Kenya

Agriculture

Overview

 Agricultural sector is the dominant sector in the Kenyan economy accounting for 24% of the Gross Domestic Product.  The sector is the largest contributor of foreign exchange through exports earnings from Tea, Coffee and Horticulture.  Agriculture also provides employment and livelihood to a large percentage of the population.    An estimated 75% of the population depend on the sector.  Any changes in the sector, due to its dominance will translate to changes in the whole economy.  Hence further investment in this sector remains as a matter of policy, a priority.  The desire to achieve a Newly Industrialised Country status by the year 2020 will only be realised with increase in productivity in this sector.  Agro-processing investments will only be possible with production of adequate and high quality raw materials from the Agricultural sector.   Any efforts to revive the economy and reduce poverty should have emphasis in this sector.  

The agricultural sector in Kenya has since independence heavily relied on the Government for its development.  The Government controlled the growth of the industry by fixing producer prices of commodities and prices of inputs.  Except for the period 1985 to 1990, Kenya has since 1980 never experienced sustained agricultural sector growth.  For the first time since independence, the agricultural sector recorded negative growth rates for three consecutive years in 1991, 1992 and 1993 during the turbulence following transition to multi-party democracy in Kenya.  The government has since taken decisive measures to divest from agriculture and leave room for private investment and market forces to operate.

Developments in the Industry:

 In Sessional Paper No. 1 of 1986 on Economic Management for Renewed Growth, the following targets for agriculture to the year 2000 were indicated.

i)                    Provide food security for a population of almost 35 million in 2000.

ii)                   Generate farm family incomes that grow by at least 5 per cent a year over the next 15 years.

iii)                 Absorb new farm workers at a rate of over 3 per cent a year with rising productivity.

iv)                 Supply export crops sufficient for a 150 per cent increase in agricultural export earnings by 2000; and

v)                  Stimulate the growth in productive off-farm activities in the rural areas, so that off-farm jobs can grow at 3.5 per cent a year.

 However, the performance of this sector for the last decade has been declining.  The poor performance of this sector has occasioned decline in the performance of the whole economy, the major reasons being the inability of the government to fully liberalise and privatise the sector at the right time.  The benefits of liberalisation in the last decade can be seen on the ground, for example, in the Dairy Sub-sector, there are a number of new investments in Milk processing which have introduced new products and resulted in additional employment.  Drought has occasionally resulted in the decline in agricultural production.  The effects of drought can be minimised through further investments in irrigation technology and systems.

Transformation Of Agriculture

 The transformation of the agricultural sector will ensure that the sector will not only be involved in primary production and subsistence consumption, but will also be involved in secondary production (processing) and ensuring that the sector will be commercial even at the farm level.  Strategies for development of the agro-industries in Kenya in the last few years and the vision in the 21^st Century are stipulated in the Sessional Paper No.2 of 1997 on Industrial Transformation to the Year 2020 and the 8^th and 9^th National Development Plans for the period 1997-2001 and 2002-2007 respectively.

 The Industrialisation process, will start with promotion and development of agro-industries for processing the agricultural produce, with immediate goal of increasing value added in the primary products both for domestic and export markets.  The strategy for implementation of the industrial transformation process will include co-operation and dialogue between the Government and all other stakeholders in the development of agriculture and industry.

Tea Sub-Sector

 Tea is the leading export commodity in the country in terms of foreign exchange generation, accounting for almost 20% of total export earnings.  Tea industry is a major source of employment with over 2 million people in direct tea farming, manufacturing, marketing and indirectly in retail outlets and transportation.

 Small-scale tea growers, estimated at 300,000, process and market their tea through 45 tea factories under the Kenya Tea Development Agency (KTDA), while large scale tea growers (tea estates) process and market their tea through 38 tea factories operated on individual private basis.  KTDA renders managerial, production, transportation and marketing services which include management of tea factories, green leaf transportation, procurement of production inputs, marketing of processed tea and payment of tea proceeds to the growers.  The tea sub-sector was restructured and fully liberalised in 2000 whereby Kenya Tea Development Authority was fully privatised and renamed Kenya Tea Development Agency Limited.  The KTDA Ltd. is established under the Companies Act as a public company with limited liability, owned by small-scale tea farmers through their respective factory companies.  The new KTDA offers management services to the individual factory companies and any factory, as an independent private company may opt, if it wishes, to contract any other management agent, other than KTDA, to manage their operations.  Table 2 below shows the tea production and exports for the years 1996 - 2000.

Tea Production and Exports (1996 - 2001)

 Source: Crops Division, MOARD

 It is important to note that companies wishing to process and package tea should be licensed by the Tea Board of Kenya for co-ordination of supply by farmers to the factory.

 Opportunities for investment:

Ø        Investment in Tea plantations;

Ø        Processing and packaging of tea for export especially under the Manufacturing Under Bond and Export Processing Zones programmes.

E:         COFFEE SUB-SECTOR:

 In recent years, contribution of coffee to the economy in terms of foreign exchange earnings and employment has been steadily declining.  The decline can be explained by low coffee production, which has resulted due to the uncertainty of the outcome of recent policy changes, low world market prices and lack of credit.  The coffee sector has been liberalised.  Kenyan coffee could fetch higher prices if higher quality standards are attained through improved crop husbandry, proper pulping, drying, storage, milling and grading.  Also opportunities of increased earnings both for the local farmers and the country exist, if there could be increased value adding and aggressive promotion of Kenya Coffee, especially in the external market. 

Opportunities for Investment:

 Investment in Coffee production is necessary for maintaining high production     volume and further employment. Opportunities exist in: -

 Ø        Coffee processing and packaging to final products.

Ø        Processing of instant coffee.

Ø        Growing of Robusta Coffee, which will be used to support the blending of Arabica coffee.

Ø        Manufacture of coal from coffee husks.

 Table 3

Coffee Production, Consumption and Exports:

 Note:                Local consumption is Negligible

Source:            Department of Agriculture, Economic Survey, CBS and the Coffee Board of Kenya.

F:         PYRETHRUM SUB-SECTOR:

Pyrethrum is an important crop in Kenya's economy for it offers livelihood to approximately 200,000 households with one million individuals.  It is a major foreign exchange earner for the country ranking fifth after tea, horticulture, tourism and coffee.  For over 60 years, Kenya has been the leading world producer of natural pyrethrum whereby the country produces between 65% and 75% of all pyrethrum traded in the world in any given year.

Over the years, pyrethrum production has been characterized by cyclic periods of high and low production.  The highest production ever recorded was 18,720 Kg. realised in 1981/82.  However, over the last two decades production has fluctuated between 17,710 Kg. achieved in 1992/93 and 3,995 Kg. realised in 1998/99 with an average of 8,500 Kg. per annum.  Production in the year ended June 2001 was 7,964 Kg. flowers with a pyrethrins content of 1.53%.  Production is projected to rise to 14,000 Kg. by June 2003.  The current value of pyrethrum exports ranges between Kshs. 1.5 and 2.0 billion per annum.  Production for the last five years has been as indicated in table 4 below:

Table 4

Pyrethrum Production and Exports (1995/96-2000/01)

Source: PBK (* estimated)

Pyrethrum Board of Kenya (PBK) has the monopoly of buying dry pyrethrum flowers from the farmers, processing the flowers and marketing the processed pyrethrum products.  The local market consumes about 5% of the national pyrethrum production while 95% is usually exported to North America and Western Europe.  It is anticipated that the market in future may expand to encompass South America, South East Asia and Africa.

Opportunities for Investment: -

 Investment opportunities exist in: -

 Ø        Seed production - plant propagation

Ø        Investment in plantation

Ø        Processing pyrethrin insecticides, and pesticides.

 G:         SUGAR SUB-SECTOR

 Kenya currently produces about 70% of her domestic requirement.  Sugar production has increased from 384,171 tonnes in 1995 to 470,788 in 1999.  Sugar consumption --increased from 560,000 tonnes in 1995 to 631,200 tonnes in 2000.  The deficit in sugar production is met through imports.  The area under sugar cane is much more than the area of sugar cane harvested, indicating some inefficiency in sugar production and an indication of loss to farmers.  This low crashing rate indicates one of the reasons why the cost of sugar production in the country is high.  There exist potential for Kenya to become and retain self-sufficiency in sugar production and also produce surplus for export.  Table 5 below shows the Sugar Production Trend from 1995 - 2000.

Table 5