Analysis of wheat importation and its associated effects on domestic wheat production in Kenya

Abstract

Grains are presently the foremost necessary contributor to human food provided globally. In Africa, wheat economies are often characterized by a growing gap between domestic wheat supply and consumption. This is clearly indicated by the increase in wheat import bills in Africa. According to New trade theory imports are imperfect substitutes for domestic goods and services. As a result, changes in import dynamics are associated with changes in relative prices and income. In Kenya, government policy on wheat has been inadequate by focusing on production rather than being cognizant of the fact that Kenya has a structural deficit and will rely on wheat imports to fulfil its wheat requirements. Therefore, this study seeks to contribute towards a policy formulation framework for food security through analysis of wheat importation in Kenya. To achieve the objective, secondary time-series data from 2000 to 2019 was analyzed using the Auto-Regressive Distribution Lag-Error Correction Model (ARDL-ECM), Generalized Least Squares (GLS) method and Granger causality model. After data transformation, all variables were normally distributed indicated by the Jarque Bera test statistics. Unit root tests show with robustness that all variables tested were stationary either at level or first difference. The results of the bound test show that there is long run cointegration because the F-test statistic (10.596) was greater than the I (1) upper bound (3.990). The results of Granger causality exhibited three types of causality bidirectional, unidirectional, and independent. This reinforced the finding of existence of cointegration in wheat imports. The estimated import demand function captures 98.2% of total wheat imports in Kenya and this can be used to forecast and estimate the quantity of wheat imports in Kenya. In the ARDL-ECM model, the adjustment coefficient of 1.59 indicates how wheat imports are over-adjusted in Kenya. The findings of the study further reveal an inelastic response for relative prices, ending stock of wheat and government tariff on wheat, which have long run effects on wheat importation in Kenya. In the short run relative price was inelastic and the only variable that affects wheat importation in Kenya. To ensure that Kenya can feed its population wheat imports are only necessary for the short term but leads to growing import bills in the long run. Hence, the government should strive to come up with policies that promote competitive wheat production as it will create a multiplier effect on the economy in the long run. For instance, planting varieties that are in high demand in the Kenyan market.