COMPATIBILITY OF TRADE AND DOMESTIC POLICY AFFECTING STAPLES IN KENYA

1. COMPATIBILITY OF TRADE AND DOMESTIC POLICY AFFECTING STAPLES IN KENYA James Nyoro Tegemeo Institute, Egerton University

2. 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

3. 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

4. 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

5. Expenditure on Primary Staple CommoditiesUrban

6. Maize Supply and Demand Situation in Kenya

7. 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

8. NCPB Purchases and Kitale Wholesale Prices

9. Household Maize Market Position 2004

10. 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

11. Importance of maize in small farmers income

12. Restrictions on Trade

13. 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

14. Costs of supplying Nairobi market from alternative sources

15. Comparison of Local and imported wheat

16. 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

17. 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

18. 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

19. 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