kenya’s dairy title: low-emission and climate resilient dairy development in kenya1...

KENYA’S DAIRY

Project/Programme Title: Low-emission and climate resilient dairy development in Kenya1

Country/Region: Kenya

Accredited Entity: International Fund for Agricultural Development (IFAD)

National Designated Authority: National Treasury

1 This low-emission and climate resilient dairy development project in Kenya has been developed as Kenya dairy NAMA (Nationally Appropriate Mitigation Action)

PROJECT / PROGRAMME CONCEPT NOTE GREEN CLIMATE FUND | PAGE 1 OF 18

A. Project / Programme Information

A.1. Project / programme title Low-emission and climate resilient dairy development in Kenya

A.2. Project or programme Project

A.3. Country (ies) / region Kenya

A.4. National designated authority(ies)

National Treasury

A.5. Accredited entity International Fund for Agricultural Development (IFAD)

A.6. Executing entity / beneficiary

Executing Entity: State Department of Livestock, Ministry of Agriculture, Livestock and Fisheries (MoALF)

A.7. Access modality Direct ☐ International ☒

A.8. Project size category (total investment, million USD)

Micro (≤10) ☐ Small (10<x≤50) ☐ Medium (50<x≤250) ☒ Large (>250) ☐

A.9. Mitigation / adaptation focus

Mitigation ☐ Adaptation ☐ Cross-cutting ☒

A.10. Public or private public

A.11. Results areas

(mark all that apply)

Which of the following targeted results areas does the proposed project/programme address?

Reduced emissions from:

☒ Energy access and power generation

(E.g. on-grid, micro-grid or off-grid solar, wind, geothermal, etc.)

☐ Low emission transport

(E.g. high-speed rail, rapid bus system, etc.)

☐ Buildings, cities, industries and appliances

(E.g. new and retrofitted energy-efficient buildings, energy-efficient equipment for companies and supply chain management, etc.)

☒ Forestry and land use

(E.g. forest conservation and management, agroforestry, agricultural irrigation, water treatment and management, etc.)

Note: >50% of emission reductions will come from improved livestock management, which is an agricultural activity, but GCF performance indicators for forestry and land use are measured in hectares, which is not suitable for livestock mitigation. Appropriate indicators are proposed in the results framework in Annex A.

Increased resilience of:

☒ Most vulnerable people and communities

(E.g. mitigation of operational risk associated with climate change – diversification of supply sources and supply chain management, relocation of manufacturing facilities and warehouses, etc.)

☐ Health and well-being, and food and water security

(E.g. climate-resilient crops, efficient irrigation systems, etc.)

☐ Infrastructure and built environment

(E.g. sea walls, resilient road networks, etc.)

☐ Ecosystems and ecosystem services

(E.g. ecosystem conservation and management, ecotourism, etc.)

A.12. Project / programme life span

10 years2

A.13. Estimated implementation start and end date

Start: January 2018

End: December 2027

2 To coincide with two multi-year projects to be funded by the Accredited Entity.


B. Project/Programme Details

The Fund requires the following preliminary information in order to promptly assess the eligibility of project/programme investment. These requirements may vary depending on the nature of the project/programme.

B.1. Project / programme description (including objectives)

Kenya’s dairy sector contributes about 14% of agricultural GDP and 3.5% of total GDP. About 2 million farming households – or 35% of rural households – produce milk, and women play a major role in dairy production throughout the country. 70% of milk is produced on smallholder farms, and milk sales contribute significantly to farmers’ incomes, including income for rural women. With population growth, urbanization and rising incomes, demand for dairy products is growing rapidly. But inefficient resource use throughout the sector increases production costs, constrains profitability and competitiveness, and has major environmental implications. Average dairy cow productivity is low (on average approximately 1,800 kg/cow/year, compared to e.g. 8,000-9,000 kg in Europe or 10,000 in the US and Israel). As a result, production costs per kilogram of milk are high and profit margins for many farmers are slim. Women in particular often do not have equitable opportunities to benefit from technology, extension and marketing opportunities. Furthermore, rain-fed production systems are highly sensitive to climate change impacts. Low productivity, due to poor cow and herd management, breeding, animal health practices, is associated with high GHG emission intensity (see Annex B). Livestock GHG emissions contribute about 90% of Kenya’s agricultural emissions, of which about 20% are from the 4.3 million dairy cows. Poor on-farm manure management impacts on cow health and productivity, contributes to environmental pollution at local scale, as well as GHG emissions. Water and energy use in milk collection, cooling and processing facilities are high, with machinery often outdated, inefficient and reliant on high-emission energy (e.g. fuel wood, diesel, oil, electricity). Therefore, the objective of this project is to transform Kenya’s dairy sector to a low-emission and climate resilient development pathway, while improving the livelihoods of male and female dairy producers.

The project consists of four components (see Annex A - project results framework) that address critical needs throughout the dairy supply chain and in the wider enabling environment:

1. Increasing on-farm dairy productivity through private sector investment in gender-inclusive extension services and fodder supply;

2. Reducing high-emission energy use in the dairy sector; 3. Strengthening institutional and stakeholders’ capacities for scaling-up low-emission and

climate resilient dairy development; 4. Project coordination and management.

Component 1: Increasing on-farm dairy productivity: As dairy cow productivity increases, GHG emission intensity (kg CO2e/kg milk) decreases (see Annex B). Therefore, there are strong synergies between GHG emission reduction, yield increases and farmers’ incomes. Yield increases can be achieved through improved fodder and (concentrate) feed, improved water management, improved breeds, disease prevention and treatment, and better calf and herd management (see Annex D). The project will support adoption of improved on-farm production practices through activities in the following sub-components:

1.1.1 Processor-led provision of gender-inclusive extension services to their suppliers (Annex D): Dairy extension services to promote adoption of climate-resilient, low-emission dairy management practices will be provided through processor-led partnerships with suppliers (dairy farmers, cooperatives) and extension service providers. The project will support refinement of extension delivery models and build the capacity of extension agents to apply gender-inclusive approaches in extension service planning and provision, improve animal welfare and productivity, and address environmental impacts of manure. Co-investment in expansion of existing services and technical assistance for developing sustainable financing mechanisms and addressing gender and youth, animal welfare and manure management will provide direct support to processors to expand the coverage and effectiveness of extension services and incentivize them to continue investing in extension service provision (for details of co-financing and TA, see Annex D). Quantification of GHG benefits will be embedded in farm data management systems of these extension initiatives.

1.1.2 Provision of finance for on-farm and cooperative investments via bank lending and bank on-lending to SACCOs (Annex E): Commercial banks and microcredit institutions will be supported to provide affordable finance to dairy cooperatives and farmers to enable investments to increase on-farm productivity, market access and improved profit margins. Cooperatives and farmers will be supported with capacity building on financial management.


1.2.1 Technical assistance to commercial fodder producers and fodder producer associations (Annex F): The project will make technical advisory services available to commercial fodder producers (hay, silage, fodder shrubs etc.) to optimize fodder production per acre, fodder quality and fodder preservation for enhanced climate resilience. The Rift Valley Hay Growers Association will be assisted to upscale supply chain management and market linkages. TA will also ensure that financial institutions and fodder producers implement social and environmental safeguards.

1.2.2 Financial assistance for investments in commercial fodder production and marketing: The project will provide concessional loans to financial institutions on performance-based terms to make credit available to commercial growers for investments in low-emission technology (e.g. machinery) and storage facilities.

Component 2: Reducing high-emission energy use in the dairy sector: Consumption of high-emission energy (e.g. fuel wood, diesel, oil, electricity) in milk collection, cooling and processing facilities is high. Energy consumption can be reduced by investments in energy efficiency processes and clean energy technologies and by switching to non-renewable energy sources. Methane emissions from manure on-farm can be captured to generate biogas energy. The project will support adoption of these technologies through the following sub-components:

2.1.1 TA to support cooperatives and processors with energy audits and investment proposal preparation (Annex G): The project will co-invest with dairy cooperatives and processors to undertake energy audits and develop clean energy investment-grade proposals.

2.1.2 Financial assistance for investments in energy efficiency and renewable energy: The project will provide concessional loans to leverage credit finance from commercial banks for investments in energy and water efficiency and clean energy technologies by cooperatives and processors.

2.2.1 TA to biogas companies for development of business operations (Annex H): Experienced TA providers will be chosen to provide business development services to biogas service companies to upscale their operations as well as improve their extension services to farmers.

2.2.2 Financial assistance for adoption of biogas by farmers: Blended grant and loan finance will be provided to farmers to overcome high initial costs of installing biogas digesters at household level.

2.2.3 Ensuring implementation of environmental and social safeguards by biogas service companies and financial institutions: Technical assistance will be provided to ensure that eligible biogas service providers and financial institutions adopt and implement social and environmental safeguards in compliance with environmental laws in Kenya.

2.2.4 Monitoring and evaluation: Adoption and continued use of biogas digesters, including post-sales services by biogas service providers and implementation of social and environmental safeguards, will be monitored throughout the project implementation period.

Component 3: Strengthening capacities of national institutions and stakeholders for upscaling (Annex I): The project will strengthen the capacities of national institutions for measurement, reporting and verification of project outputs, outcomes and impacts, including GHG effects. Good practices and lessons learned will be documented and widely disseminated to support replication of project experiences. Platforms to enable public-private policy dialogue and coordinate investments by stakeholders in the sector will be supported, which will also build the capacity of national regulatory institutions such as the Kenya Dairy Board for public-private partnerships. 3.1.1 Capacity building for project participants and national organizations in MRV: The project will strengthen national institutional capacities for MRV, including capacities for monitoring and evaluation of resilience and other socio-economic benefits, GHG quantification, linking project M&E with the national MRV+ system and national GHG inventory.

3.1.2 Monitoring and evaluation of project outputs, outcomes and impacts: The project will conduct M&E in line with the project results framework to ensure accountability for use of GCF funds as well as meeting stakeholders’ other needs for information on project progress, effects and lessons.

3.1.3 Share good practices and lessons for adoption and replication: The project will use knowledge management to capture and disseminate good practices and lessons learned (i) to participants in components 1 and 2 to strengthen adoption of best practices, (ii) to stakeholders in Kenya’s dairy sector to support upscaling and wider replication of project experiences, and (iii)


internationally, to support replication of the project’s gender-inclusive, climate-resilient, low-emission dairy development approach.

3.1.4 Stakeholder coordination: Capitalizing on the project’s engagement with private sector (dairy and financial) institutions and other development partners, the project will convene a stakeholder platform to promote policy dialogue to enhance the policy environment for public-private partnerships and to enable coordination of investments in a longer-term framework of support to low-emission, climate resilient dairy development in Kenya.

Component 4: Project coordination and management (Annex J): This component will support: (i) establishment and operation of the Project Management Unit (PMU); (ii) establishment and operation of the Project Steering Committee (PSC); and (iii) coordinated implementation of project activities in partnership with delivery partners (e.g. dairy processors, financial institutions, and support and services provided by technical service providers, consultants, research institutions, etc). The component will include management of staff (including national and international consultants) and equipment, financial management, procurement activities, management of environmental and social safeguards aspects, preparation of annual work plans and organization of task implementation, including supervision missions. Targeting To ensure the long-term sustainability of this project, the central focus is to assist and incentivize the private sector to provide market access and technical and financial support to producers and other supply chain actors. To support market-driven development of the dairy sector, dairy extension services will be provided through processor-led partnerships with dairy farmers, cooperatives and county governments. Based on targets discussed with each processor, the project aims to provide extension services to 128,000 households (i.e. 59% of total current suppliers) within the first 5 years, increasing to 153,000 by Year 10 (i.e. 70% of total current suppliers, and approximately 15% of total dairy farmers nationwide). The farmers targeted will include both current suppliers to processors and farmers who currently supply the informal sector. The main processors’ milk supply catchment areas are shown in the map below. More specific targeting will be developed during the full proposal development phase.


B.2. Background information on project/ programme sponsor

The Ministry of Agriculture, Livestock and Fisheries (MoALF) of Kenya will be the project sponsor, responsible for utilization of GCF funds and co-financing from the AE. MoALF is responsible for agriculture, livestock and fisheries sector legislation, regulation and policy development. Other functions of the Ministry include the support of research, development and implementation of sector-wide programmes, regulation and quality control of inputs and produce, and management and control of pests and diseases. There are three state departments within MoALF, including the State Department of Livestock, which is responsible for veterinary services, livestock resources and market development and related policy research and regulations. MoALF has implemented numerous internationally funded programmes in the agriculture (including dairy sector), including the World Bank financed Enhancing Agriculture Productivity Project and Kenya Agriculture Productivity Programme, SIDA-funded Agriculture Sector Development Support Programme and the IFAD-financed Smallholder Dairy Commercialization Project. In this project, MoALF will chair the Project Steering Committee and partner with IFAD in operation of the Project Coordination Unit, having primary responsibility for execution of the project under agreement with the AE. MoALF has partnered with the AE in several projects in recent years, and demonstrated technical capacities and the fiduciary responsibilities required for its coordination, management and execution roles in this project.

B.3. Market overview

Kenya’s dairy industry and market: The dairy industry is Kenya’s single largest agricultural sub-sector. It contributes 14% to agricultural GDP and 3.5% of total GDP. Total milk production from dairy cows in 2014 was about 3 billion litres. About 70% of milk is produced by smallholders, and the remainder by medium or large-scale farmers. 22% of milk is produced in extensive, grazing systems, 44% in mixed grazing-stall fed systems and 24% under zero-grazing conditions.3

Milk production has grown at an annual average rate of more than 3% in the last decade. Of the milk produced, about 42% is consumed by dairy household members, and 58% is marketed. Of the marketed milk, 70% is sold through the informal sector, in which brokers link producers and consumers of unprocessed milk. 30% of marketed milk passes through formal marketing channels, involving transport to chilling and bulking centres and processing facilities, where it is processed into a wide range of dairy products for retail in the country’s urban centres. The main products are fresh pasteurized, UHT and fermented milk, and milk powder, with smaller markets for cheese, ice cream, cream, butter and ghee. Average annual growth in the formal sector between 2008 and 2015 was more than 6.3%.

Demand for dairy products is projected to continue to grow rapidly. Kenya’s population is expected to increase from the current 48 million to 65 million in 2030, of whom more than a third will be urban residents.4 Per capita milk consumption in 2010 was about 100 litres per year, but is projected to reach 220 litres by 2030. Demand for chilled, high quality processed milk will increase, with growth in demand projected at 5% per year, and total milk demand reaching 12 billion litres by 2030.5 Growth in the formal sector is expected to be more rapid, partly due to shifting structure of consumer demand, and partly due to initiatives to regulate milk quality. Annex B describes the projected implications of this massive increase in demand for Kenya’s dairy sector GHG emission pathways. The rapid projected demand for high quality processed milk, current low average dairy productivity and high climate vulnerability highlight the need for low-emission and climate resilient development of the dairy sector.

Kenya Dairy Board has licensed 25 milk processing plants with a total processing capacity of 3.5 million litres per day. Capacity utilization remains low (40-50%) due to seasonality of production and competition from the informal sector. The market for processed milk is dominated by four companies (Brookside Dairy Ltd., New Kenya Cooperative Creameries Ltd., Githunguri Dairy Cooperative Society and Sameer Agriculture and Livestock Ltd.), which jointly account for 70% of the processed milk market, and 21% of Kenya’s total milk market. Other processors account for the remaining 30% of this market segment.

Government’s role in the dairy sector: Since liberalization of the sector in the early 1990s, prices for milk and dairy products have not been regulated, but are determined by demand and supply. Central government subsidies for artificial insemination, veterinary clinical services and technical extension services and credit to farmers were phased out in the early 1990s. Current government policy, as outlined in the National Dairy Development Policy (2013), is to support farmer-, private- and cooperative-based provision of breeding, veterinary, and extension services, supported by

3 Estimates produced by UN FAO as part of the CCAC funded Enteric Methane Project. http://www.fao.org/in-

action/enteric-methane/en/ 4 UN Population Projections (https://esa.un.org/unpd/wup/CD-ROM/) and World Urbanization Prospects (https://esa.un.org/unpd/wup/CD-ROM/) 5 National Dairy Development Policy (2013)

http://www.fao.org/in-action/enteric-methane/en/


https://esa.un.org/unpd/wup/CD-ROM/


capacity building and sector coordination, and provision of an internationally-compliant phytosanitary control system. In line with the 2010 Constitution, support to agriculture is a devolved function carried out by county governments. The Kenya Veterinary Policy (2015) confirms the mandate of county governments to ensure vaccination coverage. Some county governments are subsidizing extension, breeding services and veterinary public goods (cattle dips), and co-financing dairy cooperatives to establish milk chilling facilities. National government interventions include support for the re-introduction of school milk programmes at county level, and zero import duties have been applied to dairy equipment. The current legislative and policy environment is thus supportive of private-, cooperative- and farmer-led provision of support services to the dairy sector. Similarly, the Energy Management Regulation (2012) contains measures designed to incentivize private owners of industrial facilities to implement energy efficiency policies and investments.

B.4. Regulation, taxation and insurance

As a project implemented by an international accredited entity, with a national ministry as the executing entity, the regulatory framework for permissions to implement and operate the project in Kenya are given by the framework governing the relationship between the Accredited Entity and the Government of Kenya and approval procedures of the Government of Kenya and the Accredited Entity. IFAD is a United Nations agency, operating within the framework of United Nations assistance to Kenya. Section 7 of the Convention on the Privileges and Immunities of the United Nations provides, inter alia, that the United Nations, including its subsidiary organs, is exempt from all direct taxes, except charges for utilities services, and is exempt from customs duties and charges of a similar nature in respect of articles imported or exported for official use.

National approvals: The Government of Kenya will nominate the State Department of Livestock in the Ministry of Agriculture, Livestock and Fisheries (MoALF) to execute and implement the project. Upon approval of the funding proposal by the GCF Board, government-regulated procedures for approval of the project will be followed. Operations policies and procedures, including administrative and financial requirements will be clearly spelled out in the proposal. The project will be executed by MoALF following administrative and financial rules and regulations of the Government of Kenya (including, inter alia, the Public Procurement and Asset Disposal Act (PPADA) of 2015, and its subsequent revisions), the Public Procurement and Disposal Regulations (PPDR) and ancillary regulations, and operations policy and procedures policy requirements of IFAD.

Approvals by the AE: Approval of the project, including co-financing by the AE, will follow the rules of procedure, policies and criteria for financing of the AE. Implementation will adhere to the Operations Policies and Procedures of the AE.

Relevant terms and conditions of the funding proposal will be translated into contractual terms and signed for agreement by the Government of Kenya and the AE. Project activities will comply with the laws and regulations of the Republic of Kenya, and with environmental and social safeguard standards of the AE.

B.5. Implemen-tation arrangements

Implementation structures have been designed considering the need to coordinate between the dairy, energy, finance and climate change sectors, while enabling efficient and effective implementation. The Project Steering Committee (PSC), with the key function of project oversight and guidance, will consist of the Accredited Entity, the Ministry of Agriculture, Livestock and Fisheries (MoALF, with mandate for dairy sector development), the Ministry of Environment and Natural Resources (MENR, with mandate for coordination of climate change actions, and national MRV processes), the National Treasury (GCF National Designated Authority) and Kenya Dairy Board (a State Corporation with a mandate to regulate, promote and develop the Kenyan dairy industry). To ensure coordination with county governments, the Council of Governors (i.e. the basis of consultation and cooperation between the national and county governments) will also participate in the Project Steering Committee.

The PSC, chaired by the Principal Secretary responsible for livestock within MoALF, will provide guidance to the Project Management Unit (PMU) in execution of all project tasks, review progress and resolve any implementation challenges, and ensure interagency coordination. The Technical Advisory Committee (TAC) will provide technical inputs for the guidance of the PSC whilst assisting and advising the PMU in project implementation.

The AE will provide project implementation oversight and supervision, including financial management, to ensure that project management milestones are completed and that funds are managed to the required fiduciary standards. The State Department of Livestock of MoALF will be the main executing entity, hosting and staffing the PMU, and ensuring coordination with other dairy sector programmes and stakeholders. The same PMU will be used for management of GCF and AE funds. The PMU will be responsible for development of operational plans and tools for project implementation; preparation of annual work plans; mobilisation of delivery partners and oversight of deliverables; contracting of service providers; and project monitoring and evaluation. Kenya


Dairy Board will play a key role in disseminating project practices and lessons throughout the sector and across counties to support wider replication. Contractual agreements with private sector delivery partners will be reached following procurement rules of the AE and Government of Kenya.

A timetable indicating the project implementation schedule is shown in the table below.


Low-emission Dairy Development: Implementation Schedule Project Year

1 2 3 4 5 6 7 8 9 10

Component 1: Increased dairy productivity

Processor-led provision of gender inclusive extension services to their suppliers

Provision of finance for on-farm investments via bank lending and bank on-lending to SACCOs

Technical assistance to commercial fodder producers and fodder producer associations

Financial assistance for investments in commercial fodder production and marketing

Component 2: Reducing high-emission energy use in the dairy sector

TA to support cooperatives and processors for energy audits and investment proposal preparation

Financial assistance for investments in energy efficiency and renewable energy

TA to biogas companies for development of business operations

Financial assistance for adoption of biogas by farmers

TA for environmental and social guidelines to be followed by biogas service companies and financial institutions

Monitoring and evaluation

Component 3: Strengthening institutional and stakeholders’ capacities

Capacity building for project participants and national organizations in MRV

Monitoring and evaluation of project outputs, outcomes & impacts

Share good practices and lessons for adoption and replication

Stakeholder coordination and public-private policy dialogue

Component 4: Project coordination and management

Establishment and operation of the Project Management Unit

Establishment and operation of the Project Steering Committee (PSC)

Coordinated implementation of project activities

Staff management, financial management, procurement, work planning and supervision missions.


C. Financing / Cost Information

C.1. Description of financial elements of the project / programme

Total project financing is $222.6 million. Of this, the project cost is $72.9 million, of which $56.1 million is requested from the GCF. The breakdowns of project cost estimates by project component and by major cost category are presented below. The project budget is structured to (i) maximize the use of GCF funds to leverage grant funds from the AE’s financial resources so as to achieve a high concessionality leverage ratio on GCF funds and thus ensure reflows to the GCF; and (ii) achieve a high third-party leverage ratio, leveraging private sector investment in achievement of the low-emission, climate resilient, gender inclusive dairy development objective. The project concessionality leverage ratio (i.e., GCF non-grant element / GCF grant element) is 4.68. The ratio of GCF costs ($56.1 million) to total project financing ($222.6 million) is 0.25 and the ratio of third party financing ($149.7 million) to GCF costs is 2.97. The funds requested from the GCF are primarily for concessional loans and credit guarantee funds, with grant funds requested from GCF only for specific components that directly contribute to GHG emission reduction (i.e. TA for financial institutions, TA for energy audits co-financed with private sector, grants to blend with loans for household biogas adoption). Finance from the AE will include grants for TA for capacity building and advisory services, and will cover project staff and administrative costs (totalling $14.6 million). Government of Kenya will cover staff gratuities and taxes foregone (totalling $2.2 million). The financial objective of the project is to assist and incentivize private sector investment in low emission, climate resilient, gender inclusive dairy development. Concessional loans using GCF funds will be provided to commercial banks on performance-based terms whereby the financial institutions are required to leverage at least $3 for each $1 provided, and on-lending interest rates are capped. Different financial institutions may be involved in delivery of credit under different components of this project. Participating dairy processors will co-invest in extension and energy efficiency components; their supplier cooperatives and farmers will co-invest in provision of gender-inclusive technical extension services; and fodder farmers will co-invest in fodder production machinery and storage facilities. Specific justification for the choice of financial instruments in each project component is given in the feasibility study (Annexes D-I). Justification for the level of concessionality on finance applied for from the GCF is presented in Annex C. Table C.1.1: Project financing breakdown by type of expenditure and source of finance (US$ million)

GCF AE

Government of Kenya (GoK)

Financial Institutions (FIs)

Dairy private sector

Loans 39.19 0.00 0.00 107.46 24.71

Guarantees 10.00 0.00 0.00 0.00 0.00

Grants & TA 9.77 11.75 0.00 0.30 17.26

Staff costs 0.00 1.10 2.23 0.00 0.00

Travel & per diem 0.09 0.46 0.00 0.00 0.00

Other 0.01 0.27 0.00 0.00 0.00

Admin costs 0.00 1.01 0.00 0.00 0.00

Sub-total 56.06 14.58 2.23 107.76 41.97

Total project cost Private sector co-finance

72.87 149.73

Table C.1.2: Project costs breakdown by major components (US$ million)

Grant Loan Guarantee

GCF AE GoK GCF AE GCF AE

Component 1

Output 1.1 2.20 10.05 0.00 20.00 0.00 10.00 0.00

Output 1.2 0.00 0.34 0.00 2.53 0.00 0.00 0.00


Component 2

Output 2.1 0.33 0.00 0.00 11.46 0.00 0.00 0.00

Output 2.2 7.33 1.00 0.00 2.20 0.00 0.00 0.00

Component 3 0.00 0.98 0.00 0.00 0.00 0.00 0.00

Component 4 0.00 2.22 2.23 0.00 0.00 0.00 0.00

Sub-total 9.87 14.58 2.23 36.19 0.00 10.00 0.00

C.2. Project financing information

Financial Instrument Amount Currency Tenor Pricing

Total project financing

(a) = (b) + (c)

222.61 million USD

($)

(b) Requested GCF amount

(i) Senior Loans

(ii) Subordinated Loans

(iii) Equity

(iv) Guarantees

(v) Reimbursable grants *

(vi) Grants *

36.19

………/…………

………/…………

10.00

………/…………

9.77

million USD ($)

million USD ($)

million USD ($)

million USD ($)

million USD ($)

million USD ($)

40 years

0.75 %

* Please provide detailed economic and financial justification in the case of grants.

Total Requested (i+ii+iii+iv+v+vi)

56.06 million USD

($)

(c) Co-financing

Financial Instrument Amount Currency Name of

Institution Seniority

Senior Loans

Grant

Direct investment

Options

107.46

16.82

42.28

…………………

million USD ($)

million USD ($)

million USD ($)

Options

FIs

AE, GoK

Dairy private sector

…………………

pari passu

Options

Options

Options

Lead financing institution: ………………………

(d) Covenants

(e) Conditions precedent to disburse-ment


D. Expected Performance against Investment Criteria

Please explain the potential of the Project/Programme to achieve the Fund’s six investment criteria as listed below.

D.1. Climate impact potential

[Potential to achieve the GCF's objectives and results]

The project’s climate impacts relate to the GCF core indicator “Tonnes of carbon dioxide equivalent (t CO2eq) reduced as a result of Fund-funded projects/ programmes” (see Annex A – results framework).

By assisting and incentivizing private-sector investment in low-emission, climate resilient, gender inclusive dairy extension services, enabling investments in energy efficiency and clean energy technologies in milk collection, chilling and processing, and supporting adoption of household biogas technology, the project will transform Kenya’s dairy sector to a low-emission pathway. Over the 10-year implementation period, the expected emission reductions total 8.80 million tCO2e from the following sources:

Increased dairy productivity (152,700 households): 4.14 M tCO2eq

Energy efficiency in processing (151 facilities): 2.96 M tCO2eq

Household biogas adoption (20,000 households): 0.98 M tCO2eq

The methodologies used in making these ex ante estimates are described in Annex B.

Over the 10-year implementation period, the project components focusing on dairy extension services, fodder production, and household biogas technology, will directly benefit 173,952 households with a population of about 1,043,000 people, of which approximately 521,000 will be women. This represents about 17% of the total target population of dairy farmers in the country and with women representing about 50% of the direct project beneficiaries. Indirect beneficiaries will include the 12,000 jobs that will be created in the dairy processing sector due to increased milk supply.

D.2. Paradigm shift potential

[Potential to catalyze impact beyond a one-off project or programme investment]

Potential for scaling-up and replication: The strength of the project’s approach is that it will develop private sector capacities to provide technical and financial services to the dairy sector and achieve market growth. The proven business models and practices employed in the project can thus be applied to the growing formal dairy sector. About 2 billion liters of dairy cow milk are marketed in Kenya each year, of which 600 million liters are currently marketed through the formal sector. The formal sector is projected to grow at a faster rate than the dairy sector as a whole. The processor-led extension initiatives in the project target households owning about 14% of the national dairy herd (2015 data), and producing about 73% of milk marketed through the formal sector. The project’s approach can be upscaled to the current remaining formal sector suppliers (ca. an additional 150,000 households) and replicated in other regions within Kenya (e.g. new processor catchment areas). Moreover, as the formal sector grows, and an increasing number of dairy farmers access formal marketing channels, the capacities for private sector-led technology extension and financial inclusion built by the project can be expanded to achieve increased coverage in the sector. At present, an estimated 1.3 million households already engage in milk production, but do not currently supply the formal sector. Beyond Kenya, there is significant interest in promoting dairy sector development in many developing countries, including other countries in East Africa and elsewhere (e.g. Bangladesh, India, Vietnam). Through the regional programmes and knowledge management functions of the AE, the project’s experiences can be shared with interested countries for replication. Potential for knowledge and learning: Capacity building, sharing best practices and lessons learned for adoption and replication are the focus of project Component 3.3, which will be implemented in partnership with Kenya Dairy Board, which has wide ranging connections throughout the dairy sector, including with county governments. Activities under this component will ensure that knowledge of good practices is made available in appropriate formats for incorporation in ongoing capacity building activities during the project implementation period, and will disseminate good practices and lessons learned more widely in Kenya’s dairy sector through a variety of media (e.g. pamphlets, manuals, videos) and activities (e.g. training, exchange workshops, media communication). Internationally, the project will be a pioneer example of how climate change mitigation and adaptation can support agricultural development objectives. The project’s experiences will be relevant in the dairy sector in East Africa and other developing countries, and to climate smart agriculture initiatives in developing countries more generally. The AE’s knowledge management functions will be brought into play to ensure that lessons learned are widely shared.


Contribution to the creation of an enabling environment: Since the withdrawal of central government from direct support, particularly agricultural extension services, to agricultural production in the 1990s, the current policy environment encourages farmers, cooperatives and the private sector to provide dairy extension services, technical inputs and credit. The project will make significant contributions to developing commercially viable approaches to private-sector support to the dairy sector. Specifically: (a) through TA and financial support to processor-led extension initiatives, the project will significantly increase the reach, effectiveness and sustainability of extension service provision led by the private sector. These services will include business development services to cooperatives, thus strengthening farmers’ organizations for long-term access to markets, inputs and services. (b) The project will also incentivize and build the capacity of financial institutions to strengthen their provision of financial services to the dairy sector. Most financial institutions have a relatively short history of engagement with the dairy sector. The project will strengthen linkages with dairy-based SACCOs and build capacities for understanding the financial needs of the sector and for developing appropriate financial products. (c) The project will provide a platform for public-private dialogue to enhance the enabling policy environment and build the capacity of national institutions to strengthen public-private partnerships. This is line with Kenyan laws for the participation of the private sector in the development of the country. Contribution to the regulatory framework and policies: The project supports implementation of Kenya’s Nationally Determined Contribution (NDC), Kenya Vision 2030, Kenya Green Economy Strategy and Implementation Plan and laws and policies related to climate change (e.g. Climate Change Act 2016, Climate Finance Policy (draft 2016), National Climate Change Framework Policy (2014), National Adaptation Plan and National Climate Change Action Plan), energy efficiency (National Energy and Petroleum Policy 2015) and agricultural sector development (Climate-Smart Agriculture Framework Policy, National Dairy Development Policy). These policies and plans are updated or revised upon the end of their specified term or when changing conditions require new policy responses. Components 3.3 and 3.4 focus on capturing and sharing project experiences and lessons and supporting stakeholder coordination involving policy makers and the private sector, together with other stakeholders. These project mechanisms will ensure that project experiences inform elaboration of policy implementation mechanisms, updating and revision of the relevant policy frameworks.

D.3. Sustainable development potential

[Potential to provide wider development co-benefits]

Economic co-benefits: The three approaches to GHG mitigation in this project have direct synergies with the generation of economic benefits for male and female dairy farmers, dairy cooperatives and processing enterprises: (i) The NPV of financial returns to increased yield due to adoption of improved dairy production practices by farmers have been estimated at $3.8 million over the 10 year project period. Enhancement of equitable access to assets and participation in decision making for women in the household dairy enterprise will be a key focus of the gender-inclusive extension approaches promoted by the project. These benefits are expected for 152,700 households, with an estimated population of about 800,000 people, including 400,000 women and youth. (ii) Dairy development creates employment opportunities throughout the supply chain. Per 350,000 liters of annual milk production, it is estimated that 77 direct jobs at the farm level and 13 jobs in the processing sector are generated. With an increase in milk production of 326 million litres per year by the end of the project period, full-time employment for 71,720 people at farm level and 12,108 in the processing sector will be created. Furthermore, due to the implementation of private-sector led extension services, adoption of 20,000 household biogas digesters and energy efficiency audits will generate further employment. (iii) High energy consumption contributes to high production costs and reduces the competitiveness of Kenya’s dairy processing enterprises. Investment in energy efficiency and renewable energy interventions are expected to reduce energy costs by 40-50%. With investment of $43 million in these interventions, cost savings for cooperatives and processing enterprises will be at least $100 million per year over 20 years. (iv) Biogas adoption significantly reduces household expenditures on energy provisioning and chemical fertilizer use. For each biogas unit, direct financial savings are estimated at $204 per year, so 20,000 units will enable dairy farming households to realize $61.2 million of cost savings over the 15-year lifetime of these units. Social co-benefits: (i) Milk consumption: Milk is an important source of high quality animal-based proteins, amino-acids and micro-nutrients such as vitamin B12, riboflavin and calcium. Especially in early life, milk has an important effect on physical growth and development and can reduce stunting in children. Studies in Kenya have shown that for some households with dairy cows improved animal health may be associated with higher child growth rates, and that


children’s access to milk may increase with dairy intensification.6 More generally, the increase in milk supply achieved by the end of the project period will be sufficient to meet the annual milk consumption demand of 1.48 million consumers (assuming per capita consumption of 220 liters). (ii) In Kenya, approximately 68% of households’ energy comes from wood; mainly firewood and charcoal are used for cooking and heating purposes. The collection and use of firewood and charcoal imposes significant labour and health burdens for women. Replacement of firewood and charcoal by biogas digesters will not only reduce time, labour and health effects of firewood collection, but will also reduce exposure of women and children to smoke. (iii) Promoting gender equitable outcomes: The project will build capacities for gender-inclusive approaches in on-farm dairy production, the commercial fodder sector and in biogas promotion. The aim of this support is to ensure equitable benefit of men, women and youth from activities supported by the project by enhancing the capacity of women and other marginalized groups to actively participate in and have equitable control in decision making processes in the dairy value chain. The project will promote efforts to increase women’s control over household dairy enterprise income (a core indicator in the results framework in Annex A), and will promote women’s participation in decision-making in dairy extension and marketing structures. Although women are often seen as the main beneficiaries of biogas adoption, gender-inclusive approaches to support women’s roles in decisions over biogas adoption and in biogas enterprises will be promoted. Biogas adoption promoted by the project reduces women’s labour and health burden in fuel wood collection and reduces exposure to indoor smoke.7 Installation of 20,000 biogas units will save 8.8 million hours of women’s time each year, enabling women to increase leisure time or engage in economic activities. Environmental co-benefits: With small average farm size, poor manure management on-farm affects not only cow health, welfare and productivity, but inappropriate disposal of manure also presents a risk to milk hygiene, and to the local ecosystem, polluting soils and waterways. High methane emission intensity also represents an inefficient use of natural resources used to produce feed. The project will support farmers to change dairy management practices in ways that reduce methane emissions. It will also support capacity building for extension service providers in provision of advice on manure management to avoid pollution of soils and waterways, and biogas promotion will include technical advice on appropriate use of biogas slurry as a fertilizer and improvement of soil health, thus reducing use of chemical fertilizers. Biogas promotion will also reduce fuel wood and charcoal use, with installation of 20,000 units reducing an estimated 1.7 million m3 of fuel wood use over the 10 year project period, thus contributing to Kenya’s efforts to reduce deforestation and forest degradation.

D.4. Needs of recipient

[Vulnerability to climate change and financing needs of the recipients]

Vulnerability to climate change: Kenya is very vulnerable to climate change, ranking 154 out of 178 countries in the ND-GAIN index (2014), which is significantly worse than its rank in 2010 (rank 145).8 It ranks 35th on vulnerability and 150th on readiness, indicating that it is highly vulnerable to climate change effects. Historically, mean annual temperatures have increased by 0.21°C per decade, and are projected to increase by between 0.8 and 1.5°C by the 2030s and 1.6°C to 2.7°C by the 2060s.9 Precipitation patterns are variable across the country. Projections suggest no change, increases or decreases in rainfall in different parts of the country, but an increase in heavy rainfall events is likely, suggesting that the distribution of rainfall will change, and occurrence of droughts and floods will increase. Kenya’s agriculture sector contributes about 25% of national GDP, and contributes significantly to food security, employment and export earnings. Agriculture is highly vulnerable to climate variability and climate change. Specifically regarding the dairy sector:10

Heat stress for cattle causes a decrease in food intake and an increase in respiratory rate, which affects milk yields;

Climate change may indirectly cause increased disease pressure on livestock; Climate impacts on crop yields will also have an impact on fodder and feed availability for

dairy farmers. About 80% of dairy farmers are smallholder farmers, who are highly exposed to climate risks and who often have limited assets, financial access and social capital with which to withstand shocks and invest in adaptation to longer term climate change. These vulnerabilities will be

6 http://jn.nutrition.org/content/146/5/1118.short; http://link.springer.com/article/10.1057%2Fejdr.2015.22 7 http://dx.doi.org/10.1016/j.biombioe.2014.01.054; http://dx.doi.org/10.1080/17441692.2012.758299; doi:10.1038/jes.2013.42 8 http://index.gain.org/country/kenya 9 Republic of Kenya (2015) Kenya Second National Communication to the UNFCCC. 10 Republic of Kenya (2015) Kenya Second National Communication to the UNFCCC.

http://jn.nutrition.org/content/146/5/1118.short

http://dx.doi.org/10.1016/j.biombioe.2014.01.054

http://dx.doi.org/10.1080/17441692.2012.758299


addressed by the project through provision of technical advisory services, strengthening of farmer organizations and increasing financial access through which to invest in farm infrastructure and ensure access to operating capital and households’ other finance needs. These measures will increase the resilience of dairy farmers to the effects of climate variability and longer-term climate change.

Economic development of the country, fiscal and capital market gaps: Kenya is one of the fastest growing economies in East Africa: the country’s GDP grew from US$ 18.7 billion in 2005 to US$ 63.4 billion in 2015. As a regional business hub, supported by investments in infrastructure and a new governance system, Kenya is expected to keep growing steadily. However, the poverty rate is still about 50% with a rather high inequality in wealth levels. Kenya ranks 145th in the Human Development Index, indicating low life expectancy, education, health and living standards. Kenya has a GNI per capita below the OECD lower-middle income threshold,11 and is also an eligible IDA borrowing country.12 Public debt is high, at more than 40% of GDP, and current policy is focusing on reducing the fiscal gap. Donor finance to agriculture has increased to fill part of the finance gap. External debt management is a key element of Kenya’s fiscal policy. External debt is largely in the form of multilateral concessional debts (52.3% of total external debt) and bilateral debt (24.5%), while commercial debt represents 21.8% of total external public debt. Analysis by the IMF and GoK indicates that current debt levels are sustainable. However, central government expenditure on agriculture has consistently been far below the Maputo Declaration target of 10% of government expenditure, although this does not account for county government expenditures.13 Despite the vibrant national economy, commercial finance to the agriculture sector is also a very small proportion of total lending, accounting for only 2% of private credit growth between 2011 and 2015,14 and lending to the dairy sector is less than 1% of total lending for many financial institutions.15 The vast majority of smallholder dairy farmers lack access to financial services, especially women. Barriers include high transaction costs for banks, a lack of visibility of farmers’ cash flows, and a short history of engagement in the sector for most financial institutions. The project will incentivize and build financial institutions’ capacities to provide appropriate and affordable financial support to men, women and youth in the sector (e.g. through group lending products, and making use of digitized milk supply records to create financial visibility) and increase household financial returns (see Annex E).

D.5. Country ownership

[Beneficiary country ownership of project or programme and capacity to implement the proposed activities]

Coherence and alignment with the country’s national climate strategy and priorities: The project is fully aligned with the Government of Kenya’s international commitments as set out in Kenya’s Intended Nationally Determined Contribution, and policies on climate change, agriculture and dairy development, and energy. This project will specifically contribute to Kenya’s Intended Nationally Determined Contribution (2015) 16 in which Kenya has committed, subject to international support, to reduce GHG emissions by 30% by 2030 relative to the business as usual (BAU) scenario of 143 Mt CO2-eq. Mitigation activities in the agriculture sector in line with the Climate Smart Agriculture Framework Programme are highlighted in the INDC. (i) Climate change policy: Kenya’s National Climate Change Response Strategy (2010) anchors climate change policies in Kenya Vision 2030, the country’s development blue-print to 2030 which sets out a development path aimed at creating a prosperous country with a high quality of life.17 The Response Strategy was operationalized by the development of the National Climate Change Action Plan in 2013. The Climate Change Action Plan, anchored in the Climate Change Act (2016) is recognized as the tool through which climate change adaptation and mitigation will be mainstreamed into national and county government planning, budgeting and implementation. It sets out priorities for low-carbon climate resilient development. Projections of GHG emission trends therein identified agriculture (including livestock) as a large and growing source of GHG emissions, accounting for about 30% of Kenya’s total emissions in 2010, 90% of which were from livestock. The action plan highlighted that the agriculture sector offers

11 http://www.oecd.org/trade/xcred/2015-ctryclass-as-of-16-july-2015.pdf; http://data.worldbank.org/country/kenya 12 http://ida.worldbank.org/about/borrowing-countries 13 Kenya Climate-Smart Agriculture Framework Programme 14 https://www.odi.org/sites/odi.org.uk/files/resource-documents/10724.pdf 15 Study conducted for this concept note, Unique Forestry and Land Use GmbH 16 Ministry of Environment and Natural Resources 2015, online available http://www4.unfccc.int/submissions/INDC/Published%20Documents/Kenya/1/Kenya_INDC_20150723.pdf 17 Kenya Vision 2030

http://www.oecd.org/trade/xcred/2015-ctryclass-as-of-16-july-2015.pdf

http://www4.unfccc.int/submissions/INDC/Published%20Documents/Kenya/1/Kenya_INDC_20150723.pdf


significant potential for synergies between food security, poverty reduction, adaptation and mitigation objectives. Kenya’s National Adaptation Plan (NAP) (2015-2030) aims “to consolidate the country’s vision on adaptation supported by macro-level adaptation actions that relate with the economic sectors and county level vulnerabilities in order to enhance long term resilience and adaptive capacity.”18 The project is aligned with Kenya’s NAP in which priority adaptation actions include the enhancement of resilience in agriculture, livestock and fisheries by promoting climate-smart agriculture and livestock development. The Kenya Climate Smart Agriculture Framework Programme (2015-2030) serves to guide stakeholders in the agriculture sector to address the challenges of climate change. The Kenya Climate-Smart Agriculture Strategy (draft 2016) is the avenue through which the agriculture sector will implement the NCCAP, and by extension, the Climate Change Act. This project will support achievement of the highlighted result areas, including increasing agricultural productivity, value chain integration and institutional coordination. The project is in line with the current draft of the National Climate-Smart Agriculture Strategy. The project will also support national and county institutions to fulfill their mandates as set out in the Climate Change Act (2016) and Climate Finance Policy (draft 2016), including mandates for planning of climate response measures and MRV. (ii) Agriculture and dairy development: The Agricultural Sector Development Strategy (2010-2020) sets the overall objective of achieving 7% annual growth rate by increasing productivity, commercialization and competitiveness of the sector. The National Dairy Development Policy (2013) sets the goal of improving the livelihoods of Kenyan dairy industry sector actors in line with Vision 2030, through inter alia increasing productivity and competitiveness. This project is fully in line with these goals and objectives, and will directly support strengthening of private sector capacities to deliver the support services to the dairy sector. Addressing environmental issues and supporting gender-inclusive approaches are also policy objectives highlighted therein. (iii) Energy: Kenya’s National Energy and Petroleum Policy aims “to ensure affordable, competitive, sustainable and reliable supply of energy to meet national and county development needs at least cost, while protecting and conserving the environment”. Specific objectives relevant to this project include: (i) to promote energy efficiency and conservation, (ii) to ensure environmental considerations as well as issues such as climate change are factored into energy sector development, (iii) to promote capacity building in the sector, and (iv) to provide incentives for local and international investments in the sector. The project will directly support implementation of the Energy (Energy Management) Regulations (2012), which require energy management audits and interventions in facilities over a designated scale. Ownership by executing entities and partners: The Ministry of Agriculture, Livestock and Fisheries (MoALF) of Kenya will be the main executing agency in partnership with the AE. The State Department of Livestock (SDL) within MoALF will chair the Project Steering Committee and partner with IFAD in operation of the Project Management Unit, having primary responsibility for execution of the project under agreement with the AE. Specific roles in Sub-component 3.3 (knowledge management) will be taken on by Kenya Dairy Board (KDB), a statutory body mandated to regulate, develop and promote the dairy sector. MoALF (through the State Department of Livestock) and KDB have both been actively involved in leading development of this project concept note. SDL chaired regular meetings to coordinate concept note development with all partners involved, including the Climate Change Directorate of the Ministry of Environment and Natural Resources, and convened multi-stakeholder platform meetings at which the proposed project was discussed with diverse stakeholders. KDB actively facilitated involvement of the private sector and local governments, and officially established a coordination unit to provide substantive input and logistical support to the various meetings and studies conducted during the concept note development process. Since introduction of devolution under the Constitution of Kenya (2010), 47 county governments have responsibility for agriculture and livestock development in their counties since 2013. The Council of Governors, which represents the county governments, will be a member of the Project Steering Committee. The project’s support to dairy productivity through private sector led extension (Component 1) will be coordinated with county government initiatives. Establishment of formal agreements between the processors and county governments will be a precondition for project support to private sector led extension activities. Consultations were held with local government representatives as part of the concept note development process.

18 Republic of Kenya, Ministry of Environment 201, online available http://www.starckplus.com/documents/briefing/National%20Adaptation%20Plan%20(NAP).pdf

http://www.starckplus.com/documents/briefing/National%20Adaptation%20Plan%20(NAP).pdf


The private sector are key delivery partners in the project. The project will enter into agreements with a number of private-sector dairy processing companies in implementation of Component 1. These companies have in recent years begun piloting different models of private-sector financed extension service provision to dairy farmers in their supply chains. Several dairy processors and their suppliers were actively involved in the technical design of the concept note. As a result, the design of these activities directly builds on their ongoing initiatives, and the project will assist the processors and their suppliers to develop and implement financially sustainable extension models, to provide long-term finance after the withdrawal of project technical assistance. In the concept note development stage, a number of processors closely collaborated in project design, but final selection and commitments will be made during implementation planning. Financial institutions are also key partners in investing in dairy productivity and energy efficiency. Most commercial banks in Kenya have previous experience of international cooperation, including management of concessional credit lines and credit guarantee mechanisms. Several financial institutions were involved in consultations on project design. Selection of banks for partnership in financial assistance will be made through competitive tender during project implementation. Stakeholder engagement process and feedback received: This project was initiated following consultations by the State Department of Livestock with dairy sector stakeholders in 2014. Project design has been guided by the State Department of Livestock and Kenya Dairy Board, with technical assistance from national and international partners.19 In this process, numerous activities have been conducted to consult stakeholders (see Annex L), including:

A multi-stakeholder platform meeting (September 2015), attended by 47 farmers, dairy, biogas and financial sector companies, researchers and national and county government officials, served to raise awareness and inform and obtain feedback on the initial concept of the scope and objectives of the project.

Consultations (November 2015) were held with 45 farmers, farmer organization and county government representatives from 8 counties (Muranga, Nyeri, Nyandarua, Kirinyaga, Meru, Embu, Tharaka Nithi, Machakos) to raise awareness and obtain feedback on options for integrating the project with ongoing initiatives at county level.

A second multi-stakeholder platform meeting (August 2016) was held, attended by 71 representatives of dairy and biogas sector companies, financial institutions, civil society organizations, researchers, development partners and government institutions, at which the draft project concept was shared and discussed. The main suggestions made by stakeholders were to enhance coordination between the project and other key initiatives in the dairy sector. This suggestion is reflected in the project design.

Throughout the project design phase, numerous stakeholders were consulted on specific aspects of the project including government officials (Ministry of Agriculture, Livestock and Fisheries (MoALF), Ministry of Environment and Natural Resources (MENR)), dairy processors, dairy sector association representatives, commercial hay growers, financial institutions, biogas companies, development organizations and national and international research organisations. In accordance with procedures established by the NDA, this concept note has been reviewed by the national technical committee and is submitted to the GCF for feedback by the NDA.

D.6. Effectiveness and efficiency [Economic and financial soundness and effectiveness of the proposed activities]

Key efficiency and effectiveness indicators: (a) Total project financing $222.61 million (b) Requested GCF amount $56.06 million (c) Lifetime emission reductions 8.80 million t CO2e (d) Estimated cost per tCO2e (d = a/c) $25.29/tCO2e (e) Estimated GCF cost per tCO2e (e=b/c) $6.37/tCO2e Co-financing ratio: Total project financing is $222.61 million, and the GCF contribution is $56.06 million, making a co-financing ratio of 1: 2.97 (i.e. third-party finance / GCF cost). The GCF cost is 25% of the total project financing. Concessionality: Justification for concessionality is presented in detail in Annex C, both in terms of project characteristics and in terms of Kenya’s vulnerability to climate change and eligibility for concessional terms.

19 UN FAO, CCAFS, UNIQUE forestry and land use GmbH, ILRI.


Financial and economic returns: Financial and economic returns to investments in each project sub-component are positive and exceed a financial IRR benchmark of 12.5% and a social discount rate of 7%, as reported in the feasibility studies in Annexes D-I.

E. Brief Rationale for GCF Involvement and Exit Strategy

Value-added of the GCF contribution: All costs, activities and impacts elaborated in this concept note are additional to the baseline activities and investments currently undertaken and projected to be undertaken by stakeholders. The baseline scenarios for each project sub-component are detailed in the feasibility studies in Annexes D-I. In terms of GHG emissions, the business-as-usual scenario for Kenya’s dairy sector (Annex B) projects an increase by 46% to 41 million t CO2e per year in 2030, while a scenario consistent with the emission pathway set out in this project would reduce emissions by 59% compared to the BAU scenario. Thus, without GCF funding, these impacts will not be achieved.

Dairy extension services planned by processors currently cover 35,100 households, which is 23% of those targeted by the project. In the absence of the project, coverage is expected to increase at a slow rate. Increases in on-farm milk productivity would therefore be much slower, and integration of gender, manure management and animal welfare components will not occur without support from the project. The dairy sector is little understood by many financial institutions, and dairy accounts for a very small proportion of these institutions’ loan books. Dairy cooperatives and farmers thus face severe credit constraints and investment in low-emission dairy development remains at a low level. In the absence of this project, farmers with limited assets, financial access and social capital with which to withstand climate shocks and invest in adaptation, will remain vulnerable to climate risks. Although the commercial fodder sub-sector has begun to develop in recent years, limited access to technical support and finance, and lack of marketing infrastructure would constrain commercial fodder supply and uptake by farmers, impacting both dairy productivity as well as resilience to droughts. Current donor funded projects are building capacities for conducting energy audits in the dairy sector, but existing financing mechanisms are insufficient to meet expected demand, and commercial banks require technical assistance to support engagement with this new type of investment. International NGOs have been supporting biogas promotion in Kenya for some years, but high barriers to initial investment and limited capacities of biogas service providers mean that adoption rates are likely to remain low in the absence of the project. Therefore, this project builds on existing proven experience, and GCF financing will enable significant upscaling of low-emission, climate resilient gender-inclusive dairy development approaches that would not occur without the additional finance provided by the GCF.

Long-term sustainability and exit strategy: Long-term sustainability is fundamental to the approach underlying the project design. The central focus of the project is to assist and incentivize the private sector – including dairy processors, cooperatives, service providers, commercial financial institutions and savings and credit cooperatives (SACCOs) – to support low-emission, gender inclusive dairy development. Innovation and adoption of commercially viable business models for support to the sector will ensure that interventions can continue on a commercial basis following the withdrawal of project support. For dairy extension services, the focus of the project is to assist the main dairy processors to develop and implement effective gender-inclusive extension support to cooperatives and dairy farmers using innovative financing mechanisms (see Annex D) that will enable extension services to be financed from within the supply chain, without dependence on third-party financing. The project will also build the capacities of financial institutions to support credit finance to dairy cooperatives and farmers (see Annex E). Most commercial financial institutions have a short history of engagement with the dairy sector. The project will assist financial institutions to establish links with dairy cooperatives and SACCOs to expand financial access, and support cooperatives to implement processes to increase the visibility of dairy farmers’ financial track records, and will build financial institutions’ capacities to develop financial products that are appropriate to dairy sector needs. Investment in energy efficiency and renewable energy is also a very new area of investment for financial institutions (see Annex G). The project will provide support to banks in understanding the investment opportunities and risks associated with this type of investment. Concessional finance provided by the GCF will be used to incentivize financial institutions to engage with this new client need, while TA will build related capacities. As financial institutions gain a better understanding of actual as opposed to perceived risks, their willingness to support the sector is expected to increase. Thus, effective support to private sector engagement in low-emission, gender-inclusive dairy development is the main project strategy to ensure sustainability after the project.

In the current policy context, the role of government is primarily to provide support to private sector actors, to ensure institutional coordination and to create an enabling environment. The project will build the capacities of national agencies in the dairy and climate change sectors to perform these functions, by building institutional capacities and strengthening collaboration with dairy sector stakeholders throughout the project period. Strong ownership by national agencies will ensure that these functions continue beyond the project lifetime.

F. Risk Analysis

Implementation risks and mitigating measures: The main operational risks identified and their mitigation measures are presented in the table below. Management risks will be averted by adhering to the AE’s Operational Policies and Procedures.

Risks Related Sub-components Mitigation measures


Drought affects milk yields, animal health and fodder yields

SC 1.1, 1.2 Inclusion of animal health providers, fodder storage and water harvesting in technology extension packages

Milk price volatility SC 1.1, 1.2, 2.1 Capacity building of dairy cooperatives on market research, strengthening terms and conditions in long-term milk supply contracts

Lack of uptake of financial products SC 1.1.1, 1.2.1 Financial literacy training

Link target groups with financial institutions and strengthen capacities for on-lending through SACCOs

Capacity building to financial institutions for appropriate product development

Weak coordination of and inefficient provision of technical extension services

SC 1.1.1, 1.2.1, 2.2.1 Coordination of public and private service provision

Outsourcing to qualified technical service providers (TSPs) and capacity building for TSPs

Develop, disseminate and train TSPs in good practice guidance

Management of complex, multi-sector project

All components Capacity building to project management units

Ensure resources for monitoring, supervision and timely feedback

Environmental and social risks and the proposed risk mitigating measures: An initial screening of environmental and social risks has been conducted following the IFC Performance Standards. Specific findings for each sub-component are detailed in the feasibility studies in Annexes D-I, and a summary of environmental and social risks and their mitigation measures is given in Annex K. The main significant risks identified include:

Inefficient use of water and energy resources and potentially waste management at processor level;

Manure management at dairy farm level;

Inadequate protective clothing during the application of chemicals (herbicides, fertilizer) for hay production;

Inefficient application of chemicals (herbicides, fertilizer) for hay production risking pollution of the environment;

Inappropriate application of bio-slurry risking potential contamination of crops and groundwater with harmful pathogens.

Mitigation measures for these and other identified risks have been designed into the activities of each sub-component (see Annexes D-I). Environmental and social risks will be managed in accordance with the AE’s Social, Environmental and Climate Assessment procedures.

G. Multi-Stakeholder Engagement

Please specify the plan for multi-stakeholder engagement, and what has been done so far in this regard.

As described in Section D.5 and Annex L, a multi-stakeholder platform has been initiated as part of the project development process. Project Component 3.4 proposes to continue broad stakeholder involvement through multi-stakeholder platform activities. It is envisaged that under the platform specialized working groups will develop focusing on stakeholder engagement, coordination and public-private policy dialogue with regard to specific areas of interest (e.g. dairy sector finance, energy interventions in the dairy sector, gender inclusive approaches etc). The platform and working groups will ensure feedback on the project process and effectiveness from a wide range of stakeholders, from farmers through civil society organizations, county governments to businesses, researchers and other stakeholders. In addition, the AE’s Social, Environmental and Climate Assessment Procedures detail operational procedures for ensuring effective stakeholder engagement, including a procedure to respond to alleged complaints from project-affected individuals and communities.

H. Status of Project/Programme

1) A feasibility study has been conducted (see Annexes A-K) 2) Please indicate whether a feasibility study and/or environmental and social impact assessment has been

conducted for the proposed project/programme: Yes ☒ No ☐ Results of a screening of environmental and social risks is reported in Annex K.

3) Will the proposed project/programme be developed as an extension of a previous project (e.g. subsequent phase),

or based on a previous project/programme (e.g. scale up or replication)? Yes ☐ No ☒ (If yes, please provide an evaluation report of the previous project in section J, if available.)


I. Remarks

List of annexes:

Annex A Results framework

Annex B GHG emission reductions

Annex C Justification of concessionality

Annex D Feasibility study for Component 1 (1.1.1 Processor-led provision of gender-inclusive extension services to their suppliers)

Annex E Feasibility study for Component 1 (1.1.2 Financial assistance for on-farm investments by farmers and cooperatives)

Annex F Feasibility study for Component 1 (1.2 Increased commercial production and marketing of fodder)

Annex G Feasibility study for Component 2 (2.1 Energy efficiency and renewable energy in cooling and processing facilities)

Annex H Feasibility study for Component 2 (2.2 Male and female farmers adopt biogas technologies on dairy farms)

Annex I Feasibility study for Component 3 (Strengthened institutional and stakeholders’ capacities for scaling-up low-emission dairy development)

Annex J Feasibility study for Component 4 (Project coordination and management)

Annex K Social and environmental safeguard screening

Annex L Stakeholder engagement process

J. Supporting Documents for Concept Note

☒ Map indicating the location of the project/programme

☒ Financial Model

☒ Pre-feasibility Study

☒ Feasibility Study (if applicable)

☐ Environmental and Social Impact Assessment (if applicable)

☐ Evaluation Report (if applicable)

ANNEXES

Annexes ......................................................................................................................................... 1

a. Results framework ................................................................................................................... 2

b. GHG emission reductions ....................................................................................................... 10

c. Justification of concessionality .............................................................................................. 17

d. Feasibility study for Component 1 (1.1.1 Processor-led provision of gender-inclusive

extension services to their suppliers) ......................................................................................... 21

e. Feasibility study for Component 1 (1.1.2 Financial assistance for on-farm investments by

farmers and cooperatives) .......................................................................................................... 31

f. Feasibility study for Component 1 (1.2 Increased commercial production and marketing of

fodder) ......................................................................................................................................... 43

g. Feasibility study for Component 2 (2.1 Energy efficiency and renewable energy in cooling and

processing facilities) .................................................................................................................... 51

h. Feasibility study for Component 2 (2.2 Male and female farmers adopt biogas technologies

on dairy farms) ............................................................................................................................ 58

i. Feasibility study for Component 3 (Strengthened institutional and stakeholders’ capacities

for scaling-up low-emission dairy development) ........................................................................ 65

j. Feasibility study for Component 4 (Project coordination and management) ....................... 76

k. Social and environmental safeguard screening ..................................................................... 78

l. Stakeholder engagement process .......................................................................................... 87

2

A. RESULTS FRAMEWORK

Figure A.1 summarizes the project results framework. Details are given in the tables that follow.

Paradigm Shift Objectives and Impacts at the Fund level

Paradigm shift objectives

(a) Shift to low-emission sustaina-ble development pathways

Low productivity of dairy cows and inefficient use of energy resources contribute to the high GHG footprint of Kenya’s dairy sector, as well as reduced financial returns to men and women farmers and companies in the sector. Addressing these constraints requires increased private sector investment in dairy supply chains and energy technologies. Therefore, the objective of this project is to trans-form Kenya’s dairy sector to a low-emission and climate resilient development pathway, while improving the livelihoods of male and female dairy producers.

Expected Result Indicator Means of Verification (MoV)

Baseline

Target

Assumptions Mid-term (if applicable)

Final

Fund-level impacts

3

(b) Tonnes of carbon dioxide equivalent (t CO2eq) re-duced as a re-sult of Fund-funded pro-jects/ pro-grammes

tCO2e reduced from on-farm dairy production

Ex ante esti-mate and pro-ject monitoring

0 1,050,000

4,135,278 Ex ante estimate produced using methodology de-scribed in Annex B.

tCO2e reduced or avoided from gender sensitive biogas energy generation

Ex-ante esti-mate and pro-ject monitoring

0 5-year pe-riod: 366,000

Lifetime: 1,708,000

Ex ante estimate produced using methodology de-scribed in Annex B.

tCO2e reduced through energy efficiency and re-newable energy technologies in dairy processing


0 1,982,891 2,959,539 Based on analysis in Annex G. Quanti-fication will use ex ante estimates of mitigation potential in approved credit proposals.

(c) Cost per t CO2eq de-creased for all Fund-funded mitigation pro-jects/ pro-grammes

Cost per tCO2e reduced

0 6.37 ‘Final’ figure repre-sents GCF cost of lifetime emission reductions

(d) Volume of finance lever-aged by Fund funding

Volume of fi-nance leveraged (US$ million)


0 110.0 166.5 Includes incremen-tal cash invest-ments from govern-ment, private sector and the AE

Adoption of low-emission, climate resilient practices by male and fe-male dairy farmers

Number of households ben-efiting from ex-tension of low-emission dairy production and biogas measures


35,000 127,700 153,000 Assumes 70% of suppliers of partici-pating firms are provided with ex-tension services. See Annex D for detailed assump-tions.

Gender dis-aggregated adoption of measures (indi-vidual beneficiar-ies)


M: 49,266 F: 49,266

M: 179,750 F: 179,750

M: 215,000 F: 216,000

Figures presented are working age M and F assuming average family size of 5.1 per household.

Male and female dairy farmers reg-ister an increase in annual income from dairy prod-ucts

Increase in household dairy enterprise net in-come (Ksh)


5850 7300 8930 Figures derived from financial anal-ysis in Annex D.

% of households where women, or men and women jointly control over dairy enterprise income


40% 80% 80% Actual baseline fig-ure to be deter-mined by detailed baseline surveys during project im-plementation

Decrease in number and pro-


75% 65% 55%1 Actual baseline fig-ure to be deter-mined by detailed

1 Household food security baseline estimated using the Household Food Insecurity Access Scale (HFIAS), baseline figures estimated from M'Kaibi et al (2016)

4

Male and female dairy farmers reg-ister an increase in food sufficiency and diversity

portion of house-holds reporting severe food in-sufficiency

baseline consump-tion surveys during project implemen-tation

Increase in pro-portion of house-holds reporting improvement in dietary diversity score2

0 50% 75% Actual baseline fig-ure to be deter-mined by detailed baseline consump-tion surveys during project implemen-tation

Gender-inclusive policies, institu-tions, frameworks that improve in-centives for cli-mate resilience and their effective implementation

Number of gen-der inclusive pol-icies, extension services and customer ser-vices

0 9 9 Assumes 100% of partnering dairy processors, biogas companies as well as Kenya Dairy Board and the State Department of Livestock adopt and implement gender-inclusive policies and mech-anisms

2 Guidelines for Measuring Household and Individual Dietary Diversity (FAO 2015)

5

Outcomes, Outputs, Activities and Inputs at Project/Programme level

Expected Result

Indicator Means of Ver-ification (MoV)

Base-line

Target

Assumptions Mid-term (if

applica-ble)

Final

Project/pro-gramme out-comes

Outcomes that contribute to Programme-level impacts

1. Increased dairy produc-tivity through private sector investment in gender-inclu-sive extension services and fodder supply

Increased average milk yield per cow per year (li-ters per cow per year)

Ex-ante estimate and project moni-toring

1,560 3,200 3,200 Based on analysis in An-nex D. Actual baseline figure to be determined by detailed baseline sur-veys during project im-plementation

% of households where women, or men and women jointly control over dairy enterprise income


40% 80% 80% Actual baseline figure to be determined by de-tailed baseline surveys during project implemen-tation

Volume of private sector fi-nance leveraged ($ million)

Project monitor-ing of invest-ments by private sector partners

1 35 107 Baseline includes current annual investment by NKCC, MCDCU and Mukurweini in extension. Indicator includes invest-ment by processors and banks in Component 1.1.2.

2. Reduced high-emission energy use in the dairy sector

Reduced energy (GWh) consumed from high emis-sion sources against busi-ness as usual in milk col-lection, cooling and pro-cessing facilities over life time of projects


0 29,802 44,480 Indicator refers to adop-tion that is additional to existing technologies in the baseline and is based on ex ante esti-mates of abatement po-tential in approved pro-posals.

Reduced deforestation due to wood energy use on dairy farms adopting bio-gas (m3 fuel wood avoided)

Ex ante estimate and calculation on basis of bio-gas utilization monitoring data

0 636,600 1,697,

600

Assumes wood density of 1.43 m3/t, 7.42 t/hh/yr displaced by biogas use.

Number of beneficiaries using biogas (gender dis-aggregated)


M: 0 F: 0

M: 20,000 F: 20,000

M: 20,000 F: 20,000

Indicator refers to adop-tion that is additional to existing biogas units in the BAU scenario.

3. Strength-ened institu-tional and stakeholders’ capacities for scaling-up low-emission dairy development

Operational linkages be-tween project M&E system and national MRV systems


0 1 1 Number of linkages be-tween project and na-tional M&E/MRV sys-tems

Number of dairy sector stakeholders aware of low-emission, gender-inclusive best practices


M: 0 F: 0

M: 600,000 F: 600,000

M: 600,000 F: 600,000

Indicator refers to aware-ness among stakehold-ers that is additional to the baseline.

4. Project coor-dination and management

Percentage of manage-ment reports (M&E, safe-guards, procurement, fi-nancial management) pre-sented within 45 days of the end of the relevant pe-riod

Project manage-ment systems and supervision missions

n/a 100% 100%

6

Percentage of procure-ment activities executed in conformity with the pro-curement plan, the imple-mentation manual, and IDA procedures

Project manage-ment systems and supervision missions

n/a 100% 100%

Project/ programme outputs

Outputs that contribute to outcomes

1.1 Increased adop-tion by men and women dairy farmers of productivity-en-hancing, low-emis-sion on-farm milk production practices

Increase in number of men and women using recommended prac-tices


M: 49,266 F: 49,266

M: 215,000 F: 216,000

Figures presented are working age M and F assuming av-erage family size of 5.1 per household.

Increase in coopera-tives and dairy farmers (men and women) ac-cessing formal finan-cial services


Co-ops/SMEs: 0 Farmers: 0

Co-ops/SME: 1194 Farmers: 100,000

Co-ops/SME: 2388 Farmers: 208,000

Indicator refers to number of loans that are additional to the baseline.

1.2 Increased com-mercial production and marketing of fod-der

Increase in weight of hay marketed (Mt)


13.5 Mt 20.2 Mt 28.1 Mt Includes marketed supply by commer-cial smallholders and Rift Valley Hay Growers Assn.

2. 1 Dairy coopera-tives and processors implement technolo-gies to increase en-ergy efficiency and use of renewable en-ergy

Number of energy effi-ciency and renewable energy interventions made by dairy cooper-atives and processors supported by the pro-ject


0 25 50 Indicator refers to number of invest-ments that are addi-tional to the baseline.

2.2 Men and women adopt biogas tech-nologies on dairy farms

Number of biogas units in use


0 20,000 20,000 Incremental to base-line

3.1 Project monitor-ing and national MRV systems are established

Project monitoring and evaluation system that is linked to national MRV systems has been established

National MRV reports

0 1 1

3.2 Best practices are captured and shared among dairy sector stakeholders

Number of best prac-tices disseminated


0 50 100 Includes dissemina-tion through diverse media, targeted to stakeholders needs

3.3 Coordination among dairy sector stakeholders

Number of multi-stake-holder platform work-ing group meetings held


0 40 80 Assumes 4 active working groups with at least 2 meetings per year

7

Activities Description Inputs Description

Component 1: On-farm dairy productivity 1.1.1 Processor-led provi-

sion of gender-inclusive

extension services to their

suppliers

(a) Processor-led financing models put in place

(b) Build capacity for gender-inclusive extension services

(c) Build capacity for animal welfare in extension

(d) Build capacity for manure man-agement in extension

(e) Capture and share best practices and lessons learned

Partnership agreements with proces-sors Consultants

Dairy extension services are provided by processor-led partnerships with sup-pliers and extension service providers. The project will support: refinement of extension delivery mod-els; build the capacity of extension agents to apply gender-inclusive approaches, improve animal welfare and address environmental impacts of manure.

1.1.2 Provision of finance for on-farm and coopera-tive investments via bank lending and bank on-lend-ing to SACCOs

(e) Tendering process for bank selec-tion

(f) Establish environmental & social safeguard systems with partner banks

(g) Capacity building to banks and SACCOs for improved product de-velopment and MIS

(h) Monitor lending activities

Staff & con-sultant inputs Loans & guar-antees

The project will support commercial banks and microcredit institutions to provide finance to dairy cooperatives and dairy farmers, including via on-lending through SACCOs. Capacities of all FIs will be strengthened in the ar-eas of product development, MIS, and other areas tbc.

1.2.1 Technical assistance

to commercial fodder pro-

ducers and fodder pro-

ducer associations

(a) TA on agronomic measures to in-crease yields

(b) TA on business strategy develop-ment and market facilitation for Rift Valley Hay Growers’ Association

(c) Produce social & environmental safeguard guidance and tools for commercial growers and FIs to use

(d) Capacity building to banks to im-plement safeguard screening in lending to commercial growers

Staff & con-sultant inputs

The project will make technical advi-sory services available to commercial growers; procure consultant services to assist the Rift Valley Hay Growers’ As-sociation to upscale supply chain man-agement and market linkages; and en-sure that commercial growers and banks supported implement appropri-ate safeguards against social and envi-ronmental risks.

1.2.2 Financial assistance

for investments in commer-

cial fodder production and

marketing

(a) Tendering process for bank selec-tion

(b) Establish environmental & social safeguard systems with partner banks

(c) Monitor lending activities

Staff & con-sultant inputs Loans

The project will provide concessional loans to FIs on performance-based terms to leverage FI credit for hay pro-duction machinery and storage invest-ments by commercial growers.

Component 2: Reduced high emission energy use in the dairy sector

2.1.1 TA to support cooper-

atives and processors for

energy audits and invest-

ment proposal preparation

(a) Tendering process for qualified en-ergy auditors

(b) Inform dairy cooperatives and pro-cessors of the terms of co-invest-ment in energy audits

(c) Request for proposals for energy audits

(d) Procure consultant inputs for en-ergy audits

(e) Implement energy audits

Staff & con-sultant inputs

The project will co-invest with dairy co-operatives (70:30) and processors (50:50) in energy audits and TA support to produce investment-grade proposals


for investments in energy

efficiency and renewable

energy

(a) Tendering process for bank selec-tion

(b) Establish environmental & social safeguard systems with partner banks

(c) Monitor lending activities

Staff & con-sultant inputs Loans

The project will make available conces-sional loans to selected FIs to leverage FI credit for energy efficiency and re-newable energy investments by coop-eratives and processors

8

2.2.1 TA to biogas compa-

nies for development of

business operations

(a) tender for business development ser-vices from experienced provider(s) (b) implement business development support

Grant finance for business development services ten-der Staff & con-sultant inputs

Experienced provider(s) will be chosen to provide business development ser-vices to biogas service companies. Re-quests for services by biogas compa-nies will be reviewed by the provider and the PCU, and service delivery co-ordinated by the provider.


for adoption of biogas by

farmers

(a) develop eligibility criteria for biogas service providers (b) Tendering process for bank selection (c) Establish blended grant/loan manage-ment systems and safeguard screening within selected FIs (d) provide 40% grant subsidy per appli-cation and loan finance for 80% of re-maining costs

Grant subsi-dies Concessional loans Staff & con-sultant inputs

Grant subsidies reduce cost to farmers of adoption. Project to provide 25% of the loan value required, leveraging 75% from participating banks. Farmers will pay minimum 20% of total cost of biogas units to secure the loan.

2.2.3 Ensuring implemen-

tation of environmental and

social safeguards by bio-

gas service companies and

financial institutions

Tender for TA to produce social and en-vironmental guidelines to be followed by all eligible biogas service providers

Grant finance for experi-enced consult-ant to draft so-cial and envi-ronmental guidelines

Guidelines will be produced and eligible biogas service providers required to demonstrate compliance with the guidelines in their operations

2.2.4 Monitoring and eval-

uation

Monitor project activities, outputs and outcomes, including continued use of bi-ogas units by supported users; imple-mentation of safeguards and post-sales services by eligible biogas service provid-ers; finance leveraged.

Grant finance for monitoring activities

Monitoring by project staff

Component 3: Strengthening capacities of national institutions and stakeholders

3.1.1 Capacity building for

project participants and na-

tional organizations in

MRV

(a) Detailed design of project M&E system and linkages with national MRV+ and climate finance tracking systems

(b) Identification of capacity needs for operation of linked systems

(c) Delivery of capacity building sup-port

Consultant in-puts Training

The activities will be implemented in close collaboration with related Minis-tries and agencies.

3.2.1 Monitoring and eval-

uation of project outputs,

outcomes & impacts

(a) Establish project M&E system; (b) Monitor, check data quality, report

to PSC (c) PSC assessment of progress, out-

puts, outcomes and issues arising to inform corrective measures and work plans

Staff inputs Project M&E system will meet reporting and accountability needs of GoK, AE and GCF.

3.2.2 Share good practices and lessons for adoption and replication

(a) Elaborate knowledge management plan (b) Capture good practices, undertake evidence studies (c) Develop user-targeted knowledge products in different media (d) Disseminate good practices and les-sons to targeted users

Staff inputs Travel costs Knowledge product media costs (printing, production etc) Dissemination activity costs

Good practices and lessons will be cap-tured, developed into user-targeted materials (including training materials) and disseminated to participants in Components 1 and 2 and more broadly in the dairy sector. AE knowledge man-agement will ensure international dis-semination.

3.3.1 Stakeholder coordi-nation

(a) Convene multi-stakeholder platform (MSP) meetings (b) Establish MSP working groups (c) Facilitate MSP and working group ac-tivities

Grant finance for MSP activi-ties Staff facilita-tion costs

MSP and working groups will bring to-gether diverse stakeholders to coordi-nate activities related to key topics of mutual interest. Participation of farm-ers, dairy cooperatives, women and other marginalized groups to be en-sured.

9

Component 4: Project coordination and management

4.1 Establish project man-

agement unit (PMU)

(a) Establish PMU operation proce-dures

(b) Recruit staff (c) Ongoing implementation (d) Supervision missions

Staff inputs

PMU operations in line with AE policies and procedures.

4.2 Establish project steer-

ing committee (PSC)

(a) agree ToR for PSC (b) convene regular PSC oversight meet-ings

Staff inputs PSC to involve AE, partner ministries and other key stakeholder representa-tives tbc

4.3 Coordinated imple-mentation

(a) preparation of annual work plans (b) implementation of tasks in annual work plans

Staff in puts

4.4 Staff management, fi-nancial management, pro-curement, work planning and supervision missions.

Management activities in line with GoK and AE policies and procedures

Staff inputs

10

B. GHG EMISSION REDUCTIONS

The four sub-components of the project are expected to have significant impacts on GHG emis-

sions associated with milk production and processing. Ex ante estimates of emission reductions

are shown in Table B.1. In particular, considering that this is a first-of-a-kind project with signif-

icant mitigation effects due to improved productivity of dairy cows, the purpose of this Annex is

to explain how the project activities will reduce GHG emissions and explain the methodologies

used to make ex ante emission reduction estimates.

Table B.1: Ex ante estimate of emission reductions (tCO2e) from project components

Project component Estimated emission reductions over

10 years of project implementation

Estimated lifetime

emission reductions

Output 1.1: On-farm dairy

productivity

4,135,000 4,135,000a

Output 1.2: Fodder production

and marketing

-b - b

Output 2.1: Energy efficiency

and renewable energy in milk

collection, chilling and pro-

cessing

2,959,539 c 2,959,539c

Output 2.2: Biogas utilization 976,000 1,708,000 d

Total 8,070,539 8,802,539

a Estimated over 10 years; b Not estimated, as explained in Section 2 below; c Estimated over lifetime of

technologies adopted and expected investment approvals within the project time frame; d Assuming av-

erage lifetime of 15 years.

1. Emission reductions from increasing on-farm dairy productivity

1.1 Overview of dairy GHG emissions: Dairy cows are a source of methane from enteric fermen-

tation and methane and nitrous oxide from manure and manure management. Production of

inputs to dairy production also emits GHGs, among which significant sources include the ferti-

lizer used in feed production and CO2 emitted in feed processing activities.3 Detailed modelling

by UN FAO for preparation of this project suggests that in the different production systems in

Kenya, on average 67% of total CO2e emissions are from enteric fermentation, 31% from manure

management and deposit of manure on pasture and 2% from feed production and processing.4

The modelling used an IPCC Tier 2 approach to estimate dairy cow emissions, and a detailed

methodology developed by FAO for estimation of other life cycle emissions.5 Analysis shows that

3 Opio, C. et al., 2013. Greenhouse Gas Emissions from Ruminant Supply Chains: A global life cycle assessment. FAO, Rome. 4 These results are taken from the CCAC funded Enteric Methane Component. For more information see: http://www.fao.org/in-action/enteric-methane/en/ 5 Opio, C. et al., 2013. Greenhouse Gas Emissions from Ruminant Supply Chains: A global life cycle assessment. FAO, Rome.


11

for Kenya as a whole, for each kg of milk produced, about 5.2 kgCO2e are emitted. This figure is

lower in semi-intensive and intensive production systems (ca. 3.1 and 2.6 kgCO2e/kg of milk).

Total emissions from dairy production consist of two main elements: emissions related to

maintenance of the animal and emissions related to the actual production of animal products,

such as milk. Because of this fundamental relationship, as production increases the contribution

of maintenance emissions decreases relative to the production-related emissions, and there is

a negative relationship between GHG emission intensity of dairy production (kg CO2e/kg milk)

and milk yield per cow per year. This relationship is shown schematically in Figure B.1. For Kenya,

this relationship was derived for three common dairy production systems (intensive, semi-in-

tensive and extensive) using data from actual milk yield and estimated emission intensity per kg

fat and protein corrected milk.

Figure B.1: Relationship between milk yield per cow and GHG intensity in different dairy pro-

duction systems in Kenya

Methane from enteric fermentation is strongly driven by the digestibility of feed, since more

digestible feeds enable cows to convert more of the feed energy into milk, rather than release

it in the form of methane. Other management practices that improve cow milk yield (e.g. pre-

vention and treatment of disease, improved calf management, improved breeds) thus also af-

fect GHG emissions. Therefore, as milk yield per cow increases, the GHG intensity of milk pro-

duction decreases, and there is a strong synergy between yield increases and reduction in GHG

emission intensity. Similar to transport emissions, where total distance travelled increases as

countries develop, but CO2 emitted per km travelled can be decreased by mitigation actions,6 so

in the dairy sector as incomes rise and the urban population increases, demand for consumption

of milk in Kenya is increasing. By increasing dairy cow productivity through technical extension

6 GHG Protocol (n.d.) Calculating CO2 emissions from mobile sources. www.ghgprotocol.org/files/ghgp/tools/co2-mobile.pdf

0

2

4

6

8

10

12

60

0

80

0

10

00

12

00

14

00

16

00

18

00

20

00

22

00

24

00

26

00

28

00

30

00

kgC

O2

e/k

g m

ilk

kg milk per cow per year

Kenya

Intensive

Semi-intensive

Extensive

12

(Output 1.1) and better availability of more digestible feed (Output 1.2), the project will de-

crease the GHG emission intensity of milk production (kgCO2e/kg of milk), thus meeting national

food security objectives with a lower climate impact.

1.2 Dairy sector GHG emission scenarios: The contribution of the project to emission reductions

at national scale was explored through scenario analysis. The analysis uses Kenya’s national

greenhouse gas inventory and commitments (INDC), and Kenya’s Dairy Master Plan (DMP), in

which per capita milk demand is forecast to expand from the current levels of 110 kg per person

to 220 kg per person in 2030. This target provides the starting point for estimating future emis-

sions and emission reduction potential of the sector. Three scenarios were constructed:

The current sustained growth scenario (i.e. business as usual, or BAU, scenario) assumes the absence

of specific targeted actions to increase milk productivity. Increase in milk yield per cow from the cur-

rent national average of 1800 kg per cow will continue to grow at historical rates at 3% per annum to

2030 with the dairy cattle herd accounting for 80% of the milk produced domestically.

The slow expansion scenario uses the animal productivity targets defined in the DMP, which assumes

that in order to meet the 220 kg per capita milk consumption in 2030, dairy cattle milk productivity

will have to reach 4500 kg per cow, which implies strategic interventions to improve animal produc-

tivity. This scenario recognizes that while growth is realistic, there will be a number of constraints such

as land, feed, markets, or policies that will limit the achievement of 4500 kg. As such, it is assumed

that milk yield in this scenario reaches 4000 kg per cow by 2030, implying annual average growth rates

in per cow milk yield of 5%.

The faster efficiency gains scenario builds on the slow expansion scenario but assumes faster and

greater increases in animal performance. It is assumed that 4500 kg per cow milk yield is achieved

earlier in 2025 due to accelerated intervention in the sector, implying annual average growth rates in

milk yield of 10%. This scenario corresponds to the project intervention (see Annex D).

To derive the total milk demand to 2030, the projected human population7 was multiplied by

the per capita demand for dairy products. This total was then multiplied by a factor of 0.8 to

account for the fact that 80% of the total domestic milk is produced by the cattle dairy sector.

Based on this, total domestic milk demand from dairy cattle sector is expected to increase 3.4

fold, from 3.4 to 11.5 billion litres. Using the average annual milk yield and the total milk demand

per year, the total national milking herd required to produce was estimated. Assuming BAU

yields per cow, to produce 11.5 billion litres in 2030 will require a national population of 4.1

million lactating cows, which implies an increase in the total dairy cattle herd from the current

4.3 million to almost 7.5 million head in 2030.

Emission intensities, absolute emissions and the reduction potential associated with the three

scenarios are derived using the Gold Standard Methodology for the Quantification of GHG emis-

sion reductions from improved management of smallholder dairy production systems using a

standardized baseline8.

7 UN DESA (2015). World Population Prospects 2015 Revision. https://esa.un.org/unpd/wpp/ 8 The Gold Standard Smallholder dairy methodology (2016), http://www.goldstandard.org/sites/default/files/documents/gs_dairy_methodology.pdf

http://www.goldstandard.org/sites/default/files/documents/gs_dairy_methodology.pdf

13

Figure B.2: Historical and projected trends in emissions for the Kenyan dairy sector

Figure B.2 summarizes the main findings from this assessment. In the BAU scenario, emissions

are expected to grow to grow to more than 22 million t CO2e per year in 2030. Compared to the

BAU scenario, absolute GHG emissions (and emission intensities) are projected to decline in both

scenarios, reflecting the continued improvements to production efficiency achieved via im-

proved animal productivity. Compared to the BAU scenario, the percentage reduction achieva-

ble in 2030 is in the range of -24% and -59%.9 This reduction represents between 13% to 31% of

the Kenyan INDC mitigation target of 43 million tonnes CO2 eq. in 2030.

The project’s interventions to increase milk productivity are in line with the “faster efficiency

gains” scenario, but targets dairy farmers supplying the main dairy processors in the formal sec-

tor. These targeted farmers currently manage about 14 percent of the national dairy herd.

Therefore, the project will realize only part of the technical potential described above. Projecting

milk yield trends associated with the specific interventions planned for 5 of the main processors

(see Annex D), and using the relationship between yield and GHG intensity shown in Figure B.1,

the project is projected to result in accumulated emission reductions of 4.14 million t CO2e over

the 10 year project period. This represents about 15.5% of the potential reductions in the faster

efficiency gains scenario, contributing almost 10% to the INDC mitigation target.

1.3 Measurement of GHG emissions during project implementation: Quantification of GHG

emissions due to enteric fermentation, manure management, feed production and other pro-

duction processes for large numbers of small holders with diverse feeding and management

practices can be complex. This complexity can be reduced by conducting regional baseline sur-

veys to produce standardized measures of GHG performance (e.g. as illustrated in Figure B.1),

which enables GHG emissions to be estimated by measuring milk yields. Data on milk yields is

also required by farmers to measure their own performance, by extension workers to enable

9 These reductions represent the maximum technical mitigation potential achievable if interventions are applied to the entire dairy sector.

14

them to provide relevant technical advice, and by cooperatives or processors to plan milk pro-

curement. Therefore, collection of data on milk yields by extension agents during the project

will be a key basis for quantification of project GHG emission reductions.

2. Emission reductions from increased and optimized fodder supply

Increasing the volume of hay produced and marketed to smallholder dairy farmers will increase

direct GHG emissions from hay production due to increased use of farm machinery, fertilizer

and vehicles for transport of hay. If appropriate safeguards are not in place, conversion of natu-

ral grassland or other natural habitats to hay production can also reduce soil and vegetation

carbon stocks. Therefore, stringent safeguard procedures will be applied to any project financed

with project resources to ensure that these risks are abated.

According to the methodology for quantification of GHGs from smallholder dairy production,10

quantification of the GHG intensity of milk production considers GHG emissions in feed produc-

tion processes, including GHG emissions embodied in fertilizer and machinery used. The meth-

odology requires that these emissions are quantified using an approach consistent with ISO guid-

ance on product lifecycle analysis.11 A study in Kenya is currently planned to quantify life cycle

GHG emissions from commercial hay production.

Although increased production of hay increases GHG emissions in the hay production process,

because quality commercial hay has a higher digestibility than fodder available on many small-

holder farms during the dry season, it contributes to a lower intensity of enteric fermentation

emissions from dairy cattle. For this reason, GHG emissions and emission reductions from com-

mercial fodder production have not been separately estimated in this proposal. The GHG effects

of increased production of high quality hay are captured in the estimate of emission reductions

from dairy production (described in Section 1 of this Annex).

3. Emission reductions from adoption of energy efficiency and renewable energy

technologies in milk chilling and processing

In Kenya, about 30% of milk produced is sold to the formal market for processing. Milk is pro-

cessed to produce pasteurised and homogenised market milk, butter, cheese, yogurt, custard

and dairy desserts, and long-life (UHT), condensed, evaporated or powdered milk products. Milk

processing uses significant amounts of energy (0.5–1.2 MJ/kg of milk intake).12 In Kenya, the

majority of dairy plants use electricity from the national grid, but also combust fossil fuels (e.g.

oil) to generate steam and hot water for evaporative and heating processes. Some electricity is

also used for running electric motors, refrigeration and lighting. Diesel generators are often used

as back-up.

Energy consumption can be reduced by improving the efficiency of energy use, either by chang-

ing energy management (e.g. switch-off programs and improvement of existing processes) or by

10 Gold Standard Methodology for the Quantification of GHG emission reductions from improved management of smallholder dairy production systems using a standardized baseline 11 ISO 14040:2006 Environmental management – Life cycle assessment – Principles and Framework; ISO14044:2006 Environmental management – Life cycle assessment – Requirements and guidelines. 12 See http://www.unep.fr/shared/publications/pdf/2480-CpDairy.pdf for a general overview.

http://www.unep.fr/shared/publications/pdf/2480-CpDairy.pdf

15

installing more energy-efficient equipment and heat recovery systems. Reductions to energy

consumption as low as 0.3 MJ/kg of milk intake can be achieved. Milk processing also uses large

amounts of water for cleaning equipment (often in the range of 1.3-2.5 L/kg milk intake). Water

use requires energy for pumping and other processes. Improving the efficiency of water use, by

improving cleaning processes or upgrading equipment, can also reduce energy consumption. In

addition to energy efficiency interventions, consumption of high emission energy can be re-

duced by switching to renewable energy sources, e.g. co-generation of electricity and heat on-

site or by recovering methane from anaerobic digestion of effluent.

The GCF Mitigation Performance Framework13 suggests that quantification methods should be

informed by multilateral development banks’/international financial institutions’ (MDBs/IFIs)

GHG accounting harmonization work on energy efficiency and renewable energy.14 The latter

mandates the use of internationally recognized quantification frameworks for ex ante estima-

tion at appraisal stage of GHG emissions due to all activities, facilities or infrastructure funded

by the MDB/IFI. Emission reductions reported annually are the net GHG emission reductions for

appraised projects that are approved or for which investments are signed. This project will also

adopt this approach. Individual investment proposals will include an estimate of reductions in

energy consumption and GHG emissions compared to a baseline estimate for the relevant facil-

ity or process. This ex ante estimate together with documentation of investments actually oc-

curring will provide the basis for quantification of GHG emission reductions under project Com-

ponent 2.1.

4. Emission reductions from adoption of biogas

The decomposition of manure (dung and urine) in the absence of oxygen (i.e. anaerobic condi-

tions during storage) produces methane. The main factors affecting methane emissions are the

amount of manure produced and the portion of the manure that is managed under anaerobic

conditions. The temperature and the retention time of the storage unit greatly affect the

amount of methane produced. When manure is handled as a solid (e.g. in stacks or piles) or

when it is deposited on pastures, it decomposes under more aerobic conditions and less me-

thane is produced.15

Methane produced by the anaerobic decomposition of manure or other biomass can be cap-

tured and combusted. This is the purpose of biogas digesters, which are designed to produce

and capture methane from the decomposition of manure and other biomass. Therefore, the

energy produced by combustion of biogas can be used to displace energy from other, non-re-

newable sources. In Kenya, fuel wood provides 68% of energy.16 Rural households also use char-

coal and energy from non-renewable fuels, such as kerosene and LPG.17

13 https://www.greenclimate.fund/documents/20182/239759/5.3_-_Performance_Measurement_Frame-works__PMF_.pdf/60941cef-7c87-475f-809e-4ebf1acbb3f4 14 International Financial Institution Framework for a Harmonised Approach to Greenhouse Gas Accounting, Nov. 2012. 15 IPCC, 2006. IPCC 2006 Guidelines for National Greenhouse Gas Inventories, Vol. 4, Ch. 10 16 Ministry of Environment, Water and Natural Resources (2013) Analysis of Demand and Supply of Wood Products in Kenya 17 KENDBIP (2011) Socio-economic and gender baseline survey for the Kenya National Domestic Biogas Programme

16

Therefore, when properly utilized and assuming no increase in household energy consumption,

adoption of biogas can reduce the emission of methane from manure management, reduce CO2

emissions from combustion of fuel wood and charcoal, and GHG emissions from combustion of

other non-renewable fuels. Quantification of GHG effects can be accomplished following inter-

nationally approved methodologies, which have been specifically designed to account for dis-

placement of different non-renewable energy sources by biogas energy.18 In the Kenyan context,

three CDM methodologies are widely applicable to quantification of reduction in emissions from

different sources: AMS-I.E “Switch from non-renewable biomass for thermal applications by the

user“ can be applied to calculate emission reductions from displacement of fuel wood and char-

coal; AMS-I.I “Biogas/biomass thermal applications for households/small users” can be applied

to calculate emission reductions from the displacement of fossil fuels; AMS-III.R “Methane re-

covery in agricultural activities at household/small farm level“ can be applied to calculate the

emission reductions due to the avoidance of methane emissions from manure handling.

For the purposes of ex ante estimate in this project concept note, a review of existing CDM

project and programme of activities design documents for Kenya was made. These gave an av-

erage emission reduction per biogas unit per year of 6.1 tCO2e, accounting for potential methane

leakage by 5%. This average was applied to the numbers of biogas units proposed to be installed

in the project period (see Annex H). To estimate lifetime GHG emission reductions, it was as-

sumed that the average lifetime of a biogas unit is 15 years, which is the mid-range presented

in Table H.2 in Annex H.

18 https://cdm.unfccc.int/methodologies/index.html

17

C. JUSTIFICATION OF CONCESSIONALITY

1. Key considerations

GCF Board Decisions and related documentation19 produced by the GCF provides guidance on

the principles governing the use of GCF funds and levels of concessionality of GCF funds to the

public sector. GCF funds can be deployed through grants, concessional loans, guarantees and

equity investments.20 Since the fund has limited resources, it is important that its resources are

used efficiently and effectively in a manner that ensures financial sustainability in achieving the

paradigm shift towards low-emission, climate resilient outcomes; that is economically and fi-

nancially feasible for the country; that generates reflows from successful projects and pro-

grammes to replenish the fund; and that leverages third-party public and private investments in

achieving the fund’s objectives. In particular, from the GCF perspective:

1. Grant elements should be tailored to incremental cost or the risk premium required to

make the investment viable, or to cover specific activities such as technical assistance.21

2. Deployment of low level concessional loans are preferred to high level concessional

loans, and concessional loans are preferred to grant funding.

The budget for the project is summarized in Table C.1. The table shows that a total of $ 56.06

million is requested from the GCF. Of this, $ 9.77 million is in the form of non-returnable grant,

representing 17.4% of the GCF project cost; $ 10 million is in the form of credit guarantees; and

$36.19 million in the form of concessional credit. Concessionality leverage, calculated as the

non-grant element / grant element, is 4.68. The grant proportion is therefore low. The justifica-

tion for the grant elements is given in Section 2.1.1 below.

Table C.1: Summary of total project financing by type of instrument and source (US$ million)

GCF AE GoK FIs dairy private sector

Loans 39.19 0.00 0.00 107.46 24.71

Guarantees 10.00 0.00 0.00 0.00 0.00

Grants & TA 9.77 11.75 0.00 0.30 17.26

Staff costs 0.00 1.10 2.23 0.00 0.00

Travel & per diem 0.09 0.46 0.00 0.00 0.00

other 0.01 0.27 0.00 0.00 0.00

Admin costs 0.00 1.01 0.00 0.00 0.00

Sub-total 56.06 14.58 2.23 107.76 41.97

Total project cost Private sector co-finance

72.87 149.73

19 In particular GCF/B.10/06 Levels of Concessional Terms for the Public Sector

20 B.08/12 21 Annex III to decision B.05/07

18

The total amount of third party finance leveraged over the project period is $ 166.55 million,

representing a third party leverage ratio of 2.97, i.e. for each $ 1 of GCF finance (grant, conces-

sional loan and guarantee), an additional US$ 2.97 will be invested. Of this, $ 14.58 million will

be provided by in the form of grants and direct costs by the AE, $2.2 million by Government of

Kenya, and $ 149.73 million will come from the private sector (i.e. financial institutions, dairy

processors and farmers). All of this co-finance is incremental to expenditures by these parties

that would occur in the absence of the project.

2. Justification of concessional elements

Concessional terms for the project can be justified in terms of the project and in terms of the

income level of Kenya and the beneficiaries.

2.1 Project justification for concessionality

The project will not generate revenue for the implementation entity.22 The project’s interven-

tions are justified by their impacts on development and the global climate. On the one hand, the

majority of dairy farmers in Kenya are subsistence or semi-commercialized smallholder farmers.

The project’s interventions will increase smallholders’ incomes from their dairy enterprise and

reduce energy provisioning costs for households adopting biogas. At present, credit provided by

the formal finance sector to smallholders is a very small proportion of FI’s total loanbook. This

is mainly due to high transaction costs for banks, a lack of visibility of farmers’ cash flows, and a

short history of engagement in the sector for most FIs. The concessional finance to smallholders

and cooperatives in the project aims to overcome these market imperfections.

Dairy farmers, cooperatives and processors also have limited ability to invest in energy technol-

ogies that reduce GHG emissions. At the farm level, the high initial cost of investment in biogas

is the most pervasive barrier to investment. At the processor level, few bankable energy effi-

ciency interventions have been identified because conducting energy audits is only a recent

practice in the sector, and many banks are also not familiar with the risks associated with this

type of investment. Therefore, the TA for energy audits will overcome the first of these barriers,

while concessional finance will increase FIs’ appetite for investment in energy efficiency. The

previous lack of monetary value placed on GHG emission reductions from dairy productivity

gains and energy technology adoption is another market imperfection that currently requires

concessional finance to address, since markets for GHG emission reductions have a very limited

role in Kenya.

In each case, the provision of concessional finance is linked to an explicit exit strategy, whereby

FI’s gain experience and understanding of operations and risks in the sector, which will increase

their ability to engage with farmers, cooperatives and processors in financing low-emission dairy

development interventions in the longer-term. The on-lending of concessional finance to FIs and

by FIs to the beneficiaries will use terms and conditions (interest rate, grace period, tenors) that

are below-market conditions in order to overcome these market imperfections. The related TA

22 By promoting development of the dairy sector, some additional revenue to GoK from taxation is expected, but this is minimal compared to the development and climate benefits.

19

and the experience gained by FIs and other stakeholders in the project period will serve to re-

duce the barriers posed by these market imperfections, thus creating conditions for sustainable

finance to the sector in the longer term.

2.1.1 Grant elements: In line with the principle that the GCF only funds incremental costs of

project activities, all estimates of total and project costs in this concept note refer to incremental

costs only. This applies also to the grant components. The grants proposed in the project are

incremental to any expenditures that the relevant stakeholders are likely to have made in the

absence of the project. In particular, grant activities that are budgeted to the GCF contribution

relate specifically to grant finance for activities that make a direct contribution to the GCF fund

impacts and for budget items that directly reach the intended beneficiaries (Table C.3).

Table C.3: Justification for grant elements

Grant element Grant element activities Fund Impact indicators

TA for financial support to farm-

ers and cooperatives (US$ 2.2

M)

Training FI agriculture credit

staff

Capacity building in product de-

velopment for dairy sector

Enhancing MIS

* Tonnes of carbon dioxide

equivalent (t CO2eq) reduceda

TA for energy efficiency / re-

newable energy investment in

dairy processing (US$ 0.34 M)

Energy audits co-financed with

beneficiaries

Capacity building to FIs in as-

sessment of energy efficiency

investment proposals

M3.1 *Tonnes of carbon dioxide

equivalent (t CO2eq) reduced or

avoided – buildings, cities, indus-

tries, and appliances

M7.1(c) tCO2eq emissions re-

duced or avoided as a result of

investments in lower emission

industry

Partial grants for biogas installa-

tion (US$ 7.3 M)

Partial subsidy to initial cost of

installing 20,000 biogas units

M1.1 *Tonnes of carbon dioxide

equivalent (t CO2eq) reduced or

avoided from gender-sensitive

energy access and power gener-

ation

a GCF expected result 9.0 (improved management of land and forests) is not directly applicable to the

livestock component of this project, so the relevant core fund level impact indicator is shown.

2.1.2 Concessional loans: GCF/B.10/06 Levels of Concessional Terms for the Public Sector indi-

cates that high concessionality terms would be offered to vulnerable countries. There is a strong

20

correlation between income level and vulnerability to climate change. Kenya has a GNI per cap-

ita below the OECD lower-middle income threshold,23 and is also an eligible IDA borrowing coun-

try.24 Kenya ranks 154 out of 178 countries in the ND-GAIN index (2014).25 Therefore, Kenya

meets the GCF criteria for a vulnerable country, and is eligible for highly concessional terms.26

The terms and conditions for concessional loans applied for in the project are indicated in Table

C.2.

Table C.2. Terms and conditions for concessional loans applied for

Currency Maturity Grace

period

Annual

principal

repayment

Yrs 11-20

Annual

principal

repayment

Yrs 21-40

interest Service

fee per

annum

Commitment

fee (per an-

num)

USD 40 10 2% 4% 0.75% 0.25% 0.50%

External debt management is a key element of Kenya’s fiscal policy. Public debt is high, at more

than 40% of GDP. External debt is largely in the form of multilateral concessional debts (52.3%

of total external debt) and bilateral debt (24.5%), while commercial debt represents 21.8% of

total external public debt. Analysis by the IMF and GoK indicates that current debt level are

sustainable. Policy on public debt is stated in the Medum-Term Debt Management Strategy

2015.27 Government policy is to procure external financing only for development projects, and

in order to maintain public debt at sustainable levels, the policy is explicit that external financing

will be largely on concessional terms. This policy applies also to climate finance and develop-

ment interventions with climate benefits.

Recent concessional loans from related international partners typically have terms and condi-

tions similar to those indicated as available for vulnerable countries in GCF board decisions,28

and the concessional terms applied for as indicated in Table C.2 above are in line with the terms

and conditions of the GCF board decision.

23 http://www.oecd.org/trade/xcred/2015-ctryclass-as-of-16-july-2015.pdf; http://data.worldbank.org/coun-try/kenya 24 http://ida.worldbank.org/about/borrowing-countries 25 http://index.gain.org/country/kenya 26 https://www.greenclimate.fund/documents/20182/24949/GCF_B.09_08_-_Financial_Terms_and_Condi-tions_of_the_Fund_s_Instruments.pdf/295cd44f-1335-4213-b999-783f96c523a9?version=1.1 27 http://www.africanbondmarkets.org/fileadmin/uploads/afdb/Countries/Kenya/National_Treasury/Kenya_Me-dium-term_Debt_Strategy-2015.pdf 28 GCF/B.09/23 Annex II

http://www.oecd.org/trade/xcred/2015-ctryclass-as-of-16-july-2015.pdf

21

D. FEASIBILITY STUDY FOR COMPONENT 1 (1.1.1

PROCESSOR-LED PROVISION OF GENDER-INCLUSIVE

EXTENSION SERVICES TO THEIR SUPPLIERS)

1. Overview

Globally, and in Kenya, the majority of GHG emissions from the dairy sector are produced in on-

farm milk production.29 In on-farm milk production, low milk yields per cow are directly related

to a high GHG intensity (kg CO2e/kg milk) (see Annex B). Low milk yields also mean low returns

for smallholder farmers, who produce the vast majority of Kenya’s milk. Women play key roles

in dairy cow management on smallholder farms. Many studies in Kenya have shown that a range

of improved practices, including feeding, breeding, animal health and calf management, can in-

crease milk yields per cow30 and that extension can increase adoption of these practices.31 Sev-

eral past and current donor-funded projects have also demonstrated that dairy farmers can ben-

efit greatly from provision of extension services.32 However, it is only in recent years that Kenya’s

major dairy processors have begun to show interest in investing in extension support to farmers

in their own supply chains, and some have recently begun to pilot delivery extension activities.

By assisting and incentivizing dairy processors to institutionalize mechanisms for finance and

delivery of extension services in their supply chains, the project will transform the long-term

pathway of GHG emissions in on-farm milk production. Therefore, project sub-component 1.1

aims to assist and incentivize dairy processing enterprises to invest in gender-inclusive extension

support to their suppliers, resulting in increased adoption by men and women dairy farmers of

productivity-enhancing, climate-resilient, low-emission on-farm milk production practices. Spe-

cific practices for promotion will depend on the local dairy farming context. Based on the existing

experiences of dairy extension services provided by dairy processors in Kenya, these practices

are likely to include:

Feeding: on-farm production of fodder crops (particularly fodder with higher digestibil-

ity e.g. quality hay, silage), fodder storage, linking farmers to fodder and feed markets,

training in proper balancing of feed rations; water management;

Breeding: access to artificial insemination, advice on selection of purchased heifers and

bulls, heat detection skills, selective culling;

Animal health: use of veterinary services, regular tick control, vaccination and disease

control, parasite control;

Animal management: improved housing and housing design for animal welfare, im-

proved management of manure for animal welfare; sanitary milking and milk storage.

29 Opio, C. et al., 2013. Greenhouse Gas Emissions from Ruminant Supply Chains: A global life cycle assessment. FAO, Rome. 30 Bateki, C (in preparation), On-farm management practices that increase milk yields among smallholder dairy farms in Kenya: a systematic review 31 Kiff, L. et al. (in preparation), Factors influencing the adoption of technologies, management practices and marketing channels in smallholder dairy production in Kenya: a systematic review 32 E.g., Smallholder Dairy Commercialization Project (IFAD), East Africa Dairy Development Project (Heifer Interna-tional), Kenya Market-led Dairy Programme (SNV).

22

Specifically, the project will work with dairy processors to increase the coverage and effective-

ness of extension services, and to integrate gender-sensitive approaches in their extension ac-

tivities, along with capacity building for addressing animal waste and animal welfare.

This project component is based on partnerships with 5 processors:

a. New KCC: NKCC has 54,000 long-term suppliers. NKCC has been piloting a new extension

system to support its long-term suppliers since 2014. The system is funded from an ex-

tension contribution of KSh 0.5 per liter of milk procured from participating farmers. The

project will build on the current pilots to increase the number of farmers accessing ex-

tension and improve the quality of extension support provided.

b. Brookside: Brookside is the largest milk processor, with an estimated 125,000 suppliers.

To date, Brookside has been working with its stakeholders to provide a limited range of

extension services. The project will work with Brookside to pilot contracting of extension

services to private dairy extension companies and demonstrate the value to Brookside’s

business of investing in extension.

c. Meru Central Dairy Cooperative Union: MCDCU is a farmer-owned processor. It cur-

rently has about 9500 regular suppliers, of whom about 5,000 have access to extension

support from MCDCU and an international NGO-implemented project. The project will

work with MCDCU to develop a financing mechanism to expand coverage and effective-

ness of these extension services, enabling the services to be provided in the long-term.

d. Mukurweini Wakulima Dairy Co is a farmer-owned dairy processor with 6,500 regular

suppliers. It began to deliver extension services 2 years ago, and has developed a model

that effectively supports about 300 farmers. The project will build on this emerging ex-

perience to increase the number of farmers accessing extension and improve the quality

of extension support provided.

e. Githunguri Dairy is a farmer-owned dairy processor with 22,000 members. It already

provides extension services to its suppliers. Milk quality is a major challenge, resulting

in a significant proportion of milk rejections. The project will work with Githunguri to

improve current extension services and develop a quality-based payment system, re-

sulting in reduced milk losses.

These processors collaborated closely during concept note development, but no firm commit-

ments were made until full proposal development. The specific support provided by the project

will depend on the specific needs of each processor’s extension service system and the needs of

their clients. In general, the project will support the processors to increase the coverage and

effectiveness of extension services by:

Co-financing for a limited period the non-staff costs of up-scaling existing extension sys-

tems, or co-financing non-staff costs of piloting new extension mechanisms;

TA for development of sustainable financing mechanisms for extension systems;

Co-financing procurement of transportation to enable extension staff mobility;

Co-financing procurement of equipment for digitization of farmer monitoring systems

and TA for development of farmer monitoring systems

TA to support processors to develop gender-inclusive extension methods and extension

modules addressing manure management and animal welfare.

23

Co-financing and TA investments in these components will directly incentivize processors to in-

vest their own resources in expanding and increasing the effectiveness of their extension activ-

ities.

2. Beneficiaries

It is estimated that of the total 217,000 suppliers of these 5 processors, 16% currently have ac-

cess to effective extension services.33 Based on targets discussed with each processor, the pro-

ject aims to provide effective, gender-inclusive extension services to 128,000 households (i.e.

59% of total current suppliers) within the first 5 years of implementation, increasing to 153,000

by Year 10 (i.e. 70% of total current suppliers, and approximately 15% of total suppliers in Kenya)

(Table D.1). Based on average rural household population for Kenya, the target beneficiaries are

thus about 916,000 people, including about 458,000 women. From Project Year 5 onwards, each

processor will be financing and/or providing its own extension services.

Table D.1: Extension sub-component beneficiaries (x1000)

Total

suppliers

(2015)

With ex-

tension

(2015) PY1 PY2 PY3 PY4 PY5 PY6 PY7 PY8 PY9 PY10

NKCC 54 29.8 41.6 52.4 61.4 65.4 65.4 65.4 65.4 65.4 65.4 65.4

MCDCU 9.5 4.9 7.3 10.1 10.4 10.6 10.6 10.6 10.6 10.6 10.6 10.6

Mukur. 6.5 0.3 3.2 4.8 4.8 4.8 4.8 4.8 4.8 4.8 4.8 4.8

Githu. 22 0 1.3 2.6 7.8 7.8 22.0 22.0 22.0 22.0 22.0 22.0

Brooks. 125 0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0

Total 217 35.1 58.5 79.9 99.4 108.5 127.7 132.7 137.7 142.7 147.7 152.7

3. Financial and economic analysis

In discussion with each processor, a with-project and without-project scenario was developed.

The without-project scenario describes the extension coverage and change in yields for their

suppliers in the absence of the project investment. The with-project scenario describes the cov-

erage and change in yields with the project investment (see data in Appendix 1). The with-pro-

ject scenario also estimates the cost per liter of milk that processors could apportion to cover

extension costs. In the estimation of farmers’ returns in the with-project scenario, this cost is

added to farmers’ on-farm production costs. The net present value (NPV)34 and internal rate of

return (IRR) were calculated for the increase in farmer net revenues between the two scenarios.

Table D.2 shows the main results of financial analysis.

33 This does not include the 22,000 members of Githunguri, who have access to extension but not a quality-based payment system, which is the focus of the proposed activities with Githunguri. 34 A discount rate of 12.5% was used.

24

Table D.2: Main results of financial analysis

NPV Ksh NPV USD FIRR

NKCC 25,819,652 262,983 28%

MCDCU 12,197,044 124,231 17%

Mukurweini 62,097,088 632,482 61%

Githunguri 199,435,163 2,031,322 Not calculated

Brookside 72,249,344 735,887 30%

Total 371,798,292 3,786,905 44%

For each processor-led initiative, the NPV of farmers’ incremental net revenues is positive. Fi-

nancial IRR was calculated for farmers in 4 of the 5 processor-led initiatives,35 and these range

between 17% and 61%, and 44% for the whole portfolio. These results are highly sensitive to

assumptions about the milk price and the cost of production, in particular the cost of production

as yields increase. Experience from the IFAD Smallholder Dairy Commercialization Project con-

firms that as yields increase, production cost per litre decreases.36 Returns to the processors

were not estimated. Processors’ gross margins are typically between 15% and 20%. Therefore,

any increase in milk procured by the processors is profitable for the processors and this provides

the fundamental incentive for processors to invest in extension services to their suppliers.

Economic analysis used the following conversion factors: unskilled labour 0.6; skilled labour 0.8;

liquid milk 1; communication costs 1; all other traded goods 1.25. A social discount rate of 7% is

taken as the reference benchmark. GHG emission reductions were valued at US$ 5/tCO2.37

Other potential benefits, such as improved nutrition resulting from increased availability of milk

for consumption on-farm, were not valued. Results show that the economic returns to invest-

ment are highly positive (Table D.3).

Table D.3: Main results of economic analysis

NPV Ksh NPV USD EIRR

NKCC 1,545,859,621 15,745,158 4213%

MCDCU 133,821,882 1,363,026 50%

Mukurweini 469,973,076 4,786,851 2041%

Githunguri 139,642,346 1,422,309 not calculated

Brookside 3,823,774,331 38,946,571 1450%

Total 6,113,071,256 62,163,856 728%

35 For Githunguri, incremental cash flows were positive in all years so the IRR could not be calculated. 36 IFAD SDCP staff, personal communication 37 $5 per tCO2e is representative of the value of investments in GHG emission reductions by a number of multilateral funds. However, it is very conservative compared to the estimated social cost of carbon. The US government esti-mates the social cost of one tonne of carbon emitted in 2015 at between $11 and $109 (Interagency Working Group on Social Cost of Carbon, United States Government. 2013. Technical Support Document: Technical update of the social cost of carbon for regulatory impact analysis under Executive Order 12866. Document available at https://www.whitehouse.gov/sites/default/files/omb/assets/inforeg/technical-update-social-cost-of-carbon-for-regulator-impact-analysis.pdf, accessed 18 May 2015).

25

4. Project investments

Current expenditures on extension and projections of extension plans were used to define the

baseline (without project, WOP) expenditures on extension. Based on the needs and plans of

each processor-led initiative, the full cost of delivering extension services was estimated for the

with-project scenario, on the basis of which the incremental costs above WOP costs were calcu-

lated. The costs considered in the WOP and WP scenarios for each processor include:

Salaries, per diems and communication costs of extension staff

Transport and other costs in extension activities

Procurement of goods for extension worker transportation and digitization of farmer documentation

(monitoring) systems

Procurement of technical assistance services for gender-inclusive extension methods, manure man-

agement and animal welfare.

In addition to the activities in each processor-led initiative, project administration and TA pro-

cured directly by the PCU were estimated for capacity building in extension financing, gender-

inclusive approaches, animal welfare and manure management, and to capture and share best

practices and lessons learned.

Table D.4 shows the total incremental costs of implementing the project activities in this sub-

component. The total incremental cost of implementing the proposed extension activities is $

23.52 million. Of this, $ 9.92 will be provided through grants and grant-funded procurement of

goods and services. This grant will be provided by the AE, so the full costs of this sub-component

is co-financed to leverage the GCF contributions in other project components. Building the ca-

pacity of processors to finance and coordinate the delivery of gender-inclusive extension ser-

vices in the long-term is the main justification for use of grant finance in the project sub-compo-

nent. While the financial analysis indicates that such investments are profitable (Table D.2), in-

dividual farmers typically under-invest in extension services, and an aggregator (e.g. processor)

is needed to carry the transaction costs of organizing extension service delivery. For processors,

the investments required are large, and innovative mechanisms are required to make large in-

vestments without having short-term adverse impacts on corporate balance sheets. Grant fi-

nance can help processors and their supply chain partners carry the risks of such innovations,

while demonstrating the business case for supporting extension mechanisms.

Farmers and processors will contribute 58% of the total incremental project costs of this sub-

component. Table D.5 summarizes the different models through which farmers and processors

will contribute their co-finance. The purpose of working with processors and their suppliers to

finance extension services is to ensure a sustainable source of funding for extension after the

end of the project. The cost per liter of milk of funding extension activities shown in Table D.5

represents the cost at which extension services developed through the project would be finan-

cially sustainable after the project ends. Through the mechanisms described in Table D.5, pro-

cessors and their suppliers will invest a total of $ 13.6 million in extension during the 10 year

project implementation period, and an estimated $3.3 million per year thereafter.

26

Table D.4: Total incremental costs of project extension component

Project costs

(US$ million)a

Co-financing

by farmers or

processors

(US$ million) b

Total incre-

mental costs

(US$ million) b

Total incre-

mental cost

per household

(US$) b

Percentage of

total incre-

mental costs

from farmers

or processors

NKCC 5.73 3.12 8.85 135 0.35

MCDCU 0.75 0.53 1.28 121 0.41

Mukurweini 0.69 0.24 0.93 143 0.26

Githunguri 0.59 3.84 4.43 201 0.86

Brookside 1.68 5.87 7.55 126 0.78

Project TAc 0.48 0 0.48 3.14 0.00

TOTAL 9.92 13.6 23.52 154.03 0.58

a Project investments concentrated in PY1-PY5. b Costs and investments over the 10-year project period. c

Not including component staff and admin costs, which are accounted for in Component 4.

Table D.5: Summary of project and co-funding sources

Project investments Co-funding components & sus-

tainable financing strategy

Projected annual in-

vestment after pro-

ject end (US$)

NKCC

Incremental costs of exten-

sion services and MRV in

first 5 years

Basic operation costs

Financed from extension contri-

bution KSh 0.5/liter

1,222,537

MCDCU



first 5 years


Financed from extension contri-

bution KSh 0.34/liter

141,263

Mukurweini



first 5 years


Financed from extension con-

ribution KSh 0.6/liter

145,007

Githunguri

Development & piloting of

quality-based payment sys-

tem (QBPS) in first 3 years

After PY3, financed from QBPS

contribution of KSh 0.34/liter

604,266

Brookside

Piloting of private extension

services in first 3 years.

After PY3, financed by the pro-

cessor.

1,201,791

TOTAL - - 3,314,864

5. GHG emission reductions

The methodology used to estimate GHG emission reductions from increasing dairy productivity

is described in Annex B. Estimation of emission reductions used data on the cow population and

annual yield estimates for each processor-led initiative (see data in Appendix 1 to this Annex),

and the relationship between annual yield and the GHG intensity of milk production (kgCO2e/kg

milk) reported in Annex B to estimate the GHG intensity of milk production for the WP and WOP

27

scenarios in each processor-led initiative. Following the “Methodology for Quantification of GHG

Emission Reductions from Improved Management in Smallholder Dairy Production Systems us-

ing a Standardized Baseline”, emission reductions are calculated as:

ER = (WOP GHGI * WP yield) – (WP GHGI * WP yield).

The results are shown in Table D.6. During the 10 year project implementation period, cumula-

tive emission reductions total 1.05 million tCO2e in the first 5 years, and 4.14 million tCO2e over

the 10 year project period. After the end of the project, annual emission reductions would be at

least 0.7 million tCO2e per year.38

Table D.6: Estimated annual emission reductions from extension component (thousand

tCO2e)

PY1 PY2 PY3 PY4 PY5 PY6 PY7 PY8 PY9 PY10

NKCC 11.23 40.18 71.83 90.45 169.20 280.38 280.99 281.61 282.23 282.85

MCDCU 0 15.36 33.60 34.32 38.26 43.72 44.77 45.84 46.93 48.02

Mukur. 0 15.77 55.43 73.23 74.34 75.48 76.62 77.78 78.94 80.13

Githu. - - - - - - - - - -

Brooks. 11.22 37.69 64.83 92.66 121.17 150.38 180.30 210.92 242.27 274.34

Total 22.45 109.00 225.69 290.66 402.98 549.96 582.69 616.16 650.37 685.34

Reducing numbers of cattle (e.g. to increase feed availability for remaining cows) may further

decrease GHG emissions. In strategic planning exercises conducted in a number of counties,39

stakeholders clearly expressed their aim to increase total milk output while reducing the cow

population. However, in most areas, the majority of producers have a small number of cows,

which in addition to producing milk also have other livelihood functions.40 Therefore, we con-

servatively omit any assumption that the numbers of cattle per household may decrease, alt-

hough managing herd structure may be a component of specific extension messages.

Following the “Methodology for Quantification of GHG Emission Reductions from Improved

Management in Smallholder Dairy Production Systems using a Standardized Baseline”, GHG

emissions from dairy cow management will be estimated using data from regional baseline sur-

veys conducted by the project, which will be used to establish the relationship between milk

yield and GHG intensity in the main dairy producing areas of Kenya. During project implementa-

tion, each processor will be supported to develop a digitized farm documentation system. These

systems will not only provide information on farm management needs and extension activities

conducted, but will also provide the data needed for estimation of GHG emissions and milk out-

put in the project implementation period. This data will be reported to the PCU for calculation

of GHG emission reductions. The project will co-finance the design and establishment of these

38 This is a conservative estimate based on the PY 10 figure in Table D.6. If Brookside replicates the approach to its remaining 65,000 suppliers, annual emission reductions would be about 1 million tCO2e per year after the project ends. 39 KDB Strategic Planning exercise, 2015. 40 Weiler, V. et al. (2014). Handling multi-functionality of livestock in a life cycle assessment: the case of smallholder dairying in Kenya. Current Opinion in Environmental Sustainability, 8, 29-38.

28

documentation systems, and TA activities will provide capacity building to processors and their

extension partners in the operation of these systems.

6. Social and Environmental Safeguard Screening

During the project concept phase, a full screening of the social and environmental management

systems (SEMS) of each processor was not conducted. The main social and environmental risks

were identified through expert judgement on the basis of the common characteristics of pro-

duction systems in the main milk catchment areas, common issues observed in dairy intensifi-

cation processes in Kenya, and specific guidance in the IFC social and environmental safeguard

standards and good practice guidance. The GCF gender policy was also consulted. The main po-

tential risks are highlighted in Table D.7 along with mitigation measures incorporated in the pro-

ject design.

Table D7: Social and environmental risk screening and mitigation measures

Safeguard domain Risk assessment Mitigation measures

IFC PS 1: Assessment and Man-

agement of Environmental and

Social Risks and Impacts

Processors are likely to be com-

pliant with the main national

laws and regulations, but may

not have explicit ESMS covering

all risks. Where ESMS do exist

they are not likely to extend into

the supply chain.

In full proposal development

phase, assess ESMS of all partic-

ipating processors. Provide TA

on establishment and operation

of ESMS.

IFC PS 2: Labor and Working

Conditions

Processors are likely to be com-

pliant with the main national

laws and regulations.

In full proposal development

phase, assess compliance of all

participating processors.

IFC PS 3: Resource Efficiency and

Pollution Prevention

Main risks in processing facilities

are inefficient use of water and

energy resources and poten-

tially effluent discharge man-

agement. Manure management

is the main risk at farm level.

Project Component 2 will sup-

port farmers and processors to

address these issues. TA has

been designed to assist exten-

sion workers to incorporate ma-

nure management in their ex-

tension services

IFC PS 4: Community Health,

Safety, and Security

Few risks are likely to occur. In full proposal development

phase, assess compliance of all

participating processors.

IFC PS 5: Land Acquisition and

Involuntary Resettlement

Not likely to be relevant.

IFC PS 6: Biodiversity Conserva-

tion and Sustainable Manage-

ment of Living Natural Re-

sources

Few risks are likely to occur.

IFC PS 7: Indigenous Peoples Potential involvement of indige-

nous peoples (pastoralists or

hunter-gatherer peoples in

Kenya) in component activities.

Risks should be assessed in full

proposal development phase

when specific locations have

been finalized.

29

IFC PS 8: Cultural Heritage Not likely to be relevant.

Animal welfare Animal welfare issues common

on smallholder farms in Kenya

include housing design, animal

health, and cleanliness related

to manure management.

TA has been designed to assist

processors and extension work-

ers to incorporate animal wel-

fare into extension activities.

GCF Gender Policy Numerous gender issues are

common in milk production,

procurement and payment.

TA has been designed to assist

processors and extension work-

ers to identify and address gen-

der issues as an integral compo-

nent of project activities. Full

proposal development must in-

clude gender analysis and fur-

ther elaboration of the gender

TA activities.

30

Appendix 1: Supplementary data used in financial and GHG analysis

Note: WOP= without-project scenario; WOP = with-project scenario

Table S.1: Dairy cow population of targeted households in WOP and WP scenarios


NKCC 127,548 127,548 127,548 127,548 127,548 127,548 127,548 127,548 127,548 127,548

MCDCU 21,100 21,100 21,100 21,100 21,100 21,100 21,100 21,100 21,100 21,100

Mukuweini 13,000 13,000 13,000 13,000 13,000 13,000 13,000 13,000 13,000 13,000

Githunguri 44,000 44,000 44,000 44,000 44,000 44,000 44,000 44,000 44,000 44,000

Brookside 120,000 120,000 120,000 120,000 120,000 120,000 120,000 120,000 120,000 120,000

Total 325,648 325,648 325,648 325,648 325,648 325,648 325,648 325,648 325,648 325,648

Total cattle

population* 592,087 592,087 592,087 592,087 592,087 592,087 592,087 592,087 592,087 592,087

*Assuming dairy cows are 55% of the total herd.

Table S.2: WOP average milk yield per cow per year


1. NKCC 1577 1687 1809 1882 2202 2615 2641 2668 2694 2721

2. MCDCU 1988 2000 2013 2026 2034 2042 2051 2060 2068 2077

3. Mukurweini 965 1027 1028 1030 1031 1033 1034 1035 1037 1038

4. Githunguri 3751 3751 3751 3751 3751 3751 3751 3751 3751 3751

5. Brookside 1533 1533 1533 1533 1533 1533 1533 1533 1533 1533

Table S.3 WP average milk yield per cow per year


1. NKCC 1622 1868 2142 2316 2952 3961 4001 4041 4081 4122

2. MCDCU 1988 2264 2590 2614 2694 2795 2823 2851 2880 2909

3. Mukurweini 965 1359 2142 2486 2509 2531 2554 2577 2601 2624

4. Githunguri 3751 3751 3751 3751 3751 3751 3751 3751 3751 3751

5. Brookside 1571 3129 3660 3772 3886 4002 4121 4242 4366 4492

Weighted average 1888 2592 2948 3072 3369 3815 3877 3940 4005 4070

31

E. FEASIBILITY STUDY FOR COMPONENT 1 (1.1.2

FINANCIAL ASSISTANCE FOR ON-FARM INVESTMENTS

BY FARMERS AND COOPERATIVES)

1. Overview

Increasing productivity of dairy production will require capital investments by farmers (for im-

proved breeds, improved housing, fodder cultivation, farm equipment and biogas) and by

farmer groups or cooperatives (for chilling and pasteurising equipment, milk transport vehicles,

information systems, and other equipment related to services provided to their members). Cur-

rently, affordable financial access for farmers is limited, with most farmers relying on informal

loans. Savings and credit cooperatives (SACCOs) are the formal financial institution most closely

engaged with both farmers and cooperatives. However, SACCOs are restricted in their access to

international finance. Commercial banks are experienced in management of international funds,

but typically focus on SMEs in the agriculture sector, and few dairy farmers directly access loans

from banks.

Increasing financial inclusion in the dairy sector can be achieved by increasing the visibility of

dairy farmers’ commodity and financial flows through automation of information systems in co-

operatives, through innovation in credit products, by capacity building to financial institutions,

and by structuring relationships between commercial banks, SACCOs and cooperatives.

The activities in this component propose a mix of concessional credit, credit guarantees and

technical assistance grants. Total GCF funds of US$ 32.2 million (US$ 20 million of concessional

credit, US$ 10 million of credit guarantee, and TA grant of US$ 2.2 million) would leverage bank

finance of US$ 70.3 million, making a total (GCF + FI resources) of US$ 90 million in credit avail-

able to farmers and cooperatives. In addition, the costs of administering the financial assistance

activities are estimated at $345,000 over 10 years.

2. Project context

The milk industry in Kenya is largely dominated by smallholder farmers who produce about 80

per cent of milk. The other 20 per cent is produced by medium farmers, large farmers and pas-

toralists. About 42% of milk is consumed on-farm. Smallholders also sell their milk to the con-

sumers, co-operatives, and processors. They are mostly paid in cash by informal traders and

consumers on a daily or weekly basis. The co-operatives and processors pay farmers on a

monthly basis. Low productivity is widespread, and overcoming this requires finance for invest-

ment in improved breeds, improved cow housing, fodder production and biogas, as well as op-

erating capital.

Dairy cooperatives and farmer groups play a vital role in the daily sector. They supply around

58% of the total milk marketed through formal channels.41 Farmers benefit from group or coop-

erative membership due to a reliable market outlet, economies of scale in milk marketing, pro-

vision of inputs and input credit, linkages to financial institutions for credit and saving, and other

41 Estimate based on data provided by KDB.

32

services provided by cooperatives (e.g. A.I services). Most milk collected by co-operatives is

channelled to processors. Farmer groups and cooperatives require finance to perform their milk

marketing functions (e.g. milk coolers, transport vehicles, IT systems, operating capital) and to

provide other services (e.g. fodder cultivation and harvesting machinery contracting, AI infra-

structure etc). Processors are keen to work with cooperatives, because this reduces transaction

costs of milk procurement and supply fluctuations.

2.1 Demand for and access to finance by dairy farmers and cooperatives

Dairy farmers, and particularly women, make limited use of credit from formal financial institu-

tions. Surveys in rural Kenya show that almost 80% of dairy farming households have never had

a loan product from a formal institution (banks, online banks, SACCOs, micro-finance or govern-

ment fund).42 Savings and loans from family, friends, neighbours and credit from local shops or

suppliers are more common than other sources, followed by loans from informal savings groups.

However, average loan volumes from these informal sources are much smaller than those po-

tentially available from formal institutions. Among formal sources of credit, SACCOs are the most

commonly used source. Commonly reported barriers to accessing credit include:

lack of collateral, which is partly related to the land tenure system in Kenya, and

self-perceived inability to repay, which is partly related to low dairy productivity and partly to the

mismatch between loan conditions and household or dairy enterprise cash flows.

Lack of a financial track record is among the main reasons for refusal of loan applications. How-

ever, many dairy farmers do not attempt to apply for formal credit, fearing loss of assets, or

preferring to rely on savings to finance their enterprise. Innovation in financial products to ad-

dress these barriers to financial access can increase farmers’ investment in their dairy opera-

tions. For example, group lending products reduce or remove collateral requirements. Co-oper-

atives and farmer groups are also able to ease access to financial services by providing credit

guarantees to dairy farmers, and through their record keeping systems provide visibility to farm-

ers’ financial track record. Group lending products have been found to be effective in increasing

women’s access to credit. Making women visible in milk supply records (where male household

heads tend to be named) may also increase their access to finance.

Estimates of credit demand among dairy farmers should therefore consider these limiting fac-

tors. For a representative farm, capital investment needs can be estimated at about US $5,600

per household including a heifer of improved breed, improved housing, fodder cultivation unit,

farm equipment and a biogas unit, with investments spread out over 2-3 years. In addition, they

would need working capital of about US$ 1,500. Assuming a target group of 217,000 farmers,43

total investment needs over 2-3 years would be about US$ 1.2 billion, implying a credit need of

about US$ 960 million. However, not all farmers are perceived as creditworthy, are willing to

borrow, and would prioritize borrowing for investment in their dairy enterprise. Using low, me-

dian and high reports from the literature on dairy farmer creditworthiness, willingness to borrow

42 FinAcess survey 2016 43 i.e. total number of suppliers of the main dairy processors as reported in Annex D.

33

and borrowing for dairy investment, low, median and high estimates of possible effective de-

mand are shown in Table E.1. Technical extension and advisory services that increase financial

returns to dairy farming would increase households’ creditworthiness and improving eligibility

and borrowing conditions would increase willingness to borrow.

Table E.1: Estimation of effective demand for on-farm capital investments in the dairy enter-

prise

Low estimate Median estimate High estimate

Total number of households 217,000 217,000 217,000

Credit worthy households 95,480 123,690 145,390

of which willing to borrow 7,638 40,818 75,603

of which prioritizing investment in

dairy enterprise 1,146 7,959 27,973

US$ loan per household 4,480 4,480 4,480

Total effective credit demand (US$) 5,133,005 35,658,343 125,319,201

Co-operatives also need financial services from financial institutions to run their day to day ac-

tivities such as milk collection, payment for milk deliveries, other operation costs, and they need

credit for investments in infrastructure and equipment. Investment needs of cooperatives vary

considerably, depending on their business model (e.g. whether they bulk and market milk only

or also do value addition) and on the range of services they supply to their members (e.g.

whether they also provide fodder mechanization and storage services). Cooperatives that are

able to provide financial visibility for their members also require an automated documentation

system. Estimated costs for an automation system are about US$ 150,000, while a 5000 L cooler

costs about $180,000 and a pasteurization unit may cost about US$ 40,000. Other business lines

(e.g. fodder machinery, milk transport vehicle) may also require investments of up to $200,000.

There are a total of 412 registered dairy cooperatives in Kenya, of which 297 (i.e., 72%) are re-

ported to have no installed milk coolers. Assuming that these cooperatives also have no auto-

mation systems, basic investment needs (i.e. milk cooler plus automation system) are at least

$13 million. Other potential investment needs could be at least as large again. These rough es-

timates suggest median and high estimates of total credit effective demand for credit from farm-

ers and cooperatives for dairy-related investments would be in the range of US$ 50-138 million.

34

Figure E.1 Flow of resources for credit finance to the dairy sector

2.2 Supply of credit finance to dairy farmers and cooperatives

The main formal sector financial institutions include (in order of total assets): commercial banks,

micro-finance institutions, SACCOs, and government funds.44 However, formal finance sector

lending to agriculture is a very limited proportion (<5%) of total FI lending.45 This holds also for

the dairy sector. Interviews with 5 FIs and 5 SACCOs also showed that for most banks, the dairy

sector accounts for 0.2% - 5.12% of the total loan book as compared to 10%-100% for SACCOs.

This is because the SACCOs interviewed were mainly set up by farmer based organizations, such

as co-operatives, and are more attuned to financing agriculture because their members are

mainly farmers or individuals involved in agricultural production. On the other hand, the average

size of dairy loans is higher for banks than for SACCOs. This is due to SACCOs mainly serving

smallholder farmers who typically borrow in small amounts, while banks mainly target medium

to large scale farmers as well as co-operatives. These findings reinforce the need to support

SACCOs to better serve small holder farmers, as they are more connected to this segment of

farmers than banks. Banks, on the other hand, are a key source of on-lending funds for SACCOs,

with a few banks featuring prominently as providers of capital to SACCOs. Banks are more at-

tracted to co-operatives as borrowers than to individual farmers, because of the higher cost of

44 E.g. Agriculture Finance Corporation is a government-owned fund that provides credit at below-market rates. Other funds also exist targeting youth and other disadvantaged groups. 45 J Tyson (2016) ODI Working Paper 440, https://www.odi.org/sites/odi.org.uk/files/resource-documents/10724.pdf

FLOW

OF

FUNDS

INTERNATIONAL FINANCIAL INSTITUTIONS/DEVELOPMENT

ORGANIZATIONS

COMMERCIAL BANKS CREDIT

ONLY

MICROFI-

MICROFI-

NANCE

BANKS

MEDIUM AND

LARGE SCALE

FARMERS

COOPERATI-

VES

SACCOs SMALLHOLDER

FARMERS

35

servicing smallholder farmers and banks’ relatively limited staff and branch outreach. Figure E.1

summarizes the current situation in terms of flow of resources for credit finance to the dairy

sector.

More than 10 commercial banks and microfinance institutions in Kenya provide financial prod-

ucts targeting the agriculture sector. In a study conducted for this project, of 5 banks and micro-

finance institutions, 3 had one or more products targeting dairy farmers. All 5 SACCOs inter-

viewed had products targeting dairy farmers. These products are mostly for investment in fi-

nancing heifers, inputs such as feeds, farm equipment and infrastructure, but also for working

capital and invoice financing. Typical credit amounts offered to farmers by the financial institu-

tions range from KSh 10,000 – KSh 5M per loan, with tenors of between 6 – 60 months depend-

ing on the nature of financing, with working capital loans having shorter tenors. Banks however

offer higher limits and longer tenors compared to SACCOs, because banks are able to access

long-tenor lines of credit for on-lending, unlike SACCOs who borrow from the banks.

However, SACCOs provide not only more affordable loans to farmers, but also have more flexi-

bility in terms of eligibility criteria and lending terms. SACCO loan interest rates range between

10% - 16% while those of non-SACCO financial institutions have interest rates of up to 24%,

despite non-SACCO FIs having access to lines of credit for agriculture (including dairy) financing

and more branches with which to mobilize deposits that are a cheaper source of funds. SACCOs

are also less demanding when it comes to the level of contribution by clients per project, requir-

ing 0% - 30% client contribution depending on the nature of project financed, whereas banks

and other FIs require contribution rates of 15% and upwards.

The reason for the higher interest rate of commercial and microfinance bank products is that

these institutions face challenges in mobilising long term funds for on-lending, since most de-

positors are short term in nature and banks cannot fully rely on deposits to fund loans to the

agriculture sector where demand for medium to long terms loans is higher. These institutions

therefore seek long-term finance from the money market or international funders, but the cost

of the funds forces the banks to on-lend at high rates. Concessional loans are therefore relevant

to enable banks and SACCOs to support farmers who would otherwise be priced out of the mar-

ket for credit.

2.3 Supply of other financial services to dairy farmers and cooperatives

In addition to financial institutions, co-operatives also provide in-kind lending solutions, such as

provision of animal feeds, AI and other inputs on the milk delivery check-off system. However,

many co-operatives are limited in their ability to provide these services, because this ties up

working capital in advances to members, while working capital for milk procurement is their

core business.

Processors also facilitate provision of these financial services. Processors are not only a key mar-

keting channel for farmers and cooperatives. They also support farmers by:

Linking farmers with financial institutions (e.g. SACCOs and other FIs) to enable them to access credit

for investing in their farms.

Guaranteeing farmers’ loans with financial institutions.

Supporting co-operatives to purchase critical goods for their members in bulk such as milk cans.

Purchasing inputs in bulk for farmers such as animal feeds to save on costs.

36

Managing relationships with suppliers to ensure that farmers are getting value for money.

2.4 Key gaps in provision of financing to dairy farmers and cooperatives

A study conducted for this project revealed a number of capacity gaps in all the financial institu-

tions interviewed that reduces or limits their lending to dairy farmers and cooperatives. Capacity

needs of farmers and cooperatives were also identified by the financial institutions.

2.4.1 Capacity needs of financial institutions

Of 5 non-SACCO financial institutions, rural branches as a percentage of total branches ranges

between 27% and 95%, and they all have agriculture loan officers working with farmers. How-

ever, the level of engagement with farmers is limited, as indicated by the ratio of agriculture

loans to the total loan portfolio (i.e. 2%-14%), compared to SACCOs for which the ratio is 27% -

90%. This is also partly because SACCOs have worked with farmers for 10+ years, whereas en-

gagement with agriculture for some other FIs is more recent. SACCOs also have more staff per

branch focused on agriculture lending as compared to commercial and microfinance banks. SAC-

COs are thus better placed to serve more farmers.

Two out of 5 banks and 3 out of 5 SACCOs interviewed indicate that they do not invest in training

their agriculture loan officers in agriculture credit skills. Both SACCOs and other FIs indicated a

need for training of staff in agriculture credit management and product development.

Another common and major capacity need for the both banks and SACCOs interviewed is im-

provement in the management information systems (MIS). The majority of financial institutions

interviewed have an MIS for the agriculture portfolio in general, and most mark dairy loans

within their agriculture portfolio. However, they also indicated that the process of capturing and

storing data may not be fully reliable, and indicated a need to support financial institutions to

develop better solutions for data capture, storage, retrieval, analysis and reporting. The financial

institutions will benefit from being able to clearly disaggregate their agriculture portfolio be-

cause this visibility will also enhance their risk management and enable them proactively man-

age problem loans or anticipate the impact of events in the dairy sector that have a direct impact

on the loan book. For instance, in case their drought in a certain region where a bank has dairy

clients, the bank would be able to easily identify which clients might be affected and to what

extent this will affect the loan portfolio, thus enabling them to be more proactive in portfolio

risk management as well as enabling them to better understand their clients across sectors.

Another key area for intervention for financial institutions is in product development to enable

design and deployment of financial products that are farmer-centred and that address the credit

needs of the beneficiaries. A study conducted for this project of the IRR to investments by farm-

ers, groups and cooperatives46 indicated that most investments have an IRR above market inter-

est rates, but that the duration until breakeven for most investments is longer than the tenor of

most credit products (Table E.2). Therefore, financial institutions need support to better under-

46 The study was an ex post assessment, using a sample of grants provided by the IFAD SDCP project.

37

stand the dairy sector and develop appropriate financial products. Both SACCOs and banks ex-

pressed interest in capacity development and support to in product development as well as ex-

ploring the potential of technology to enhance delivery of solutions to farmers.

Table E.2: Analysis of feasible credit terms for selected group/cooperative and farmer invest-

ments

Investment

project

Initial invest-

ment (USD)

IRR 10

years

IRR 20

years

Years to

break-

even

(years)

Feasible

interest

rate

Feasible

grace pe-

riod

(years)

Feasible re-

payment

period

(years)

Farmer

group invest-

ments

Dairy meal

processing

3,800 20% 24% 2 10% 2 8

Hay produc-

tion

3,500 in year

1 plus 1800 in

years 5 and 10

16% 23% 6 8% 2 6

Milk chilling 174,000 1% 10% 6 10% 4 10

Milk pasteur-

izing

80,000 (addi-

tional to the

174,000 for

chilling)

16% 23% 7 10% 6 10

On-farm in-

vestments

Zero-grazing

unit

1,457 25% 29% 5 12% 2 8

Zero-grazing

unit + biogas

2,125 31% 34% 5 12% 2 6

Zero-grazing

unit + biogas

+ fodder pro-

duction

2,875 28% 31% 5 12% 2 6

NOTE: Data presented are based on in-depth surveys with 41 households and 5 dairy cooperative associ-

ations in Nakuru, so results are not representative for all Kenya, and do not indicate variability in returns

across households.

2.4.2 Capacity needs of farmers from financial institutions’ perspective

Financial institutions reported a number of gaps at the farmer level that limit their ability to lend

to farmers. The most common reason given for declining loan applications was the lack of a

demonstrated track record by borrowers in dairy financing. This is partly linked to the fact that

farmers often do not keep proper records of their dairy enterprises. Although data on milk sales

and input credit should be held by the co-operatives, this data is not visible to financial institu-

38

tions. The issue of poor records was mostly reported by non-SACCO financial institutions, imply-

ing that SACCOs may be better able to access the financial profiles of farmers due to their affili-

ation to co-operatives. Supporting cooperatives to digitize their records, and availing these rec-

ords to partner financial institutions (subject to data protection laws) could enable farmers to

demonstrate a financial profile over time and thus access formal credit. The AgriLife Platform is

an example of how this is working in Kenya’s dairy sector.47

Low productivity by farmers as well as lack of off-take arrangements were also listed by financial

institutions as limitations to funding dairy farmers. Low productivity implies low capacity of

farmers to meet loan obligations when they fall due, as they may not generate sufficient cash

flows from the dairy enterprise. The majority of institutions indicated that there was need for

technical assistance to farmers to enable them increase productivity and hence their capacity to

repay credit facilities. These activities have been designed in the project (see Annex D). Off-take

agreements are an assurance of the capacity of the farmer to repay the loans and to avoid di-

version of funds.

Poor credit history was also mentioned, but was not identified as a prominent gap. These find-

ings are generally corroborated by data from the 2016 Financial Access Survey in Kenya.48 Only

2.5% of dairy households covered in that survey reported having been denied an application for

a formal loan. Inability to repay and lack of records were the main reasons given by dairy farm-

ers. (Lack of guarantor or collateral were also common reasons given by rural households in

general.)

2.4.3 Financing needs of financial institutions

Of the 5 non-SACCO FIs interviewed, all had received international support for credit lines for

agriculture on-lending, 3 had received credit guarantees, and all had benefited from some form

of technical assistance. These funds are usually provided for the entire agriculture portfolio, but

in particular instances they have been extended to designated sectors or value chains in order

to meet particular intervention outcomes.

Most SACCOs mentioned inadequate funding to finance on-lending to members as a major con-

straint, while this was mentioned only by one non-SACCO FI. Only 1 SACCO had directly received

international support, despite their much closer engagement with farmers. The main reasons

for low SACCO engagement with international finance is their limited ability to attract such

funds, restrictions due to funders’ requirements, and their limited ability to absorb debt with

external borrowing,49 since external borrowing by SACCOs is capped at 25% of total assets by

law.50

This highlights the need to develop appropriate mechanisms to enable SACCOs to access funding

for on-lending to dairy farmers, capacity building at both institutional and client levels, and risk

47 http://ageconsearch.umn.edu/bitstream/212608/2/Pambo-Financial%20Technological%20Innova-tion%20and%20Access%20is%20the%20Key-26.pdf 48 http://fsdkenya.org/dataset/finaccess-household-2015/ 49 These include all external borrowings from banks, microfinance and other financial institutions. Special loan facili-ties covering funds received through special arrangements between the Kenya government and other foreign gov-ernments or donor agencies for onward lending or distribution to members are treated as external borrowing. 50 http://kenyalaw.org/kl/fileadmin/pdfdownloads/Acts/SaccoSocietiesAct_No14of2008.pdf

39

sharing instruments to incentivize expanded engagement with farmers, while also limiting SAC-

COs’ exposure risk.

3. Structuring finance for lending to farmers and cooperatives

3.1 Financing relationships

Banks, microcredit institutions and SACCOs have distinct, but complementary potential roles in

the dairy sector. Currently, SACCOs have the strongest linkages with farmers in the formal dairy

value chain and thus are best placed for increasing financial inclusion of dairy farmers. However,

SACCOs are limited in their ability to take on large volumes of international finance and to man-

age complex financial relationships, while all of the commercial banks and microfinance institu-

tions interviewed have a track record of partnership with international finance sources. There-

fore, support to cooperatives and medium- or large-scale farmers should be delivered through

commercial banks. The advantage of channelling funds targeting farmers through banks and via

on-lending to SACCOs are that the administration of funds is decentralized to the banks, thus

minimizing project transaction costs, and the funding to banks can be used to leverage addi-

tional capital from the banks for on-lending to SACCOs, thus increasing the project impact. How-

ever, experience suggests that with this method of financing, monitoring of the credit line should

be strong in order to ensure that banks do not divert the funding to other sectors.

Non-SACCO FIs tend to focus more on medium to large scale farmers and SMEs (including coop-

eratives). Therefore, credit lines to commercial banks or microfinance banks should be used to

serve the needs of medium to large-scale farmers, dairy co-operatives and other SMEs in the

value chain.

In terms of finance mechanisms, concessional loans, risk sharing mechanisms and technical as-

sistance grants all have a role to play:

Concessional loans are critical because they can achieve the twin goals of enabling financial institutions

to access capital for on-lending to the dairy sector while also enabling them deliver credit at affordable

rates. These credit lines will focus on reaching larger numbers of subsistence and semi-commercial

farmers who otherwise do not have access to finance for on-farm investments.

Risk sharing mechanisms are relevant in the dairy sector, where climate variability, deficiencies in on-

farm management and lack of collateral for some farmers increase the risks to FIs of engaging in the

dairy sector. Risk sharing mechanisms can build the confidence of and increase lending by FIs to the

sector.

Both SACCOs and non-SACCO financial institutions express demand for capacity building in a number

of areas. TA is thus relevant to ensure the effective deployment of concessional loans and risk sharing

funds. SACCOs have a greater need for technical assistance grants geared towards supporting their

development in areas such as finance and credit risk, institutional governance, product development,

and information technology.

40

Table E.3: Representative features of financial cooperation mechanisms

Project types Currency (USD)

BANKS Minimum Ticket Size Per Bank

Minimum Expected Lever-age per Bank51

Interest Rates/Charges Lending Timeframes

Credit Lines

10Million

30Million

6 Months Libor + 3-4% on USD 7+ years

Credit Guarantee

5Million

5Million

Both Origination and Utiliza-tion Fee: <0.5%

7+years

Technical Assis-

tance Grants

0.2Million

0.05Million

3+years

MICROFINANCE BANKS

Minimum Ticket Size Per Microfinance Bank

Minimum Expected Lever-age per Microfinance

Bank

Interest Rates/Charges Lending Timeframes

Credit Lines

5Million

10Million

6 Months Libor + 3-6% on USD

5years

Credit Guarantee

2.5Million

2.5Million

Both Origination and Utiliza-

tion Fee: <0.5%

5years

Technical Assis-

tance Grants

0.1Million

0.025Million

3years

SACCOs Minimum Ticket Size Per SACCO

Minimum Expected Lever-age per SACCO

Interest Rates Lending Timeframes

Credit Lines

5Million

N/A

6 Months Libor + 3-4% on USD

10 years

Credit Guarantee (50% Coverage)

2.5Million

N/A

7+ years

Technical Assis-

tance Grants

0.2Million

0.025Million

5 years

3.2 Project funding

Representative rates and tenures of recent international assistance to banks, microfinance

banks and SACCOs are shown in Table E.3.52 To estimate the total finance volume and leverage

effect in the project, the following assumptions were made:

1 FI will be selected to provide credit finance to dairy cooperatives, SMEs, and medium-and large-scale

farmers.

1 FI will be selected to on-lend to SACCOs to provide credit finance to subsistence and semi-commer-

cialized dairy farmers.

The FI will on-lend to 10 SACCOs.

For concessional credit lines, commercial banks are willing to provide $3 of their own funds for every

$1 of GCF concessional credit.

51 Leverage of 2 times the funds to the Banks under the project 52 Only 1 SACCO had internationally supported mechanisms, so the estimation in the table equates SACCOs to micro-finance banks for ease of calculation but assumes a greater need for technical assistance.

41

For risk sharing mechanisms, risk is shared 50:50 between the bank and risk sharing mechanism, and

for each $1 in the risk sharing mechanism, the bank will allocate an additional dollar to the credit

lending line.

Table E.4: Project finance, leveraged finance and target beneficiaries

GCF funds requested (USD)

Minimum expected leverage (USD)

Beneficiaries in 5 years

Beneficiaries in 10 years

1. Bank lending to coops, SMEs,

larger farmers

Concessional

credit line

10 million

30 million

1194

2388

Credit guarantee

5 million

5 million

Technical assis-

tance grants

0.2 million

0.05 million

1 FI

2. Bank lending to 10 SACCOs

Concessional

credit line

10 million

30 million

104,464

208,928

Credit guarantee

5 million

5 million

Technical assis-tance grants53

2 million

0.25 million

10 SACCOs

Based on these assumptions and the figures in Table E.3, the total GCF funds applied for are US$

32.2 million, including US$ 20 million of concessional credit, US$ 10 million of credit guarantee,

and TA grant of US$ 2.2 million (see Table E.4). These GCF funds will leverage a total of US$ 70.3

million, making a total (GCF + FI resources) of US$ 90 million in credit available to farmers and

cooperatives. In addition, assuming a client investment of 20% for cooperatives/SMEs and 10%

for farmers, a further US$ 13.5 million would be leveraged. Assuming an average of 2320 loans

per US$ 1 million of credit provided by SACCOs,54 and 26 loans per US$ 1 million provided by

commercial banks,55 if the funds are lent once, beneficiaries would include 104,464 farmers and

1194 farmer groups, cooperatives and SMEs. Over 10 years, assuming the funds are lent twice,

209,000 farmers and 2388 farmer groups, cooperatives or SMEs would benefit.

Additional costs of delivering the TA activities are estimated at $129,000, not including staff and

administration costs, which are accounted for under Component 4.

53 Assumes US$ 0.2 million per SACCO, with each SACCO contributing US$ 0.025 million. 54 Average reported by 5 SACCOs interviewed. 55 Average reported by 5 FIs and micro-finance banks interviewed.

42

4. Project risks

There are a number of risks arising from features of the dairy sector itself that affect financing

to the dairy sector. Mitigating several of these risks can be achieved by effectively linking finan-

cial support to the provision of technical assistance and extension services to farmers and coop-

eratives that is planned in other sub-components of the project, and by linking provision of fi-

nancial services to processors and other value chain actors (Table E.6).

Table E.6: Risks and risk mitigation in dairy financing

Risk Risk mitigation

Weather risks (e.g. droughts) and animal

death due to disease

Crop and livestock insurance to protect the

farmer from incurring losses.

Fluctuations in milk yield leading to unstable

and low cash flows.

Fodder production, purchase and storage,

technical extension services to support sta-

ble and high yields (see Annex D)

Inconsistent milk pricing by off-takers expos-

ing farmers to unpredictable and unstable

cash flows

Better structured off-take contracts that en-

sure price stability to enable financial plan-

ning by farmers

Default by farmers or diversion of funds such

as change of pay points to avoid paying

loans.

Greater collaboration between co-opera-

tives, SACCOs/non-SACCO FI and off-takers

Poor governance at co-operative level Capacity building to enhance governance

and management capacity in co-operatives

(see Annex D).

Limited visibility of farmers’ financial pro-

files, which precludes objective decision

making by financial institutions

Support automation of farmer records by

milk off-takers (co-operatives or processors)

to enable financial institutions to get a bet-

ter view of commodity and cash flows

43

F. FEASIBILITY STUDY FOR COMPONENT 1 (1.2 IN-

CREASED COMMERCIAL PRODUCTION AND MARKET-

ING OF FODDER)

1. Overview

Feed and fodder production, supply and feeding are among the most important constraints on

the development of the Kenyan dairy industry. Insufficient and low quality feeding are the pri-

mary causes of low milk yields per cow. Low fodder availability in the dry season leads to a major

dip in milk production every year. Many farmers resort to feeding purchased feed concentrates,

which raises production costs,56 but with insufficient preserved fodder (e.g. hay, maize or grass

silage), feed concentrate is often inefficiently used. The digestive system of a dairy cow enables

the animal to digest fibrous feedstuffs.57 Feeding a dairy cow therefore starts with fodder. In-

creasing fodder supply, supported by advice provided to farmers on feed ration balancing,58 can

enable farmers to increase on-farm productivity, reduce the dip in milk production during the

dry season, increase their income and reduce GHG emission intensity.

Various fodders (e.g. Napier grass) are widely grown on smallholder farms in Kenya. However,

average farm size is small and the quality of fodder grown is variable. According to surveys con-

ducted by New KCC, their 54,000 long-term suppliers currently have a hay deficit of approxi-

mately 20.25 million bales per year, equivalent to production on about 67,500 acres.59 Upscaling

this deficit to 300,000 farmers implies a hay deficit of 119.25 million bales per year or 476,999

acres.60

In recent years, numerous farmers have begun to show interest in commercial hay production.61

In some cases, dairy cooperative members have jointly invested in hay production. More than

20 private farmers have also invested in large-scale commercial hay production, and some have

also developed businesses providing mechanized services on a contract basis to other farmers.

Although great market potential exists, barriers including a lack of machinery and spare parts,

storage facilities, a lack of quality seeds and agronomic extension services hinder the fodder

sector in its development, both in terms of growth (i.e. acres under hay production and yields

per acre) and in terms of hay quality. In 2015, more than 250 of these farmers came together to

form the Rift Valley Hay Growers Association to address their common needs. Rift Valley Hay

Growers are hindered in development of their businesses by a lack of machinery and storage

facilities and a lack of high quality seeds and knowledge of agronomic measures to increase hay

yields and quality. Furthermore, direct linkages between hay growers and dairy producers do

not exist, causing a hay deficit in many dairy producing regions and a hay surplus in the hay

56 Tegemeo (2016) Report on a study assessing cost or production structures in dairy systems in Kenya 57 Performeter (2013) 58 This is included in the activities in Sub-component 1.1.1 (see Annex D). 59 Excluding hay production by the Rift Valley Hay Growers Association (New KCC, personal communication March 2016) 60 For extrapolation, an average production of 200 bales per acre and year was used 61 See e.g. The Friesian (2015), BLGG Research (2013) and Performeter (2013)

44

growing regions. One particular focus is the development of storage – marketing – logistics ser-

vices to facilitate access of suppliers to the market.

The objective of this sub-component is to greatly increase the supply of high quality fodder (hay)

to dairy farmers through:

Technical assistance to commercial fodder producers and fodder producer associations; and

Increasing farmers’ access to credit finance for investments in commercial fodder production, storage

and marketing.

2. Beneficiaries

The main partner for these activities is the Rift Valley Hay Growers Association. The Association,

registered in March 2015, and currently has a membership of 252 small and medium scale com-

mercial hay farmers, with a total of 5,000 acres under hay production, which is expected to in-

crease to 6,000 acres by the end of 2016. The Association’s production base is located in Nakuru

County but it has initiated recruitment of hay out-growers in Nakuru, Baringo, Narok, Kajiado,

Kitale and Laikipia counties.62

Direct beneficiaries include all commercial hay producers including those as part of the Rift Val-

ley Hay Growers Association. Indirect beneficiaries include all dairy farmers who are provided

with high quality (“improved”) hay as a result of support to commercial hay production by the

project.

3. Results framework for the sub-component

The proposed output of fodder related activities is Output 1.2: Increased commercial production

and marketing of fodder. This contributes to Outcome 1: Increased dairy productivity through

private sector investment in gender-inclusive extension services. The output will be delivered

through the following activities:

Activity 1.2.1: TA for extension to hay farmers in agronomy and financial management of their

business operations

Activity 1.2.2: TA for support of the Rift Valley Hay Growers Association in further business

model development

Activity 1.2.3: Increasing farmers’ access to credit finance for investments in machinery and

storage facilities

Activity 1.2.4: Ensuring implementation of environmental and social safeguards by commer-

cial hay growers and financial institutions

Activity 1.2.1: TA for extension to hay farmers in agronomy and financial management of their

business operations: Smallholder dairy farmers producing improved hay, as well as commercial

hay growers specialized in hay production, are hindered in optimal production by a number of

62 Rift Valley Hay Growers Association, business plan (personal communication July 2016)

45

barriers including limited support in extension.63 Extension to farmers in best agronomic prac-

tices (e.g. for soil analysis, land preparation, planting, fertilizer and herbicide use as well as the

right harvesting time) can substantially improve both yields per acre as well as the quality (di-

gestibility) of hay. Furthermore, business development services in financial management can

improve the efficiency and economic performance of their operations. Through this activity,

farmers will be clustered in geographic groups to receive extension services four times a year

during the first 5 years of the project implementation period. Extension services will be tendered

to Kenyan organizations with experience in fodder production and extension provision to farm-

ers.

Activity 1.2.2: TA for support of the Rift Valley Hay Growers Association in further business

model development: The mission of the Rift Valley Hay Growers Association is “to promote the

production of quality hay by smallholder farmers for adequate, affordable and accessible hay

provision to smallholder dairy farmers in Kenya”. To achieve this mission, in 2016 the Association

developed a hay value chain business plan. Proposed activities include the establishment of a

model hay farm, investments in storage facilities and training of smallholder farmers. The Asso-

ciation has diverse business development needs, including access to affordable finance, strate-

gic advice and training in financial and contract management. Business development services

will be tendered to Kenyan organizations with experience of supporting tailored processes for

business development by linking the Association with the relevant advisory expertise and

sources of financial support.

Activity 1.2.3: Increasing farmers’ access to credit finance for investments in low-emission ma-

chinery and storage facilities: High up-front investment costs for low-emission machinery and

storage facilities hinder further development of the commercial hay sub-sector. With a lack of

machinery and storage facilities on farm and at transportation hubs, commercial producers are

forced to directly sell their hay after harvest at low(er) prices. A small proportion of hay is stored

in poor quality storage facilities, which poses a risk of hay quality loss. To overcome this barrier,

concessional loans as well as a repayment schedule fitting the production cycle (i.e. two harvest-

ing seasons per year) will be provided. As is common practice in Kenya’s agribusiness finance, of

the total machinery investments required, farmers will finance 30% using their own private fi-

nance, and 70% will be financed with credit. Of this credit finance, the GCF project will provide

25%, which will leverage the remaining 75% from financial institutions’ own resources. The GCF

finance will be tied to performance indicators (e.g. interest rate, loan conditions) to ensure that

the leveraged finance meets the target beneficiaries’ financial needs.

Activity 1.2.4: Ensuring implementation of environmental and social safeguards by commer-

cial hay growers and financial institutions: As described in Section 7 below, the main social and

environmental risks associated with commercial hay production include labour and working con-

ditions (favouring male employees, failing to use protective clothing when working with chemi-

cals) and potential surface and ground water pollution from inappropriate application of ferti-

lizer and herbicides. These risks can be managed by appropriate management of employees,

provision of protective clothing, efficient (minimum) use of chemicals and proper waste disposal

63 Performeter (2013)

46

measures. The project will thus produce guidance and training for hay growers and their em-

ployees on safe working conditions and proper agronomic procedures. For expansion of hay

area, the main risks relate to potential conversion of habitat and leasing of lands owned by in-

digenous peoples. To abate these risks, participating financial institutions will be provided with

a risk screening tool to ensure that the projects they finance avoid these risks.


There are two common business models in commercial hay production: production of hay using

contract services for machinery and production of hay using the farmer’s own machines plus

contracting out mechanized services to other farmers. Input costs, the use of inputs and con-

tracted services, yields and machinery investments were determined through a survey of 10

commercial hay producers in Nakuru and Narok counties (Tables F.1 and F.2).

Table F.1: Main assumptions used in FIRR and EIRR analysis for farms using contracted services

FIRR assumptions EIRR assumptions

Costs (per acre)

Land lease KSh 7,000

Land improvement invest-

ments

KSh 9,000 in year 0 CF of 1.25 applied

Certified seeds KSh 4,500 CF of 1.25 applied

Fertilizer and herbicide in-

puts

KSh 8,600 CF of 1.25 applied

Contracted services KSh 21,300 incl. land prep and plant-

ing, until year 5 KSh 12,400, then re-

planting

Skilled Labour, CF of 0.8 applied

Revenues

Yields per acre 220

Average price per bale of

hay

KSh 150 CF of 1.25 applied

Table F.2: Main assumptions used for FIRR and EIRR analysis for hay producers also providing

contracting services


Costs (for 1,500 acres incl. contracting services)

Machinery investments KSh 20,312,000 CF of 1.25 applied

Office investments KSh 307,000 CF of 1.25 applied

Land improvement in-

vestments

KSh 9,200 in year 0 CF of 1.25 applied

Machinery maintenance

costs

KSh 1,690,000 CF of 1.25 applied

Fuel costs KSh 3,650,000 CF of 1.25 applied

47

Contracted services KSh 21,300 incl. land prep and

planting, until year 5 KSh 12,400,

then replanting

Skilled Labour, CF of 0.8 applied

Revenues

Contracting services

planting – harvesting and

baling

KSh 15,440/acre CF of 0.8 applied

Contracting services har-

vesting and baling incl.

transport to storage

KSh 12,000/acre CF of 0.6 applied

Seed harvesting 60 kg/acre, KSh 1,500/5 kg

Assuming all activities on-farm from land preparation until harvesting and baling are outsourced

to contractors, the FIRR over 10 years for farmers using contract services is 18%. For farmers

providing contracting services, the FIRR is 44%. Significantly, this indicates that commercial hay

production using contracted services is insufficiently profitable to justify access to commercial

loans at prevailing rates (i.e. 24%), and thus justifies the application for concessional finance.

From an economic point of view, the EIRR over 10 years for farmers using contracted services is

128%, while for farmers than provide contract services the EIRR over 10 years decreases to 27%.

Both are well in excess of a benchmark social discount rate of 7%.

5. Project Investments

Incremental costs were derived as the difference between investments required in the with-

project scenario and estimated investments in low-emission machinery, storage and land leasing

by smallholder and commercial hay growers in the without-project scenario. Table F.3 presents

the total incremental costs. The total incremental cost is US$ 12.97 million. Of this, 90% repre-

sents investments by farmers in machinery and storage facilities.

Table F.3: Total incremental project costs (US$ million)

PY1 PY2 PY3 PY4 PY5 Total incre-

mental costs

(USD million)

Farmer investments

for machinery

1.92 1.92 1.92 0.05 0.05 5.88

Farmer investments

for storage

1.28 2.27 2.31 0.44 0.44 6.76

TA 0.20 0.10 0.03 - - 0.33

SUM 3.40 4.29 4.32 0.49 0.49 12.97

On this basis, the project costs have been estimated as follows (Table F.4):

a. TA costs are US$ 335,000 over the first 5 years of the project (not including staff and

admin costs which are accounted for in Component 4).

48

b. Concessional loans: 30% of machinery and storage facility investments will be financed

directly by farmers. The remaining investments will be made using credit finance. In line

with common practice in the sector, we assume that $1 of concessional finance will lev-

erage $3 of credit from financial institutions’ own resources. Thus, US$ 2.53 million of

GCF finance are applied for to provide a total of US$ 10.1 million in credit available for

investment in machinery and storage facilities.

For each US$ 1 of GCF finance provided, US$ 3 will be leveraged from financial institutions, US$1

from farmers, and US$0.13 from the AE, giving a private finance leverage ratio of 1: 4.13.

Table F.4: Total project costs

Project costs Co-financing

GCF AE GoK FIs farmers

Loans 2,527,403 7,582,208 2,527,403

Guarantees

Grants 315,000

Staff costs

Travel & per diem 20,000

Admin costs

Total 2,527,403 335,000 0 7,582,208 2,527,403


Emission reductions from commercial hay production are realized through:

1. Improved quality hay provision to dairy farmers, enabling increased milk yields per cow

and decreased intensity of GHG emissions; and

2. Carbon sequestration.

GHG emission reductions as a result of increased production per cow are calculated using the

“Methodology for Quantification of GHG Emission Reductions from Improved Management in

Smallholder Dairy Production Systems using a Standardized Baseline”. Within this methodology,

emissions caused by feed production and fertilizer use, feed processing and distribution and

land use change are included. Emissions caused by increased fertilizer and machinery use and

emissions in transport of hay, and carbon sequestration due to hay production, are therefore

included in the quantification of emission reductions from dairy production and are not sepa-

rately estimated for the activities outlined here (see Annex B for further explanation).

49

7. Social and environmental risks & safeguards

7.1 Potential Risks

Social and environmental risks were analyzed using expert judgment and reference to the IFC

Guidance Note for the Assessment and Management of Environmental and Social Risks and Im-

pacts.64 Social and environmental risks of commercial hay production mainly comprise of risks

concerning (i) labour and working conditions, (ii) resource efficiency, pollution prevention (in-

cluding GHG emission prevention), but expansion of the acreage under hay production may also

relate to (iii) biodiversity conservation and indigenous peoples (Table F.5).

Table F.5: Main social and environmental risks in commercial hay production

Risk category Potential risks and impacts

Labour and working

conditions

As commercial hay production implies much physical as well as technical la-

bour (operating machinery), men are likely preferred for employment. Em-

ployment decisions will often favour men.

In the commercial hay sector, women often do seed harvesting. In most com-

mercial hay farms, very likely no measures to protect women from harass-

ment exist.

A safe working environment is not always secured on hay farms; especially

protective clothing when using herbicides is rarely provided by the grower

and assumed to be the own responsibility of the workers (incl. third parties).

Resource efficiency and

pollution prevention

The increase in hay production – by increasing acreage as well as intensifying

hay production per acre – could increase the overall use of fertilizer and

herbicides as well as the use of machinery and therewith increase GHG emis-

sions.

The use of chemicals (herbicides, fertilizer) is common in the hay sector. Hay

growers tend to use these chemicals to ensure a stable crop with limited ref-

erence to the efficiency of use.

Good practices for chemical waste disposal are rarely implemented.

Biodiversity Conserva-

tion and Sustainable

Management of Living

Natural Resources

The increase in hay production - by increasing acreage – could pose a risk for

the conversion or degradation of natural habitats.

Indigenous Peoples Where new acreage is sought in areas with indigenous populations, land

rights and access to lands with customary rights may be an issue.

7.2 Risk Mitigation Measures

The absence of measures for safe working conditions as well as resource efficiency can be ex-

plained by a lack of technical knowledge of hay farmers as well as their workers and third parties.

Therefore the project technical assistance activities to training hay growers and their workers,

64 http://www.ifc.org/wps/wcm/connect/topics_ext_content/ifc_external_corporate_site/ifc+sustainability/our+ap-proach/risk+management/performance+standards/environmental+and+social+performance+standards+and+guid-ance+notes#2012

http://www.ifc.org/wps/wcm/connect/topics_ext_content/ifc_external_corporate_site/ifc+sustainability/our+approach/risk+management/performance+standards/environmental+and+social+performance+standards+and+guidance+notes#2012



50

including the development of a training guideline with practical and easy-to-understand social

and environmental protection measures.

To ensure that farms receiving financial support from the project employ the required safe-

guards and to ensure that any finance for land leases avoids risks associated with habitat con-

version and indigenous peoples’ rights, the project will develop a risk screening tool and bank

staff on the use of this screening tool. Any farm or farming activity financially supported should

be screened using this tool.

51

G. FEASIBILITY STUDY FOR COMPONENT 2 (2.1 ENERGY

EFFICIENCY AND RENEWABLE ENERGY IN COOLING

AND PROCESSING FACILITIES)

1. Overview

The high cost of production is one of the constraints on the competitiveness of Kenya’s dairy

industry. Energy is one cost component, with water and energy costs amounting to about KSh 2

per liter, compared to a milk procurement price of KSh 28-33 processed. Consistent quality re-

quires continuous, temperature-controlled handling of temperature sensitive milk products

from farm to factory to table. Kenya’s dairy processors handle about 600 million litres of milk

per year. The milk is sent by producers to milk collection stations from where it is taken to one

of the almost 600 cooling centres, where it is chilled to 4-7ºC. After cooling, the milk is loaded

into specialized trucks for transfer to the processing facility. There are 32 small, medium and

large dairy processing facilities in Kenya. The cooling centres mostly use electrical energy for

running bulk milk coolers and heating cleaning detergents. Most of this electrical energy is from

the national grid and/or from a standby diesel generator. In the processing plant, milk is pas-

teurized by applying heat, and separated and homogenized. Where UHT products are produced,

the milk is further heated before packaging. All these processes require energy. Ammonia com-

pressors, air compressors and homogenizers are often the biggest single users of energy within

a plant. In processing plants, most energy used is from the national grid, but standby diesel gen-

erators are ubiquitous. In addition furnace oil is used for firing steam boilers that generate steam

for milk processing and heating services. Diesel and motor oil are also used, and some small

processing plants use wood-fired boilers. In addition to the different types of dairy products

produced and thus the specific treatments applied to milk, the amount of energy used per litre

of milk processed depends on a number of factors, including the choice of technology, efficiency

of the machinery, and the presence or absence of leakages and other breakdowns.

Energy efficiency and conservation activities are governed and regulated by the Energy Act

(2006) and Energy (Energy Management) Regulations 2012. The Energy Regulatory Commission

is responsible for designating factories or buildings and electrical appliances by type, quantities

of energy use, or methods of energy utilization for purposes of energy efficiency and conserva-

tion, and for inspecting designated facilities to see whether they are adhering code and stand-

ards of energy efficiency and conservation. Specifically, in large manufacturing facilities, such as

dairy processing plants, that consume more than 180,000 kWh of electricity per year, the regu-

lations oblige the owner to conserve energy, audit and analyze energy consumption in accord-

ance with the standards, criteria, and procedures as prescribed by regulations. Designated facil-

ities are required to conduct energy audits after every three years and implement the findings.

In this context, an assessment of energy efficiency and renewable energy options for reducing

consumption of high emission energy sources and GHG emissions in milk cooling centres and

dairy processing plants was conducted to identify financially viable investment options. The re-

sults point to significant GHG emission reduction potential of financially viable retrofit interven-

tions in processing plants. The main options at cooling centres had very long payback periods

and will not be financially viable until solar technology costs fall. However, because the Energy

52

Regulations are relatively new, and firms are just beginning to implement them, companies in-

terviewed perceive significant risks with such investments. Few banks have experience of financ-

ing these investments. Therefore, TA for processors and banks is proposed, and a concessional

credit line in order to incentivize both banks and processors to invest in the significant energy

conservation opportunities available. These investments will also have benefits for reducing

costs and milk loss and waste, and thus enhance the competitiveness of the dairy enterprises.

2. Results of field assessments

With a squeeze on profit margins due to international milk prices and high domestic production

costs, and since the promulgation of regulations on energy management (2012) in particular,

Kenya’s dairy processing enterprises have paid increasing attention to energy efficiency in their

operations. The large processing companies in particular, and with support of international de-

velopment partners, have trained staff in energy audits and begun to conduct energy audits and

invest in energy efficiency and renewable energy interventions. The data from past work is

mostly not publicly available. For the preparation of this component of the concept note, a scop-

ing of energy efficiency options in selected milk processing plants of New KCC, Githunguri Dairy

Cooperative Society and a small processor, and five cooling centres, was commissioned. The

scoping produced detailed estimates of the costs and benefits of retrofits to the facilities visited.

2.1 Retrofits of processing plants

The situation in each of the large, medium and small processing plants assessed varied consid-

erably. Retrofit options identified included:

Repairs to leakages in air compressors

Upgrading air compressor and boilers equipment to more efficient technologies

Repairing steam leaks

Insulation of steam and refrigeration piping and boilers

Retrofit of chilling and processing equipment to more efficient technologies

Retrofit of lamps and lighting systems with LED

upgrade of the connected power supply;

Installing water and power control systems and fittings;

Table G.1 presents a summary of the main findings of the assessments in the three processing

plants.

53

Table G.1: Main findings of processing facility retrofit feasibility and cost benefit analysis as-

sessments

Large processing plant Medium processing

plant

Small processing plant

Milk processed/yr

(L/yr)

43,897,342 9,125,000 3,544,354

Baseline energy con-

sumption MWe / 1000

L milk

0.15 0.0002 0.0002

Baseline energy cost

$/L milk processed

0.56 0.18 10.50

Retrofit investment de-

mand ($)

2,840,000 2,285,000 1,533,000

Total capacity abate-

ment (MWe)

2.616 0.80 0.16

Total electricity savings

per year (GWh)

1.634 1.17 137.577

Total diesel savings per

year (L)

484,191 331,792 885

Total water savings

(m3/year)

3,890,500 57,129 6908

Reduction of milk

losses (L/year)

131,400 109,500 376

Overall cost saving /

year ($)

11,626,263 954,630 25,984,700

Payback period (years) 0.25 2.76 0.6

tCO2e abatement / yr 1405 966 8257

Investment cost /life-

time tCO2e

101 118 9.28

The main findings show that:

The benefits of investment in retrofits include:

a. Significant reductions in energy consumption, mainly due to reduced electricity con-

sumption and reduced use of diesel for steam generation. Energy consumption abate-

ment potential in these three facilities is 25% - 40% of total energy demand.

b. Reduced use of water;

c. Reduce use of chemicals in facility management;

d. Reduced milk losses and waste.

Investments in retrofits are financially attractive, with a high financial return due to cost savings and

reductions in milk losses, and a short payback period (0.5 – 3 years in these three facilities);

There is a large variation in the cost per unit of benefit. For example, cost per tCO2e abated in these

three plants varies between $9.28 and $118 per tCO2e. This is largely determined by the energy mix

used in each facility’s operations and the potential for abatement of energy use of different types.

54

2.2 Retrofits in cooling centres

In the 5 cooling centres assessed, retrofit options identified included replacing electric milk

chilling plants with solar milk chilling plants, replacing electric boilers with biomass steam boil-

ers, replacing electric lighting with solar lighting, and installing variable speed drives on motors.

The financial viability of these measures varies depending on the baseline situation of the cool-

ing centre.

Solar lighting systems: Annual lighting energy costs in the 3 of the cooling centres assessed were less

than $100 per year, but in two centres were $1120 and $70,000. Assuming an installation cost of about

$72,500, investment in solar lighting systems would be viable (i.e. higher than a benchmark IRR of

12.5%) only if baseline lighting energy costs are higher than $10,000. The payback period would be 8

years. Only 1 of the 5 centres met this criterion.

Replacing electric chilling plants with solar chilling plants: Baseline annual energy costs of cooling tanks

ranged between about $10,000 and $20,000. At an installation cost of $200,000 for a solar power

system and 3000 L cooling tank, the benchmark IRR of 12.5% would only be achieved if annual energy

cost savings are more than $27,650. The payback period would be 8 years. None of the cooling centres

assessed met this criterion.

Replacing electric boilers with biomass steam boilers. Annual boiler energy costs were between $5,000

and $7,500. At an installation cost of $26,540, the investment would only realize a benchmark IRR of

12.5% if the biomass boiler annual operation costs were between 26% and 50% lower than the base-

line energy costs. The payback period would be 1-2 years. Biomass feedstock prices vary considerably,

and it was not possible to assess how many of the 5 centres assessed met the criteria for investment.

Overall, these interventions are viable in some, but not all of the cooling centres assessed. How-

ever, long payback periods would require suitable financial products to support.

3. Extrapolation to the sector

3.1 Processing facilities

Given the limited information available from the 25 licensed dairy processing enterprises in

Kenya, a method was devised to roughly estimate total demand for retrofit investments in pro-

cessing plants and the potential energy and GHG emission savings. Data on installed processing

capacity and capacity utilization was obtained. For larger facilities, estimated energy abatement

potential was scaled in relation to the estimated market share of the larger facility assessed, and

medium and small facilities were scaled in relation to their market share in comparison to the

medium and small processor assessed in this study. The results are shown in Table G.3. Analysis

assumes a total of 32 retrofit investments. The average investment is $984,880, but with large

variation in the sector. Of the 32 investments, 16 are potentially <$0.5 million in scale, totalling

$4.1 million. Sixteen are potentially between $0.5-$2 million, totalling $14.6 million, and 4 are

potentially >$2 million, totalling $12.8 million. With total investment demand of $31.5 million,

assuming 80% is credit financed, a credit line of $25.2 million would be needed.

55

Table G.2: Estimate of total potential GHG abatement and retrofit investment demand by

dairy processing facilities

Estimated total potential

Number of facilities 32

Total retrofit investment demand $31,516,220

Total electricity savings (GWh/yr) 2224.29

Total diesel consumption savings (liters) 2,728,569

Total water savings (m3/year) 14,518,828

Total CIP chemical savings (kg/year) 82619

Reduction in milk losses (L/year) 981,641

GHG abatement (tCO2e over 20 years) 2,816,499

3.2 Cooling facilities

Available data suggest that there are 596 cooling centres and satellite coolers in Kenya. The

average cooling centre assessed consumes about 0.2 GWh of electricity per year. Assuming an

abatement potential of 50% of electricity consumption in each cooling centre, and an average

investment of $100,000 per centre, total investment demand would be $59.6 million, implying

a credit demand of about $47.68 million. The GHG abatement potential over 20 years would be

about 715,200 tCO2e. On average, therefore, GHG abatement through interventions at cooling

centre level are more costly than at processing level. However, eligibility criteria could be set for

a fund supporting these investments, such that energy consumption savings must exceed a cer-

tain percentage of baseline consumption and/or the projected cost per unit of energy consump-

tion abated could be capped. This would imply that effective demand for investment and credit

finance would not be as large as the potential demand of $59.6 million estimated above.

4. Project finance

The project costs include costs of TA for energy audits and preparation of investment-grade pro-

posals, and credit finance for co-investment with processors in retrofit interventions:

a. TA for energy audits and investment proposal preparation: Given the distribution of milk

processing plants and coolers in the country, and standard input requirements for facil-

ity energy audits, it is estimated that energy audits at processing plants would cost

$100,000, and for cooling centers would cost $135,000, totalling $ 235,000. These costs

include consultant fees and travel costs. Processors would be required to co-finance the

conduct of the audits and proposal development. For large companies owning 34% of

processing facilities and 28% of the coolers, 50:50 cost sharing would be requested. For

smaller companies, 60:40 cost sharing would be requested. This would equate to co-

finance of $105,750.

b. Estimated total credit demand for retrofit investments is $25.2 million for processing

plants. For cooling centres, we assume that 20% of investment options would be suffi-

ciently financially viable and estimate demand for $9.5 million credit for cooling centres.

Concessional credit from the GCF will be provided on performance-based conditions to

commercial banks selected through competitive tender, with the requirement that the

56

banks provide $2 for each $1 of GCF concessional credit. Thus, the proposal requests

$11.5 million in concessional credit from the GCF, in order to make available a $34.7

million credit line for investment in energy efficiency and renewable energy in the sector

(Table G.3).

c. With such a credit facility, processors would make direct investments of $8,684,000 and

FI’s would contribute $23,273,120 as co-finance.

Table G.3 Estimated credit demand for energy efficiency investments (US$)

total investment credit demandb GCF creditc

processing plants 31,500,000 25,200,000 8,316,000

cooling centres 11,920,000a 9,536,000 3,146,880

Total 43,420,000 34,736,000 11,462,880

a: assuming 20% of total technically potential retrofits financially viable and have sufficiently high cost

effectiveness; b: assuming 20% is financed as direct investment by the borrower; c: assuming 1:2 leverage

of FI’s own resources.

In addition to the above, management and TA delivery costs have been estimated at $99,500,

not including staff and administrative costs which are accounted for in Component 4.

Table G.4: Total project costs (US$)


GCF AE GoK FIs Processors

Loans 11,462,880

23,273,120 8,684,000

Guarantees

Grants / TA 235,000

105,750

Staff costs

Travel & per diem 99,500

Admin costs

Total 11,797,380

23,273,120 8,789,750


Total estimated lifetime (20 year) GHG emission reductions from interventions at processing

plants are 2,816,499 tCO2e and at cooling centres 143,040 tCO2e,65 totalling 2,959,539 tCO2e.

Following IFI/MDB harmonized framework for GHG reporting, ex ante estimates of lifetime

emission reductions will be included in each investment proposal, and project quantification of

emission reductions will record the total ex ante estimates in project proposals approved each

year.

65 i.e. 20% of the total abatement potential estimated in Section 3.2

57

6. Social and environmental risks

Assessment at 8 facilities identified a number of risks relating to efficient use of resources. Apart

from those relating to energy use, which are the focus of this component, inefficient use of wa-

ter resources is also an area that should be addressed by interventions in this component. Other

risks identified included improper disposal of solid waste, where plastic bags and bottles are

used in the packaging process in processing plants, which was observed at one processing plant,

as well as improper disposal of liquid waste. Disposal of gases and industrial waste from old

equipment replaced during retrofits may be an issue, but was not assessed here. Other potential

risks relate to employment practices and conditions in the processing facilities, but the extent

of potential risks and current systems for managing these risks was not assessed as part of the

concept note development activities.

58

H. FEASIBILITY STUDY FOR COMPONENT 2 (2.2 MALE AND

FEMALE FARMERS ADOPT BIOGAS TECHNOLOGIES ON

DAIRY FARMS)

1. Overview

A dairy cow produces 15-30 kg of manure per day. Practical and environmental issues associated

with emission of large amounts of manure are a major set of issues that need to be addressed

in dairy development. Inappropriate management of manure affects cow welfare, health and

productivity. Emission of slurry to the environment surrounding dairy farms can pollute fields

and water ways. Manure management is also a source of methane and nitrous oxide emissions.

Manure management will be one topic addressed in Component 1 (on-farm dairy productivity).

Manure is also a renewable energy source, and its use as a biogas substrate can reduce house-

hold expenditures on energy and chemical fertilizers, and reduce women’s time input in fuel

wood collection, while use of biogas slurry as fertilizer can increase crop yields.

In Kenya, approximately 68% of households’ energy comes from wood; mainly firewood and

charcoal are used for cooking and heating purposes. National demand for fuel wood exceeds

supply by 27% and demand for charcoal exceeds supply by 55%. Future demand is expected to

increase faster than supply.66 Energy deficiencies and costs of energy provisioning are significant

factors associated with household poverty. The development case for biogas investment is thus

clear: reductions in women’s labour time and exposure to wood smoke; reductions in energy

and chemical fertilizer expenditures for rural households; reductions in deforestation; and im-

proved management of livestock waste.

The technical potential for biogas in Kenya – as indicated by households with sufficient water

and livestock waste (manure) – has been estimated at 320,000 households.67 Estimates of cur-

rent actual installed biogas units are only a small proportion of this potential (Table H.1).

Table H.1: Number of biogas units installed in Kenya68

Year 1997 2005 2012 2014

Units installed 1100 500 1884 4,000-16,000

Demand-side barriers to successful adoption of biogas technology include:

High upfront investments for biogas units;

Many potential users of the technology are not aware of the technology;

Poor management and maintenance (because of household labour constraints);

Lack of quality control and standards, so clients and financial institutions are unsure of product quality.

66 Ministry of Environment, Water and Natural Resources (2013) Analysis of demand and supply of wood products in Kenya 67 Heegde, F., and Sonder, K. (2007) Domestic biogas in Africa: a first assessment of the potential and need. 68 Wilkes and van Dijk (2016) Gender issues in Biogas Promotion and Use in Kenya

59

Kenya has a number of biogas service companies, but in the absence of biogas subsidy pro-

grammes, most companies are supplying only 200-400 units per year. Supply-side constraints

include:

Biogas service companies lack strategies and internal operational processes for service provision at

scale;

Biogas companies lack finance for upscaling service provision;

Lack of skilled technicians to construct and provide maintenance services/ post installation support.

Output 2.2 is that men and women adopt biogas technologies on dairy farms, contributing to

Outcome 2: Reduced energy consumption from high emission sources throughout the dairy

value chain. To increase adoption of biogas technology, project activities will address barriers to

adoption by (i) providing financial support to dairy farming households for investments in biogas

technology, and (ii) technical assistance for business development and market linkages to in-

crease the capacities of biogas service providers to upscale the supply of biogas services.

2. Beneficiaries

Direct beneficiaries of the biogas component include biogas service providers and farmers. Ac-

knowledging relatively slow progress in the biogas sector in Kenya and the need for further sup-

port for biogas service providers to develop their businesses, the overall aim of this biogas com-

ponent is to reach 20,000 dairy farming households within five years.

3. Results framework for the sub-component

The proposed output of biogas related activities is Output 2.2: men and women adopt biogas

technologies on dairy farms. This contributes to Outcome 2: Reduced energy consumption from

high emission sources throughout the dairy value chain. The output will be delivered through

four main activities:

Activity 2.2.1: TA to biogas companies for development of business operations

Activity 2.2.2: Financial assistance for adoption of biogas by farmers

Activity 2.2.3: Ensuring implementation of environmental and social safeguards by biogas ser-

vice companies and financial institutions

Activity 2.2.4: Monitoring and evaluation

Activity 2.2.1 TA to biogas companies for development of business operations: Kenya has more

than 10 biogas service companies. In the absence of subsidies for biogas installation,69 they are

generally able to install 200-400 units per year per company. Each company has differing busi-

ness development needs. Some are seeking equity investment, others are considering new mar-

keting strategies or revision of their advisory services to farmers, and some are seeking inven-

tory financing to support increased sales. All are at a small scale, and lack internal management

69 Under the KENDBIP programme, subsidies per unit installed were paid to the installation companies, but these subsidies have now ceased with the end of finance to the programme.

60

processes for going to large scale. Business development services will be tendered to Kenyan

organizations with experience of supporting tailored processes for business development by

linking the biogas companies with the relevant advisory expertise and sources of financial sup-

port. The tender will be for an organization to solicit and support proposals from biogas service

companies for business development support. Technical assistance will be intensive during the

first year for development of biogas companies’ business processes and strategies. During PY 2

and 3, technical assistance will gradually be reduced in intensity, supporting further business

process and strategy implementation.

Activity 2.2.2 Financial assistance for adoption of biogas by farmers: High up-front investment

costs are universally reported as the main barrier to adoption by dairy farmers. To overcome

this barrier, a blended finance mechanism will be established to support dairy farmers to invest.

Dairy farmers will be provided with (a) a 40% grant subsidy to reduce the household requirement

for initial investment in biogas, and (b) concessional loans at an interest rate of 10% for 80% of

the remaining installation cost. Thus, the initial investment cost for farmers will be 10% of the

total cost of the biogas unit. The grants subsidies and loans will be administered by banks se-

lected through a tendering procedure. The target is to finance installation of 20,000 biogas units

during the 5 year period of the project implementation. The project will ensure that appropriate

management procedures are put in place for subsidy and loan management by the contracted

financial institutions.

Activity 2.2.3 Building capacities of biogas service providers and financial institutions to im-

plement environmental and social safeguards and gender-inclusive approaches: As described

in the safeguards screening section below, the primary environmental risk associated with bio-

gas use is the potential contamination of crops and groundwater with harmful pathogens from

applying bio-slurry. A secondary risk is the insufficient use of biogas or leakage of biogas due to

improper management. These risks can be managed by appropriate management and mainte-

nance of biogas digesters and biogas slurry by users. Eligible biogas service providers will be

required to demonstrate that their technicians have the knowledge and skills and their internal

procedures are set up to ensure that all users are trained in appropriate management, not only

at installation, but also during follow-up service provision. The project will produce a set of en-

vironmental guidelines, which must be incorporated in the guidance provided by biogas service

companies. A safeguard screening tool will also be developed to ensure that banks administering

subsidies and loans finance purchase of products by eligible companies and to screen for risks

at household level.

Women are often identified as the primary beneficiaries of biogas adoption. However, women

can be disadvantaged in biogas adoption in many ways, and discussions with biogas service com-

panies have identified several potential business cases for explicit attention to gender issues in

biogas adoption and utilization processes.70 The project will provide capacity building to biogas

service companies in integrating gender-inclusive approaches into their marketing, service de-

livery and into their own operations.

Activity 2.2.4: Monitoring and evaluation: Monitoring and evaluation activities will support

measurement and reporting of adoption rates and subsequent estimation of GHG benefits in

70 Wilkes and van Dijk (2016) Gender issues in Biogas Promotion and Use in Kenya

61

accordance with the appropriate CDM methodologies for biogas generation. It will also serve to

monitor post-installation utilization by users, delivery of post-sales services by biogas companies

and implementation of gender-inclusive approaches, thus contributing to the long-term equity

and effectiveness of biogas adoption.


4.1 Financial and economic appraisal

Investment costs for biogas units vary depending on the size and model used (Table H.2). An

evaluation of pilot extension of the flexi-biogas system in the context of an IFAD-funded dairy

project in Kenya suggests average savings in energy costs and time spent on fuel provisioning of

KSh 1445 per household per month. Other studies also report savings of KSh 1180 per household

per month in direct energy expenditures.71 90% of biogas users use the slurry as fertilizer and

the majority report that it is better than manure.72 Accounting for financial savings from energy

and chemical fertilizer cash expenditures, as well as increased costs in maintenance and water

for the biogas unit (Table H.3), at an installation cost of KSh 90,000, with no subsidy and a 24%,

3-year loan, the pre-finance FIRR over 10 years is slightly positive. Therefore, subsidies to invest-

ment costs and interest are justified. At a subsidy rate of 40% of the total installation cost, and

an interest rate of 10% on a 3-year loan, the FIRR is 24.5% over 10 years.73 Accounting also for

labour inputs and savings of women’s labour time, using conversion factors of 0.6 for unskilled

labour and 1.25 for traded inputs and valuing GHG emission reductions at US$ 5/tCO2e, the EIRR

is 10.4%.

Table H.2: Comparative features of different common biogas systems in use in Kenya

Fixed dome Floating drum Flexi biogas system

Cost (USD) 1000 900-1200 410-810

Lifetime 20 10-15 15 (greenhouse re-

placement every 5

years)

Construction time (days) 20 20-25 1

Start-up manure required 5 5 1

Main materials Masonry, wood Masonry with steel

gas holder

Plastics and PVC tar-

paulin bag

Source: http://dx.doi.org/10.1016/j.renene.2014.10.070

71 Dohoo, C. et al. (2013). Impact of biogas digesters on wood utilisation and self-reported back pain for women living on rural Kenyan smallholder dairy farms. Global Public Health: 8(2): 221-235. 72 KENDBIP (2011) Socio-economic and gender baseline survey for the Kenya National Domestic Biogas Programme. 73 This assumes that 20% of the loan value is made as an initial payment by the client.

62

Table H.3: Assumptions used in estimation of FIRR and EIRR for biogas installation


Costs

Initial investment KSh 90,000 CF of 1.25 applied

Water costs p.a. 7300 L at KSh 0.5/L Water not traded, so CF of 1 applied

Maintenance costs p.a. KSh 5000 CF of 1.25 applied

Labour input in biogas

management

Family labour not val-

ued as a cash flow

Labour cost KSh 20/day, CF of 0.6 applied

Revenues

Energy cost savings p.a. KSh 17,340 CF of 1.25 applied

Chemical fertilizer cost

savings p.a.

KSh 2,712 CF of 1.25 applied

Reduced labour input

in fuel wood collection

Family labour not val-

ued as a cash flow

Labour cost KSh 20/day, CF of 0.6 applied

GHG emission reduc-

tions (tCO2e)

Not valued as cash flow 6.1 tCO2e per biogas unit per year, valued at USD

5/tCO2e, not traded so CF of 1 applied.

4.2 Project Investments

Table H.4 presents the total investments required to achieve the project outcome. All the project

costs mentioned here are incremental to the baseline activities of farmers, biogas companies

and other donor-funded biogas programmes. The total cost of implementation is US$ 20.69. Of

this, 60% represents investments by farmers in biogas installation.

Table H.4: Total incremental project costs (US$ million)

PY1 PY2 PY3 PY4 PY5 PY6-10 Total incre-

mental costs

(US$ million)

Subsidies 1.47 1.47 1.47 1.47 1.47 7.33

TA 0.24 0.17 0.14 0.10 0.10 0.25 1.00

Farmer investments 2.47 2.47 2.47 2.47 2.47 12.36

Total 4.18 4.11 4.08 4.04 4.04 0.25 20.69

In terms of direct costs to the project, the main cost elements are (a) grant subsidies, (b) TA, (c)

concessional loans (see Table H.5).

a. Grant subsidies: The target is to support supply and utilization of 20,000 biogas units

over the 5 year project time frame. For budgeting, it is assumed that the average biogas

digester has a capacity of 6 m3 (for an average of 3 cows/household) and costs on aver-

age 90,000 KSh (i.e. US$ 916). The total cost to the project is US$ 7.3 million.

b. TA costs, including TA and direct project implementation costs, have been estimated at

US$ 995,000, including intensive support in the first 5 years, with TA for M&E in PY6-10.

(Staff and admin costs related to TA are separately accounted for in Component 4).

63

c. Concessional loans: After subsidy, farmers will pay 20% of the remaining cost in order

to be eligible for a concessional loan. Of the concessional loan, the project will provide

25% of the total volume of loans required (i.e. US$ 2.2 million), and financial institutions

will provide the remaining 75% (i.e. US$ 6.6 million). The US$ 2.2 million concessional

finance will be returned to the fund. The private finance leverage ratio over 5 years is 1:

1.80.

Table H.5: Total project costs (US$ million)



Loans 2.20

6.60

Guarantees

Grants & TA 7.33 0.97

3.56

Staff costs

Travel & per diem

0.02

Admin costs

Total 9.53 0.99 0 6.6 3.56


Emission reductions due to the adoption of biogas technology result from:

The substitution of fuel wood or charcoal;

Substitution of non-renewable fossil fuels (e.g. kerosene);

Change in methane emissions from manure management; and

Reductions in use of chemical fertilizer.

CDM methodologies are widely used for the estimation of the first three of these emission re-

duction sources:

AMS-I.E. “Switch from non-renewable biomass for thermal applications by the user“ will be ap-

plied to calculate emission reductions from displacement of fuel wood and charcoal; AMS-I.I

“Biogas/biomass thermal applications for households/small users” will be applied to calculate

emission reductions from the displacement of fossil fuels; AMS-III.R. “Methane recovery in agri-

cultural activities at household/small farm level“ will be applied to calculate the emission reduc-

tions due to the avoidance of methane emissions from manure handling. Basic measurements

of GHG emissions from biogas slurry application are not available to estimate emission reduc-

tions from displacement of chemical fertilizer, and will be conservatively ignored.

Based on a number of CDM biogas projects in Kenya74, average emission reductions per biogas

unit were conservatively estimated at 6.1 tCO2e per unit and year. Thus, cumulative emission

74 8239: African Clean Energy Switch – Biogas (ACES-Biogas), 6549 : Nairobi River Basin Biogas Project and SimGas Biogas Programme of Activities, Kenya (CPA KE1)

64

reductions during the 10 year project implementation period total 976,000 tCO2e. Assuming 15

years lifetime for each biogas unit, total lifetime emission reductions will be 1.7 million tCO2e.

6. Social and environmental risks & safeguards

Numerous social and environmental benefits of biogas have been reported: (i) reduced wood

consumption75 and thus reduced deforestation and forest degradation; (ii) climate change miti-

gation; (iii) reduced energy costs; (iv) reduced exposure to indoor smoke; (v) reduced time, la-

bour and health effects of fuel wood collection on women; (vi) agricultural benefits of biogas

slurry use including improved soil health and crop productivity;13 and (vii) change in men’s in-

volvement in cooking.

The primary social and environmental risk of biogas use is the potential contamination of crops

and groundwater with harmful pathogens from applying bio-slurry. Sanitation of the slurry de-

pends on the appropriate use of the biogas digester. The right temperature and retention of the

slurry are therefore important aspects for the digester user to be aware of. Insufficient use of

slurry, hence leakage of slurry into neighboring fields, could negatively impact soil health and

pollute the water environment.

A secondary environmental risk of biogas use is insufficient use (“consumption”) of the biogas

and/or leakage of biogas due to system failure or improper system management.

These risks can be mitigated by provision of training and information materials to biogas users

by biogas service providers and continued monitoring and training as part of post-sales services.

The project activities are designed to ensure that such information and training is provided and

to ensure that applicants for support from the project are screened to ensure that their basic

situation can enable mitigation of these risks.

75 Subedi et al. (2014)

65

I. FEASIBILITY STUDY FOR COMPONENT 3

(STRENGTHENED INSTITUTIONAL AND STAKEHOLDERS’

CAPACITIES FOR SCALING-UP LOW-EMISSION DAIRY

DEVELOPMENT)

1. Overview

A critical factor for achieving and demonstrating long-term impact beyond the time-frame of the

project will be strengthening of capacities among institutions and stakeholders in both the dairy

sector and the climate change sector. The capacities required include individual technical capac-

ities, institutional procedures and the sharing of information and coordination among stakehold-

ers in these sectors. The linkage between MRV in the projectand national MRV, managed by the

Climate Change Secretariat, will also be critical to project effectiveness in the national context.

The project will establish and implement an M&E system to monitor and report project inputs,

activities, outputs and outcomes, and will also support implementation of the national MRV+

system, which is recommended in the National Climate Change Action Plan (2010). In doing so,

it will contribute to strengthening of the national inventory, and MRV of climate and socio-eco-

nomic benefits of mitigation actions supported by the project. It will also increase capacities in

the dairy sector to capture and disseminate best practices in low-emission, gender-inclusive

dairy sector development, contributing to replication of best practices from the project. In sum-

mary, this component will strengthen individual, institutional and stakeholders’ capacities to

generate, manage and benefit from key information flows, as set out in Table I.1 and Figure I.1.

The project will build on, strengthen and expand existing capacities and mechanisms for per-

forming these functions.

Figure I.1: Key functions of information flows relating to the project

66

Table I.1: Key information flows, functions of information management and key stakeholders

in knowledge management

Information flows Functions Key national stakeholders

Inputs, activities, outputs and

outcomes of the project

Tracking project performance AE, MoALF (IE)

Tracking climate finance Treasury

Activity data, emission factors

and estimated GHG emissions

Improvement of national GHG in-

ventory relating to the dairy sector

MENR Climate Change Direc-

torate

Quantification of emission reduc-

tions from project interventions

AE, MoALF (IE), GCF, MENR

CCS

Best practices in low-emission,

gender-inclusive dairy develop-

ment

Increasing awareness and capaci-

ties among dairy sector stakehold-

ers

Dairy sector stakeholders

Stakeholder plans Stakeholder coordination and col-

laboration

Dairy sector stakeholders

2. Project context

While Kenya is currently under no international obligation to lower its emissions, the Govern-

ment of Kenya (GoK) has expressed a commitment to reducing GHG emissions by 30% by 2030

compared to a baseline projection, subject to international support.76 GoK has issued a National

Climate Change Response Strategy (NCCRS) and the National Climate Change Action Plan

(NCCAP). A Climate Change Act (2016) and Climate Change Policy have also been approved by

Parliament, which clarify institutional responsibilities for climate change. At the same time, the

Constitution of Kenya (2010) has devolved many functions, e.g. planning, agriculture and envi-

ronmental management to the county governments. In terms of institutional roles, the Ministry

of Environment and Natural Resources (MENR) is responsible for climate change, and the Cli-

mate Change Act (2016) mandates a Directorate of Climate Change to be responsible for coor-

dinating fulfilment of Kenya’s international obligations, including MRV and reporting to the Na-

tional Climate Change Council on progress in implementation of the NCCAP.77 The draft Climate

Change Finance Policy clarifies responsibilities and tasks related to climate finance. The National

Treasury has the role of coordinating activities and tasks relating to climate finance, and also

hosts the GCF NDA. In the dairy sector, the State Department of Livestock (SDL) of the Ministry

of Agriculture, Livestock and Fisheries (MoALF) is responsible for dairy sector policy. A Dairy De-

velopment Masterplan and Dairy Development Policy (2013) have been issued. The Dairy Indus-

try Act also specifies the roles of the Kenya Dairy Board as a statutory body with regulatory,

development and promotion mandates in the sector. The Climate Change Act (2016) also man-

dates each state department to mainstream climate change into sectoral strategies. To support

this, MoALF and SDL have established Climate Change Units, which have been active in prepa-

ration of the Kenya Climate Smart Agriculture Framework and Kenya Climate Smart Agriculture

Plan, as well as this project proposal.

76 Kenya’s INDC (2015) http://www.environment.go.ke/wp-content/uploads/2015/07/Kenya_INDC_20150723.pdf 77 The existing Climate Change Secretariat is in the process of transition to the status of Directorate

67

2.1 Climate change sector

The Climate Change Act (2016) mandates the Directorate of Climate Change to be responsible

for coordinating fulfilment of Kenya’s international obligations, including MRV and reporting to

the National Climate Change Council on progress in implementation of the NCCAP. The Direc-

torate78 has in recent years been enhancing its capacities to undertake biennial reporting under

the UNFCCC and to develop the MRV+ system recommended in the NCCAP. The MENR Climate

Change Secretariat has been further developing the databases and procedures for the national

inventory, with support from the UNDP-EU Low Emission Capacity Building (LECB) and USAID

Low Emission and Climate Resilient Development in Kenya projects. In 2015, Kenya submitted

its Second National Communication to the UNFCCC. Kenya is now preparing its Third National

Communication, and adjusting institutional arrangements and inventory procedures so that bi-

ennial reporting obligations can be met.

The UNDP-EU LECB project has also been working with Treasury to implement climate change

coding in the government budget and financing system. The draft Climate Finance Bill (draft May

2016) proposes future requirements for climate finance tracking. It is proposed that climate fi-

nance tracking should use existing MRV processes, data collection and information management

systems (such as the Integrated Financial Management Information System [IFMIS], National

Integrated Monitoring and Evaluation System [NIMES] and Electronic Project Management In-

formation System [E-ProMIS]) and that the climate finance tracking system should be integrated

with performance, outcomes and benefits sharing and reporting.

Regarding GHG quantification, internationally approved methodologies exist for quantification

of GHG emissions from dairy production, biogas utilization and energy efficiency improve-ments

in milk processing facilities. In the case of biogas and energy efficiency, capacities to quantify

GHG emission reductions are currently mainly with the private sector. For quantification of GHG

emissions from dairy production, this is a first of a kind project, but relevant capacity can be

found in partner agencies, such as UN FAO, ILRI and private consulting firms, which have been

developing a smallholder dairy GHG quantification methodology in Kenya since 2013. The meth-

odology was officially approved by the Gold Standard in 2016. There will be a need to establish

capacities of the PCU and national agencies for data analysis and manage-ment information sys-

tems for MRV of GHG benefits.

The NCCAP mandates the adoption of a National Performance and Benefit Measurement

(MRV+) system. The MRV+ system is intended to enable MRV of GHG emissions and emission

reductions, adaptation benefits as well as socio-economic development benefits of climate ac-

tions, and to capture knowledge and lessons generated and best practices to inform deci-sion-

making. This includes the development benefits of climate and development projects. The MRV+

system sets out an overarching MRV framework for all project implementation in Kenya, includ-

ing overall set-up with responsibilities and coordination to ensure data provision and manage-

ment. It also defines human resource needs to implement MRV.

The MRV+ system is a proposed process containing three main stages as follows:

78 Currently the Climate Change Secretariat

68

Measurement, Monitoring (and Evaluation): data and information needs to be gathered and fed into

the system, the data and information needs quality checking and then the evaluation of the data can

be carried out;

Verification: the analysis will produce results that will need to be cross checked and verified in some

way to ensure they are a realistic estimate of the outcomes being monitored;

Reporting: once the results have been verified they can then be reported in whatever format is re-

quired.

The framework to measure, monitor and report on the impacts of the project is expected to

work within the MRV+ system that is established by the Government of Kenya.

In all these areas, individual human capacities, institutional capacities and procedures and co-

ordination among stakeholders will be required in order for the national MRV systems to func-

tion effectively.

2.2 Dairy sector

There is a large number of public, private, civil society and research initiatives to support various

aspects of dairy sector development in Kenya. Private initiatives by farmers, cooperatives and

companies constitute the majority of such initiatives. These are supported by informal and for-

mal financial institutions. Component 1 of the project aims to build on these initiatives. Public

funded initiatives include projects implemented by a number of agencies, and currently include:

the Smallholder Dairy Commercialization Project (IFAD), Kenya Agricultural Value Chain Enter-

prises project (USAID), Kenya Market-led Dairy Programme (Netherlands), Kenya Market-assis-

tance programme (DfID/Gatsby/Netherlands), and the Agricultural Sector Development Support

Programme (SIDA). There are also a number of smaller projects, and some dairy-related projects

in donor pipelines, and a number of recently completed projects. Several Kenyan universities

and research institutes are also researching related issues, including with support of interna-

tional research partners such as the CGIAR and Wageningen University. This institutional land-

scape implies the need for improved coordination. The ASDSP has been supporting dairy value

chain stakeholder forums at county level in counties included in the programme that are widely

appreciated. No such coordination platforms exist at national level.

The experience of preparing the concept note highlights that, while significant knowledge and

practical experience related to low-emission, gender-inclusive dairy development exists, much

of this has not been documented, or is documented in grey literature that is difficult to access

and not available in forms suitable for direct use by many stakeholders. Significant accumulated

experience is therefore not accessible to dairy sector stakeholders to inform training activities

and the adoption of best practices going forward. In addition, the project will implement inno-

vative approaches, lessons from which should be shared widely in the sector. Priority topics

where information and capacity building is needed include gender-inclusive approaches

throughout the sector; management of energy and environmental impacts; private sector in-

vestment in supply chain productivity; milk quality management; and financial access for small-

holder dairy farmers.

In the dairy sector, the State Department of Livestock (SDL) of the Ministry of Agriculture, Live-

stock and Fisheries (MoALF) is responsible for dairy sector policy. The Dairy Industry Act (2012)

further specifies the role of the Kenya Dairy Board as a statutory body. Its primary roles are

regulation of quality in the sector, industry promotion and sector development. KDB has regional

69

representatives, convenes stakeholder forums and is active in promotion of milk quality, and the

competitiveness and efficiency of the sector. It also has an information center whose function is

to provide information to stakeholders in the sector.

2.3 Energy initiatives

Energy efficiency and conservation activities are governed and regulated by the Energy Act

(2006) and Energy (Energy Management) Regulations 2012. The Energy Regulatory Commission

is responsible for designating factories or buildings and electrical appliances by type, quantities

of energy use, or methods of energy utilization for purposes of energy efficiency and conserva-

tion, and for inspecting designated facilities to see whether they are adhering code and stand-

ards of energy efficiency and conservation. Specifically, in large manufacturing facilities, such as

dairy processing plants, the regulations oblige the owner to conserve energy, audit and analyze

energy consumption in accordance with the standards, criteria, and procedures as prescribed

by regulations. Designated facilities are required to conduct energy audits after every three

years and implement the findings.

Projects implemented by development partners (e.g. GIZ-implemented activities under the Pow-

ering Africa initiative) are training dairy processor staff and independent auditors in energy au-

diting. There is therefore growing capacity in the sector to undertake audits. Significantly, how-

ever, there are barriers on the financing supply-side, as many banks are unfamiliar with energy

efficiency and renewable energy projects and their risks and cash flow characteristics. The AFD-

funded SUNREF initiative has been working with a small number of banks, providing conces-

sional credit to incentivize their engagement with this type of project. To date, only 1 dairy pro-

ject has been financed. However, the SUNREF initiative provides a model of how TA for energy

audits and finance can be managed.

Biogas has been promoted for some years in Kenya, initially focused on fixed dome units, but

more recently diversifying into a range of more flexible technologies, such as plastic tubing, PVC

canvas bags and other technologies. The main initiative in recent years has been the Kenya Na-

tional Domestic Biogas Programme, financed by two international NGOs, SNV and Hivos. A num-

ber of firms, mainly involved in provision of fixed-dome technologies have engaged with this

programme. The programme has also promoted the development of a national standard, based

on the technical requirements of the fixed dome technology. More recently, other technologies

are increasingly widely used. Suppliers of these technologies are not closely linked with the for-

mer KENDBIP programme. They are mostly focusing on linking with dairy processors and coop-

eratives, and the related SACCOs in order to develop innovative marketing and finance models

to achieve sustainable growth of their businesses. At present, such linkages are at an early stage.

3. Results Framework for the Component

The proposed outcome of activities in this component is Strengthened institutional and stake-

holders’ capacities for scaling-up low-emission dairy development. The component is designed

with three main outputs:

Output 3.1 Project monitoring and national MRV systems are established

Output 3.2: Best practices are captured and shared among dairy sector stakeholders

Output 3.3: Coordination among dairy sector stakeholders

70

Activities leading to these outputs will draw on and contribute to related activities under the

other two project components. Components 1 and 2 will provide monitoring data, which will be

essential inputs to MRV activities under Component 3, and will provide lessons and best prac-

tices for dissemination under Component 3. The materials on lessons and best practices pro-

duced under Component 3 will, in turn, be fed into the activities in Components 1 and 2 as part

of capacity building activities under those components (Figure I.2).

Figure I.2: Interrelation between Component 3 and Components 1 and 2

Output 3.1 Project monitoring and national MRV systems are established: The national MRV+

system provides an outline framework to link monitoring of inputs, activities, outputs and out-

comes and their GHG effects to the national MRV system. The project will establish a results-

based M&E system, with key indicators as shown in the project results framework (Annex A). A

draft outline description of the linkage between project monitoring and MRV systems is shown

in the appendix to this Annex. The M&E system will be coordinated by the project coordination

unit (PCU). Information provided from operation of this system will serve both the reporting

requirements of the Accredited Entity, and information needs of the national MRV+ system. The

terms of reference of the PCU will explicitly outline M&E and MRV roles and responsibilities,

including tracking to ensure that the planned reporting takes place, quality assurance and qual-

ity control for data management and reporting, and managing the interface with Kenya’s MRV+

system.

Key capacities will be built for GHG quantification and for linking the project M&E system to the

national MRV+ system and climate finance tracking system. For GHG quantification, approved

methodologies will be used to account for GHG emission reductions due to project activities.

71

The PCU will be responsible for coordinating the collection of baseline data as well as ongoing

collection of project activity data, and for estimating the resulting GHG effects. During full pro-

posal development, detailed procedures for GHG quantification and for linking with national

MRV+ and climate finance tracking systems will be elaborated, and the corresponding capacity

building needs defined (including capacities for data collection by project participants, QA/QC

procedures, archiving etc). This assessment will also consider the potential contribution of the

project to the national GHG inventory, since the project will estimate Tier 2 emission factors for

dairy cow enteric fermentation and manure management using data from extensive baseline

surveys in the main dairy producing areas of Kenya.

Output 3.2: Best practices are captured and shared among dairy sector stakeholders: One of

the key functions of the M&E system will be to capture lessons learned and best practices.

Knowledge will be captured not only from the project information system, but also through

commissioned studies on topics where robust evidence is needed to support decision-making

leading to effective action in the sector. Activities leading to this output will also disseminate

knowledge of the identified best practices, including by provision of case study and training ma-

terial for use in capacity building activities identified in Components 1 and 2. This will be done

through a variety of formats and media, through established dairy stakeholder forums at local

level, and through use of mass media (e.g. radio shows, online resources). The project will thus

build stakeholder capacities for wider replication of best practices. Key topics where provision

of information on best practices and related capacity building may be needed include gender-

inclusive approaches throughout the sector; management of energy and environmental im-

pacts; private sector investment in supply chain productivity; milk quality management; and fi-

nancial access for smallholder dairy farmers.

Output 3.3: Coordination among dairy sector stakeholders: There are no national forums in-

volving the diverse stakeholders in the dairy sector for discussion of public-private partnerships

in dairy development or for sharing of information and coordination of plans and investment.

Building on the multi-stakeholder platform established in preparation of this project proposal,

the project will continue broad stakeholder involvement through multi-stakeholder platform ac-

tivities. It is envisaged that under the platform specialized working groups will develop focusing

on stakeholder engagement, policy dialogue and coordination with regard to specific areas of

stakeholder interest (e.g. dairy sector finance, energy interventions in the dairy sector, gender

inclusive approaches etc). The platform and working groups will ensure feedback on the project

process and effectiveness from a wide range of stakeholders, from farmers through civil society

organizations to businesses, researchers and other stakeholders, and contribute to further en-

hancement of the policy environment for public-private partnerships in dairy development. In

particular, the platform will provide opportunities for dialogue on the policy environment for

public-private partnerships in support of low-emission, climate resilient dairy development. For

example, the Dairy Development Policy (2013) explicitly supports private-private partnership in

delivery of dairy extension services. However, agriculture is a devolved function within govern-

ment, so there is a need to share more broadly experiences of public-private partnership at

county level and to clarify how central government can further support the development of

these public-private partnerships.

72

4. Project Investments

Table I.2 shows the direct investment costs to the project. All of these costs are incremental

above the baseline. The total cost of activities under this component has been estimated at USD

981,500 over the 10 year project period. These costs do not include staff and administration

costs which are accounted for in Component 4. These costs will be covered by a grant from the

AE.

Table I.2: Total project costs (US$ million)



Loans

Guarantees

Grants

861,500

Staff costs

Travel & per diem

120,000

Admin costs

Total

981,500

73

Appendix: Draft outline description of the project M&E system and linkages to the MRV+ system

A. General concept

At a general level, the project M&E system will be a results-based monitoring framework de-

signed to capture both GHG and non-GHG effects associated with the project results framework

(Figure 1). As with all results-based monitoring systems, the M&E system will be a key manage-

ment tool for the project, serving the primary purpose of providing data and feedback to im-

prove the effectiveness, efficiency, sustainability, relevance and impact of project activities, in-

cluding meeting reporting requirements of the GCF and the national MRV+ system.

Figure 1: Relationship between GHG and non-GHG effects in a results framework

In common with standard results-based M&E frameworks, the key functions of the results-based

M&E system will include:

1. Output monitoring; focusing on physical and financial inputs, activities and outputs;

2. Outcome monitoring; assessing the use of outputs and measuring benefits;

3. Progress Monitoring: Progress monitoring will focus on the financial and progress perfor-

mance of the project in relation to project plans and budgets.

Project M&E activities will be coordinated by the PCU. Details of M&E roles and responsibilities,

reporting frequency etc will be specified in the full proposal.

B. Links with the national MRV+ system

The MRV+ system is designed to enable MRV of GHG emissions and emission reductions, as well

as socio-economic development benefits of climate actions. As indicated in the project results

framework (Annex A), a number of non-GHG effects of the project will be monitored by the

project results-based M&E system. Following procedures for verification in line with the require-

ments of the national MRV+ system, the data on project benefits (outputs, outcomes, impacts)

will be reported to the national MRV+ system for onward reporting. Activity data required for

reporting of project GHG emissions and emission reductions will be collected by the project M&E

system. This will be reported by the AE to the GCF, and by the PCU to the agency responsible for

the national MRV+ system.

74

C. Links with the national climate finance tracking system

The climate finance tracking system outlined in the Climate Finance Policy relates to both public

and private finance. As indicated in the project results framework, the volume of private finance

leveraged is a key indicator of project performance. Data on this indicator will be collected

through the project M&E system and reported to the relevant agencies as required by the cli-

mate finance tracking system when it has been fully designed. International finance, including

GCF finance and co-investment from the AE, will also be reported.

D. Collection of activity data for GHG quantification

The general approach to the estimation of net GHG emissions79 can be expressed as follows:

𝐸 = 𝐸𝐹 × 𝐴𝐷 (Equation 1)

where E represents net emissions from a particular project activity, EF is an emission or carbon

stock change factor (expressed in metric tonnes of carbon dioxide equivalent [tCO2e] per unit of

activity), and AD is the quantity of the relevant activity performed (e.g., liters of milk produced

or units of electricity consumed). Net GHG emissions are separately estimated for the without-

project and with-project scenarios. The difference between GHG emissions in the two scenarios

is the GHG mitigation benefit of the project:

𝐸𝑅 = 𝐸𝐵 − 𝐸𝑃 (Equation 2)

where ER represents the total emission reductions attributed to a project activity, EB is the net

GHG emissions in the baseline scenario and EP is the net GHG emissions in the project scenario.

For each type of project activity (e.g. dairy productivity, energy efficiency, biogas use), there are

different data requirements. The data requirements set out in relevant internationally approved

GHG quantification methodologies will be followed. Data used to estimate emission factors (and

other intermediate parameters) will be collected, archived and managed by the PCU. Activity

data will be collected and reported by the PCU in collaboration with partners in the delivery of

the project activities, as follows.

For activities under Output 1.1 (on-farm dairy productivity), establishment of farm documenta-

tion systems is a key activity supported by the project to strengthen the dairy extension services

provided to farmers. Farm documentation systems will include the activity data required by the

relevant GHG quantification methodology.80 The activity data will be reported also to the PCU.

For activities under Output 1.2 (fodder production and marketing), the PCU will coordinate col-

lection of data from fodder producers supported by the project on their farm activities. This will

79 Net emissions are total emissions of GHGs from all GHG sources minus the removal of atmospheric carbon by carbon sinks. 80 The Gold Standard Smallholder dairy methodology (2016), http://www.goldstandard.org/sites/default/files/documents/gs_dairy_methodology.pdf

http://www.goldstandard.org/sites/default/files/documents/gs_dairy_methodology.pdf

75

enable estimation of an emission factor for hay production, which will be fed into the calcula-

tions required by the methodology for quantification of smallholder dairy GHG emissions.

For energy efficiency investments (Output 2.1), ex ante estimates of GHG emission reductions

will be made on the basis of investment proposals financed by partner banks, and the project

M&E system will monitor the implementation of the proposed investments. The ex ante esti-

mates will be made following guidance in the relevant internationally-approved methodologies

and in line with the IFI/MDB harmonized framework. This will greatly reduce the transaction

costs by not requiring reporting of detailed energy consumption data by companies supported

under this component and is in line with common practice in energy efficiency programmes of

international development banks.

For biogas utilization (Output 2.2), the project M&E system will collect data on numbers of par-

ticipating households and use sample surveys to determine other activity data required for ex

post quantification of GHG benefits. These surveys will be undertaken by contractors to the PCU,

reported to the PCU and the data collected will be used together with other emission factor data

to estimate emission reductions for reporting by the AE to the GCF and by the PCU to the agency

responsible for the national MRV+ system.

76

J. FEASIBILITY STUDY FOR COMPONENT 4 (PROJECT

COORDINATION AND MANAGEMENT)

1. Overview

This component will support: (i) establishment and operation of the Project Coordination Unit

(PCU); (ii) establishment and operation of the Project Steering Committee (PSC); and (iii) coor-

dinated implementation of project activities in partnership with delivery partners (e.g. dairy pro-

cessors, financial institutions, and support and services provided by technical service providers,

consultants, research institutions, etc). The component will include management of staff (in-

cluding national and international consultants) and equipment, financial management, procure-

ment activities, management of environmental and social safeguards aspects, preparation of

annual work plans and organization of task implementation, including supervision missions.

2. Institutional arrangements

The institutional arrangements proposed for this project build on the institutional structures

that have been used in previous cooperation between GoK and the AE and in consideration of

the need to coordinate between the dairy, energy, finance and climate change sectors, while

enabling efficient and effective implementation. The Project Steering committee, with the key

function of project oversight and guidance, will consist of the Accredited Entity, the Ministry of

Agriculture, Livestock and Fisheries (MoALF, with mandate for dairy sector development), the

Ministry of Environment and Natural Resources (MENR, with mandate for climate change and

national MRV processes), the National Treasury (GCF National Designated Authority) and Kenya

Dairy Board. To ensure coordination with county governments, the Council of Governors will

participate in the Project Steering Committee as well.

The PSC, chaired by the Principal Secretary responsible for livestock within MoALF, will provide

guidance to the Project Management Unit (PMU) in execution of all project tasks, review pro-

gress and resolve any problems arising during implementation, and ensure interagency coordi-

nation. The Technical Advisory Committee (TAC) will provide technical inputs for the guidance

of the PSC whilst assisting and advising the PMU in project implementation.

The AE will provide project implementation oversight and supervision, including financial man-

agement, to ensure that project management milestones are completed and that funds are

managed to the required fiduciary standards. The State Department of Livestock of MoALF will

be the main executing entity, hosting and staffing the PMU, and ensuring coordination with

other dairy sector programmes and stakeholders. The same PMU will be used for management

of GCF and AE funds. The PMU will be responsible for development of operational plans and

tools for project implementation; preparation of annual work plans; mobilisation of delivery

partners and oversight of deliverables; contracting of service providers; and project monitoring

and evaluation. Kenya Dairy Board, a statutory body with a mandate for dairy sector regulation,

development and promotion, will play a key role in disseminating project practices and lessons

throughout the sector and across counties to support wider replication. Contractual agreements

with private sector delivery partners will be reached following procurement rules of the AE and

Government of Kenya.

77

3. Project Costs

The project costs for Component 4 are all incremental to baseline costs. The cost components

included are the staff costs and administration costs associated with implementation of project

components 1, 2 and 3 (Table J.1). For the purposes of this concept note, the costs of quality

assurance and oversight services performed by the AE over all phases of the project cycle are

included in the administration costs, which are proposed to be covered by grant funding from

the AE. This proposal, made for the purposes of this concept note, should not to be taken to

have any influence on any ongoing negotiations between the AE and GFC regarding any AE fee,

which is not considered in this concept note. The total cost of project coordination and manage-

ment has been estimated at US$ 4.46 million over the 10 year project period.

Table J.1: Total project costs (US$ million)



Loans

Guarantees

Grants

Staff costs

1,098,900 2,231,100

Travel & per diem

120,000

Admin costs

1,005,600

Total

2,224,500 2,231,100

78

K. SOCIAL AND ENVIRONMENTAL SAFEGUARD

SCREENING

For all components social and environmental risks were analyzed using expert judgment and

reference to the IFC Guidance Note for the Assessment and Management of Environmental and

Social Risks and Impacts.81 An overview of the resulting analysis is provided in Table K.1. (An “X”

in a cell indicates potential risk identified for the corresponding project component). For each

component as part of the project concept, specific social and environmental risks and safeguards

are elaborated and mitigation measures are described in the following tables.

Table K.1: Relevance of risks identified in IFC safeguards for project components

Of relevance for… →

Risks ↓ Processor-

led gen-

der-inclu-

sive exten-

sion ser-

vices

Finance

for on-

farm in-

vest-

ments

Increased

commer-

cial pro-

duction

Energy ef-

ficiency

and re-

newable

energy

Adoption

of biogas

technol-

ogy

IFC PS 2: Labor and Working Condi-

tions

The client will adopt human resources policies consistent with national law

The client will provide workers with information about their rights

The client will provide reasonable working conditions & terms of em-ployment

Migrant workers will be on similar terms to other workers

Accommodation services will be pro-vided in a manner consistent with the principles of non-discrimination and equal opportunity

Workers' rights to form organizations are respected in line with national laws

Employment decisions will be non-discriminatory

X X

Employers will take measures to pre-vent harassment, especially of women

X X

National laws on non-discrimination will be followed

81 http://www.ifc.org/wps/wcm/connect/topics_ext_content/ifc_external_corporate_site/ifc+sustainability/our+ap-proach/risk+management/performance+standards/environmental+and+social+performance+standards+and+guid-ance+notes#2012




79



led gen-

der-inclu-

sive exten-

sion ser-

vices

Finance

for on-

farm in-

vest-

ments

Increased

commer-

cial pro-

duction

Energy ef-

ficiency

and re-

newable

energy

Adoption

of biogas

technol-

ogy

The client ensures that all workers re-ceive notice of dismissal and sever-ance payments mandated by law and collective agreements in a timely manner

The client will provide a grievance

mechanism for workplace problems

Children may not be employed

Forced labour may not be employed

The client will provide a safe and

healthy working environment, includ-

ing hazards to workers, preventive

and protective measures, training,

documentation of hazards occurring

and emergency response measures

X

X

Third party contractors will comply

with paras 1-17, 20-26

The client will have a system to moni-

tor compliance of third party contrac-

tors and incorporate requirements in

contracts with them

The client will ensure that third party

contractors have a grievance mecha-

nism

The client will identify and monitor

where child labour is a risk in the sup-

ply chain

The client will monitor and address

safety issues in the supply chain

The client will influence improve-

ments among suppliers or shift sup-

plier to those that are compliant

IFC PS 3: Resource Efficiency and Pol-

lution Prevention

The client will refer to the EHS Guide-

lines or other internationally recog-

nized sources when evaluating and

80



led gen-

der-inclu-

sive exten-

sion ser-

vices

Finance

for on-

farm in-

vest-

ments

Increased

commer-

cial pro-

duction

Energy ef-

ficiency

and re-

newable

energy

Adoption

of biogas

technol-

ogy

selecting resource efficiency and pol-

lution prevention and control tech-

niques for the project

The client will implement technically

and financially feasible measures for

improving efficiency in its consump-

tion of energy, water, as well as other

resources and material inputs in its

core business

X

X

The client will adopt measures to re-

duce GHG emissions

X

For projects emitting >25,000 tCO2

p.a. GHG emissions will be quantified

If water consumption is significant,

measures to prevent adverse impacts

on other water users will be under-

taken

X

The client will avoid or minimize re-

lease of pollutants to air, water and

land

X X X

Assessment of risk will consider envi-

ronmental conditions, environmental

capacity to assimilate emissions, prox-

imity to biodiversity, cumulative im-

pacts

Where waste generation cannot be

avoided, waste will be reduced, re-

covered and reused in a safe manner

X X X

If waste is hazardous, the client will

adopt good practice for disposal

X

Hazardous materials will be mini-

mized and release will be controlled.

Pesticide use will be managed by an

integrated pest management plan

Chemical pesticides must be low

toxic, effective and with minimal envi-

ronmental impacts

81



led gen-

der-inclu-

sive exten-

sion ser-

vices

Finance

for on-

farm in-

vest-

ments

Increased

commer-

cial pro-

duction

Energy ef-

ficiency

and re-

newable

energy

Adoption

of biogas

technol-

ogy

Chemical pesticide application will

avoid damage to natural enemies and

avoid resistance risks

The client will not use any products in

WHO Hazard Class 1a, 1b or II

IFC PS 4: Community Health, Safety,

and Security

The client will evaluate risks and im-

pacts to health and safety of affected

communities during the project life

cycle

Design, construction & operation of

facilities will consider safety risks to

affected communities

The client will avoid or minimize com-

munity exposure to hazardous mate-

rials

Project impacts on ecosystem ser-

vices will be avoided

Community exposure to disease vec-

tors will be avoided or minimized

The client will work with affected

communities to have emergency pre-

paredness and response plans in

place

Security personnel will be used appro-

priately

Risks from use of government security

personnel will be assessed

Unlawful actions of security person-

nel will be investigated

IFC PS 5: Land Acquisition and Invol-

untary Resettlement: does the pro-

ject involve…

Will the project involve compulsory

expropriation of land?

82



led gen-

der-inclu-

sive exten-

sion ser-

vices

Finance

for on-

farm in-

vest-

ments

Increased

commer-

cial pro-

duction

Energy ef-

ficiency

and re-

newable

energy

Adoption

of biogas

technol-

ogy

Negotiation for land that would result

in expropriation if no agreement is

reached?

Restrictions on land use / access that

cause communities to lose access to

traditional use rights?

Eviction of people occupying the

land?

Restrictions in access to communal

land and natural resources?

IFC PS 6: Biodiversity Conservation

and Sustainable Management of Liv-

ing Natural Resources

Risk and impacts identification should

consider direct and indirect impacts

on biodiversity and ecosystem ser-

vices

Does the project involve agricultural

landscapes with high biodiversity

value?

The client will not convert or degrade

natural habitats

X

If natural habitat impacts are unavoid-

able, measures will be taken to ensure

no net loss of biodiversity

Does the project involve critical habi-

tats that are used by endangered spe-

cies or that is highlight threatened or

a unique ecosystem?

No project activities will be imple-

mented in critical habitats unless

there are no impacts on biodiversity

or key ecosystem services

Is the project located inside a legally

protected area or internationally rec-

ognized area?

Will the project introduce new alien

species?

83



led gen-

der-inclu-

sive exten-

sion ser-

vices

Finance

for on-

farm in-

vest-

ments

Increased

commer-

cial pro-

duction

Energy ef-

ficiency

and re-

newable

energy

Adoption

of biogas

technol-

ogy

Will the project impact on ecosystem

services?

Animal husbandry projects shall fol-

low national, regional or global stand-

ards for sustainable production

If there are no such standards, the cli-

ent will commit to applying good in-

ternational industry operating princi-

ples, management practices and tech-

nologies

If there is a risk of conversion of natu-

ral or critical habitats by long-term

suppliers, the client will limit procure-

ment from suppliers that are contrib-

uting to it.

IFC PS 7: Indigenous Peoples

Will the project work with or impact

on indigenous peoples?

X X

IFC PS 8: Cultural Heritage

Will the project impact on tangible or

intangible cultural heritage?

4.1 Specific social and environmental risks and mitigation measures

4.1.1 Processor-led extension services


IFC PS 1: Assessment and

Management of Environ-

mental and Social Risks

and Impacts

Processors are likely to be compli-

ant with the main national laws and

regulations, but may not have ex-

plicit ESMS covering all risks. Where

ESMS do exist they are not likely to

extend into the supply chain.

In full proposal development phase,

assess ESMS of all participating pro-

cessors. Provide TA on establish-

ment and operation of ESMS.

IFC PS 2: Labor and

Working Conditions

Processors are likely to be compli-

ant with the main national laws and

regulations.

In full proposal development phase,

assess compliance of all participat-

ing processors.

IFC PS 3: Resource Effi-

ciency and Pollution Pre-

vention

Main risks in processing facilities

are inefficient use of water and en-

ergy resources and potentially ef-

Project Component 2 will support

processors to address these issues.

TA has been designed to assist ex-

84

fluent discharge management. Ma-

nure management is the main risk

at farm level.

tension workers to incorporate ma-

nure management in their extension

services

IFC PS 4: Community

Health, Safety, and Secu-

rity

Few risks are likely to occur. In full proposal development phase,

assess compliance of all participat-

ing processors.

IFC PS 7: Indigenous Pe-

oples

Potential involvement of indige-

nous peoples (pastoralists or

hunter-gatherer peoples in Kenya)

in component activities.

Risks should be assessed in full pro-

posal development phase when spe-

cific locations have been finalized.

Animal welfare Animal welfare issues common on

smallholder farms in Kenya include

housing design, animal health, and

cleanliness related to manure man-

agement.

TA has been designed to assist pro-

cessors and extension workers to in-

corporate animal welfare into ex-

tension activities.

GCF Gender Policy Numerous gender issues are com-

mon in milk production, procure-

ment and payment.

TA has been designed to assist pro-

cessors and extension workers to

identify and address gender issues

as an integral component of project

activities. Full proposal develop-

ment must include gender analysis

and further elaboration of the gen-

der TA activities.

4.1.2 Finance for on-farm investments

The provision of finance for on-farm investments may result specific financial risks for farmers

and cooperatives hence specific safeguards should be applied. Main financial risks include over

indebtedness, over-pricing, corruption or mistreatment of clients and the inappropriate use of

client data. Safeguard measures to be applied by financial service providers include:

1. Credit will only be extended if dairy farmers or cooperatives have demonstrated an ad-

equate ability to repay their loans. Debt-collection will not be abusive or coercive;

2. Pricing, terms and conditions of credit (interest rate, repayment period etc) will be

transparent and adequately disclosed in an understandable manner to dairy farmers or

cooperatives;

3. Staff of financial service providers will comply with high ethical standards in their inter-

action with dairy farmers and cooperatives and ensure corruption and mistreatment of

clients is prevented, detected and corrected, and timely respond to complaints and

problems;

4. Privacy of data will be respected and not used for other purposes without permission of

dairy farmers or cooperatives.

85

4.1.3 Commercial fodder production


IFC PS 2: Labor and

Working Conditions

As commercial hay production implies

much physical as well as technical labour

(operating machinery), men are likely pre-

ferred for employment. Employment deci-

sions will often favour men.

The absence of measures for

safe working conditions as

well as resource efficiency can

be explained by a lack of tech-

nical knowledge of hay farm-

ers as well as their workers

and third parties. Therefore

the project technical assis-

tance activities to training hay

growers and their workers, in-

cluding the development of a

training guideline with practi-

cal and easy-to-understand

social and environmental pro-

tection measures.

In the commercial hay sector, women often

do seed harvesting. In most commercial hay

farms, very likely no measures to protect

women from harassment exist.

A safe working environment is not always

secured on hay farms; especially protective

clothing when using herbicides is rarely pro-

vided by the grower and assumed to be the

own responsibility of the workers (incl. third

parties).


ciency and Pollution

Prevention

The increase in hay production – by increas-

ing acreage as well as intensifying hay pro-

duction per acre – could increase the over-

all use of fertilizer and herbicides as well as

the use of machinery and therewith in-

crease GHG emissions.

Technical assistance to train

hay growers and their work-

ers will include resource effi-

ciency and GHG emissions as

part of social and environ-

mental protection measures.

The use of chemicals (herbicides, fertilizer)

is common in the hay sector. Hay growers

tend to use these chemicals to ensure a sta-

ble crop with limited reference to the effi-

ciency of use.

To ensure that farms receiv-

ing financial support from the

project employ the required

safe-guards and to ensure

that any finance for land

leases avoids risks associated

with habitat conversion and

indigenous peoples’ rights,

the project will develop a risk

screening tool and bank staff

on the use of this screening

tool. Any farm or farming ac-

tivity financially supported

should be screened using this

tool.

Good practices for chemical waste disposal

are rarely implemented.

IFC PS 6: Biodiversity

Conservation and Sus-

tainable Management

of Living Natural Re-

sources

The increase in hay production - by increas-

ing acreage – could pose a risk for the con-

version or degradation of natural habitats.

IFC PS 7: Indigenous

Peoples

Where new acreage is sought in areas with

indigenous populations, land rights and ac-

cess to lands with customary rights may be

an issue.

86

4.1.4 Energy efficiency and renewable energy


IFC PS 2: Labor and

Working Conditions

A safe and healthy working environ-

ment may be risked by the installation

of new equipment or the disposal of in-

dustrial waste.

To ensure processors and financial

institutions recognize potential

social and environmental risks of

their operations as well as imple-

ment mitigation measures, TA will

be provided for capacity building

and to establish social and envi-

ronmental safeguards. Safeguards

could include separating industrial

waste or instructions for safe use

of equipment and reduction/dis-

posal of (liquid) waste.



Prevention

The main environmental risk associated

with energy efficiency (new equip-

ment) or renewable energy is the inad-

equate disposal of gases and industrial

waste from old equipment. Solid waste

disposal may be a risk in some facilities

Liquid waste disposal may be a risk in

processor facilities

4.1.5 Biogas adoption




Prevention

The potential contamination of

crops and groundwater with harm-

ful pathogens from applying bio-

slurry. Sanitation of the slurry de-

pends on the appropriate use of

the biogas digester. The right tem-

perature and retention of the

slurry are therefore important as-

pects for the digester user to be

aware of. Insufficient use of slurry,

hence leakage of slurry into neigh-

boring fields, could negatively im-

pact soil health and pollute the wa-

ter environment.

These risks can be mitigated by provi-

sion of training and information mate-

rials to biogas users by biogas service

providers and continued monitoring

and training as part of post-sales ser-

vices. The project activities are de-

signed to ensure that such information

and training is pro-vided and to ensure

that applicants for support from the

project are screened to ensure that

their basic situation can enable mitiga-

tion of these risks.

87

L. STAKEHOLDER ENGAGEMENT PROCESS

In the project design, numerous activities have been conducted to consult stakeholders, includ-

ing two Multi-Stakeholder Platforms, regional consultations and numerous bilateral meetings.

1. Multi-Stakeholder Platform meeting (Sept 2015)

On the 23rd of September 2015, the first Multi-Stakeholder Platform meeting was organized to

raise awareness of greenhouse gas mitigation options in the dairy sector and inform and obtain

feedback on the initial concept of the scope and objectives of the project.

The MSP was coordinated by Robin Mbae (Climate Change Unit, State Department of Livestock),

with Carolyn Opio (FAO) and Michael Abora (Ministry of Agriculture, Livestock and Fisheries,

Climate Change Unit) also acting as chairs of the proceedings. Opening speeches were given by

the Director of livestock resources and the Director of administration of the State Department

of Livestock. The agenda and list of participants are provided below.

Table 1: Agenda of the first Multi-Stakeholder Platform meeting (23 September 2015)

Time Sessions Responsible

08.00 – 8.30 Arrival and Registration of Participants Secretariat

08.30 – 09.00 Welcoming remarks by the Director of Live-stock Resources and Director of Administra-tion, State Department of Livestock

09.00 – 09.30 Introduction to Kenya’s dairy sector Paul Ndungu, KDB

09.30 – 10.00 Introduction to Kenya’s GHG mitigation poli-cies

Eng. Omendi (Ministry of Environment, Water and Natural Resources (MEWNR))

10.00 – 10.30 Tea Break All

10.30 – 11.00 State of the Art on global livestock emissions Carolyn Opio (FAO)

11:00 – 11:30 Potential mitigation measures Ben Lukuyu (ILRI)

11:30 – 11:50 Introduction to the dairy NAMA project Andreas Wilkes (UNIQUE)

11.50 – 12.30 Sustainable dairy intensification at farm level: examples of

The Mt Elgon project

Biogas

Amos (VI Agroforestry)

Mr. Mathenge

12:30 – 13:30 Lunch All

13:30 – 15:00 Group discussions: Identify 1-3 high potential interventions to bring about transformational change in the dairy sector

15.00 – 15.20 Next steps in the NAMA development process Andreas Wilkes

15:20 – 15:30 Closing remarks R Mbae

88

Table 2: List of MSP participants (23 September 2015)

No Name Organization/Institution

1 Patrick Kimani Kenya Livestock Breeders Organisation (KLBO)

2 Dominic Menjo New KCC

3 Robert Kariuki Unga Limited

4 Catherine Gitobu Coopers

5 Ben Lukuyu ILRI

6 Paul Ndungu KDB

7 Patrick Ogola ASL

8 Omedi M. Jure MEWNR

9 Mildred Kosgei KDB

10 Monica Ndungu KDB

11 Michael Obora Ministry of Agriculture, Livestock and Fisheries (MoALF)

12 Caroline Rotich KDB

13 Kituto Kitele KDB

14 Kennedy Odoyo KDB

15 Stephen Kariuki KDB

16 Joseph Muhwanga MoALF

17 Robin Mbae MoALF

18 Lornah Oidero MoALF

19 Stephan Njagi KLPA

20 Mary Karambi MoALF

21 Evanson Mwange KDB

22 Michael Okumu MoALF

23 Vincent Oguang MoALF

24 Amos Wekesa Vi Agroforestry

25 Philip Kipkorir Bitok Federation of Kenya Dairy Farmers (FKDF)

26 Lydia Kagema Smallscale Dairy Farmers Association (SDDSFA)

27 Abraham Rugut Kabiyet Cooperative

28 Richard Soi Siongiroi Cooperative

29 Peter Mathenge Farmer

30 Gabriel Mungai Dairy Training Institute

31 Christopher Chirchir Kenya Livestock Breeder

32 Monica Fedha CEC Bongoma County

33 Hon. Dr. Monica Waiganjo CEC Kiambu County

34 Mr. Anderson CEC Taita Taveta County

35 Hon. Kenneth Mburia CEC Tharaka Nithi County

36 Hon. Mr. Thuo CEC Nyeri County

37 Hon. Caroline Tenges CEC Baringo County

38 Philip Kosgey CEC Marigot County

39 Titus Kariuki Equity Bank

40 Prof. Gachuiri Nairobi University

41 Joyce Kago EADD

42 Simon Kiragu Kenya Market Trust

43 Joan Otieng MoALF

44 Josephine Kirui ICRAF

89

45 Susan Onyango ICRAF

46 Charles Odhong’ UNIQUE

47 Luke Kessei UNIQUE

2. County consultations (Nov 2015)

On the 24th and 25th of November 2015, Central and Eastern regional consultations were held in

Nyeri and Embu county. The proceedings were chaired by Charles Odhong’ (UNIQUE). Opening

speeches were given by the Director of Livestock of both hosting counties. Presentations during

the workshops were given by Paul Ndung’u (Kenya Dairy Board, Nairobi office), Robin Mbae

(State Department of Livestock), Suzanne van Dijk and Andreas Wilkes (UNIQUE). The regional

workshop agenda is and the list of participants are presented in table 3-5.

Table 3: regional workshop agenda


08.30 – 09.00 am Arrival and Registration of Participants Secretariat

09.00 – 09.15 am Introduction KDB

09.15 – 09.30 am Welcome Remarks Host county

09.30 – 10.00 am Workshop Objective UNIQUE

10.00 – 10.30 am Dairy NAMA in the Kenya policy context SDL

10.30 – 11.00 am Tea Break All

11.00 – 11.30 am Overview of the Contribution of Livestock to GHGs emission and potential mitigation measures in live-stock

UNIQUE

11.30 – 11.45 am Introduction to the dairy NAMA project UNIQUE

11.45 – 12.30 am Discussion: Dairy development initiatives in the counties

UNIQUE

12:30 – 13.30 pm Lunch All

13.30 – 14.30 pm Discussion: identifying possible areas for NAMA sup-port to high potential initiatives at county level

UNIQUE

14.30 – 15.00 pm Plenary discussions All

15.00 – 15.30 pm Dairy NAMAs in Kenya: Next Steps KDB

Table 4: List of participants in the Central region


1 Robin Mbae Ministry of Agriculture, Livestock and Fisheries (MoALF)

2 Paul Ndung’u Kenya Dairy Board

3 Monica Ndung’u Kenya Dairy Board

4 Jenipher Nlure CEC Muranga County

5 John Mungi Farmer Representative Muranga County

6 Samuel Ngure Farmer Representative Nyandarua County

7 Dr. Daniel Gikaara CEC Nyandarua County

8 Ernest Nyaga Farmer Representative Nyandarua County

90

9 Peter Wachira CEC Nyandarua County

10 Wilfred Nyakwaya Kenya Dairy Board, Nyandarua County local office

11 Samuel Kabiro Farmer Representative Kirinyaga County

12 Kanigro Kamuge Farmer Representative Kirinyaga County

13 Ephraim Nderu CEC Kirinyaga County

14 Peter Ngundo Warui CEC Kirinyaga County

15 Charles Mwaniki Kenya Dairy Board, Nyeri County local office

16 W.C.M. Theuri CEC Nyeri County

17 Monika Mathu Farmer Representative Nyeri County

18 Fred Muratha Farmer Representative Nyeri County

19 Robert Thuo CEC Nyeri County

20 Thomas N. Chege CEC Kiambu County

21 Joyce W. Nyamwathi Kenya Dairy Board, Kiambu County local office

22 Checke Njorogo Farmer Representative Kiambu County

23 Dr. M. Waigamlo CEC Kiambu County


25 Suzanne van Dijk UNIQUE

26 Andreas Wilkes UNIQUE

Table 5: List of participants in the Eastern region


1 Robin Mbae Ministry of Agriculture, Livestock and Fisheries (MoALF)

2 Paul Ndung’u Kenya Dairy Board

3 Monica Ndung’u Kenya Dairy Board

4 Dr. Charles Rufuata CEC Embu County

5 Daniel Mwangi Kenya Dairy Board, Embu County local office

6 John Nyakowa Kenya Dairy Board, Embu County local office

7 Samuel M. Robert Farmer representative Embu County

8 Joseph N. Njogu CEC Embu County

9 Samuel Muilgh Farmer representative Meru County

10 Murori Muntua Farmer representative Meru County

11 Dr. Daniel Mugambi CEC Meru County

12 Phyllis Mbibiwe CEC Embu County

13 Kaberia Muriungi Kenya Dairy Board, Meru County local office

14 Simon Mwangangi CEC Machakos County

15 Celestine O. Suti Farmer representative Machakos County

16 Gerald Mbue Kenya Dairy Board, Machakos County local office

17 Alfred Rungua Farmer representative Tharaka Nithi County

18 Fidelis K. Kioko CEC Tharaka Nithi County

19 Eunice Nyagah Kenya Dairy Board, Tharaka Nithi local office

20 Lucy Kariu CEC Tharaka Nithi County

91

21 Harun Mbaka Farmer representative Tharaka Nithi County




3. Multi-Stakeholder Platform meeting (Aug 2016)

On the 8th of August 2016 a second multi-stakeholder platform meeting was held, at which the

draft project concept was shared and discussed.

The workshop was coordinated by Robin Mbae (Climate Change Unit, State Department of Live-

stock), Mildred Kosgei (Kenya Dairy Board) and Charles Odhong’ (UNIQUE). Opening speeches

were given by the Permanent Secretary and Director of Livestock Production as part of the State

Department of Livestock. Presentations were provided by Margaret Kibogy (Managing Director

Kenya Dairy Board), Stephen Kinguyu (Ministry of Environment, Water and Natural Resources

(MEWNR)), Hillary Korir (National Treasury), Carolyn Opio (UN FAO), Suzanne van Dijk and An-

dreas Wilkes (both UNIQUE), and Pierre Gerber (World Bank).

The main suggestions made by stakeholders were to enhance coordination between the project

and other key initiatives in the dairy sector. This suggestion is reflected in the project design.

The agenda and list of participants are provided below.

Table 6: Agenda of the second Multi-Stakeholder Platform meeting (8 August 2016)


08.30 – 09.00 am Arrival and Registration of Participants Secretariat

09.00 – 09.10 am Introduction of participants Coordinator

09.10 – 09.20 am Welcome Remarks DLP (SDL)

09.20 – 09.35 am Key note address and opening of the workshop PS (SDL)

09.35 – 09.45 am Supporting the Development of a Dairy Nationally Appro-

priate Mitigation Actions in Kenya

MD (KDB)

09.45 – 09.55 am Climate Change and its integration in government activities Ministry of

Environment

09.55 – 10.05 am Climate Finance - GCF (NDA) The Treasury

10.05 – 10.30 am How can Dairy Development Reduce GHG’s

(CCAC Enteric Methane Project)

FAO

10.30 – 11.00 am Tea Break All

11.00 – 11.40 am Dairy NAMA Concept UNIQUE

11.45 – 13.00 pm Plenary/ Group discussions on the Dairy NAMA concept,

proposed activities and partnerships

UNIQUE

13:00 – 14.00 pm Lunch All

14.00 – 14.45 pm Methodology for the Quantification of GHG Emissions

Plenary Discussion

FAO/ UNIQUE

92

14.45 – 15.00 pm Climate Smart Agriculture Project World Bank

15.00 – 15.30 am How to coordinate with other dairy sector initiatives UNIQUE

15.30 –15.45pm Dairy NAMA : Next Steps SDL

Table 7: List of MSP participants (8 August 2016)

No Name Institution

1 Pierre Gerber World Bank

2 Christine Heumesser World Bank

3 Hillary Korir Treasury

4 Paterson Olum INDC

5 Tom Owino INDC

6 Andrew Muleki New KCC

7 Luke Kiragu New KCC

8 Titus Kariuki Brookside

9 Charles Mithamo Mukurweini Wakulima Dairy

10 Alexander Ndungu Githunguri Dairy cooperative Society

11 Susan Kamau Githunguri Dairy cooperative Society

12 Muinami Madera Githunguri Dairy cooperative Society

13 Dorcus Kigetu Meru Central Dairy Cooperative Union

14 Rahab Mwangi Kenya Women Finance Trust

15 Elizabeth Kiarie Chase Bank

16 Victoria Ndong’u Takamoto Biogas

17 Erick Abuga Takamoto Biogas

18 Dominic Wanjuhia Biogas international

19 Josphat Chege Biogas international

20 Yvonne Rima Biogas International

21 Charles Mwangi Association of Biogas Sector – Kenya

22 Francis Kamande Association of Biogas Sector – Kenya

23 Wycliffe Musungu Association of Biogas Constructors

24 Guido Laurens Rutten IFAD

25 Joseph Nganga IFAD

26 Hani Elsadani IFAD

27 Bernard Kimoro IFAD SDCP

28 Carolyn Opio FAO

29 Maren Radeny CCAFS

30 John Recha CCAFS

31 Jegam Diane AFD

32 Philipe Beyries France Embassy

33 Jacob Agoch DFID - FICCF

34 Susan Onyango ICRAF

35 Polly Ericksen ILRI

36 Katie Tavenner ILRI

93

37 John Goopy ILRI

38 Ben Lukuyu ILRI

39 George Schoneveld CIFOR

40 Vera Vernooij CIFOR

41 Edward Masinde VI Agroforestry

42 Judith Libaisi SNV - Biogas/ renewable energy

43 Kevin Kinusu HIVOS

44 Ann Macharia Technoserve

45 Cyrus Kabuga Perfometer

46 Prof. Charles Gachuiri University of Nairobi

47 Stephen Kinguyu Minstry of Environment and Natural Resources

48 Dr. Pirison Lanyasunya KALRO – Dairy Research Institute

49 Stephen Mailu KALRO – Dairy Research Institute

50 Daniel Njuguna Dairy Training Institute

51 Janet Yaimoi Kenya Climate Innovation Centre

52 Noah Chemirmir Rift Valley Commercial Hay Growers Association

53 Waweru Njangi Rift Valley Commercial Hay Growers Association

54 Catherin Kilelu Africa Centre for Technology Studies

55 Charles Tonui Africa Centre for Technology Studies

56 Catherine Kilelu ACTS – 3R Kenya Project

57 Charles Tonui ACTS – 3R Kenya Project

58 Robin Mbae State Department of Livestock

59 Samuel Matoke State Department of Livestock

60 Albin Sang State Department of Livestock

61 Daniel Keter State Department of Livestock

62 Cosmas Omolo State Department of Livestock

63 Caroline Karimi MoALF

64 Susan Ngorowic MoALF

65 Margaret Kibogy Kenya Dairy Board

66 Dr. Philip Cherono Kenya Dairy Board

67 Joyce Cerere Kenya Dairy Board

68 Mildred Kosgei Kenya Dairy Board

69 Edward Nyoike Kenya Dairy Board

70 Joshua Kebuka Kenya Dairy Board

71 Salome Nailole Kenya Dairy Board



74 Charles Odhong' UNIQUE

75 Luke Kessei UNIQUE

94

4. Written feedback on the draft concept note

Written feedback on the draft concept note was provided by a number of stakeholders:


1 Stephen King’uyu Climate Change Department (MENR)

2 Adano Wario National Treasury

3 Stephen Twowlow IFAD

4 Guido Laurens Rutten IFAD

5 Carolyn Opio UN FAO

6 Janie Rioux UN FAO

7 Lini Wollenberg CCAFS

8 Polly Erickson ILRI