Ugandan tea processor secures USD 3.15 million investment

01 October 2019

Kayonza Tea Factory in Uganda has secured a USD 3.15 million long-term loan from social impact investor Oikocredit. The investment means Kayonza can build a second factory to process soaring yields, improving the livelihoods of the 7,500 smallholder farmers who own it. It is the first UNDP Equator Prize winner and the first project in Solidaridad’s impact investment pipeline to win financing.

Harvesting tea near Kayonza Tea Factory in southwestern Uganda

“It’s really inspiring to work with Kayonza, a good partner in consistently purchasing tea from smallholder farmers,” says Rachel Wanyoike, Solidaridad’s Director East and Central Africa. “We work to improve outcomes for farmers who often struggle to find strong off-takers for their produce. Kayonza has proved to be reliable and is aligned with our goal of improving farmers' lives.”

“Kayonza Tea Factory is the first of Solidaridad’s new impact investment projects to win funding,” confirms Frederik Claasen, Global Head of Policy at Solidaridad.

Leveraging 50 years of working with farmers around the world, we are now seeking to partner with impact investors and have already built a pipeline of 67 projects we are developing to get ready for investments”

The tea factory is currently running at full capacity. Deliveries to the processing plant in the remote highlands of southwestern Uganda have risen by 60% since 2016. Its suppliers – smallholders mostly farming one and two hectare plots – are achieving higher yields thanks to adopting better agricultural practices. Remarkably, the 7,466 smallholders are also Kayonza’s shareholders. 

The new plant in nearby Mpungu will more than double Kayonza’s capacity to 38,000 metric tonnes per year. It will employ 220 workers from the Mpungu area and serve the 3,000 Kayonza smallholders who grow tea there. Kayonza bought the land for the new plant in 2018, but sought a loan to pay for the construction of the factory and to purchase processing machinery.  

 

Packing teabags at Kayonza Tea Factory’s current plant. The new factory will have very similar machinery, ensuring it will be up and running fast  

The expansion plans have been made possible thanks to financing provided by Netherlands-based Oikocredit. Kayonza is a good match for Oikocredit, a social impact investor and worldwide cooperative which has over four decades of experience investing for positive change.

Kayonza’s new factory has the potential to be a huge catalyst for development in the area.”

says Geoffrey K. Musyoki, Agriculture Loans Specialist at Oikocredit. “Oikocredit’s investment will allow Kayonza to boost its position in the global tea trade by enhancing its product.”  

The tea factory’s exemplary role was recognised by the United Nations Development Programme (UNDP) which awarded Kayonza the Equator Prize in 2015. UNDP selected Kayonza for its efforts to help its local community to adapt to climate change, drive back deforestation and soil degradation, and encourage local people to adopt land management techniques and diversify their crops. 

The thriving tea business at the core of the community was looking to expand, but was far from investment-ready. “At Kayonza, we saw there was both a need and an opportunity,” says Martin Sommerschuh, Coordinator of the Equator Initiative at UNDP, “but we did not have the capacity in-house to move it to investor readiness. Solidaridad stepped in here and provided crucial support. Excitingly, it’s the first time an Equator Prize winner has secured external financing since the prize was established in 2002.”

Kayonza tea factory is owned by the 7,466 smallholder tea farmers that deliver their tea to the company

Solidaridad’s East and Central Africa office brought in tea experts from Solidaridad India to assess whether Kayonza’s yields warranted a second factory. They also ensured projected machinery costs were realistic. Using sophisticated financial modelling, Solidaridad then worked with Kayonza’s management team to develop the business plan and investment proposition, before introducing the project to potential investors. 

Oikocredit is investing USD 3.15 million in the tea factory. The impact investor’s due diligence started in March 2019 and the deal finalized in September. The groundbreaking ceremony for construction of the factory to begin is scheduled for the third week of January 2020. 

“As soon as we get the funds, we will roll into action,” ‘says Christopher Turyatemba, General Manager of Kayonza Tea Factory, standing in front of a plot of land cleared for construction. “In two years’ time, the satellite factory will be a reality for the Mpungu community.”

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