Lower energy costs are expected to boost the income of 350,000 smallholder tea farmers. © Kenya Tea
Kenya’s tropical climate and volcanic red soil make it an ideal place to cultivate tea. That’s why, for over a century, tea has been a major cash crop and the leading foreign exchange earner for the country.
Investments in new technology can’t make Kenyan tea any tastier, but they can help boost production and farmers’ earnings—and these are the goals of a recent IFC investment to finance small hydropower plants along rivers close to growing areas.
Cutting the cost of power will result in significant savings for tea factories, increasing financial benefits to 350,000 smallholder tea farmers—while also reducing the industry’s carbon footprint.
The project is being developed by KTDA Power Company Limited, a wholly owned subsidiary of long-term IFC client Kenya Tea Development Agency Holding Limited (KTDA). KTDA produces 60 percent of Kenya’s tea and provides income for over 560,000 small farmers who are also shareholders.
The World Bank Group first recognized the potential of KTDA in the 1960s, when it provided funds to finance and establish nurseries and the sale of planting material to smallholders, field training and supervision, the operation of buying centers, and the development of roads.
Now, IFC is supporting the design, construction, operation, and maintenance of seven run-of-the-river small hydropower plants with a total installed capacity of 16 megawatts at various locations in Kenya. The plants will provide captive power generation for the factories of Kenya Tea, and any energy excess will be sold to state-owned Kenya Power and Lighting Company.
The hydropower plants will create more than 2,000 jobs during construction, which is expected to take two to three years. Once the plants are completed, they will add around 60 jobs to the local communities. In addition, the plants will remove over 50,000 tons of carbon from the atmosphere through reduced consumption of diesel and biomass for energy generation.
Because Africa’s power supply is unreliable, agricultural companies eyeing future returns are actively looking for ways to own captive power through renewable sources. IFC is helping Kenya’s tea industry do this now so the industry can continue to benefit smallholder farmers.
IFC’s $55 million syndicated loan will impact development at a significant scale. Since energy represents about 30 percent of factory production costs, lower processing costs will make KTDA more competitive, and increase tea prices paid to farmers (as these are linked to processing costs). The excess profit will also go to the farmers as dividends.
Our multipronged advisory program with KTDA was created to further enhance productivity and competitiveness among Kenya’s smallholder tea farmers. It offers soil testing, financial literacy training for farmers, and hydro engineering supervision of the project implementation.
Kenya’s community of tea farmers is firmly behind the small hydropower plants; the farmers themselves provided 35 percent equity, via green leaf delivery. Those involved believe it is the first initiative in the world in which a farmer-owned institution is undertaking a renewable energy project at this scale.
Upon completion, the project will demonstrate that such ventures among indigenous power project companies are feasible—possibly stimulating new investments in the area and deepening the renewable-energy market in Kenya. It also demonstrates our evolving, long-term commitment to KTDA, investing for more than five decades in an industry that benefits the people of Kenya and builds capacity and expertise among its citizens and business owners.
To learn more about IFC’s work in Agribusiness, visit: www.ifc.org/agribusiness.
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Published in November 2016