This report responds to the terms of reference from the Kenya Dutch Embassy with the broad objectives to identify constraints to effectiveness, efficiency and growth in the AI and VP value chains, and to ultimately identify opportunities for the Dutch private sector to invest in the AI and VP value chains. Based on desk studies and stakeholder interviews and questionnaires in the AI and VP value chains, there is substantial information on the AI compared to the VP value chain. As a result of commercial interests’ protection, there is reticence on release of vaccine production and distribution statistics. Given this experience, we estimated the statistics based on interviews and empirical livestock population data. The current total value of the Kenya AI business exceeds 11 million USD at the current 18% of total dairy cattle breedings with a potential to generate over 37.6 million USD at 60% of total dairy cattle breedings. AI use is predominant in dairy cattle while less than 1% of the beef herd is bred using AI. The AI use is projected to grow by 1.5% to 5% in the Kenya dairy herd to reach up to 2.3 million inseminations per year by 2023 compared to the current 650,000. Consistent with privatization of AI service delivery, as much as 95% inseminations are now conducted by private AI service providers and cooperatives. In addition, semen imports increased from 20% of semen distributed in the 1990s to the current 40% of the semen distributed. This bodes well for private sector semen distribution market share growth. Both semen distribution and AI service provision generate sufficient returns to guarantee business growth. However, returns on investment for semen production business may not be guaranteed unless the critical number of doses of about 3 million per annum are produced. Of concern has been the market distortion from parastatals engaged in semen production (KAGRC) and vaccine production (KEVEVAPI) that charge subsidized prices and are not subject to import levies and taxes and product quality checks and standards applied to imported AI and vaccine products. Inefficient semen and vaccine production is prevalent in these parastatals which creates opportunities for partnerships with competent, well-resourced private sector players to improve production efficiency. The value of the vaccine business is currently estimated to be about 13 million USD per annum. Projections are difficult to compile because demand for vaccines has been unpredictable partly because it has largely been influenced by sporadic disease outbreaks and there is no central vaccine distribution data repository. The current annual vaccine business at KEVEVAPI is valued at about 3 million USD. It is estimated that private sector alone commands an annual 10 million USD vaccine business; however, in the absence of a central vaccine distribution data repository and reticence from private vaccine distributors this could not be confirmed in this study. While the market for AI supplies and services is well defined and relatively more developed, the market for vaccines is ill-defined and not predictable and is largely dependent on disease outbreaks. Based on the populations of livestock, there is grossly limited vaccine distribution. It is obvious that a cattle population of 27 million would require annual vaccine doses in excess of this population but KEVEVAPI supplied a total 27 million doses of vaccines for all the livestock species which clearly shows a huge gap in vaccine supply. The demand for vaccines would be multiple times higher than current demand. It is apparent that vaccine availability, efficiency of distribution, and farmer knowledge on vaccine use are inadequate. Both KEVEVAPI and the GoK accept that the national and regional demand for vaccines is not being met. This demand is likely to be met when KEVEVAPI engages partners that can improve its capacity including a technological upgrade of its facilities. While there is anecdotal evidence of a potential vaccine demand, such investment opportunities would be more apparent if the GoK establishes vaccine production and distribution data recording systems. Apart from this GoK expectation, stakeholders in the VP sub-sector could also establish farmer needs and demand from created stakeholder forums. Investment in semen and vaccine production levels can be considered, but initial investment by Dutch companies should first be at the warehousing and distribution level (supply through product importation) to establish distribution channels and demand before investing in production facilities. Strategically, it is essential for Dutch investors to work with local partners to understand the markets before fully engaging and making heavy investments. All breeding products from semen to supplies should be tailored to the markets for pack size/specifications. However, these companies can consider investing in local AI companion product manufacture. Given that breeding programs take long to realize results, this makes the AI sub-sector vulnerable to public sector and donor funded programs that often distort markets. In this regard, it is important to scope the NGOs working in the area to form strategic buying-down risk partnerships or alliances, and hence preclude market distortions. It is purported that Dutch companies have interest in investing in the Kenya AI and VP value chains, but based on activities of the companies there is more interest and presence in the AI than the VP value chain. It is also apparent that most Dutch pharmaceutical and vaccine companies have merged with large international companies, mostly American companies. It is therefore probable that this may dilute the Dutch agenda of tapping the vaccine business in Kenya. In general, if Dutch companies are interested in production business they should set-up in existing institutions such as KEVEVAPI and KAGRC bull stud. As suggested by some Dutch companies, a precondition for partnership with public sector institutions is operation according to a commercial and realistic business model. Such model operates free of subsidies and government interference. Dutch companies should also consider investing in after sales service provision for specialized equipment and special technology to existing institutions (e.g., liquid N generation equipment after sales service). As a result of high import duties, Dutch companies should consider importing raw materials or singular vaccines that are blended locally as done by some local companies. Dutch companies should exploit existing bilateral agreements between the Dutch Government and the GoK; for example, the heifer supply agreement. Finally, because the AI and vaccine businesses are largely anchored on the dairy sub-sector, the major changes in the sector that include the advent of international milk processors such as Danone and Brookside joint venture, investors should be prepared for long-run business model modifications.

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