Agribusiness in Kenya

Agribusiness in Kenya. Agriculture dominates the Kenyan economy, accounting for 40% of the overall workforce (70% of the rural workforce) and about 25% of the annual workforce. The country’s major agricultural exports are tea, coffee, cut flowers, and vegetables. Kenya is the world’s leading exporter of black tea and cut flowers.

Kenya’s high rainfall areas constitute about 10% of Kenya’s arable land and produce 70% of its national commercial agricultural output. Farmers in semi-arid regions produce about 20% of the output while the arid regions account for the remaining 10% of the output. Productivity remains relatively low in all the regions due to poor incentives, and underdeveloped supporting infrastructure and institutions. Since 2013, Kenya has been undertaking agricultural sector reforms that are expected to spur growth. A new regulatory framework, arising from the consolidation and harmonization of the sectoral laws, is under implementation.

Although Kenya perennially faces supply deficits in most of its food sectors, the country continues to use instruments under the Common Market for Eastern and Southern Africa (COMESA) and the East African Community (EAC) agreements to limit food imports. Both agreements provide for high non-member tariffs on sensitive commodities, including meat, dairy poultry, maize, rice, wheat, and beans. Subsidies still exist in certain sectors, especially in the seed and fertilizer systems.

Corn (Maize)

Corn remains the most important staple food in Kenya, and its consumption continues to increase despite calls by the GOK for diet diversification. Corn is also a key raw material in animal feeds. Kenya is a corn deficit country, necessitating importation mainly from the EAC countries, with a significant portion of the imports being contributed by informal cross-border trade. Imports from outside the EAC currently attract a steep external ad valorem tariff of 50% unless waived by EAC for a specific period to address dire shortages. Corn imports from the United States are currently impeded by the existing import ban on genetically modified (GM) products.

(F)- FAS/Nairobi forecast

 Wheat

Domestic wheat production meets less than a third of the demand, creating the need for importation. An increase in wheat demand is fueled by the considerable expansion in home and industrial baking. In addition to traditional bakeries, leading supermarkets chains have opened baking units within their stores. The bulk of the wheat imports are from the Black Sea region (Russia, Ukraine, and Kazakhstan), Pakistan, Brazil, Argentina, and Australia. Pricing and transportation costs are a major consideration in wheat import decisions; imports into Kenya by registered millers are charged a 10% ad-valorem tariff; otherwise, the EAC common external tariff of 35% applies. Commercial wheat exports from the United States are expected to pick up now that the United States and Kenya signed a certification protocol for Pacific Northwest (PNW) wheat (2019).

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(F) – FAS/Nairobi forecast

Rice, Milled

Rice is the third most important food crop in Kenya after maize and wheat. Local production can barely cope with the increasing demand and importation has been inevitable. Rice imports to Kenya are mainly from Pakistan, Vietnam, Thailand, and India. In 2015, the EAC revised the common external tariff (CET) to 75% ad valorem or $345 per ton, whichever is higher. The EAC has allowed Kenya, due to low local and regional production, to continue applying a tariff of 35% ad-valorem or $200 per ton, whichever is higher, on imports from outside the EAC, a concession that is reviewed every year.

(F)- FAS/Nairobi forecast

Sugar

Kenya is a sugar deficit country with local production constrained by high-cost production and inefficiencies at the processing and marketing levels. Kenya, however, continues to protect her domestic industry by utilizing safeguards offered by COMESA to limit duty-free imports from COMESA countries to 350,000 metric tons per year. The GOK has been keen on attracting new investments into the sector and has announced intentions to lease out state-owned sugar mills to the private sector. In July 2020, the GOK implemented a ban on imported brown sugar and cane, although this ban is expected to be temporary.

(F) – FAS/Nairobi estimates and forecasts, respectively

Livestock Genetics

Demand for dairy genetics is most vibrant among the more than 650,000 small-scale producers who own 80% of the dairy cattle. Due to declining farm sizes and recurrent droughts, Kenya’s dairy producers appear to be opting for breeds such as the Ayrshire because of their lower feed demands. Currently, the United States is the largest supplier of bovine genetics in Kenya, with a 35% market share (2019 TDM data). Other key suppliers of bovine semen to the Kenyan market include the Netherlands, the United Kingdom, and Canada.

 Consumer-Oriented Food Products

Growth in demand for consumer-oriented agricultural products is driven by a growing middle class with higher disposable income, increased urbanization, and an expanding foodservice and food retail sectors. Kenya imports more than 72% of consumer-oriented agricultural products mainly from Uganda, South Africa, Egypt, Belgium, Italy, and the Netherlands. The foodservice sector has recently attracted U.S. investment interests and several U.S. foodservices franchises have already established outlets in Kenya’s leading cities. For U.S. exporters, the best prospective products include snack foods, dairy products, pasta, sauces and condiments, pet food, tree nuts, and specialized food ingredients. The growth tempo of consumer-ready food imports has, however, been negatively affected by Kenya’s import ban on genetically modified (GM) food products.

Leading Sub-Sectors

Best sales prospects include agricultural chemicals (pesticides) and fertilizer. Kenya imports virtually all its agricultural chemicals due to lack of significant local production. Half of all pesticides imported by Kenya are fungicides, 20% are crop insecticides, 20% are herbicides, acaricides, rodenticides, and nematicides, and the remaining 10% are “other.” The most widely used fertilizer is di-ammonium phosphate (DAP). Others include nitrate potassium phosphate (NPK), single super phosphate (SSP), calcium ammonium nitrate (CAN) and Urea.

Unlike many sub-Saharan African countries, Kenya’s fertilizer usage has almost doubled since the liberalization of the market in the 1990s and removal of government price controls and import licensing quotas. The growth in usage has been noted especially among the smallholder farmers for food crops (maize, domestic horticulture) and export crops (tea, coffee). Growth in the industry is largely due to private investment and the increase of imports on the local market. The fertilizer industry is dominated by Russia, the United States, Ukraine, China, and Romania. After blending, a small percentage of these fertilizers are exported within the region.

The GOK continues to provide fertilizer subsidies under the National Accelerated Agricultural Input Access Program (NAAIAP), which provides farm input subsidies and distributes subsidized fertilizer to small scale farmers to reduce poverty and kick-start agricultural productivity affected by the 2007 post-election violence and inadequate rainfall. The bulk purchase of fertilizer also looks to cut out the middlemen and thus bring down the price of fertilizers and food prices.

Note: Fertilizers are the second most counterfeited good in Kenya. U.S. exporters should expect some competition from these lower priced, inferior goods. Consider marketing the effectiveness of a genuine product in your marketing campaigns.

Opportunities

New investment in manufacturing is encouraged by the GOK, and U.S. industrial chemical manufacturers/suppliers may consider utilizing Kenya as a base for penetrating the market. The GOK is keen on setting up a fertilizer manufacturing facility as part of Vision 2030 to promote food security and lower food prices.

Additionally, great opportunities exist in equipment, including irrigation technology, dryers, storage, food and packaging processing in the maize, wheat, tea, and coffee growing seasons. There has been a continued growth in the use of fertilizers to produce these commodities. Kenya’s horticulture industry is a major export success in Africa. The industry is entirely dominated by the private sector and provides many opportunities for increased importation of fertilizers, pesticides, and equipment.

In 2020, Kenya’s agriculture sector faced a large locust invasion coupled with widespread soil deficiencies. The GOK has plans to educate farmers and provide information on the best fertilizers for specific regions per soil types to improve nutrients and yields. Consultants and suppliers may find opportunities in this area.

The U.S. Commercial Service (CS) provides support to U.S. agribusiness companies interested in exporting equipment, chemicals, and services. CS works closely with USDA’s Foreign Agriculture Service, which supports U.S. agriculture producers interested in exporting U.S. grown commodities, food, seeds, and genetic products. Lastly, USAID is responsible for implementing the President’s Feed the Future (FTF) initiative, which seeks to help farmers improve food production and weather regular cycles of drought and famine.

Resources

Tegemeo Institute, Egerton University
Kenya Flower Council (KFC)
Ministry of Agriculture
Kenya National Bureau of Statistics

ITA

Agrochemicals Association of Kenya (AAK)
Fresh Produce Exporters of Kenya (FPEAK)
For more information on the Agriculture sector please contact:

Catherine Malinda
Commercial Assistant
U.S. Commercial Service, U.S. Embassy Nairobi
U.S. Department of Commerce | International Trade Administration
Tel: +254 (20) 363-6064; Catherine.Malinda@trade.gov