Resilient agriculture practices will deliver sustainable growth
Modern production practices include the use of hybrid seeds, concentrated fertiliser, pesticides, machinery, and irrigation. FILE PHOTO | JOSEPH KANYI | NMG
Agriculture is the mainstay of Kenya’s economy and accounts for a third of the country’s GDP and 65 percent of Kenya’s total export earnings.
The sector employs more than 40 percent of the total population and more than 70 percent of Kenya's rural workforce and provides about 18 percent of total formal employment.
Agriculture will be central to the structural transformation of Kenya’s economy, contributing to economic growth, exports, job creation, and increased land and labour productivity.
The country’s reliance on agriculture and dependence on imports underscores the need for sustainable and resilient practices to increase agricultural productivity for food security and economic growth.
The sector in Kenya is predominantly small-scale (between 0.2 and 3 ha). The majority of Kenya’s maize (70pc), coffee (65pc), tea (50pc), milk (80pc), fish (85pc), and beef (70pc) products are produced by small-scale farmers.
These production systems use limited improved inputs and modern production practices, such as hybrid seeds, concentrated feeds and fertiliser, pesticides, machinery, and irrigation.
Agricultural growth and productivity depend on food production systems that are resilient against production failure due to shocks and climate variability.
This requires a strong emphasis on risk reduction measures, technologies and practices, as well as on sustainable use and management of vital resources such as land, water, soil nutrients and genetic resources.
It will only be possible if critical constraints such as weak market and value chain linkages, weak institutional capacities, low input quality and availability, limited access to finance, and insufficient skills and knowledge are addressed.
Although agriculture remains the mainstay of Kenya’s economy, financial institutions consider it risky and consequently, its share of total loans has remained low (gross loans accounted for only 3.6 percent of total lending in 2020).
The use of credit facilities and investment in the sector would translate to higher resource employment and capacity use, increased output, and income for farmers.
However, the growth and deepening of agriculture finance markets in Kenya are constrained by a variety of factors such as high transaction costs to reach remote rural populations, limited access to funds and technical capacity to assess agriculture risk, absence of adequate instruments and low levels of demand due to fragmentation and incipient development of value chains.
A significant factor inhibiting financial institutions from serving the sector has to do with the systemic risk characterising agricultural activities.
In recognition of the well-understood challenges and risks associated with agricultural finance, the need for a system-level approach to managing those risks can make a significant difference.
There is merit, in our view, in the Government setting up a dedicated well-integrated “De-risking and Financing Facility".
Such a facility would aim to guide and align services for agribusiness; identify challenges preventing agricultural value chains from attaining their full potential; deploy modern agricultural risk management instruments that ensure farming is profitable and income predictable and facilitate technical assistance and incentives to relevant actors.
Raichura is CEO, Zamara; Saha is Lead, Climate Risk Insurance, K.M. Dastur, UK.
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