Working paper 45-Trade and Agricultural Competitiveness for Growth, Food Security and Poverty Reduction: A Case of Wheat and Rice Production in Kenya

Author(s):  Raphael Gitau, Samuel Mburu, Mary K. Mathenge and Melinda Smale

Introduction:

The lack of competitiveness of Kenya's production systems compared to those of her trading partners remains unresolved. Kenya has over the years maintained a structural deficit in the major grains and food staples, namely maize, wheat and rice.

This deficit has often been met through imports from EAC, COMESA and/or the world market. According to the Ministry of Agriculture, wheat and rice are the second and third most important cereals after maize. Despite this, Kenya produces only about 40% and 20% of its national requirements for wheat and rice, respectively (Economic Review of Agriculture, 2010; National Irrigation Board, 2008).

Lack of competitiveness in the domestic wheat production compelled Kenya to request safeguard measures in accordance with the COMESA treaty provisions . However, the expiry of the safeguards in December 2009 does pose critical questions regarding the survival of Kenya's domestic wheat industry. Analysis of FAO data shows that there has been an increase in the per capita consumption of wheat in Kenya.

The three year average per capita increased from 25 to 27 Kg/year during 2003-2005 and 2006-2008 periods. The percentage growth rate of per capita consumption in Kenya was negative between 1980 and 1994 (-0.3%), but rose to 1.2% between 1995 and 2008 (Aquino and Carrión 2009). The growing dominance of wheat in consumption in many cities of East and Southern Africa is attributed to urbanization, growing preference for wheat products as convenience foods and a decline in the price of wheat relative to maize (Jayne, et al. 2010). According to Muyanga, et al. (2005), wheat and its by-products in 2003 accounted for 44% of total expenditure of main staple in urban areas in Kenya, up from 35% in 1995.

Kamau, et al. (2010), indicates a slight decline between 2003 and 2009 in the share of wheat and its by-products (from 43% to 40%) in total expenditures of urban households. They suggest that the decline was caused by high food prices during the 2007/08 period. According to the National Irrigation Board (NIB), the annual consumption of rice has increased at a rate of 12%, which is also attributed to progressive changes in eating habits by urban dwellers. Muyanga et al. (2005) indicates that rice constituted 20% of the total expenditure on main staples in 2003.

This same proportion was estimated at 20% in 2003 and 23% in 2009 (Kamau et al. 2010). NIB estimates the current per capita consumption of rice at 7 kgs/year and projects that this will increase to 15 kgs/year in 2015. The food crisis that plagued the country in early 2007 is a clear of indication of the need to bolster production of not only maize but also wheat and rice, and to diversity to other cereals, such as sorghum and millet, to guard against the price volatility in the world market.

Wheat and rice can play a major role in ensuring food security, given the country's reliance on maize. The wheat sub-sector contributes 1.4% and 30% to overall and cereal GDP respectively (Barasa, 2004), employing over 500,000 people through linkages with several sectors such as transport, storage and distribution. The wheat industry contributes over Ksh.20 billion and supports about 11.3 % of the national population (Economic Review, 2009, Barasa, 2004). Kenya also has potential in rice production. Rice is grown by about 300,000 farmers, who provide labor and also earn their livelihood from its production.

The area under rice production in Kenya has marginally increased from 1960s while production maintained a steady increase up to 1973 before becoming quite erratic (FAOSTAT). The country has a potential of about 540,000 hectares of irrigable land and 1.0 million hectare of rain fed land suitable for rice production. With improved water harvesting, storage, underground water resource utilization and innovative management technologies, the current irrigation potential can be increased by a further 800,000 ha to 1.3 million hectare (MOA, 2010). Tegemeo Institute conducted this study to better understand challenges facing the production and marketing of these two cereals.

The broad objective was to assess the competitiveness of Kenya's wheat and rice production systems with a view to establishing why the country continues to be a high cost producer of these two commodities. The specific objectives included i) establishing the cost of production of wheat and rice at the farm level, ii) estimating costs and margins along the value chain, iii) identifying inefficiencies along the value chain, and iv), exploring policy options to address these inefficiencies. The paper is organized into four sections. Section one presents the introduction, methodology and conceptual framework employed. Section two presents an overview of the wheat and rice value chains in Kenya, in the context of global wheat and rice production and trade. Section three presents the main findings of the study. Conclusions and policy options are presented in the final section.

 

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