How cheap food imports eat into Kenya’s agri-sector

It is barely 8am but Wakulima market in downtown Nairobi is already buzzing with activity as customers haggle for the best prices for the tonnes of fresh produce on sale.

Not even the morning chill or muddy state of the walkway into the market seems to kill the excitement. Porters are busy at work filling the market stalls with fresh produce brought in by trucks from various areas across the country and beyond.

Inside one of the stalls is Janet, a longtime trader here. On the counter are small piles of fresh ginger roots she sources from Uganda for sale at Sh180 per kilogramme. She buys the popular spice at Sh1,600 for a 50 kiogramme bag, translating to Sh32 per kilo. It is a profitable venture.

Her stock is regularly replenished by a Tanzania supplier, who has networks in Uganda and whenever shortages struck, turns to Burundi. Janet has never bought or sold Kenya-farmed ginger in her two years in the trade.

Naomi, who runs an onion stall adjacent to Janet’s, gets her produce from Tanzania. The variety of produce from Tanzania is popular for its longer shelf life and so fetches a better price compared to onions grown in Kenya. Naomi sells the onions from Tanzania at Sh80 a kilo, compared to Sh70 she would charge for the Kenyan variety.

At the far end of the market is Mama Wambui, who specialises in garlic, and whose commodity leaves the store by the cartons. Most of the garlic she sells is from China and it averages Sh200 per kilogramme, compared to the Kenyan-grown variety that sells at Sh250 per kilo when supply is high. And while individuals prefer locally-produced garlic, its supply is scarce, leaving the Chinese variety to rule the market.

The impact of the cheap farm-produce imports is felt everywhere and it is now, albeit slowly, driving the demise of the Kenyan agriculture sector, one of the priorities on President Uhuru Kenyatta’s Big Four agenda.

Latest data from the Kenya National Bureau of Statistics (KNBS) shows that the Kenyan agro-processing sector registered a 4.18 percent decline in the 12 months before October 2018. With the country’s increasing food needs, this essentially means that more imports are consumed locally, at the expense of local production.

The KNBS report comes in the wake of declining Kenyan exports to the East Africa markets. The 2018 Economic Survey shows Kenya’s value of trade with members fell to $1.14 billion in 2017 from 1.26 billion in 2015.

Data from the State department of fisheries indicate Kenya imported 22,000 tonnes of fish mainly from China, worth Sh1.7 billion against Sh1.5 billion the previous year; stepping up competition with the locally produced ones in a move that is almost edging out Kenyan traders.

Earlier in the month, the Directorate of Horticulture said Kenya was now importing half of the total garlic demand from China. In a year, the country produces about 2,000 tonnes, which is not enough to meet the annual demand.

For farmers, these bleak statistics are worrisome. More than 80 percent of Kenyans living in the rural areas are engaged in agricultural activities, with agriculture contributing about 34.6 percent to the country’s GDP, according to the 2018 Economic survey.

The domination by foreign produce is replicated across the market. Supplies from Tanzania and China have found their way to other markets around the country too. In the vast Kagio market, located in lush Kirinyaga county, a two-hour drive from Nairobi, the onions and garlic displayed by traders are mostly imported.

The situation is no different for processed goods, with supermarket shelves especially in Nairobi mainly occupied by cheaper foreign products, including peanut butter, sweet corn and tomato sauce from the United Arabs Emirates, a desert. A variety of fruits like grapes and apples on the shelves are sourced from various markets, including Lebanon, South Africa and Israel, while exotic ones like the kiwi fruit come from Italy.

The United Nations Food and Agriculture Organisation (FAO) estimates that agriculture’s direct contribution to Kenya’s GDP is about 26 percent, and another 27 percent indirect contribution through linkages with other sectors.

The green economy contributes about 65 percent to Kenya’s total export earnings and employs about 40 percent of the population.

The declining output and growing import confirm the neglect the sector is suffering owing to, among other reasons, punitive tax measures. The re-introduction of the 16 percent VAT on fertiliser is one of the tax-based limitations making agricultural production in Kenya an expensive affair.

A consequence of such barriers to production is that, for example, 250ml packet of coconut milk by Kenya’s largest coconut processor, Kentaste, costs Sh192 in supermarkets, where it is competing against a 400ml of Singapore’s Vega brand, which retails at Sh179. These disadvantages in pricing between Kenyan and imported products put local producers at a greater disadvantage even when their goods are superior.

“The countries where these imports are sourced have cheap labour and endless supplies of coconut-—they produce on large scales, and can sustain the low pricing for refined goods,” said Sakina Saif, the chief marketing officer for Kentaste Limited.

And while it is is easy for other countries to get their farm produce into Kenyan markets, stringent export regulations bar Kenyan farmers from serving cross-border markets. To sell Kenyan products in Tanzania, for instance, one is required to label items as exports and in Kiswahili, in addition to a $250 business visa requirement for Kenyan traders entering the country.

Companies such as Kentaste are thus forced to team up with distributors in Tanzania, who then handle the branding and supply processes in the country. And while this ensures that the Kenyan product is in Tanzania’s supermarkets, the multi-player involvement ends up squeezing down the profits for the Kenyan company.

“It is difficult to get goods across the border as we need to get documentation for every single delivery that we make. The local distributors we work with handle everything, including shipping from their side, which is essentially takes off the headache for us,” Ms Saif said.

At Fresh Produce Exporters Association of Kenya, Chief Executive Officer Hosea Machuki says Kenya cannot replicate the hostility from other markets, as it is a signatory of the World Trade Organisation (WTO) rules of trade, which require countries to open their markets to foreign players as per existing bilateral trade protocols.

“As a country, we also trade within the Comesa treaty and now the African Continental Free Trade Agreement. This means that we must allow all goods to enter Kenya unless they fall short of the required standards as set by Kenya. Any prohibitions must be communicated to the exporting countries,” Mr Machuki said.

Tanzania quit the Common Markets for East and Southern Africa (Comesa) in 2000 after members laid out a plan to abolish tariffs and create a regional free trade area. The government argued that the move would hurt its industrial development. Yet some countries in the region such as Uganda, Burundi, Rwanda and the DRC, are either members of the East African Community or members of the Comesa bloc.

“If our local produce is expensive for one reason or another, consumers will buy the cheaper option. It is, therefore, up to the Government to ensure it provides all support necessary for farmers to produce affordable farm products,” Mr Machuki said.

Dr Tim Njagi, a Development Economist and Research Fellow at Tegemeo Institute of Agricultural Policy and Development,Egerton University, says government must support and protect local farmers and processors through incentives that lower the costs of production. He says the hefty costs associated with leasing land, inputs, electricity acquisition and farm labour are the sector’s main deterring factors.

“We have a huge demand for farm produce, but we have few local suppliers,” Dr Njagi said. “The government should seek ways in which it can incentivise the private sector. Most of the crops we produce fall far below the local demand. Increase in production means lower prices.”

“There is much more we can do to improve the situation, including ensuring that the farmers have right and quality inputs and enough extension workers,” he added.

Latest statistics corroborate Dr Njagi’s assertion that there is a bulging demand for farm produce in Kenya. Last year demand for wheat stood at two billion tonnes, while the country produced just 165,000 tonnes. Demand for rice stood at 706,000 tonnes against a local production of 81,000 tonnes.

Such uninspiring levels of production have been linked to a lack of professional support services for farmers. The 2018 Economic Survey shows that the number of persons pursuing agri-related degrees has grown, while those pursuing diploma and certificate courses have declined since 2013. Cumulatively, there were only 561 diploma and certificate graduates last year, down from 2,405 in 2013.

“Our extension systems are dying off, and this means that farmers don’t have enough people on the ground to support them, Njagi said. “The young people do not see farming as a lucrative industry. We need to train people to offer these services even on a private basis. As it is, farmers are currently relying on the limited extension services from civil society and NGOs.”

Njagi also recommends specialisation where farmers only concentrate on specific produce instead of getting caught up in farming trends.

Currently, the country is chasing a macadamia and avocado wave, with farmers abandoning other crops on the promise of better earnings from the export market. “The sector needs order because right now almost everyone is trying to do everything,” Mr Njagi said. “Once we specialise, this means it is easy to arrest shortages and gluts, while managing post-harvest waste because the Government will have reliable data to inform decisions.”

But even with specialisation, farmers say governments need to train the markets to favour local production. Some, like Kirinyaga’s Fleciah Kinyua, have left productive fields owing to a lack of sustainable markets for their produce.

In 2014, Mrs Kinyua was honoured as the country’s most successful female small-scale farmer at the Elgon Kenya National Farmers Awards. She currently focuses on banana cultivation in the evergreen central Kenya region after abandoning poultry and scaling down on dairy farming. Those specialisations, she says, were desirable in the past, but their profits have dwindled.

“The government is now buying milk at Sh26per litre and farmers are stuck with their eggs as suppliers only want to pay Sh220 per crate,” Kinyua said. “It is hard to understand why the government would allow foreign products into the market, when there is an abundance of supply locally.”

Mrs Kinyua, a former civil servant , also laments the increased cost of inputs, which, she says, could potentially drive many farmers out of business.

“Farming has become expensive, the seedlings are expensive, the fertiliser comes in late,” she said.

“Four years ago things were better. The government needs to seriously look into the challenges the farmers are experiencing. If not, we are all going to be forced into subsistence farming.”

Lack of financing from the banking sector also makes it hard for farmers to access funding needed to sustain their enterprises, Kinyua and Njagi said.

Agriculture only accounted for four percent (Sh79 billion) of the total credit disbursed as at December last year according to data from Treasury. It ranked seventh, after sectors like real estate, transport, construction, trade and manufacturing in credit issued.

Players in the financial sector say agriculture remains unattractive to them, owing to the uncertainties linked to the industry. “It is difficult to, for instance, to finance farmers whose production is weather-based. The risks involved are too high, and that is why we sometimes appear over-selective,” said Arthur Muchangi, Co-operative Bank’s Director for Retail and Business Banking.

The challenges notwithstanding, Kenyan farmers hope better days lie ahead. Joseph Mutuku, a 60-year-old fruit and dairy farmer from Makueni County, remains optimistic that the county government will play an integral role in promoting their agricultural endeavours.

Mr Mutuku, who is slowly switching from mangoes and oranges to dairy farming, blamed the change in specialisation on poor returns caused by the exit of an export agency through which he sold his produce. He has so far, uprooted 200 mango trees of the 600 to grow fodder for his six dairy cows that produce an average of 80 litres per day—which he sees as a more profitable business.

And as the chairman of the local Kanaani Dairy and Poultry Group, he hopes that a new milk-processing plant opened in February in Makueni County’s Kathonzweni town will increase farmers’ earnings. “This means that no milk will go to waste ever again and that we will earn more because of the value addition,” he said.

“As farmers, we are happy to have a ready buyer.”