Kenya gears up to boost agricultural production and exports

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A national drive to increase food production in Kenya is gathering strength, as the government moves to streamline the regulatory environment and roll out major initiatives aimed at supporting farmers, in line with its long-term vision.

As with many African markets, agriculture plays a key part in Kenya’s economy, representing roughly a quarter of GDP. A strong performance from the sector in late 2012 and early 2013 helped to boost economic growth for the first six months of this year, compensating, in part, for a contraction in the hospitality industry and a general slowdown before the March presidential elections.

However, a changing economic landscape, together with challenging weather patterns, has heightened short-term risk for the sector, particularly for tea exports – the third-largest source of foreign currency receipts.

Challenges for key crops

Kenya is one of the world’s largest tea exporters. According to the Tea Board of Kenya, tea accounts for around 11% of agriculture’s contribution to GDP, with exports generating 26% of foreign exchange earnings in 2012.

Tea production increased 22% year-on-year (y-o-y) in the first nine months of 2013. However, a combination of rising global supply, higher costs and inclement weather looks set to squeeze producers’ profits this year. Kenya has also felt the impact of a temporary dip in demand from Egypt, which represented its top export market for tea in 2012.

Prices at the Mombasa tea auction, which handles the majority of Kenyan sales, have declined steadily since July, reaching a seven-year low in mid-November.

Figures from the Kenyan Bureau of Statistics show that prices dropped from $3.28 per kilo in January to $2.38 end-August. While export revenue remained steady at KSh8.2bn ($90m) for the first half of the year, producers expect consistently lower prices to weigh significantly on annual sector performance, according to international media reports.

The recent discovery of a vast underground water aquifer in the desert north of Turkana will help improve access to water resources over the medium to long-term but challenging weather patterns have also caused problems for several of Kenya’s other staple crops. Scant rainfall across the eastern and north-eastern provinces, in particular, has affected areas bordering Ethiopia and Somalia.

The lack of rain, combined with disease, looks set to hit the maize crop especially hard, with production forecasts for 2013 revised down 15% from 43.3m bags to 39.9m. With annual domestic consumption estimated at around 40m bags of maize, the government may well have to increase its import spending to compensate for shortfalls.

Support for the sector

While lower expectations for key crops in 2013 are set to place a strain on the economy in the short-term, a number of initiatives taking shape should help increase activity over time.

The Kenya Agricultural Value Chains Enterprises project, meanwhile, aims to help around half a million small-scale farmers based across eastern and western Kenya to become more competitive in the longer term. Bolstered by KSh3.5bn ($39m) in funding from the US Agency for International Development, the initiative is looking to increase productivity and improve processing, particularly in the maize, dairy products and horticultural segments.

The Kenyan government has also begun streamlining the regulations governing the sector, increase administrative efficiency and facilitate growth.

The new legislation is set to create a single Agriculture, Livestock, Fisheries and Food Authority, which will bring the 24 state entities dealing with the sector’s various segments under one umbrella. The number of ministries involved in the agricultural sector’s operations will also be reduced.

While some of the reforms will take time to produce results, they are expected to be instrumental in correcting a number of the sector’s structural weaknesses. Boosting production will certainly improve Kenya’s food security, while raising agricultural export revenue has a growing role to play in supporting overall economic growth.

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