Maize Importation Effects on Kenyan Producers and Consumers’ Economic Welfare

Abstract

Whereas maize is a staple food in Kenya, its production has not kept pace with the local demand in the recent past. The ultimate effect of this is reflected in the growing reliance on maize imports. However, much remains unknown about the economic welfare effects of maize importation in Kenya. Even though some studies have attempted to determine the effects of maize importation, they have not directly analysed the distribution of welfare gains and losses from maize imports. Specifically, the studies appear to have neglected the overall effects of maize importation on Kenya’s economic welfare, as well as its micro effects on producers and consumers. The study analysed the economic welfare effects of maize importation in Kenya using time-series data for the period between 1963 and 2016. Additionally, it used an error correction version of the Autoregressive Distributed Lag Model (ARDL) and a Partial Equilibrium Model (PEM). The ARDL model results showed that in the long run maize supply responds significantly to the previous period’s maize production, producer price, land area under maize cultivation, and fertiliser use. While in the short run, it responds significantly to producer price, fertiliser use, and land area under maize cultivation. On the demand side, maize demand was found to significantly respond to production and substitute prices in the short and long run. Moreover, trade openness, domestic maize prices, and gross domestic product were found to significantly determine maize imports both in the short and long run. PEM results showed that maize importation resulted in ambiguous welfare effects on both maize consumers and producers. Consumer surplus gain only compensated loss in producer surplus in 2 out of 11 points of analysis. On the other hand, producer surplus gain only compensated loss in consumer surplus in 1 out of 11 points of analysis. The resultant total net economic welfare effect of maize importation was negative. This result indicates that importation would leave the maize sector and the economy as a whole worse off. Hence, further maize importation without compensating losers from the maize sector is not feasible. Based on the results, complementary reforms should be put in place to link world prices to consumer prices and to encourage producers to respond to production incentives. Maize trade policy should also be aligned and supported by other macroeconomic policies such as exchange rate policies to eliminate inconsistencies.