Why Kenya’s cost of agricultural production is so high

Mr Gerald Masila, Executive Director, East African Grain Council
By Bernadette Murgor

Maize, whether as grain or flour, is the staple food in most Kenyan homes. Without it, there is literally no food! Yet production, accessibility and management of this much-loved staple, has over the years faced many challenges.

For many years, maize farmers have encountered difficulties, most of them not of their own making, as they have become like pawns in a never-ending chess game.

From the unending political intrigues, corruption, competition from imports, a high cost of production, lack of or use of very expensive fertiliser, low maize prices, and the Fall armyworm invasion, they have endured it all with far-reaching consequences for the consumer.

In mid last year (2022), maize grain consumers witnessed the highest costs of maize and flour ever witnessed in Kenya. While the grains have lately been retailing at Ksh3,000, this year’s prices rose to about Ksh7,000 for a 90kg bag. The maize flour price usually retails at between Ksh90 and Ksh110, but doubled to about Ksh220. This was beyond the reach of many Kenyans.

Though the cost of the grains rose to never-experienced heights, this is not entirely new. Over the years, many have wondered why the highs and lows in the sector, which has led to lots of problems for farmers and dents in the pockets of the common Kenyan. This has also resulted in unga (maize flour) becoming a political tool, especially during elections.

Often, farmers find themselves in an uncomfortable situation. Whenever there is a bumper harvest, they compete with maize imports for markets and end up selling their produce at lower prices or miss the market altogether. When the yields are low, due to a myriad of reasons, the opposite is true, with far-reaching consequences for the consumer as well.

According to available statistics, Kenya runs a structural deficit of maize grains every year, of about 30 per cent to 40 per cent, even in the best of years when there are good rains, and a very good crop. For the last 30 plus years, we have never been self-sufficient in the production of the grains.

Yet, according to experts, Kenya can produce maize sustainably. “There is data and proof that we can produce more if we have the right policies and incentives,” says Mr Gerald Masila, the East African Grain Council executive director. “Kenya has enough land on which it can produce more than we need for food, for industrial operations such as ethanol and other things, and for export,” he adds.

“We also have many water masses – underground water, rivers, and dams that we can use for irrigation,” he says.

The question, therefore, that arise, therefore, is: Why do we have these constant fluctuations? Also, why is this sector so unbalanced and full of uncertainty? Why do farmers suffer year-in-year out and why must the country have to rely on imports or be affected by situations such as the Russian-Ukraine war? Why is the cost of production so high?

We sought answers to these questions from Mr Masila in exclusive interview with him.

According to Mr Masila, while demand for maize has increased over the years, particularly with the growing population, the acreage under the crop has been decreasing. The Kenyan population is about 50 million. A few years back, it was 10 million people less and we are now heading to 55 to 60 million.

He cites several factors for the decrease in maize production and other challenges:

Land subdivision and change of user

Succession: Significant land subdivision has been taking place due to succession, as parents pass on land to their children, especially in the highly productive areas for maize that are mainly in the Central and North Rift, including Trans Nzoia. This has led to having small pieces of land, reducing the acreage under maize production as some of the owners sell the land, don’t use it, or use it for other purposes.

Change of user: About 40 years ago, on average, a maize plantation would be several hundred acres. That has changed. There’s been a lot of loss of land in the change of user from agricultural to settlement and industrial use. As a result, we have smaller and smaller parcels of land under the crop. Real estate has increased.

Availability and access to land: Leasing land in Kenya for agricultural production in places such as Narok or Nakuru, will on average, require you to part with Ksh15,000 to Ksh20,000 per acre. It means that you’re starting on the negative compared to Tanzania or Uganda, where land costs about Ksh2,000-Ksh3,000. If you hire land at Ksh20,000 and another gets it for only Ksh2,000, your products will definitely be more expensive and you become uncompetitive.

Land sizes and economies of scale: Most of the land in Kenya under agriculture comprises small plots that those in other countries in the region. In Tanzania, when you have 200 acres, you are a small-scale farmer. In Kenya, 100 acres is considered a large-scale farm. The bigger the land, the higher the economies of scale.

The percentage of good arable land available in Kenya is smaller than in Uganda, which is a smaller country. Most of the land in Kenya is arid-and semi-arid and suited mostly for livestock.

Reduced mechanisation

With the decreasing land sizes so has the level of mechanisation and the economies of scale that come, leading to a reduction in productivity and total overall efficiency.

 

Cost of production

Inputs: The cost structure in Kenya is the highest in the region. This is mostly because of duties and other taxes levied on the inputs and services. Costs of inputs such as agrochemicals, seeds and fertilisers are higher and thus affect the cost of production. Prices in Kenya are higher that in Uganda and Tanzania for inputs such as seeds. In Kenya, an agro-dealer will charge VAT on inputs but in Uganda and Tanzania, they do not.

A farmer is taxed for a seed, which she or he does not know whether it will germinate or not.

Energy costs: The cost of diesel in Kenya is higher than elsewhere in the region. As a result, farmers living near the border to go to fuel tractors and come back to plough.

High-labour costs: In Kenya, labour costs are higher, raising the prices of products.

Land management practices

Monoculture: Productivity has also been decreasing due to monoculture, where some land has been under maize continuously for 60 years. This has depleted soil fertility, microorganisms and the ability of the soil and plant to uptake fertiliser.

Acidic soils

Our soils have also been growing acidic over the years. A soil survey undertaken a few years ago and whose report was launched by President Uhuru Kenyatta showed that our soils have become extremely acidic over the years. The continued application of CAN and NPK and other fertilisers without putting lime, has only worsened the situation.

Market volatility

Market distortion: Another problem is market volatility. Sometimes the government buys maize for the strategic reserve at its own price, distorting the market. And when they put the maize back into the market, it is at below market rate and sometimes below the cost of production. These policy actions or interventions are unsustainable and cost the taxpayer much more.

Lack and glut of maize 

Sometimes, the market seems to be flooded with maize, which leads to lower prices and lack of market. At other times, there are hardly any grains such as in July this year (2022) when the price of a 90kg sack of maize rose to about Ksh7,000.

“It is a perception issue,” says Mr Masila. These are short-term challenges that come because of everybody releasing grain into the market at the same time. If you project the consumption over the entire period from one harvest to the other in a 12-month period, what is harvested in Kenya looks high initially and it is high, but before you get to the next harvest, that quantity is depleted.”

When everybody has harvested, there is a huge surplus. Most farmers don’t have the ability to store their grains for long and are under pressure to pay debts and needs to meet, and, therefore, sell their crop.

It would appear as if there is no market, but it’s just that although supplies have suddenly increased after harvest, the consumption curve behaves differently. You will not eat more just because you harvested yesterday. The stomach is the same.

In Kenya, the main crop comes from high-agricultural production areas that harvest only once. It takes more than six or seven months. Supplementary harvests come from the other parts of the country, particularly the eastern and  coastal regions. In those areas, they grow the shorter and quicker-maturing crops, which take three to four months. That not only bridges the deficit, but also improves on the supply curve.

When the deficits hit, we turn to Uganda, Tanzania, and other neighbouring countries.

That cross- border trade allows an injection of supplies to even out the supply curve and ensure that grains are available for consumers.

All these factors have made the Kenyan farmer uncompetitive, which has continued to increase and create a disadvantage in the market.

So, what can be done about this? How can we turn around the challenges in the sector? Mr Masila is sure about what can turn the tables as follows:

Taxation

To reduce the high costs of production, the government should make agriculture efficient and remove taxes that are disincentives. If we want more food, make seeds available. Why levy tax on seeds and implements increasing production costs?

We should be more efficient in managing taxation, the tax base, and taxes.

We waste a lot of resources and tax revenues through misuse, theft, and corruption. We should stop the wastage.

The government should invest in agriculture, as it is a backbone industry.

We need a tax regime that is not punitive and burdensome. We need more incentives to enable the sector to produce effectively and at the least cost possible.

“You want to milk a cow, but you don’t want to feed it and get it well-nourished, so how will you get the milk,” wonders Mr Masila.

If you look at the agricultural sector as a cow or a goose that is laying golden eggs, you don’t strangle it, you take care of it. The sector needs support.

This will create a multiplier effect on the upstream value chain that will be boost value addition. When you make it difficult from the bottom, there will be no value addition.

Land policies

Subdivision and change of user: We must have our policies right. Though land policy issues are sensitive, they need to be streamlined. Agricultural land must be protected from subdivision and conversion to other uses. The United Kingdom, for example, has not allowed change of user of agricultural land. In fact, the average land size in the last 30 years has been doubled. Farmlands that were maybe 1,000 acres are now bigger and getting bigger.

Land consolidation: Other countries have done a lot of land consolidation. The average farm size in Rwanda and the UK is growing. This is also happening in other parts of Europe. Some governments give loans to farmers to consolidate land from their neighbours who are not interested in farming and end up with thousands of acres. This allows the farmer to use bigger and better equipment, reducing production per unit costs and boosting the ability of the farm to provide consumers with more affordable food of high quality.

Land settlement policies: The EAGC has recommended proper settlement policies in rural areas, so that people are not scattered all over. If you have people settled in designated places, it will be easier to provide them with amenities such as electricity, water, education, and security. One electricity pole can serve up to 100 homes.  In the West, you will find large farming areas with the people living in clustered neighbourhoods that have all the amenities.

We can educate our people about these are things. If we don’t address these issues, the pain that we will suffer because of the high costs, lack of food and hunger, will force us to take actions that we can do now.

Markets

Storage and warehouse receipting

Instead of rushing to the market, farmers can take advantage of storage or do warehousing receipting. The EAGC  encourages farmers to form groups to aggregate their volumes and access professional storage through the warehouse receipting system.

They receive a receipt for the grain stored and can use it to get short-term loans. That means that by relying on the stored grain, they can meet their immediate financial needs by borrowing short-term, which they repay after selling the maize.

At the time of selling, they present their receipts to a trade platform such as G-Soko, where the maize is traded. Deliveries and settlement and clearing is done thereafter.

This allows for the price curve to be smooth. It takes away the glut through storage and averts a crash in prices, thus increasing the overall value of the grain.

Sustainable production: Kenya can produce maize sustainably. We have a lot of water masses, underground water, rivers, and dams, but this water has not been adequately provided for irrigation. There is a lot of irrigation potential. We lose a lot of water when it rains, which needs to be harnessed. The government is working on harnessing this water using dams. They include Thwake Dam, which is under construction on the Athi River and is nearing completion. This dam will provide plenty of water to be channelled into production.

The government has also accepted to provide large tracts of public land in under various government agencies through partnerships to be put to commercial production.

Land use

Crop suitability

Only grow and promote crops and other produce where they are agro-ecologically suited. Tea, for instance, requires a certain kind of altitude, temperatures, and precipitation. Planting tea in areas where the conditions do not exist, is disadvantageous.

Maize requires a lot of water and other conditions. In drier areas, one can grow sorghum, millet, green grams and or other crops that are shorter maturing and require less rainfall.

The government can partner with farmers by creating policies and incentives that encourage them to make those decisions.

The decisions on what to plant should be scientific, agroecological, and economic.

Agricultural food production is a scientific process that requires knowledge. It is a business, not just a pastime. With the right skills, knowledge, and investment and given the incentives, the sector can prosper.

 

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