How can we Rebuild the Food and Agriculture as an Economic Base after the Pandemic

The agriculture sector remains the dominant sector and key engine for growth for the Kenyan economy accounting for 23% of GDP[1]. The sector grew by 5.4% in 2020 despite facing a myriad of challenges including the Covid-19 pandemic, desert locust invasion and poor short rains. Overall the Kenyan economy contracted by 0.1% in 2020, the performance of the agricultural sector mitigated the expected economic contraction due to the effects of Covid-19. This demonstrates the key role played by the sector in the Kenyan economy.

Despite the noted growth, the agricultural sector was adversely affected by Covid-19 and measures put in place to contain the pandemic including lockdowns and cessation of movement in/from the Nairobi Metropolitan area and the coastal counties. The key challenges included disruption of agriculture supply chains for both inputs and outputs leading to an increase in prices for inputs and collapse in output prices and closure of local and export markets. Covid-19 exacerbated the existing problems in the agricultural value chain, these includes inefficient supply chains, unpredictable markets, lack of access to affordable finance, lack of quality input and problems with handling and storage solutions. While, Government, development partners and the private sector have been working for a long time to address these issues, Covid-19 has brought about an added impetus to address problems bedeviling the agriculture value chain.

Agriculture logistics in Kenya remain inefficient, informal and expensive. This is especially so at the last mile input transport and first mile output transport where farmers use non-motorized means of transport. According to a report by Dalberg[2], Kenya could save up to US$ 1.6 billion if it achieves the logistics efficiency of Asian countries in the agriculture value chain. Transport costs in Kenya constitute 28% of the final output prices as compared to 13% in Asia. The inefficiencies are caused by the poor infrastructure especially road networks connecting farmers to the main roads and domination of the agriculture logistics by informal transporters such as matatus and informal trucks.

While the national government has continued to improve the road networks including main roads connecting to the national highways. The feeder roads connecting farmers to the main roads (first mile) remain earthen access roads or paths and tracks that are inaccessible to four wheeled vehicles or even two wheeled vehicles during rainy seasons. This hinders the adoption of motorized transport by farmers resulting to use of human porterage which is slow and can have a significant impact on the quality of output, especially perishable goods by the time they reach the market. The responsibility for the development of feeder roads lies with the county governments, while some progress has been made a lot remains to be done to improve these roads. County governments need to work with local communities to ensure all season access to areas of high agricultural productivity and reduce the distance between the farms and collection points by extending motorable first mile access closer to the farms. A study by Research for Community Access Partnership indicated a potential internal rate of return of 47%[3] if access roads are improved and brought within an average of 0.5 km of the farm, from the previous average of 1.0 km.

Kenya’s agriculture value chain is dominated by small scale farmers producing over 73%¹ of the total marketed agriculture output. Due to their nature of being small scale, farmers plant and produce their output without market and price certainty. At the time of harvest, farmers are forced to accept unfavorable terms from middlemen which negatively impacts on profits. Providing farmers with forward delivery contracts with commercial buyers or suppliers guaranteeing a minimum price can foster market development including access to finance.

Farmers should be encouraged to form and return to co-operative and marketing societies which can be area or product based. These societies can help aggregate farmers produce, provide storage facilities, training, provide quality and affordable input to farmers, help farmers negotiate with commercial buyers as a group for better prices for their output and assist farmers access affordable finance. Maladministration among other factors caused the collapse of co-operative societies in Kenya. There is a need to review the legal framework of these societies to ensure they work for farmers interests and are properly governed. The societies can play a key role in formalizing small-scale farming in Kenya.

Access to affordable agriculture financing in Kenya remains inadequate, as per the Bank Supervision Annual Report, published by the Central Bank of Kenya the value of loans extended to the agricultural sector by commercial banks as at December 31, 2020 was Ksh.107.27 billion[4], which constitutes 3.6 percent of the total gross loans. This is despite most Kenyans being employed in agriculture or agribusiness. Farmers are hindered from purchasing productivity enhancing inputs or dealing with emergencies by lack of adequate and affordable finance.

Attempts have been made to improve access of credit to farmers including the passage of the Movable Property Security Rights Act which allows farmers to use crops, machineries, livestock, and household appliances or intangible assets as security for loans. Formalization of the agriculture market enabling farmers to have forward delivery contracts can also enhance access to credit. Other reforms that can enhance access to credit include passage and implementation of warehouse receipts law that would allow farmers to use receipts as collateral, use of crop and livestock insurance and adoption of digital payments to build up farmers credit profiles.

The adoption of digital technologies can transform the agriculture sector. Government can support the private sector and development partners by investing in digital infrastructure including electric power supply and setting up appropriate policy. This could include providing subsidies to telecommunication firms to invest in underpopulated and far-flung areas where it is not currently economical to do so. Digital agriculture solutions include applications in financial services, market linkages, supply chain solutions and information services. Digital solutions together with the aforementioned reforms can transform the agricultural sector if they are properly designed and deployed.

[1] Kenya National Bureau of Statistics, Economic Survey, 2021.
[2] Dalberg, Agriculture Logistics in Kenya, September 2020.
[3] Research for Community Access Partnership, Evaluation of the cost-beneficial improvement of first mile access on small-scale farming and agricultural marketing, September 2020.
[4] Central Bank of Kenya, Bank Supervision Annual Report, 2020.