Catalysing agricultural revolution for small scale farmers in Kenya

To deliver on the economic goals set out within Kenya Vision 2030 and the big four agenda, Government must prioritise investment in, and active policy implementation pertaining to, the agricultural sector.

By focusing policy on three key related areas, growth of a high-potential industry can be ensured and with it, the increased prosperity of Kenyans directly and indirectly involved in agribusiness. These three areas of focus revolve around credit, attitudinal change, and value chain development.

The performance of the agricultural sector is a critical determinant in Kenya’s overall economic development and prosperity. In spite of just 10 per cent of the country’s land being deemed to be arable by agricultural standards, the sector contributes approximately 35 per cent of the country’s GDP, while employing nearly two fifths of the labour force.

As a result of myriad factors, most pertinently the lack of readily available credit and the low quality of infrastructure in rural locations, productivity persists to chronically fall short of its potential.

This low productivity and heavy reliance upon the consistency of an increasingly inconsistent climate leads to declining agricultural performance, heightened incidence of localised famine in times of drought, and a reduction of forward-thinking long term reinvestment, thereby creating a self-perpetuating cycle of underperformance.

Clearly, left to its own devices, the industry will struggle to break this cycle. However, with careful consideration of agricultural policy and smart allocation of tax revenues, Government has the power to drive change and to be the force that lifts the industry into a newly productive age.

Of paramount importance to the step-change in the industry is the extension to farmers of affordable credit.

History suggests that it is the challenge of recovery of such credit which has acted as the deterrent to government and private lenders when faced with lending to small-holders and other micro-business owners.

Governments must therefore incentivise this kind of lending, perhaps by offering favourable tax regimes to financial institutions found to be lending in “the right direction” at reasonable rates rather than “the easy direction”, or by investing in research and innovation aimed at reducing transaction costs and the risk of borrower default.

Such approaches need to be married with heightened regulation of the lending market to ensure that consumers are not exploited by an influx of firms using digital platforms to extend credit at unaffordable and predatory rates.

The second key is to ensure that this credit is used in a forward-thinking manner. By promoting attitudinal change by way of mentoring through farmer’s associations, the industry can quickly move closer to widespread commercial, and profitable, farming.

Investment into irrigation farming in rural areas must be promoted as a necessity, as opposed to a commercial luxury, whether this be the modernisation of outdated systems from decades gone by or the implementation of altogether new systems.

Using public funding to educate farmers on the value of modern methods and technology, in conjunction with increasing the availability of the necessary credit at affordable rates, will foster long-term food security and prosperity in even the most unpredictable of climates.

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Furthermore, by encouraging small-holders to operate as part of a wider co-operative and thereby increasing their horizontal integration, each individual small-holder can reap the benefit of a larger foothold in the supply chain and, consequently, less exploitative pricing at the hands of the “middle-men” who presently act only as enablers in the chain from producer to consumer.

Operating in this manner, for the common cause of fair pricing, the co-operative is truly more valuable than the sum of its parts.

The final piece of the puzzle is for Government to incubate and develop the value chain. Access to national, regional, and international markets at fair, profitable prices is critical in the battle to promote the entrepreneurial spirit and further drive the shift in focus towards more lucrative commercial farming.

By encouraging contract farming whereby prices are agreed in advance for a certain quality of product, this will provide small-holders with the incentive, security, and vision needed to cyclically reinvest in their businesses.

Accelerating the commercial maturity of “home-grown” value-adding enterprises operating in the realm of agro-processing will go some way to developing the value chain, while providing countless additional employment opportunities otherwise lost as a consequence of the habitual preference to export unprocessed agricultural produce.

At the cost of tax breaks for such enterprises today, the fruits, in the shape of increased tax revenues, can be picked tomorrow.

By addressing these three areas, Government can ensure that agriculture cements its place as a pivotal and high-growth pillar of the Kenyan economy for years to come.

ALEX POPPLEWELL, senior tax consultant, EY