Small farms predominate in Kenya, with the average size no larger than two hectares.
Agricultural policy. Kenya's current agricultural policy centers on a plan, outlined in 1993, whose basis is national food security. Declining harvests in the early 1990s reduced reserves, while the suspension of international monetary support hampered Kenya's ability to import food. These developments impressed on leaders the need to emphasize food self-sufficiency through improved productivity.
Until 1993, the Kenyan government controlled grain marketing. The Ministry of Agriculture set prices, and the N.C.P.B. was responsible for procuring grain from domestic farmers and from import sources, for storing grain and controlling grain movement.
Wheat and maize millers bought grain from the N.C.P.B. at fixed prices that were adjusted annually to cover rising grower prices. Meanwhile, subsidies kept consumer prices in check.
To stimulate production, reduce budget outlays and satisfy international financial groups' pressure for market liberalization, the government in early 1993 announced a reform plan; it included privatizing grain markets, investing in infrastructure, improving agricultural credit policies and access and expanding the use of agricultural inputs.
In February 1993, the wheat market was privatized, with all restrictions removed on private importing and domestic marketing; this action followed the financial collapse of the Kenya Grain Growers Cooperative Union, which had been the official wheat buyer for the N.C.P.B. In late 1993, reform measures also were adopted for maize, including private sector marketing and importing and the removal of price controls.
Under the reforms, the government's role has been greatly reduced, and the private sector now dominates Kenyan grain marketing. The government establishes minimum grower prices and retains authority to maintain market stability and strategic reserves. In theory, it stands as a buyer and seller only of last resort.
But in practice, the government continues as a player with significant market influence. It raised minimum grower prices, which stimulated production but also drove users to cheaper imports. The N.C.P.B. then became a primary buyer for growers as market prices slid.
The result was increasing grain surpluses and severe strains on the budget. The government responded by imposing various import duties and, earlier this year, announced an outright ban on wheat and maize imports.
Under pressure from international lending groups, Kenya's Finance Ministry in June said the import ban would be lifted. The ministry also authorized the N.C.P.B. to sell its surplus maize for export to help reduce its arrears to growers.
Even so, the government's involvement in grain markets, particularly the maize market, remains at issue with international lenders and donors, and further reforms may be adopted.
In addition to market liberalization, Kenya's agricultural plan also calls for rationalizing the N.C.P.B. grain storage system. In 1994, government storage capacity totaled about 1.8 million tonnes, of which 75% was flat storage requiring bagged grain.
The plan projects a need to increase capacity by 25% by 2000, with the private sector expected to make the investments. Improvements to public storage would emphasize bulk grain handling, particularly at ports.
Flour milling. The privatization of Kenya's wheat market revitalized what had become a moribund domestic milling industry.
In the mid- to late 1980s, Kenya's mills enjoyed a small boom, marked by modernization projects and some capacity expansion. But problems, including wheat rationing and storage limitations, began to develop by 1989 and worsened in the ensuing years.
Immediately prior to liberalization, the N.C.P.B. had developed the view that wheat was a "luxury" and refused to import it. That left millers scrambling for domestic supplies, with their plants operating at only 20% to 40% of capacity. Resulting flour shortages forced many of the newer, highly capitalized bakeries to close.
After liberalization, mills faced a transition period, during which they continued to encounter difficulties such as obtaining foreign exchange to import wheat. But the milling industry today is described as healthy, as market reforms and privatization eliminated wheat shortages and eventually improved milling margins.
Kenya's current daily wheat milling capacity is 2,700 tonnes of wheat at 21 mills. Only one mill has a capacity greater than 500 tonnes a day, with one mill at 300 to 500 tonnes and a third at 200 to 300 tonnes. Ten mills each have a daily capacity of 100 to 200 tonnes, with the remainder less than that level.
Unga Ltd. is the largest milling company, controlling about 40% of total capacity. A family operating two companies controls about another 10% of total Kenyan capacity.
With the industry rebound in the past two years, operating levels have increased to 60% to 80% of capacity. And improved market conditions and recently granted government permission to export flour under license have increased interest in mill expansion.
Three new plants are in varying stages of construction; when completed, the new plants will raise Kenya's total daily milling capacity to 3,200 tonnes.
But Kenya's milling industry still faces some problems, including the government's erratic actions on wheat import restrictions. In September 1994, for example, a variable import tax was levied that essentially raised import prices to domestic levels; similar taxes imposed earlier were repealed amid accusations that large importers were able to avoid them.
Mills also currently face a so-called anti-dumping import tax, which is equal to the level of discount, or subsidy, offered on imported wheat. This tax has made it particularly expensive to import from countries, such as the United States, that openly announce the subsidy provided on wheat sales.