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Food Policy in Kenya

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					   COMPATIBILITY OF TRADE AND
DOMESTIC POLICY AFFECTING STAPLES
            IN KENYA


              James Nyoro
   Tegemeo Institute, Egerton University
               Presentation Outline
 National and Domestic Policy Objectives
 Staple Food Policy environment
   • NCPB Purchase and sale of grain
   • Restriction on trade:
      • Duty on Imports
      • Wheat safeguard measures
      • Non Tariffs barriers
 Impacts of domestic policy on national objectives
 Policy economy considerations
 Effects on Regional Trade
        National and Sectoral Policies

 Objectives in Economic Recovery Strategy (ERS)
  and the Strategy for Revitalization of Agriculture
   • Raise Household incomes
   • Create wealth and Employment
   • Reduce Poverty by Half by 2015 (Reducing number of
     poor and hungry people)
   • Ensure Food and Nutritional Security
   • Increase access to markets
        The Kenyan Food Policy Scene

   Food security strategy geared towards attainment of
    self sufficiency:
    •   Feed the nation from local production
    •   Attain self sufficiency in each region
    •   Limited consideration to Urban poor and rural landless
    •   Grain importation and trade taken negatively
    •   Food security synonymous with Maize security
•   Lack of comprehensive national and household level
    strategies
    •   Sessional paper 4 1981 on National Food Policy
    •   Sessional Paper No 2 of 1994
    •   National Food and Nutrition Policy
    Expenditure on Primary Staple Commodities
                      Urban

                                        Income Quintile
                                                                        Highes
Expenditure item Lowest 2                                 3      4      t      Mean
Maize Products                          43.8       38.0   35.5   29.0   22.0   32.4
Wheat Products                          33.6       37.0   40.5   46.8   53.6   43.5
Rice                                    19.8       21.5   18.6   19.9   21.0   20.2
Cooking bananas                         2.7        3.5    5.4    4.3    3.4    3.9
Total                                   100.0      100.   100    100    100    100

Source: Tegemeo/ MSU Urban Consumer Survey, 2003
         Maize Supply and Demand Situation in Kenya
                              2001     2002      2003      2004     2005     2020
Domestic production ('000 MT) 2,754     2,340     2,520     2,610    2,907    3,535

Maize Demand ('000MT)
Domestic consumption          3,025    3,089     3,200     3,215    3,278    4,225
Animal Feeds                    235      240       249       250      255      329
Other uses                      101      103       107       107      109      141
Exports                           0      159         3        24       11
Total Maize Demand ('000MT)   3,361    3,591     3,559     3,597    3,653    4,695

Surplus/Deficit ('000MT)       (607)   (1,251)   (1,039)    (987)    (746)   (1,160)

Population (millions)           31        32        33        33       33       43
 Interventions by the National Cereals and
              Produce Board
• Procure and Sell maize at Administratively determined
  prices competing with the privates sector:
• Buy commercially from the market to stabilize prices:
  Financed through MOA
• Building National Strategic Reserves
   – Set at 6 million bags: 3 million in stock and 3 million in
     money form
• Purchases for Relief Purposes; Financed through OP
• Combines the Purchase for the commercial and Relief
  purposes hence Feeding Food insecure people with
  expensively purchased maize
  NCPB Purchases and Kitale Wholesale
               Prices
             Mean price (KSh/90kg) bag during the
             post-harvest months of November to
                          February


Year          NCPB Purchase      Kitale wholesale
                  price                price
89/90                   1,325                1,447
90/91                   1,245                1,494
91/92                   1,298                1,403
92/93                   1,332                2,111
93/94                   1,885                1,706
94/95                   1,689                  997
95/96                   1,040                  818
96/97                   1,882                1,600
97/98                   1,823                1,575
98/99                   1,504                1,108
99/00                   1,623                1,661
00-01                   1,520                1,470
01-02                   1,200                  703
02-03                   1,166                  990
 03-04                  1,205               1,131
 04-05                  1,400               1,173
 05-06                  1,450               1,380
   Household Maize Market Position 2004

Agro-regional zones    Net buyers Autarky   Net      Per capita
                                             selle      income
                                              rs         (Ksh)
Coastal Lowlands          53        41       7       42,238
Eastern Lowlands          38        28      35       57,852
Western Lowlands          82         6      12       40,096
Western Transitional      45        14      41       40,505
High Potential Maize      21        10      69       72,238
Western Highlands         54        16      30       45,544
Central Highlands         37        37      25       85,761
Total                     42        20      39       65,136
           Effects on NCPB Purchase
• Hurts the same households the policy intends to help as
  most farm households are net maize buyers:
• Purchases by NCPB may have raised maize prices by
  between 15-20% - Could this have led to a supply
  response???
• Maize sales are extremely concentrated among small group
  of small-holder farmers – about 10% accounting for about
  75% of the sales
• Four districts accounts for over 70% of the sales of maize
  sold in 18 districts
• A large proportion of domestically marketed maize are
  also from medium to large-scale farmers
• Low income households are likely to be net maize buyers
  80% in the lowest Quintile compared to 26% in the highest
  quintile
          Importance of maize in small farmers income


Zone                 Off farm income Livestock Crop of which maize Cash crops       Others
                                             Share in %
Coastal                     70           8       22        7          10              5
Eastern lowlands            50          14       36        9          18              9
Western Lowlands            41          14       45       17           9             19
Western Transitional        23          16       61       13          36             12
H.Pontential MZ             26          35       49       25          10             14
Western Highlands           26          17       57       16          32              9
Central High lands          29          21       50        5          38              7

Total                     35            18      48        14           23            11
                                                                                .
Restrictions on Trade
                  Import Duty

• Import duty imposed on imported Maize of 25%
  from Non COMESA and 3% for maize from EAC
• Wheat imports levy import duty of 35-60%
• Raises costs of imported maize and wheat over the
  domestic
• Reduces supplies that may have effects of Raising
  domestic maize prices
• Duties encourage more informal trade with higher
  transaction costs and rent seeking activities
• Even without tariffs maize sourced from Durban is
  higher than that domestically sourced
Costs of supplying Nairobi market from alternative

                     sources
      Comparison of Local and imported wheat

Production costs (efficiency) categories    Most efficient    Average         Least
                                                                            efficient
                                              (large scale) (medium scale)(small scale)
Yields (bags/acre)                                 16             9             6
Number of farmers (% of total in brackets) 30 (0.33%) 600 (6.64%) 8,400 (93%)
                                          1,856,250 (45%)
Production 90kg bags (% of total in brackets)               825,000 (30%) 1,518,750
                                                                             (25%)
Total Cost(US$/MT) Nairobi                             263           287           336

                           Imports from Argentina
Import price categories                  Minimum              Average   Maximum
CiF Mombasa price (US$/MT)                      150                 175       200
Total Cost (US$/MT delivered Nairobi           303                 341       378
(with 35% duty)
Cost per (US$/MTdelivered Nairobi               246                  274           302
(without 35% duty)
                Non Tariff barriers

 Non Tariff Barriers
   • Import Declaration Fees (2.75%) on imports exceeding
     US $ 5,000
   • Quality Standards ( Moisture content, foreign materials,
     broken grains, Insect damage, coloration afro toxins,
     and packaging
   • Safety Standards
   • Phytosanitary requirements
   • Customs entry documents
   • Custom clearance procedures
 Restricts trade, indirectly affects local grain prices
 Encourages informal trade across the borders
Compatibility of National and staple trade polices
• Trade policies hurts the low income households who are
  net grain imports thereby undermining policies to reduce
  poverty and increase food security
• Raising grain prices through market intervention,
  restriction of trade or negotiations for safeguard implies
  transfer of income from rural and urban households to a
  small proportion of well to do large-scale farmers
  undermining the policy of raising incomes and improving
  income distribution
• Interventions in the market could have contributed to price
  stabilization which is consistent with the food security
  policies. Has the prices led to a supply response??
• Staple price distortion policies interferes with domestic and
  regional markets thereby reducing access to markets by
  local producers
            Political Economy Perspectives
• Classic Food Policy Dilemma
• Political ramifications of assisting the large-scale
  politically connected farmers
• Lack of substitutes to staple food also limit the political
  good will to encourage imports as this is interpreted as
  interfering with livelihoods of a majority of voters
• Unwillingness to depend on Regional member countries
  due to political differences past and present; National
  sovereignty issues
• Influences of wider trade ramifications such as overall
  trade shares of country's within the Regional economic
  markets: COMESA accounts for about 37% of total
  Kenyan exports
Measures to raise regional trade in Staples
 Investment in science and Technology
   • Raise productivity for staples
   • Offers alternative high value crops to producers
• Investment in infrastructure
   • Roads and rail systems
   • Telecommunication, Electricity
   • Efficiency of ports and other border points
• Market information to inform on surpluses and
  deficits
• Harmonization of grades and standards
• Simplify and harmonize trade regulations
• Producer and trade organizations

				
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