Trade and Agricultural Competitiveness for Growth, Food Security and Poverty Reduction: A Case of Wheat and Rice Production in Kenya

Abstract

Abstract Currently, Kenyan farmers produce a minority share of the national wheat and rice consumption needs. As shown by the dramatic increase in the import bill between 2003 and 2008, reliance on the international market has implications for food security, especially given a volatile world market. This study examines the competitiveness of the wheat and rice sub-sectors in Kenya. Overviews of wheat and rice value chains are presented, followed by estimates of costs and profit margins along each node of the value chain based on interviews with farmers, traders, transporters and millers. Using farm data, a stochastic frontier model is applied and wheat producers are classified according to technical efficiency scores. At a price of US$ 220 per ton and with an import duty of 10%, only efficient and average wheat producers are competitive. Small-scale farmers (<20 acres) demonstrate high levels of technical efficiencies. Production inefficiencies arise from high input costs (fertilizers, chemicals and seeds), high costs of machinery operation, high maintenance costs and low yields. Inefficiencies encountered by transporters include high maintenance costs, high fuel prices, poor infrastructure (especially feeder roads connecting production areas and the markets) and road blocks. Wheat traders also face multiple layers of taxation imposed by local authorities, especially when grain crossed several municipalities. Rice farmers were classified using the Mwea Irrigation Agricultural Development (MIAD) input use guide. At a price of US$ 440 per ton of imported milled rice and using a 35% import duty, only average and high input users remain competitive. If imported rice were duty free, only high input users would be competitive. At an import duty rate of 75%, all three farmer categories would compete favorably. Inefficiencies along the rice value chain include high labor costs, high rates of rural-urban migration, and water borne disease. Costs of fertilizer, chemicals and seeds are high, while yields were low. Changing weather patterns have reduced the amount of water flowing to the schemes. Among transporters, traders and millers, major constraints were high cost of electricity and labor, fuel and maintenance costs, and the poor state of the roads. We propose policies to enhance Kenya’s competitiveness in wheat and rice production. With respect to wheat, these include duty waiver on agricultural machineries and spare parts, v harmonization of taxation, bulk purchase and importation of inputs, and streamlining of procedures for importing and releasing fuel from Mombasa, as well as continued investments in wheat research and development, and in promoting the use of more recently released modern varieties. For rice, recommendations include eradication of water borne diseases in the schemes to ensure labor availability, adoption of simple technology from Asia that can be used in paddy rice production, rehabilitation of the current rice schemes to ensure efficiency in water distribution, and investments in research and development, cheaper sources of energy and irrigation, as well as processing, branding and marketing activities in the rural rice-growing areas.

Key words: competitiveness, value chain, inefficiency, wheat, rice