High Commodity Prices – Who gets the Money? A Case Study on the Impact of High Food and Factor Prices on Kenyan Farmers

1. The post-election crisis in Kenya has not only led to an estimated destruction of 3.5 Mio bags on-farm stored maize from the 2007 harvest but also to a 30% reduction of area under staple food production in the country’s most productive areas (mainly Rift Valley Province).

2. Support and food provisions to internally displaced people (IDPs) in camps after post election clashes and subsequent evictions largely contributed to emptying of the strategic grain reserve and commercial grain stocks.

3. The reduced harvest of maize from the long-rain season in 2008 (estimated 35-45% less than in previous years) is the main reason for the scarcity of staple food in the country. The country-wide food supply gap is estimated to be about 11.5 Mio bags of maize which is one third of the national annual consumption. This is expected to continue until mid 2009 if not instantly more imports are ordered.

4. The failure of the short rains in Eastern parts of the country has exacerbated the food situation since more districts are fallen into food deficit status.

5. The Kenyan government declared its national food security a National Emergency in early January 2009. 10 million Kenyans (more than one third of the population) is classified as food insecure; one tenth is estimated to suffer already from serious starvation.

6. Government announced schemes of distribution of subsidised maize grains and flour has so far reached only minimal amounts of consumers. The lift of VAT and import duties on food is effective. However, prevailing high prices for imported white and yellow maize will not ease the situation for poor consumers if they have to buy at market prices. The export ban seemed to have been circumvented which might have added to the domestic supply gap.

7. Intransparencies along the value and supply chain of maize give indications of various irregularities in maize marketing during the last 12 months. The vague communication of the quantity of the Strategic Grain Reserve and imports sourced by government may lead to the conclusion that institutional governance is weak.

8. Without quick and sufficient maize imports, national food security will continue to be at threat; the already present maize shortage will worsen during the first half of the year 2009.

On the Impact of high food prices on food producers in 2008/09:

1. During the first round of field interviews in early October, farmers were very concerned not to break even with maize production due to the overall extraordinarily high production cost – particularly due to a tripling of P-containing fertiliser and high costs of fuel at an expected farm gate price of around KSh 1,000 per bag.

2. Farmers had a strong perception of being exploited by traders and middlemen whom they thought would benefit from low bargaining power of farmers and sell at the generally high costs of all foods.

3. The second round of interviews at harvesting time in November 08 indicated that farm gate prices are at an all-time-high of KSh 2,000-2,500 per bag due to very strong market demand. Early fears of farmers not to break even seem to be counterweighted by the highly competitive prices paid along the entire supply chain.

4. Price transmission to farm gate takes place, but since small-scale producers sell most of their maize at harvesting time, they are becoming net-buyers during the forthcoming months and will suffer from high consumer prices.

5. Current high consumer prices for maize do impact heavily on substitutes such as traditional food crops like cassava, sorghum and potatoes. Anecdotal cross-price elasticity is observed; which does benefit farmers that are selling marketable produce. However, even in rural areas, net-consumers are suffering from the high prices of basically all food sources.