COMPATIBILITY OF TRADE AND DOMESTIC POLICY AFFECTING STAPLES IN KENYA

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COMPATIBILITY OF TRADE AND DOMESTIC POLICY
AFFECTING STAPLES IN KENYA

• James Nyoro
• Tegemeo Institute, Egerton University

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Presentation Outline

• National and Domestic Policy Objectives
• Staple Food Policy environment
• NCPB Purchase and sale of grain
• Restriction on trade
• Duty on Imports
• Wheat safeguard measures
• Non Tariffs barriers
• Impacts of domestic policy on national objectives
• Policy economy considerations
• Effects on Regional Trade

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National and Sectoral Policies

• Objectives in Economic Recovery Strategy (ERS)
  and the Strategy for Revitalization of
  Agriculture
• Raise Household incomes
• Create wealth and Employment
• Reduce Poverty by Half by 2015 (Reducing number
  of poor and hungry people)
• Ensure Food and Nutritional Security
• Increase access to markets

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The Kenyan Food Policy Scene

• Food security strategy geared towards attainment
  of self sufficiency
• Feed the nation from local production
• Attain self sufficiency in each region
• Limited consideration to Urban poor and rural
  landless
• Grain importation and trade taken negatively
• Food security synonymous with Maize security
• Lack of comprehensive national and household
  level strategies
• Sessional paper 4 1981 on National Food Policy
• Sessional Paper No 2 of 1994
• National Food and Nutrition Policy

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Expenditure on Primary Staple CommoditiesUrban
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Maize Supply and Demand Situation in Kenya
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Interventions by the National Cereals and Produce
Board

• Procure and Sell maize at Administratively
  determined prices competing with the privates
  sector
• Buy commercially from the market to stabilize
  prices Financed through MOA
• Building National Strategic Reserves
• Set at 6 million bags 3 million in stock and 3
  million in money form
• Purchases for Relief Purposes Financed through
  OP
• Combines the Purchase for the commercial and
  Relief purposes hence Feeding Food insecure
  people with expensively purchased maize

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NCPB Purchases and Kitale Wholesale Prices
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Household Maize Market Position 2004
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Effects on NCPB Purchase

• Hurts the same households the policy intends to
  help as most farm households are net maize
  buyers
• Purchases by NCPB may have raised maize prices by
  between 15-20 - Could this have led to a supply
  response???
• Maize sales are extremely concentrated among
  small group of small-holder farmers about 10
  accounting for about 75 of the sales
• Four districts accounts for over 70 of the sales
  of maize sold in 18 districts
• A large proportion of domestically marketed maize
  are also from medium to large-scale farmers
• Low income households are likely to be net maize
  buyers 80 in the lowest Quintile compared to 26
  in the highest quintile

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Importance of maize in small farmers income
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Restrictions on Trade
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Import Duty

• Import duty imposed on imported Maize of 25 from
  Non COMESA and 3 for maize from EAC
• Wheat imports levy import duty of 35-60
• Raises costs of imported maize and wheat over the
  domestic
• Reduces supplies that may have effects of Raising
  domestic maize prices
• Duties encourage more informal trade with higher
  transaction costs and rent seeking activities
• Even without tariffs maize sourced from Durban is
  higher than that domestically sourced

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Costs of supplying Nairobi market from
alternative sources
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Comparison of Local and imported wheat
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Non Tariff barriers

• Non Tariff Barriers
• Import Declaration Fees (2.75) on imports
  exceeding US 5,000
• Quality Standards ( Moisture content, foreign
  materials, broken grains, Insect damage,
  coloration afro toxins, and packaging
• Safety Standards
• Phytosanitary requirements
• Customs entry documents
• Custom clearance procedures
• Restricts trade, indirectly affects local grain
  prices
• Encourages informal trade across the borders

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Compatibility of National and staple trade polices

• Trade policies hurts the low income households
  who are net grain imports thereby undermining
  policies to reduce poverty and increase food
  security
• Raising grain prices through market intervention,
  restriction of trade or negotiations for
  safeguard implies transfer of income from rural
  and urban households to a small proportion of
  well to do large-scale farmers undermining the
  policy of raising incomes and improving income
  distribution
• Interventions in the market could have
  contributed to price stabilization which is
  consistent with the food security policies. Has
  the prices led to a supply response??
• Staple price distortion policies interferes with
  domestic and regional markets thereby reducing
  access to markets by local producers

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Political Economy Perspectives

• Classic Food Policy Dilemma
• Political ramifications of assisting the
  large-scale politically connected farmers
• Lack of substitutes to staple food also limit the
  political good will to encourage imports as this
  is interpreted as interfering with livelihoods of
  a majority of voters
• Unwillingness to depend on Regional member
  countries due to political differences past and
  present National sovereignty issues
• Influences of wider trade ramifications such as
  overall trade shares of country's within the
  Regional economic markets COMESA accounts for
  about 37 of total Kenyan exports

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Measures to raise regional trade in Staples

• Investment in science and Technology
• Raise productivity for staples
• Offers alternative high value crops to producers
• Investment in infrastructure
• Roads and rail systems
• Telecommunication, Electricity
• Efficiency of ports and other border points
• Market information to inform on surpluses and
  deficits
• Harmonization of grades and standards
• Simplify and harmonize trade regulations
• Producer and trade organizations