Country Focus: Kenya

by Melissa Alexander
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Agriculture is the lifeblood of Kenya's economy, employing about 80% of the population and contributing as much as 30% to gross domestic product. Average farm size is about two to five hectares.

Although large, export-focused tea, coffee and horticultural estates exist, small farmers mostly engaged in subsistence farming dominate numerically. These small farmers account for about 75% of Kenya's total agricultural output and 70% of maize production.

Only 20% of Kenya's total land area is arable, and agricultural productivity is dependent on rainfall. Drought has plagued the country in the previous two years, and precipitation during the March-May 2000 planting season continued to fall far short of that needed to assure an adequate maize harvest. White maize is a critical dietary staple, with a per capita consumption of 80 to 100 kg annually.

Although the U.S. Department of Agriculture in May estimated Kenya's 2000 maize harvest at 2.3 million tonnes, Kenyan officials in early June worried that actual production would be substantially less than 2.2 million. Kenya's President Moi warned that more than 20 million citizens, or about 80% of the population, could face hunger in 2000.

Compounding the drought's effects on food supplies is the fact that the government in recent years has lacked the funds to procure sufficient buffer stocks. International relief agencies have estimated that Kenya could need maize donations of at least 200,000 tonnes to avoid serious food shortages in 2000.

In addition to food concerns, the drought has created havoc with Kenya's power supplies. More than 80% of the country's power is generated by hydroelectric dams, and the lack of rain has cut the nation's generating capacity by 40%.

As a result, Kenyan officials in late May began mandatory power rationing for most of the country. Under the rationing program, power is shut off completely on alternating days to business, industrial and residential areas on a rotating schedule.

The blackouts are projected to continue until August, when new, diesel-fueled generators should become operational. The power shortages are expected to seriously damage businesses and the economy.

Besides the challenges presented by Mother Nature, Kenya's agricultural sector in recent years has faced difficulties resulting from structural change and haphazard policy making. Prior to the mid-1990s, central government command and control dominated the sector, but reforms subsequently were adopted to move agriculture to a free market system with government oversight.

Today, agriculture remains in transition amid great uncertainty. Almost every sector, from tea to dairy to cereals, officially has been "liberalized," but the government continues to intervene through trade restrictions, marketing boards and other control mechanisms.

Prior to the reforms, the National Cereals and Produce Board was responsible for grains. The N.C.P.B. controlled all marketing and distribution and served as the buyer of the last resort, with its buying activities highly influencing market prices.

Under the reform program, the N.C.P.B. in 1997 was divided into two parts. One was a commercial grain trading company designed to compete with the private sector at market prices, and the other was a government controlled entity to coordinate national strategic cereal reserves.

The commercial board began offering some services to farmers and grain traders at a fee and began purchasing grains from farmers at market prices. But its independent, free-market standing was undermined shortly after its creation when the government required the board to buy wheat from farmers at a set price.

Kenya's official agricultural policy consists of references to food security, defined to include self-sufficiency in primary foodstuffs. But government actions have been filled with contradictions and inconsistencies.

For example, import duties on maize are the prerogative of the finance minister, who at various times in the past few years has slashed duties, raised duties, banned imports and banned exports at will. In the past few weeks, the N.C.P.B. announced it had stopped grading wheat because farmers were "influencing" board employees to assign better grades to attract higher prices.

The lack of a detailed policy or specific agricultural programs — as well as widespread allegations of political influence and corruption — has left the private sector with a limited ability or desire to develop long-term investment plans or a viable market infrastructure. Consequently, sparse information, illiquid trading and highly volatile prices currently characterize marketing of grain and other commodities in Kenya.

Some Kenyan economists in the past year have been urging the government to work toward more orderly markets by developing a system of warehouse receipts, forward contracts and, eventually, futures trading. To date, no action has been taken in this area.

The combination of drought and inefficient markets has prompted huge increases in grain and food prices in recent months. In a few of the worst drought areas, grain prices have increased by 200% in the past few months, although 50% increases are more common.

KENYA'S MILLING INDUSTRY. Wheat production in Kenya traditionally has been centered in larger farms, although many of these operations are being sub-divided into smaller, less efficient units. Domestic wheat producers typically have benefited from variable protective import tariffs ranging from 25% to as much as 50%.

Currently, Kenya's installed milling capacity is about 3,500 tonnes per day, spread among 16 milling companies. The majority of mills operate at capacities of 100 to 300 tonnes a day.

As of early June, flour millers were waiting to assess the damage to their businesses caused by the power rationing regime. According to one industry source, prices for bread and feed began to rise within a day of the power outage onset.

"We believe that this rationing and drought is by far the worst crisis in Kenya's history," he said. "The milling industry, like all others, will be severely affected."

In addition to power rationing, millers are deeply worried about wheat supplies. Speculation is that Kenya's 2000 wheat harvest will reach only 80,000 tonnes, compared with the average of 300,000. With consumption usually running about 700,000 to 800,000 tonnes, the shortfall could approach catastrophic levels.

Even in the best of times, millers struggle against the variable wheat import levies designed to protect local wheat farmers. The effective tax currently is 45%.

Discussions on the issues of import taxes and marketing of the local crop have been ongoing between Kenya's millers association, the farmers association and the government for some time. But to date, no agreement as to the way forward has been reached, and millers are uncertain how the government will react in light of this season's crop failure.

LIVESTOCK AND FEED. Kenya's livestock sector contributes about 10% to the domestic economy, accounts for more than 30% of the farm-gate value of agricultural commodities and employs more than 50% of the agricultural labor force. The sector also earns the country foreign exchange through export of hides and skins, dairy products, live animals and canned beef.

Current per capita consumption of livestock products is estimated at 9 to 10 kg beef, 2 kg sheep/goat meat, 1.2. kg poultry meat and 0.3. kg pork per year. Beef accounts for more than 70% of all meat consumed.

The bulk of beef cattle and small ruminants that provide red meat is produced under ranching and nomadic pastoralism systems. A significant proportion of beef also comes from bull calves and culled cows as by-products of the dairy industry.

The marketing of livestock in Kenya was completely liberalized in 1987, which encouraged private livestock traders and meat processors to enter the market. Most live animals exports are sheep and goats, and meat exported is mainly canned beef.

Kenya's dairy sector is among the largest in sub-Sahara Africa. It consists of about 1.2 million dairy cows, which produce about 1.5 million liters of milk. Small operators produce about 80% of the dairy milk, with the rest produced by medium and large-scale farms.

In 1992, the government liberalized the dairy industry by decontrolling producer and consumer prices and allowing competition in all aspects of the industry, especially in processing and marketing. Per capita consumption of marketed milk is estimated at 125 kg in urban areas and 19 kg per year in rural areas.

As with grains and the power infrastructure, the drought has severely affected the livestock industry. More than 10,000 head have been lost this year in one region alone, and some herders have invaded private ranches seeking feed for their animals.

The marketing system also has broken down over the years since deregulation. Licensing and financial requirements to market cattle are beyond the means of most farmers, leading to the formation of predatory cartels, turf wars and commercial cattle rustling.

In June, the speaker of the National Assembly called for the re-formation of the Kenya Meat Commission to provide institutional structure and financial assistance for Kenya's livestock industry. But observers noted those with vested interests in the current system were likely to block attempts to establish more orderly marketing.

Melissa Cordonier Alexander, formerly an editor of World Grain, is now a consultant providing information research services for agriculture.