1 COOPERATIVE ASSESSMENT

Mang’u Progressive Dairy

27 MARCH TO 31 MARCH 2023, THIKA, KENYA

JAN VAN BEEKHUIZEN

WILFRED CHEPKWONY
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Agriterra
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6811 KD Arnhem
The Netherlands
T +31 26 44 55 445

agriterra@agriterra.org
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Rabobank Arnhem
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Foundation Agriterra
Chamber of Commerce
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Member of AgriCord

Data AgriStudies™

Author(s) : Wilfred Chepkwony and Jan van Beekhuizen

Title : Cooperative assessment Mang’u progressive dairy
Publisher : Agriterra
Number AgriStudies : [Number]
Country : Kenya
Category : [Category]

4
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CONTENTS

SUMMARY........................................................................... IV
Introduction.............................................................................................iv
Conclusions..............................................................................................iv
Recommendations....................................................................................v
Collaboration Agriterra.............................................................................v
1. INTRODUCTION AND HISTORY..............................................1
1.1 Introduction.......................................................................................1
1.2 Vision, mission, strategy....................................................................2
2 BUSINESS CASE...............................................................3
2.1 Value chain analysis...........................................................................3
2.2 Climate clever....................................................................................6
2.3 Future plans.......................................................................................7
2.4 Risks 7
2.5 Conclusions business case.................................................................7
3 FINANCE........................................................................8
3.1 Financial performance / Key performance indicators (annex 2).........8
3.2 Financial management health check (annex 3)..................................9
3.3 Capital structure..............................................................................10
3.4 Risks on financial sustainability.......................................................10
3.6 Conclusions finance..........................................................................10
4 GOVERNANCE AND MANAGEMENT............................12
4.1 Governance health check (see annex 4)...........................................12
4.2 Inclusiveness gender and youth (<35 years)...................................13
4.3 Human Resource Management (HRM)..............................................13
4.4 Management / board capacity..........................................................13
4.5 Management information.................................................................15
4.6 Willingness to change......................................................................15
4.7 Risks 15
4.8 Conclusions governance and management.......................................16
5 REPUTATION.................................................................17
5.1 Member commitment (see annex 5).................................................17
5.2 Stakeholder analysis / input...........................................................17
5.3 Risks 18
5.5 Conclusions reputation.....................................................................18
6 CONCLUSIONS AND RECOMMENDATIONS.............................20
6.1 Conclusions cooperative assessment...............................................20
6.2 Recommendations for the cooperative.............................................20
6.3 Conclusion collaboration Agriterra...................................................21
6.4 Recommendation collaboration Agriterra.........................................21
ANNEXES...........................................................................22

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List of tables

TABLE 1: TRACK RECORD..............................................................................................5

TABLE 2: KEY KPIS....................................................................................................9
TABLE 3: CAPITAL STRUCTURE......................................................................................10
TABLE 4: LIST OF BOARD MEMBERS................................................................................15
TABLE 5: SWOT ANALYSIS..........................................................................................20

List of figures

FIGURE 1: MANG'U HEAD OFFICE.....................................................................................1

FIGURE 2: ORGANOGRAM..............................................................................................2
FIGURE 3: MANG'U VALUE CHAIN.....................................................................................3
FIGURE 4: 5 PS OF MARKETING.......................................................................................4
FIGURE 5: FINANCIAL MANAGEMENT HEALTH CHECK...............................................................9
FIGURE 6: GOVERNANCE HEALTH CHECK...........................................................................12
FIGURE 7: STAKEHOLDER ANALYSIS................................................................................17

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About the authors

Jan van Beekhuizen has always been working in livestock. He started working
for a feed company. Then at Rabobank as a sectormanager on dairy markets and
succession. Today he runs his own consultancy on strategic advice for farmers and
agricultural companies. Besides that he is also a lector in Global Farming and farm
economics at Aeres University of Applied Science in Dronten (NL)

CPA Wilfred Chepkwony is an experienced and results driven program and project
management professional with more than 11 years’ experience delivering high
clients’ satisfaction in the agricultural cooperatives and agri-business space. He holds a
Mini-MBA in strategic management from Frankfurt school of finance and management as
well as an MBA in finance from Kenyatta university among other professional and
academic qualifications.

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SUMMARY
Introduction

Mang’u Progressive dairy is a cooperative founded in 2016 and based in Kiambu county,
just north of Nairobi, Kenya. The core business of Mang’u is to collect milk from their
members in Kiambu county. The milk is collected in cans from the farmers to one of the
five collection centres in the region and stored in coolers of different capacities. The
collection and transport were carried out by contracted transporters.

At the time of the assessment, the dairy cooperative sold milk in raw form to three main
processors, Daima being their biggest off-taker. The determining factor on who got the
milk was the price. The cooperative has performed well in the last years with growing milk
deliveries from the farmers at a compounded average growth rate of 85% between 2020
and 2022. Their financial results were equally good and the total number of memberships
has been growing very fast, from 930 in 2019 up to 2340 in 2022. Members were full of
praise on their cooperative, they displayed good trust in their cooperative. The payments
were done in timely manner and the milk price was equally competitive when compared to
other dairy cooperatives in the region. Besides that, farmers had the possibility of buying
feed for their cows on credit base, based on their milk production.

The organization structure for the cooperative was clear and good. The management of
the cooperative had the lead over the daily processes and the whole organization. The
general manager had been working there for 7 years. There was an elected board by the
AGM. This board consisted of a management committee and a supervisory board. They all
cooperated in conformity with the guidelines written in the by-laws and the code of ethics.

Conclusions

 Strong growth over the past 3-4 years

 The future prospects appear solid if the same pace of
growth is maintained
 The board had many wishes/ambitions; they will need to
prioritize and focus on the core business
BUSINESS CASE  Milk cooling constraints were needed to be addressed
 Presence of committed and loyal farmers who wanted to
even grow further
 Price appeared to be the key decision maker for farmers
 Extension department was still young; it needed more
support for it to function well.

FINANCE  Financial management structures appeared strong

 Automation had just begun being implemented
 Cashflow projections needed to be prepared on monthly
basis
 An annual training calendar for staff & board needed to be
developed
 Bank and cash-count reconciliation needed to be done on
monthly basis
 Budget monitoring reports needed to be prepared on

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monthly basis
 Development of the missing organisational manuals/policies
were also very important documents to be prepared.

 Generally, the governance structures were strong

 Tasks between board and management were clear
 By laws and code of Ethics were respected
GOVERNANCE &
 What was not clear was the independence of supervisory
MANAGEMENT
board
 Involvement of youth was a challenge
 Succession in the board needed to be addressed

 Other organizations and key stakeholders were positive

about the dairy cooperative
 Farmers/members were in general very satisfied
 The positivity was about investments in pasteurization and
feed supply
REPUTATION
 Farmers were critical about the actual milk price
 Trainings were appreciated but were limited in availability
and very ad hoc
 Feed & fodder supply were really an issue, but collaboration
might be a chance in addressing the issues identified

Recommendations

 The board was advised not to be a victim of their own success

 There were many plans/wishes; Mang’u was therefore advised to prioritise and
focus on the core business which was dairy.
 Feed-mill and any other non-core business should be deferred and focus directed
on realising pasteurisation
 As a matter of urgency, cooling capacity needed to be enhanced to meet the then
supply of close to 30000L per day.
 Fast-tracking of the issuance of title deed needed to be prioritised as well for it to
assist in realising the ambitions of the cooperative
 Support the extension department to function well through adequate budgetary
support. Ensure its plans were executed

Collaboration Agriterra

Due to the findings of this assessment, the assessment team concluded that there was
enough base for supporting Mang’u Progressive Dairy. In fact, this could already start in
the year 2023. During the first year of collaboration, it is advised that key priorities must
be agreed upon for the collaboration to succeed in future. The main reasons for the
positive advice was due to the strong organisation of the cooperative as well as the
SMART-ness of their ambitions.

The proposed Key priorities for support were:

 Development of a clear business plan

 Strengthening of the extension services
 Support in mobilising capital (both internally and externally)
 Strengthening of governance and financial management

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 Succession planning of the board
 Prioritising on strategic steps to be made. Not all in one time

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1. INTRODUCTION AND
HISTORY
1.1 Introduction

Mang’u progressive dairy was inaugurated and officially registered on 28 th September 2016.
However, it was started
way back in 2014
where it emanated from
a community forum.
This forum had been
formed for the social
development of
Gatandu North Sub
County. On the first day
of starting the
cooperative, there were
22 members who
delivered the raw milk
which has grown rapidly
to 930 members in 2019 alll the way to 2340 in 2022. At the same time, milk has grown
1500 litres of milk up to 9.6 million litres annually in 2022.
Figure 1: Mang'u head office
As pointed out above,
the cooperative is a registered farmers’ co-operative operating in Gatundu North Sub
County, covering Mangu, Chania, Githobokoni and Gituamba Wards. The producer
organisation’s (PO) main factory is situated in Mitero shopping centre in Mang’u Ward. The
main activities include milk collection, grading, bulking, chilling and marketing on behalf of
the society members.

The PO has five active milk cooling centres with a total capacity of 16,800 litres. The
society was at the time of the assessment aggregating an average of 29,000 litres of milk
every day from 2340 active members. The main buyer was Devyani Food Industries (k) Ltd
(Daima) who offtakes 80% of the marketed volumes. The other buyers are Gemija
Agencies, local traders and schools.

In addition to extension services, collecting milk on time and paying a good and
competitive, the cooperative also provided their members with an option to buy feed for
the cows on credit. This was organised together with a list of stockists from within their
catchment area. via a feed company.

Kenya has a strong dairy culture. According to FAO, Kenya is producing an average of 5.3
billion kg annually which puts the country among the biggest dairy producer in Africa.
Kenya also has a strong dairy consumption culture. This means that when you were close
to urban areas it must be quite easy to bring this product to consumers. But there were
also big companies, like Brookside dairy, who already had big share of the dairy markets
within the region.

Mang’u Progressive Dairy is active in the dairy value chain. They don’t process their
members’ milk, yet, but sell it directly to processors. This meant that the quality of the milk
must be good and that the process from production to delivery must be efficient and quality
must be guaranteed.

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In the recent past, especially from the year 2022, the Cooperative has had constraints in
their cooling capacity where they have been receiving more raw milk than the available
cooling capacity. This was a serious constraint that was identified that has had the effective
of limiting further rapid growth and could translate to post-harvest losses if not well
managed. The dairy cooperative should therefore treat this situation urgent and work
towards expanding their cold storage before they could even move to pasteurising their
milk. Once these cooling constraints are addressed, the next step will be to pasteurize the
milk and sell this for consumption or further processing. Thereafter, further value-addition
could in form of making yoghurt, butter or even cheese.

The structure of the organization was as follows:

Figure 2: Organogram

1.2 Vision, mission, strategy

Mang’u Progressive Dairy demonstrated a clear background of why they are doing what
they do. This clarity was captured well in their vision which was:

“To be the leading and preferred dairy value chain marketing cooperative in
Kiambu county.”

And their mission was drafted as follows:

“To empower our members through provision of linkages to value added support
services, efficient and effective milk aggregation systems, quality assurance,
production of diversified value-added milk products and enhance access to
profitable and sustainable markets.”

This was to be achieved by being clear on what farmers can expect form the cooperative.
Farmers got good services from the cooperative, a competitive milk price and timely
payment. On the other hand, it is the expectation from the cooperative that farmers will
deliver good quality milk, which will be controlled by the field officers at every milk
collection point. This was how the cooperative could guarantee this quality to their buyers.

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2 BUSINESS CASE
This chapter explores the business case of the organisation, starting with a description of
the business value chain divided into input / supply, production farmers, supply to
cooperative, collection/processing and market. During various meetings with key staff,
board members and stakeholders the current and the future business case is explored, as
well as the main challenges faced and risks identified.

2.1 Value chain analysis

The core business of Mang’u was very basic and practical. As explained above at the
introduction, it was about raw milk collection, bulking, cooling and selling it to major milk
processors.

Therefore, the value chain begins where Farmers produce milk with own grown fodder, like
maize stocks and napier grass. The farmers also used other feed inputs such as Maize
stalks, cotton seed. sunflower cake and other feed premixes. Raw milk was collected by
trucks which were outsourced to four main zones and in some instances, they were brought
directly by cans are to the collection centres. At the collection centres the milk was bulked
together, cooled and from there sold to milk processors; the biggest purchaser being
Daima.

Dairy processers make other products out of milk. The top 5 milk processors in Kenya are:
Brookside diary, New KCC, Fresha, Meru central Dairy and Daima.

Figure 3: Mang'u Value chain

Flow of goods
For milk production, farmers of Mang’u relied on diverse inputs, which included:
 Concentrates and feed premixes like dairy meal, maize germ, wheat bran,
cotton-seed and sunflower cake. These feeds were provided to members on
check-off system and provided through a chain of accredited private input
suppliers. Access to high protein ingredients was hard.
 Members made use of Tai Sacco to access finance to buy feed in some
instances or even to invest in their livestock
 AI-services were Mostly provided by veterinarians, or private organizations.
Mang’u facilitated this by provision of straws and paying service providers in
advance, but did not organize it.
 Health care was done by local veterinarians
 Seed, pesticides, fertilizer was equally arranged through the accredited local

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traders/suppliers

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 Members of Mang’u dairy practice zero grazing owing to smaller pieces of
land.
 The average farmer had 3 cows and produces a total of 12 liters a day. Out
of this, members were delivering an average of 9.6L/day
 The diversity within the members ranged from 3 to 15 cows per farmer.

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 Members had to deliver all the produced milk to the cooperative, except a
little that remained for home consumption to the cooperative
 The average delivery was 9.6 liters of milk per day per member
 Incentives for farmers to supply was the good milk price, prompt payment
and controlled quality
 Competitors were local traders/brokers and Brookside Dairy
 Approximately 10% of the production was used for home consumption

 Storage capacity per day in total was 16,800 litres divided over 5 collection
centers. The average delivery at the time of the assessment was 29,000
litres daily.
 The cooperative collected the milk, bulked it and chilled before the off-taker
could come for it. No further value addition was carried out
 However, the cooperative had future plans for pasteurizing milk
 Globally, there is a growing demand for dairy products mainly due to growth
of population, growing average income and the growing per capita
consumption of dairy products.
 Mang’u is located close to Thika town that has approximately 300.000
citizens and Nairobi was also nearby (1-hour driving) that provides a huge
market for their products.
 Mang’u key client was Devyani Foods (Daima) off-taking more than 80%
and the other local traders and schools taking up the remainder.

Marketing

At the time of the cooperative assessment there was no clear marketing plan,
understandably so as it was
not really necessary.
Mang’u was still a raw-milk
trader with good access to
off-takers. The quality of
the milk could be
guaranteed and the
deliveries were in time.

Marketing also goes

backwards in the value
chain. This means that the
relationship with the
members was a point of
attention. The most
important things for
members were a good milk
price and prompt payment
which was realized then.
However, a good
relationship with members
asks also good services, like regular trainings.

Members equally demanded good quality feeds as well as access to affordable finance. But
the question that remained was if it was possible to realize this on short term.

Figure 4: 5 Ps of marketing

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In future when Mang’u wants to invest in pasteurizing the five P’s of marketing has to be
worked out. It might be clear what product will be produced. But to be able to sell this it has
to be clear what price will be used to penetrate the market then and still remain profitable.

The cooperative will also have to identify their target market and consumers. Will Thika be a
logical market or will Nairobi be considered? These will be the questions to be answered
then.

Product attributes will also need to be addressed then; will Mang’u sell only pasteurised milk
or will they also produce high value products. Therefore, the discussion on the 5Ps of
marketing was deferred.

Track record

Dairy production 2020 2021 2022 2023(BUDGE

T)

Quantity produced 3,850,000 9,000,000 12,500,000 14,235,000

by members

Quantity bought by 2,967,375 6,969,586 9,634,815 10,950,000

cooperative from
members and sold

Key buyers

% bought by buyer 20% 80% 90% 90%

Daima

% bought by buyer 80% 20% 0% 0%

Brookside

% bought by buyer 10% 10%

Other

Table 1: Track record

As noted in the earlier sections, majority of the raw milk was sold to Daima, which
processes the milk to diverse dairy products. Previously the milk had been sold to
Brookside in 2021 and earlier years, which was and still is a big player in the dairy industry
of Kenya.

Brookside was also competing with Mang’u dairy for raw milk as it had set up milk
collection centres within the catchment area of Mang’u dairy and were even stimulating
farmers to start delivering milk to them instead of Mang’u. So, they had become a serious
competitor. While Mang’u wanted to invest in dairy processing, this also might become an
issue in the future with Daima.

During the assessment though, the collaboration with Daima was good. The payments were
done in a timely manner and they even negotiated for price on monthly basis depending on

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demand and supply. This made it possible for Mang’u to realize prompt payments to their
members.

Conclusions of the value chain analysis

The dairy value chain that Mang’u participated in was fairly organised from the input supply
side all the way to the market with also good flow of information along the chain. The
needed goods and services were all offered to the members of the cooperative even though
not all accessed them due to some members un-able to afford them. However, generally,
Mang’u had managed to organise the chain well.

The cooperative also saw more opportunities in the value chain as they have plans to invest
in a pasteurizer so they can sell processed milk and other products for consumption. The
cooperative was very positive about this possibility as they rightfully expected that the
market would be easy to access.

Mang’u had other thoughts that would support their dairy value chain as they saw
possibilities in starting up a Sacco to offer access to affordable credit for their members
which could help them in developing their farms. In addition, they also saw possibilities in
starting up a feed-mill as there was a huge demand for concentrates, but ingredients were
hard to access.

The only constraint that was facing the dairy cooperative at the time of the assessment in
the value chain was the limited cooling capacity that needed to be upgraded as soon as
possible.

2.2 Climate clever

Climate clever cooperatives are cooperatives that are resilient to the impacts of climate
change, reduce their negative impact wherever possible, and increase their productivity in
a sustainable way.

2.2.1. Build resilience to the impacts of climate change (adaptation)

Mang’u dairy has experienced the effects of climate change over the recent years even
though their productivity has been rising. The effects of climate change have been felt on
the scarcely available feeds and fodder and whenever available, the price has been
exorbitant. Therefore, there is some good level of awareness of climate change among
the farmers and board members.

In-order to address these climatic changes, farmers needs to be supported to be able to

adapt to these changes by building resilience. This will be through procurement of
drought resistant fodder crops, supplying the right fertilisers and other inputs as well as
offering training to farmers on how to adapt to the new erratic weather patterns.

2.2.2. Minimize negative impacts on the environment (mitigation)

The other way of addressing the negative impacts of climate change on the environment
will be to inculcate the mitigation measures which are oftenly long term in nature. On

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this, the cooperative needed to see how to train their members on avoiding deforestation
and practice afforestation through increased efforts on tree planting.

The other bit will be on addressing soil health by first getting the soil tested and then
working on restoring the soil health. At the factory, the cooperative had been advised to
adopt Solar and other green energy sources to power their operations.

In the medium term, the dairy cooperative may need to have a policy on Climatic risks
that will be a guiding document on climate risk mitigation.

2.2.3. Knowledge

During the time of the assessment, the training and extension services offered to the
farmers were more on increasing productivity and general animal husbandry with a view
to growing their dairy business. Climate related topics hardly featured in the delivery of
the extension services to members.

Climate change awareness was there among the membership as well as among the
leadership at the cooperative level. Though, the cooperative did not yet have access to
deliberate climate smart agro-practical knowledge, ICT tools, climate smart financing nor
programmes. This was part of the recommendation provided to them when they were
asked to strengthen the delivery of the extension services.

2.3 Future plans

The Cooperative had a very clear, ambitious and realistic BHAG, where they intended to
start pasteurising their own milk before the end of the year 2024. The strategic plan in
place supported this ambition so did all the stakeholders the mission team spoke to. This
unified vision from all the key stakeholders coupled with the high growth of milk deliveries
in past three years made the said ambition realistic.

As indicated above, the basic ingredients to achieve this ambition were there; i.e growth in
raw milk, will-power from the all stakeholders, staff and board, the available factory
building and most importantly ready and willing farmers. However, what was lacking to
support this ambition was the business plan & the current constraints on the cooling
capacity

Therefore, to ensure that these future plans are realised the following building blocks must
be put in place:
Increasing the cooling capacity to at least 30,000L before the end of 2023
Intensifying the delivery of the extension work to ensure continued growth of milk deliveries.
Focusing on increasing productivity per farmer
Developing a business plan
Fast-tracking the issuance of title deed
Fast-tracking the software installation
Sourcing for capital (internally and/or externally)
Continuous professionalisation of the board and staff

2.4 Risks

The following are the three main risks found in the current and future business case of the
cooperative including the mitigating measures:

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1. Inadequate cooling capacity- As the dairy cooperative aspires to grow their
raw milk deliveries from their farmers it faces a huge constraint to this
growth on the inadequate cooling capacity which if not addressed will be a
huge catastrophe. Therefore, to address this, the cooperative was in the
process of writing to National Agriculture Rural Inclusive Growth Project
(NARIGP) to see whether they could get a grant to finance more cooling
capacity. However, if this will not materialise then the cooperative will have
to invest on it themselves.

2. Climate Risks – Climate change is real. This has occasioned erratic weather
patterns that pose an enormous danger to feeds and fodder availability and thus
will affect milk productivity. If not mitigated, the cooperative’s going concern will be
endangered. To address this, a clear organization’s climate policy should be
developed. The dairy cooperative will also need to lead campaigns of asking their
member farmers to plant trees as one of the ways of mitigating climate change.
Farmers will need to practice mitigation measures as espoused by the government
of Kenya.

3. Investing without a clear business plan. It was found out that many
investments that Mang’u have undertook in the past were done without
business plans. Though, they have been largely successful, they do not
underscore the importance of drafting business plans. In fact, as they plan
to invest in milk pasteurisation, they will need to draft a bankable business
plan.

2.5 Conclusions business case

Mang’u progressive dairy demonstrated a unified vision towards the strategic ambitions
of the dairy cooperative. This unity was equally shared by all the key stakeholders that
were interviewed. The cooperative has had a strong growth over the past 3-4 years and
based on this growth, the future prospects appeared not only solid but realistic and
feasible as well.

Though, the board had many wishes and ambitions, with prioritisation and focus on the
core business they will be able to realise their BHAG. In order to realise stated BHAG,
the huge constraint in the milk cooling chain will have to be addressed as clearly
espoused in the earlier sections. And to ensure consistent supply of the raw milk from
farmers, extension services will have to go hand in hand with a competitive price as
well as continuous timely payments.

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3 FINANCE
This chapter aims to provide a detailed overview of the financial robustness of the
cooperative showing the actual performance of the business and the health of the
organisation’s financial management (financial health check). Further, this chapter looks
into the historical and current loan agreements, as well as the way the organisation builds
its own institutional capital and what the finance requirements are to realise the goals
defined. At the end of this chapter conclusions will be drawn on the risks related to finance
and the financial sustainability of the cooperative.

3.1 Financial performance / Key performance indicators (annex 2)

Year: 2021 2022

Type ratio
Liquidity Quick ratio (Acid ratio) 105% 71%
Activity Increase total assets - 46%
Solvency Increase own equity - 46%
Solvency Debt ratio 36% 50%
Solvency Increase in long term liabilities - -
Solvency Interest coverage ratio 500% 782%
Profitability Return on equity 25% 88%
Profitability Return on assets 3% 10%
Activity Receivables turnover 9.9 13.4
Activity Payables turnover 13.8 20.9
Table 2: Key KPIs

Liquidity

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As depicted above, the dairy cooperative showed healthier liquidity position even though
the acid test ratio went down in 2022 compared to 2021. This was due to the fact that
capitalised dividends were treated as payables.

Solvency

The dairy cooperative did not have any long-term loans and never had. As shown by table
2 above, the indicated debt ratio was that of the current liabilities which was still okay.

Profitability

Mangu’s profitability has been growing in the recent past with net margin growing by more
than 406% between 2021 and 2022. Return on assets as well as return on equity also
posted some healthy and growing returns between the two years indicated above.

3.2 Financial management health check (annex 3)

The financial health check carried out was meant to help assess the health of the
cooperative’s financial management. It was designed to be administered so that the areas
of improvements would be identified.

After conducting the financial management

health check, the team realised that the
Financial
1 - Governance dairy cooperative had fairly strong financial
Healthcheck management structures in place. They had
100
a full time accountant in their ranks, a
manager and were actually in the process
5 - System of Internal Controls and Auditing 50 2 - Planning & Budgeting of installing an enterprise resource planning
(ERP) system.
0

The figure 5 above clearly shows that

financial structures within Mang’u were
basically above 80% in all the five areas
4 - Financial reporting 3 - Accounting Procedures and Records
assessed. For them to grow to 100% in all
these areas, there are some improvements
that needs to be carried out, which includes the following among others:

 That cashflow projections needs to be prepared monthly basis

Figure 5: Financial Management health check

 That an annual training
calendar for staff & board needs to be crafted
 That bank and cash-count reconciliation needs to be done on monthly basis
 That budget monitoring reports needs to be prepared on monthly basis
 That the missing organisational manuals/policies needs to be developed

3.3 Capital structure

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As indicated by the KPIs above, the capital structure of Mang’u progressive dairy was made
up of purely internal sources as the organisation has basically been financed by members
and few grants in the past. For 2021 and 2022, it looked as follows:

2021 2022

Equity Ksh Ksh

Members equity (own equity, share capital) 5,434,849 7,921,616

Accumulated results 3,294,841 3,310,781

Reserves 22,932,843 24,674,328

Total Equity 31,662,533 35,906,725

Table 3: Capital Structure

The increase on members capital was basically due to the share capital raised by new
members joining the cooperative. The by-laws of the cooperative indicate that any new
member has to pay registration fees and share capital for them to be regarded as fully paid
up members. Going forward, the cooperative will have to intensify internal capital
mechanisms for them to raise more capital.

Though the cooperative did not have a dividend policy, in 2022, they managed to capital a
big chunk of their profits of upto Ksh 6,950,000.

Additionally, and as indicated above, the cooperative had not been financed before with
external loans nor capital grants.

3.4 Risks on financial sustainability

Financial sustainability is very important for the Cooperative without which her going
concern will be seriously threatened. Therefore, for Mang’u to assure its financial
sustainability and going concern, the following key risks will have to be addressed:

1. Inadequate cooling capacity- As captured in the earlier sections of this report, the
cooperative will have to address this as soon as possible for them to ensure that they
can consistently receive raw milk from their members. As they work on realising the
support from NARIGP, they will also need to look at their own internal sources and/or
even talk to other external financiers.

2. Getting access to title deed. Title deed is a very important document that the
cooperative should work hard to get hold of it before further investments are made at
their land where the head quarters is situated. Without the title securing external
finance from banks and even grants finance becomes a problem as is the case with
NARIGP.

3. Fierce competition from brokers, brookside and other players. Mang’u will continue to
face competition from the dairy industry players who are at the downstream side of the
value chain and they will have to up their game in order to retain their competitive
advantage with their members.

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3.6 Conclusions finance

Mang’u progressive dairy proofed to be a strong cooperative. The financial management

structures within the cooperative were satisfactory as shown by the health check carried
out. The key performance indicators also depicted a fast-growing cooperative regarding
profitability as well as in assets.

With the realistic plans that Mang’u has and the zero financial leverage and gearing the
future appear very bright and prosperous. They will need to plan well and document their
plans inform of a business plan and go for their BHAG.

The dairy cooperative’s mentality has to change from always thinking about grants and
start thinking about building their business with either loans and/or their own internal
capital from their members. They need to start investing on their own so that they can
accelerate the rate of investment and be in control.

The risks identified were moderately likely to occur, however, with the proposed mitigating
measures, they can be contained by Mang’u.

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4 GOVERNANCE AND

MANAGEMENT
This chapter aims to give an insight in the health of the cooperative’s governance, human
resource management, capacity of management and board and the willingness to change
within the cooperative. At the end of this chapter the risks related to governance and
management will be identified and overall conclusions on these topics will be drawn.

4.1 Governance health check (see annex 4)

The governance within Mang’u appeared to be well organized. The board, supervisory board
and management worked well together and tasks were well divided. It was evident that
members had the trust in their cooperative. This was an important base for future
development. The by-laws and the code of ethics were respected, followed and adhered to.

Though, governance appeared fine as pointed out in the paragraph above, there were some
points of interest to
mention. During the
discussions and
meetings, it was not
clear how independent
the supervisory board
was regarding the
working relationship
with the management
board. Independence of
the supervisory board
was very important
because this board
ensures that the
internal control system
remained strong. It was
important therefore for
the mission team to
check and ensure that
they worked without
undue influence.

The other point of attention was on the succession of the board as during the assessment,
though the board was
Figure 6: Governance health check functioning well, there
was no youth at the board level and majority of the board members were not getting any
younger. At some point they will have to be replaced. It was understood that in the last
elections, members persuaded the chairman to continue, which was good. However, this

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begged the question, who was going to succeed him? The cooperative needs to answer this
question as soon as possible and at start mentoring a trust-worthy successor.

The involvement of youth within the cooperative’s board was an issue as highlighted above.
This problem permeated the entire organisation as fewer members of Mang’u were young
farmers. Young people seemed hard to find in farming. Succession in farming
understandably proofed to be difficult as it was a challenge getting youngsters to continue
in the family farm.

Although farming and food supply in general will be very important for the future and in
fact projections suggests that there was a great future ahead for people who were in food
production. The challenge was then how to make farming attractive for the young people
even though they have lived seeing their parents struggling and working hard in their farms
little to show for their handwork and struggle. To address this, the cooperative needed to
develop a program that would attract young people to start farming but doing this
differently compared to their parents. For this, a strong extension department will be
essential.

Generally, it can be concluded that the governance base was there though some few issues
highlighted above needed to be worked out. An important observation was that, even
though, management, staff and board cooperated well together, important procedures
were not elaborated/put on paper. Most operations were based on trust and undefined
procedures. By elaborating procedures, it will be clear for future employees and board
members how to continue running this good organization well.

4.2 Inclusiveness gender and youth (<35 years)

Inclusion of gender and youth was formalised in statutes and regulations, however, it
seemed hard to practically implement it. During the time of the assessment, there were 2
women in the board out of the 12 board members (both management and supervisory
board) even though 50% of the members were women. This therefore proved that there
was disproportionate representation of women at the leadership level. This was a point of
attention for upcoming elections.

There was no youth council neither was there any youth represented in the board. This was
also another issue that needed attention not only at the board level but also at the broader
perspective from the farm level.

The cooperative leaders realised that there was need to change the situation and although
they did not have a laid down strategy on how they could do this, they recognised the fact
that they will need to do intensive campaigns and trainings on youth and women
empowerment.

4.3 Human Resource Management (HRM)

The cooperative did not have HR department. HR matters were handled by a staff sub-
committee of the board together with the CEO. Because of lack of HR department, the HR
systems were not properly organised as most of the HR decisions were only subjective.
There was no performance management system neither were there any guiding HR policies
or personal development plans.

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Due to lack of proper HR management practices, the staff had received limited trainings in
the last few years to help them improve their skills at work. And, since there was a new
program for finance being installed, the staff needed to get used to it and know how to
make fully advantage of it. This could only happen through structured trainings.

Overall, the staff members in the cooperative came out as knowledgeable and capable. The
manager had a positive influence on the organization and gave a good drive and leadership
to his fellow staff. There was need for more exposure to the other staff so that they could
show more ownership within the cooperative.

4.4 Management / board capacity

(See annex 1 Cooperative profile for overview staff and Board)

Profile manager

Bernard Waweru Mugumo has been the manager pf Mang’u progressive dairy cooperative
since 2016. Basically, he has been a manager since the inception of the cooperative. He
has a bachelor’s degree in management and business administration and within the
cooperative he was a driving force behind the success of the cooperative.

The manager has achieved a lot since the start the organisation as he has modelled it into
a well-structured and run cooperative society, a model in Gatundu North Sub-county.

With the capacity of this manager, the trust and support of his other staff and fully
functional ERP system, the cooperative society will be able to achieve their ambitions.

Overally, the manager has done very well and will be essential to lead the cooperative
further in its development.

Profile key staff

Generally, the conclusion was that the other staff members of Mang’u were doing a good
job. Actually, the manager’s brilliance was due to the good support from his staff. To
ensure full functionality of the system, these staff members needed to be trained in order
to make fully use of the possibilities of the then on-going automation.

On part of the staff that needed to be developed more, the extension work took centre
stage as it had to be developed further. The field officer seemed capable of doing the job,
but she could not as she wasn’t facilitated.

Profile of the Board

The board looked very experienced in doing their job. There was a diversity of backgrounds
within the board, but this could be optimised further by co-opting special knowledge from
new board members as some of them were there for a long time already due to the huge
trust members have on them. In fact, most of them have been there since the start of this
cooperative.

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Management and board cooperated well. Meetings were planned and scheduled on a
regular basis. Though, it was not very clear how independent the supervisory board was,
they were advised to always strive for their independence and strive to be custodians of the
internal control system.

COMPOSITION OF THE BOARD

Function Name Qualifications Board member

since

Chairman Daniel Ngure Kabubi Retired inspector 2016

Vice chairman Elijah KIbebe Njore PI (retired) 2016

Secretary Peter Kaguthi Komu KCSE 2016

Treasurer Magdaline Wachuka PI (retired) 2016

N.

Member Phyllis Wanjiku G KCSE 2016

Member James Gachanja Research officer Animal 2022

Ngugi production

Member Peter Gichuche M. KCSE 2022

Member Michael Kamau N. KCSE 2022

SUPERVISORY COMMITTEE

Chairman Francis Ndungu Thuo PI Techer 2016

Secretary Saraphine Njoki M. Diploma in community 2016

development

Supervisory Anthony Matheri M KCSE 2022

board member
Table 4: List of board members

4.5 Management information

Cooperative

Management information could be used more on a daily basis. The necessary information
was delivered in time. But was mostly used to inform diverse bodies afterwards. This
information seemed to be correct but it could be used much more efficiently. KPI’s were
defined and afterwards tracked.

As the assessment was being conducted, there’s a new management system that ws being
installed which will make reporting to be automatic. By using this system well, budgets will
be better monitored and decisions taken swiftly. It would be necessary to follow a training
to use the ICT facilities completely.

Members

There was a clear membership registration system that worked well. The information from
members was collected based no their deliveries of milk. However, additional information

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on members’ personal details was usually taken during registration and kept at the central
members registry which was going to be enhanced by the new ERP system.

4.6 Willingness to change

Two and a half years ago a new strategic plan had been developed. This plan had captured
that the organization had to be restructured and that more collection centres had to be
developed. In addition, the plan also contained aspirations to invest in pasteurizing milk.
This strategic plan makes clear that board and management were willing to develop the
cooperative. They don’t only want to keep what they have.

The assessment also concluded that board and management were open for
recommendations made by experts and they were therefore willing to change.

At this moment the internal organization already had been changed. New collection centres
had been developed. However, there a clear evaluation of the strategic plan had not been
carried out and extra cooling capacity was needed to keep up with the growing milk flow.

Most difficult issue was how to develop the cooperative further. It seemed that the
management was trying to find donors for their investment though the cooperative was
strong enough to realize this by themselves. The time therefore was then and now to
demonstrate that willingness to change and look into realising the said plans by
themselves.

4.7 Risks

On governance, the following risks were identified:

1. Succession within the board

This can be mitigated by educating and training new potential leaders. Awareness was
needed as a first step, but then action had to be taken too.

2. Procedures were not on paper, but in the head of staff and employees.

This needed to be mitigated by Capturing these procedures on paper and ensuring that
everyone had knew about them.

3. Involvement of youth

A plan should be made that would entice the youngsters for farming and find young
people who are already enthusiastic. This can be done by the extension office. A plan
was therefore need to stimulate them into farming.

4.8 Conclusions governance and management

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Mang’u Progressive Dairy appeared to have good governance structures and
practices. The organisation had strong leadership and there was a very good
collaboration between the board and management.

Separation of duties and tasks between the two levels of governance were not
always clear as captured in the earlier section of this report. Proposal for
improvement have been made to bring the organisation to a higher level.

Succession at the board level, gender inclusivity at the board level and stimulating
the youth was a clear challenge for the cooperative.

The biggest threat to the cooperative was getting complacent due to the
successful development of the past years and the praise from all stakeholders and
members were very positive about the board. This was good to hear coupled up
with the fact that there was no sign of things that went wrong. But because of this
it looked like the board and staff had lost their sharpness. They needed that
business-driven attitude to start developing the cooperative on a more
entrepreneurial base which will then help them to regain the lost sharpness.

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5 REPUTATION
The reputation of the cooperative has been analysed based on discussions with members,
buyers / suppliers, financial institutions, and possible other stakeholders.

5.1 Member commitment (see annex 5)

The most important reasons that farmers became members started with the possibility for
joint marketing of their produce collectively with other members, the good milk price and
prompt payments they got from the cooperative. Many farmers had the experience that
they had been treated badly by brokers and informal traders. They demonstrated very
much faith and trust in Mang’u, their management and the board. They felt like being
treated very well by the cooperative.

The members appreciated the cooperatives services that were offered to them; Marketing
of their milk. Payments were on time and the milk prices were competitive. Although some
members were still critical on the price given also the rising cost of inputs. Brookside was
at the same time on they neck trying to entice their lead farmers.

Members were equally positive about the products that farmers were able to purchase on
credit. The cooperative held regular meetings and members were able to give their input
and feedback. They however would like the cooperative to improve in the following areas;

 Trainings and extension office could be more supportive.

 Invest in pasteurizing in order to improve milk price.
 Feed supply needed to be improved in the area. Mang’u could play a role on
this.

There was only one Extension staff responsible for the more than 2300 farmers. She held
trainings with farmers at the collection centres and was only able to do this on adhoc basis.
She does not go out to the field to visit farmers as she was not facilitated to do this even
though she wanted to. This should be improved and facilitated. More extension staff were
needed to be deployed to the cooperative to support the farmers as frequent as possible.

5.2 Stakeholder analysis / input

Suppliers
Sub county
cooperative
officer Generally, suppliers were
very content with the
Farmers/ collaboration with Mang’u
members Tai progressive dairy as they
Sacco
good to supplier farmers
Mang'u
Progressive on credit and get paid by
Dairy the cooperative directly at
the end of the month.

County
Input livestock
suppliers production
officer
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Figure 7: Stakeholder analysis
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Farmers could get feed based on their milk delivered and this was settled with the monthly
milk payments. Payments and deliveries were on time.

Farmers appreciated also the coordination of AI for their cows. This was arranged by the
cooperative, but implemented by private organisations.

Buyers

The off-taking of the raw chilled milk from Mang’u was very structured as one buyer
(Daima) bought more than 90% of the milk. The power buyer however was not that huge
and not a risk as the competition for raw milk in the area is so fierce that they had to
always renegotiate the price every month and adjust it based on the prevailing conditions.
Based on our interactions with many stakeholders the two parties i.e the cooperative and
the buyer appeared to have a cordial relationship.

Other stakeholders (government)

The county livestock production officer was very positive on the collaboration with Mang’u.
They had carried out joint trainings together with the extension staff from the cooperative
and were even collaborating on lobby for grants from government to Mang’u. They would
like to cooperate more, but on both sides, they are thinly resourced.

The sub-county cooperative officer was also positive about the development of Mang’u. She
had faith in their strategy and had explained that the collaboration between staff and board
was very good.

Financial institutions

Tai Sacco was also very positive about the organisation of the cooperative. There were no
big issues and they were looking forward to providing finances to the cooperative, however,
Mang’u has never had loans with them before, so the relationship based on financial results
was quite thin.

5.3 Risks

Based on the analysis of the mission team, they were fewer and low reputational risks
facing the cooperative society whose likelihood of happening was equally low, they were:

1. Milk prices were on a good level. However, as it was continuing to get noticed
that Mang’u had ambitions to step into processing milk, competitors will change
and push harder to get farmers from Mang’u. Mang’u must therefore do their
best to continue paying a good milk price. Extension services will play a huge
role as a mitigating factor.

2. Developing diverse new businesses simultaneously. This will expose the

cooperative to competition from diverse positions. Because pasteurizing,
banking and feed production were quite different activities that needed huge
investments. Prioritization was the only key mitigating measure that the
cooperative needed to adopt.

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3. Underdeveloped extension services. This can be mitigated by developing the
extension office rapidly and hiring of more extension officers to support the
cooperative. In addition, Facilitate the field officer well, so she can visit farms
and give advice. Collaboration with the county livestock production officer will
help in organizing trainings and developing knowledge. Trainings were still ad-
hoc so there was no good structure for this to make sure that every farmer
gets a chance to be trained and adopt the advises from the trainings.

5.5 Conclusions reputation

Mang’u progressive dairy cooperative appeared to be a highly reputable organisation based

on the interactions held with the very many stakeholders that were spoken to by the
mission team. Particularly, members were more than happy with the services they get,
with the then price paid to them and the plans the management and board had for the
cooperative. The other key external stakeholders highlighted above equally held the
cooperative with high regards and were quick to recommend the cooperative for
partnerships with Agriterra.

Reputational risks were hardly there and the few identified were very moderate and with
low likelihood of occurrence. Therefore, overally, the cooperative appeared to be very
credible.

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6 CONCLUSIONS AND
RECOMMENDATIONS
In this section, the cooperative assessment team will enumerate their conclusions on the
assessment itself, on the cooperative and then submit herewith again their considered
recommendations, both to Agriterra and to Mang’u Progressive Dairy Cooperative Society.

6.1 Conclusions cooperative assessment

+ -
STRENGTHS WEAKNESSES
- Good and strong governance - Too many wishes with no
- Financially strong cooperative prioritization
- strategic market position - Inadequate youth involvement
- Loyal and increasing - Lack of key policies and procedure
Internal

membership manuals
- Timely payment for farmers - Inadequate cooling capacity
- Generally, a competitive milk - Adhoc extension services
price

OPPORTUNITIES THREATS
− Growing demand for diary ₋ Strong competitors and traders
(products) ₋ Fluctuating milk prices
− Large markets nearby ₋ Climate change – less water
− Possible growth of dairy farms availability and fodder availability
External

− Collaboration with stakeholders ₋ Inadequate land availability

− Demand for additional services ₋ Emerging pests and diseases
e.g financial services, feed-mill,
etc

Table 5: SWOT analysis

6.2 Recommendations for the cooperative

During the cooperative assessment, there were a number of issues that the team came by
that would require the attention of the board and management of the cooperative society,
most of these issues have been highlighted in the earlier sections of this report, however,
the team wishes to provide their recommendations to the cooperative here-under as
follows:

RECOMMENDATIONS FOR THE COOPERATIVE

• The cooperative was advised not to become a victim of their own success.
They needed to identify moments when they cannot admit more members

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already as it will continue causing constraints such the one on the cooling
capacity

• As a matter of urgency, cooling capacity needs to be enhanced to meet the

current supply of close to 30000L per day.

• Fast-track the issuance of title deed to help is realising the ambitions of the
cooperative

• There were many plans/wishes; Mang’u should be able to prioritise and focus
on the core business which is dairy.

• Feed-mill and any other non-core business should be deferred and focus
directed on realising pasteurisation

• Support the extension department to function well through adequate

budgetary support. Ensure its plans were executed

6.3 Conclusion collaboration Agriterra

Having carried out the assessment, the team has therefore concluded that Mang’u
progressive dairy presents and interesting business case and therefore, based on the
assessment, it recommends that the cooperative be onboarded to be an Agriterra client
as from 2023 onwards. It is also important to mention that the cooperative met all the
minimum criteria set out by Agriterra.

There was a clear business case, realistic ambitions for growth, need for support and
guidance on improving the business processes. There was also a huge need for capital
mobilisation. The client also portrays willingness for change and actually displayed some
flashes entrepreneurial spirit that needs to be nature further.

Their ambitions aligned well with the FFT goals majorly on making them bankable and
linkage to financial institutions for capital mobilisation which was a low hanging fruit. The
other priority areas for the Cooperative were also in line with the FFT targets.

6.4 Recommendation collaboration Agriterra

Having concluded that there were possibilities of working together, the team went ahead
and suggested the following points as possible areas of collaboration between the
cooperative and Agriterra. They were enumerated as follows:

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RECOMMENDATIONS FOR AGRITERRA- KEY PRIORITIES FOR SUPPORT

 Development of a clear business plan

 Strengthening of the extension services

 Support in mobilising capital (both internally and externally)

 Strengthening of governance and financial management

 Succession planning of the board

 Focusing on strategic steps to be made. Not all in one time

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ANNEXES
The following annexes have been provided separately

1 Cooperative profile (scoping)

2 Key Performance Indicators (KPI’s)

3 Financial Health Check

4 Governance Health Check

5 Member commitment

6 Presentation conclusions cooperative assessment

7 Action plans

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