Agriculture and Rural Growth in Kenya

Abstract

Agricultural growth is important for alleviation of poverty and stimulation of economic growth and development. Sustainable poverty reduction can only be possible through economic growth and development strategies. The industrial development therefore is unlikely to be sustainable unless there is sufficient domestic demand, which essentially calls for raising incomes of the rural people. Despite this importance, support for agriculture through either donor aid or the domestic resources has fallen in absolute and relative terms. The total government expenditure on agriculture dropped from about 11.2 percent in the 80s to about 4.7 percent in 2001. The result has been a slower growth in staples and traditional exports and an increase in poverty ultimately thwarting the efforts to reduce poverty and hunger. To achieve growth with equity and therefore reduce poverty, there is need to place priorities on the policies that enhance incomes of rural households through specific development strategies on crops, livestock, fisheries, irrigation and farmers institutions. As a result of this and other factors, Kenya’s economy has steadily declined over the past three decades since independence. Despite the recession and the oil commodity shocks during the period 1962-74, the economic growth rate averaged 6.6 percent which was then above the average for low-income countries. This initial growth could however not be sustained. Consequently, the rate of economic growth declined steadily in subsequent years to reach a low rate of 1.9 percent in the period 1990 to 2001. Due to its linkages to the whole economy, the performance of agricultural sector mirrored that of the national economy with higher rates of growth early after independence but declining to negative 2.4 in 2000. Similarly the growth of other sectors of the economy like manufacturing, building and industry have been poor except the services sector whose contribution to the Gross Domestic Product (GDP) has increased. Although the contribution of agriculture to export earnings remains high at about 60 percent of the total exports, the proportion of coffee has declined due to falling production and productivity. However, tea and horticulture have continued to perform well and therefore increased their share of agricultural export earnings mainly due to the private sector participation in horticulture and gradual, well-planned liberalization of the tea industry. The tea industry has also enjoyed increased production and favourable prices in the world market. Tea is therefore currently the leading export crop in foreign exchange earning. The small-scale farmers continue to be the most important producers of most agricultural commodities. In 1990 for example, it was estimated that there were about 3.5 million smallholdings with a national average farm size of about 2.5 hectares. Smallholder’s role in Kenya’s agriculture has increased to the extent that they account for approximately 60 percent of the marketed production. In both the cash and food crop production the smallscale production systems pre-dominate. According to the information available in economic surveys 2000,the small-scale farmers control 75 percent of the total area of coffee and tea. Their production however is lower than that of the estates due to differences in the levels of inputs used. The large-scale farmers use higher levels of fertilizers than the small-scale producers. Multinational companies that account for a large proportion of production and market dominate the tea and horticulture industry. Most of the markets for agricultural exports e.g. tea and horticulture are highly concentrated and limited to European countries. Currently United Kingdom, Pakistan 5 and Egypt accounts for 83 percent of Kenya’s export market. Following the poor performance of cooperatives, most small-scale producers are unable to organize production, processing and marketing of their crops. They also cannot access market information. The success of the small-scale production in agriculture therefore relies on organization and efficient management of cooperatives. Small-scale horticultural export production are currently facing major regulatory challenges e.g. imposition and monitoring of the recent EU maximum residue level (MRL) legislation which sets residues at the limit of detection for certain pesticides used in vegetable production. They are therefore likely to exit the vegetable and fruit production if they are not supported to comply with these regulations and others. The small-scale production is also faced by a host of other constraints including limited access to credit, lack of inventory credit, high production costs, poor quality seed and fertilizers all of which exacerbate the cost of production. In addition there is lack of institutional infrastructure inform of efficient producer organizations. The poor performance of existing agricultural institutions stimulated the debate on market liberalisation since most of the marketing functions in agriculture were dominated by government parastatals. Decreasing or stagnating production and yields of major agricultural commodities reflected the mismanagement of these bodies. Subsequently, in the early 90s, the government implemented the liberalization and privatisation policies. This action also entailed divestiture of the government from the state corporations that hitherto served as the main and the only marketing outlets for agricultural commodities. The reform process also involved privatisation of agricultural market institutions, removal of price controls and the removal of grain movement barriers, privatisation of government services such as the provision of Artificial Insemination and cattle dipping, deregulation of domestic and external trade, decontrol of interest rates, deregulation of exchange rates etc.The common objectives of these reforms were to enhance productivity, raise the level of production of basic food commodities to their potential and to improve and enhance high economic growth. The reform has however not resulted in the desired economic recovery of agricultural sector and the economy due factors such as unfavourable weather, declining world prices of agricultural commodities, increasing prices of agricultural inputs, creation of institutional vacuum following the rapid withdrawal of government services, misplaced policies, poor sequencing and lack of synchronization with other policies, hurriedly implemented policies, lack of ownership by stakeholders and the reluctance to undertake reform aggravated by frequent reversals, lack of adequate capacity to implement the reform, complex institutional changes expected and the poor response by the private sector due to the unattractiveness of agriculture. Despite the liberalisation, some of the parastatals such as the Pyrethrum Board of Kenya, the National Cereals and Produce Board and others have continued to operate in total disregard of the liberalised market environment. Poor management and the liberalization of commodity markets weakened producer organizations that supported farmers by providing credit. The High interest rates by commercial banks and the high risks of the agricultural sector inhibited banks from lending to agriculture. Farmers also do not access other services such as extension and market information. Research is poorly funded with most of the allocation paying staff salaries. Support of research by producers of cash crops like coffee and tea has also reduced due to the poor performance of these commodities. Inadequate and poor supervision and regulation of factor markets in the country has resulted in deterioration of 6 the quality of inputs adversely affecting agricultural productivity. As a result of the poor competition in seed development, multiplication and distribution, there is widespread seed adulteration at the distribution level some of which involve sale of local maize seed purporting it to be hybrid. The government has developed the Poverty Reduction Strategy Paper (PRSP) and the Kenya Rural Development Strategy (KRDS) in response to the increasing poverty and declining productivity. Stakeholders were widely consulted in developing these strategies. The main thrust of the PRSP and KRDS is to decentralize the decision-making and the development of management process at the district levels to improve effectiveness of service provision. The main focus is on increasing competitiveness of local production by reducing the costs of production and increasing access of productive resources to the poor. The implementation of the PRSP so far has not been satisfactory. For example in the last two years, the government budgetary allocations have not reflected the PRSP priorities. There is no increased funding in sectors such as agricultural and rural development that were ranked as top priorities in PRSP consultation process. Similarly, the government has yet to implement key political and economic governance measures including fighting corruption. Monitoring and evaluation of the PRSP process also has not been put in place. Although KRDS is a comprehensive document on policy for rural development and goes beyond agricultural productivity, it lacks focus, as it does not priorities the interventions necessary to revitalize the rural economy. It does not provide a priority of the items to be undertaken and their budgetary implication. The Strategy also proposes the formation of a Rural Development Trust Fund to oversee the implementation of the strategy.. The success of KRDS is linked to other initiatives like devolution of power; which is a constitution review issue, and the adoption of the report of the land commission. The key factors that encourage or hamper the growth in the economy and the rural sector includes access to productive resources by the poor, supportive policies by the government that facilitate the private sector investments, pubic investment and maintenance of infrastructure. Others are the maintenance of an export led and food security strategy, participation of farmers and other stakeholders to policy formulation and access to credit and other rural finance services, unfavourable taxation systems and high costs of production, HIV/AID pandemic, conflicts and vulnerability to drought. Recommendations on the way forward for the government and development partners include: - building social capability for the local community to take up responsibilities for development after devolution of power, support producers lobby groups, support to improve market access and develop the agricultural exports further, improving negotiation capacity in international treaties, increase the Ministry of Agriculture’s capacity in policy analysis and legal personnel, support and accelerate legal reform, strengthen the management of coffee cooperatives by supporting and financing new management models, support of awareness campaigns to reduce HIV/aid infection and making available the retroviral drugs to those already affected. Others include:- support of an agricultural credit system that is operated in an MSE model, support development and multiplication of seeds and other planting materials because they are key to reducing costs of production, support technology development through encouraging the private sector and the dissemination of technical information particularly by encouraging participation of other providers.