Meet the Entrepreneur: Kyle Denning, Kentaste
Coconut trees dot the Kenyan coast from Tanzania to Somalia. While more than 100,000 farmers have coconut trees on their land, Kenya’s coconut industry remains underdeveloped. Coconut farmers in Kenya sell their produce at local markets or to small-scale artisanal processors but only a fraction of the coconuts grown each year in Kenya are manufactured into products. What could be a reliable cash crop for farmers is instead largely an after-thought.
Kentaste is working to fill the void. The company produces coconut oil, milk, cream, and flakes that it sells into hundreds of grocery stores across the region, and the company has begun to enter global markets. Kentaste today purchases coconuts from thousands of farmers at consistently high volumes and fixed prices, providing a steady income stream. The company also helps farmers improve cultivation practices and helped them weather the recent drought that hit the Horn of Africa.
Kyle Denning, the founder of Kentaste, spent time talking with us recently about what brought him to the coconut industry, what he’s learned, and where he plans to take the company.
You grew up on a dairy farm in Michigan, and you now run a coconut business in Kenya. How did your upbringing and other experiences get you to where you are today?
Kyle: Growing up on the dairy farm, working outside with animals and crops, it’s something that never leaves you. As a kid it was cool, but I also thought that there had to be an easier way in life to make money. So, I went to college to study finance and business.
During college I worked in the finance sector in stock and securities trading but found that I really missed the more tangible outcomes of work. After graduating, I went to work for a company that was financing renewable energy projects. This was the start of my journey in seeing how I could combine my passion and background for being outdoors and working on environmental causes.
In 2009, an opportunity came to support a solar project in Rwanda, and I raised my hand given I had studied international business and had spent a lot of time in Europe and Latin America. Once I landed in East Africa, I immediately said to myself that this is the place I want to be.
What is the origin story with Kentaste?
Kyle: I ran the renewable energy financing business for four years but wanted to transition to something I was more passionate about. I set out on a journey with a close friend, Kwame Parker, who was also an American living in Kenya, to figure out what this thing could be. I turned to my upbringing in agribusiness, starting with dairy because that is what I knew, and Kenya has a big dairy industry. There were a lot of smallholder dairy farmers, but they all had processors willing to buy all of their production. In the supermarkets there were endless amounts of dairy products already there. We realized that finding something unique was going to be a challenge.
Then in 2014, a friend who was doing consulting on the coast sent me a four-page business plan about an interesting opportunity in the coconut industry. A husband and wife were processing coconuts out of a small facility. I saw this and realized that this was the opportunity we were looking for. Within weeks we owned a coconut business.
There are 50,000 coconut farmers in Kenya along the coast. Unlike in the Kenyan milk industry, there isn’t a lot of aggregation. What did you initially learn about the coconut industry in Kenya?
Kyle: When we first started, there was no formalized market for farmers to sell their coconuts into. On the processing side, there was limited technology in Kenya that could produce coconut products at scale. When we bought the company, it was basically a kitchen in a barn without a boiler or formal lines. Finally, the real opportunity was when we went into the supermarkets and saw that pretty much all coconut products, especially in the coconut milk and cream segment, were from Southeast Asia.
Was your initial concept to sell into Kenya? Or were you thinking from the start about both domestic and export markets?
Kyle: The initial idea in the business was to focus on local East African markets, and we did that for a number of years. We built leading market shares in all of our product lines. But in 2018 or 2019, when we started to take institutional investments, we realized that to scale this business – to make it sustainable and be able to buy every coconut on the Kenyan coast, we needed to access bigger markets. That is what drove us to start looking at exports and diversifying into new product lines.
What are the barriers that coconut farmers in Kenya are facing and how are you helping them?
Kyle: Their number one problem is the transportation infrastructure along the coast of Kenya. The roads make it really tough to access farmers.
The second piece is the scale of the farmers. Compared to coconut farmers in Southeast Asia, our farmers are small. We have to work with about five to ten times as many farmers as our Southeast Asian competition to access the same amount of coconuts. So, we’ve spent a lot on infrastructure development. We’ve built collection centers, found ways to access coconut farmers in Kenya with everything from pickup trucks for large volumes to donkey carts and motorbikes for smaller volumes.
With higher sourcing costs, we have to find a way to cover that cost through a premium in the product. We’re not going to be cost competitive with the bulk producers out of Southeast Asia. We need consumers to understand that our products benefit the communities in a way that’s never existed. When they buy a Kentaste product, money is going back to these communities. Without Kentaste, the coconuts would either be spoiled or consumed in the household. But we’re able to provide a significant infusion of cash to these households.
Every farmer that we’ve spoken to over the last few days has talked about coconuts being their pension. They want to plant more coconut trees now so that in 5- 10 years they’re producing. And they’ve realized after several years of working with you, that if they take care of trees, the yield will better.
Kyle: Yes, it really is a new perspective. They weren’t really coconut farmers before Kentaste. They were farmers who happened to have coconuts on their land. And they’d sell whatever was produced in the local market.
We’ve come in and made them really appreciate the value of the coconut. We’ve told them that there’s a lot of really amazing things you can do with the coconuts and enforced a complete change in their approach to coconut farming.
What has the drought meant for coconut farmers in Kenya and the business overall?
Kyle: It’s the same answer for both of us. A lot of sleepless nights because we have no control.
I feel and can relate to the coconut farmers in Kenya. Our businesses have been radically impacted by the last eighteen months of this historic drought. We always knew there was drought risk in this business. We know that every four or five years, yields and quality will go down.
In a typical drought cycle, we’d see reductions of 20-30%. In what was previously defined as extreme, a 40% reduction. Over the last twelve to eighteen months farmers are producing 70% less than what they are normally. Their yields are 20-30% of what they’re expecting. If the farmer was normally selling us a thousand coconuts, she’s now selling us just 200-300, and the size of the coconuts is also shrinking in some cases to the point where we are unable to process them.
To date, farmers have probably lost 5% to 10% of the trees from what we can tell from surveys. In other years, you’d expect maybe a 1% loss. That is unprecedented. It’s revealing the impact that climate change is having.
Let’s talk about product. You use pretty much all the coconut at Kentaste. Tell me about that.
Kyle: It’s worth talking for a moment about the coconut. The layers of the coconut is something most people don’t fully appreciate.
The outside husk is made up of high-end fibers. Currently the best use of the husk is for producing coco peat which is a good medium for starting seedlings. You can also make mattresses out of the husk, and we are happy to supply this product as an input into production for these types of products.
Once you get past the husk, you have the shell. The shell has a very high calorific value and is great for use in our steam boiler as a sustainable source of biomass. In fact, most of our thermal energy needs at the factory are met with the coconut shells.
Then we get to the juicier parts. Inside the shell you have the kernel which has this layer of brown skin around it called the pairing. This is where we extract the most value. From the white kernel with the brown skin around it, we extract coconut oil or coconut milk. In our production facility, you’ll see the two distinct lines: what we call our wet line and our dry line.
On the wet line, we grind the kernel and use a press to extract a very high fat content milk extract. We use that to produce coconut milk. As a byproduct, we have the kernel without the heavy fat content that we can dry and sell as desiccated coconut, which is used for baking and confectionary.
If we take a coconut kernel and run it through the dry line, we grind it up and dry it to remove all moisture. We’re left with particles that are very high in fat. We squeeze that fat out and that’s your virgin coconut oil. The material that’s left over is coconut flour.
Beyond that it gets even more interesting. We have to decide how we package it. Do we sell it retail? Do we sell it bulk? Do we sell coconut oil as a cooking oil or as a cosmetic oil? That’s where you really have a lot of fun on the marketing side as there are so many different things we can do with our products.
What are some new products you are working on?
Kyle: This year we started taking the coconut kernel, slicing it into small pieces, flavoring it, drying it, and packaging it as a coconut chip snack. We think it has the potential to be our biggest product line, especially in the US market.
It’s our first consumable product, something that’s not an input to a recipe. We’re not the first to do it, but the way we do it is different, and our flavors are different. Most importantly, we’ll be able to tell the whole story behind the chips.
FINCA made its investment in Kentaste about a year ago. Why did you choose FINCA? What can we bring to the table?
Kyle: We’re looking for investors who understand what we’re doing and are interested in impact. For us, it’s really important that our partners have experience working with smallholder farmers and understand the risks. I also appreciated FINCA saying that the business was ours to run, that they weren’t going to come in tell us what to do, but rather if there are grant opportunities or market opportunities, they’ll share that information with us.
What is the one product that you and your family cannot live without?
Kyle: You’ll find coconut in most of the rooms of my family’s house. We use it to cook, my son has had it put on him since the day he was born, and my wife uses it for various personal care and cosmetic needs. I use it because they tell me that it will help me go bald more slowly.