) and May (23 respondents) add up to 612 million KES (€5.35 million).

Given the variance in company size, the median value provides the best representation of average lost revenue. Based on the three monthly surveys March–May, the median Kenyan SME has seen an estimated monthly loss of revenue of 5.5 million KES, or an accumulated direct loss of turnover of 15.5 million KES (€135,000) over the three months, not taking into account higher transaction costs or cargo costs. Importantly, this value remains stable over the three months.

In May, 45% of respondents reported having lost more than 50% of anticipated revenues, compared with two-thirds of respondents in March and April. In May half of the responding companies lost 25–49% of projected revenues. Half of respondents consider the prices they are fetching at the market to be lower than in May 2019; around one-third of respondents mention that prices are similar.

The majority (78%) of SMEs report that they are not receiving any support from their buyers to ease the impact of the crisis. Some companies mention receiving better payment terms (e.g. quicker payment turnaround), while only one company reported clients participating in increased cargo costs.

Importantly, only a small proportion of respondents have been able to develop alternative market channels for their produce: 18% are finding ways of processing existing fresh produce supplies, and 14% are selling more on domestic markets.

Based on the sales projections of exporting SMEs, Kenyan operators translate sales orders back into planting schemes for their suppliers. These are often small-scale farmers (outgrowers) who are grouped by location and grow a specific crop variety for an exporter. May saw respondents sourcing from only 2332 outgrowers, a 68% decrease on planned numbers, compared with a 71% decrease in April and a 48% decrease in March.

Most companies (74%) are not able to guarantee a market for their small-scale suppliers, and almost half of respondents are scaling down on new planting schedules (43%, compared to 55% in April), which will have an impact on future supply and missed revenue in the coming weeks/months. Around 26% of respondents report being unable to pay their outgrowers, who have no other options for selling their fresh produce. This apparent improvement on April (40%) may be because companies have already downscaled.

In May, employment was provided to 1594 casual workers, a reduction of 48% on planned numbers, a similar percentage to April and up on 40% in March. 17% of companies reported having all of their permanent employees working on a full-time basis (down from 40% in April); some SMEs are encouraging workers to take paid leave (30%) and unpaid leave (35%). Eight companies (35%) had cut wages to reduce costs, and 17% had to lay off permanent staff.

Most companies responding to the survey have taken measures to protect their workforce (74%), and 52% have had to change their daily operations to adapt to Covid-19 measures. One-third of respondents had implemented a business continuity plan; 22% and had sought financial assistance. Most respondents highlight that cashflow management and the lack of working capital are among the key financial challenges. In general, sales have plummeted while production costs have increased; transport costs have increased while staff working hours and productivity are reduced. This has an impact on meeting financial obligations to cover overhead costs (including staff), pay small-scale suppliers, and buy inputs for new production cycles. Challenges in covering commitments (repayments) to financial institutions are faced by 61%, compared with 69% and 42% in April and March, respectively.

One improvement is that 22% of respondents cited freight payments as a major challenge, down from 42% in April, which may be due to the reported lowering of airfreight costs for Kenyan fresh produce since early May.

Some companies are using the crisis as a way to drive efficiencies in processes; others are looking to diversify their business model, investigating local sales or value addition, seeking (financial) partnerships, and implementing financial planning and cost reduction measures. Six of 12 companies that responded to this question are benefiting from extensions to loan repayments; 42% have delayed payment of taxes and 33% delayed restitution of VAT.