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DAFS 1210: AGRICULTURAL VALUE CHAINS (36 CONTACT HOURS)

Prerequisites: None

Course Purpose
The aims of the diploma programme are
(i) to equip the learners with value chain concepts, skills and tools and their
application in agribusiness;
(ii) (ii) to complement agribusiness training with value chain development concepts.

Learning outcome
By the end of this course unit the learners will be able to link value chain concepts to
agribusiness.

Course description
 Definitions;
 importance of value chains;
 value chain and agricultural policies;
 stages and links of a value chain: primary production, processing, delivery, retail,
consumption; structure and functioning of a value chain;
 value chain analysis and policy making:
 poverty reduction and food security,
 stimulation and protection of strategic production sectors,
 value addition, income distribution; actors in value chain:
 Agricultural value chains and development:
 opportunities and threats of trade and market globalization,
 value chain and agribusiness development, agricultural productivity.
 Limitations of the value chain approach;
 Selecting a value chain for promotion:
 scope of the value chain; prioritization of value chains:
 assessing growth potential, poverty alleviation potential, criteria for value chain
selection, decision making process.

Teaching Methods
Resources required for delivering the certificate and diploma programmes would include
human capacity (trainers), teaching materials (books, materials), attachment opportunities
and teaching aids.
Course Assessment
CATS/Assignment 30%
Final examination 70%
Total 100%

References
1. Andreas Springer-Heinze. 2006, (Revised 2015). The “ValueLinks” Concept:
Structure and Instruments.
2. Gesellschaft für Technische Zusammenarbeit (GTZ). 2007. ValueLinks Manual - .
The Methodology of Value Chain Promotion. First Edition. GTZ Eschborn,
Germany. http://www.value-links.de/manual/distributor.html. Accessed
7th April 2011.
 3. Government of Kenya. 2010. Agricultural sector development strategy 2010–2020.
Government of Kenya, Nairobi, Kenya.
4. Martin Webber, J.E. Austin Associates, Inc. using value chain approaches in
agribusiness and agriculture in sub-Saharan Africa: A methodological guide. The World
Bank, Washington, DC, USA

 Definitions; importance of value chains;

What is a Value Chain?
A ‘value chain’ in agriculture identifies the set of actors and activities that bring a basic agricultural
product from production in the field to final consumption, where at each stage value is added to the
product. A value chain can be a vertical linking or a network between various independent business
organizations and can involve processing, packaging, storage, transport and distribution.

Agricultural value chains: A game changer

for small holders
Improving agricultural value chains can really make a difference for small-holder farmers —
and thus also for global food security. How? More knowledge from each component of the
chain, writes Dr. Roger Norton of The Norman Borlaug Institute for International
Agriculture.

By Roger Norton // 28 July 2014

Green beans processing in Tanzania — one of many efforts to link small-holder farmers to
international markets. Photo by: Fintrac

A value chain is a set of linked activities that work to add value to a product; it consists of
actors and actions that improve a product while linking commodity producers to processors
and markets.

Value chains work best when their actors cooperate to produce higher-quality products and
generate more income for all participants along the chain, as opposed to the simplest kinds of
value chains, in which producers and buyers exchange only price information — often in an
adversarial mode. Value chains differ from supply chains, which refer to logistics: the
transport, storage and procedural steps for getting a product from its production site to the
consumer.

A value chain encompasses the flow of products, knowledge and information, finance,
payments, and the social capital needed to organize producers and communities.

Information is especially important to all value chain actors and flows in two directions:
markets inform producers of price, quantity and quality needs, product handling and
technology options, while producers inform processors and markets on production quantities,
locations, timing and production issues. In a value chain, processors and marketing agents
may provide producers with finance, inputs and training in technologies of production.

Value chains may include a wide range of activities, and an agricultural value chain might
include: development and dissemination of plant and animal genetic material, input supply,
farmer organization, farm production, post-harvest handling, processing, provision of
technologies of production and handling, grading criteria and facilities, cooling and packing
technologies, post-harvest local processing, industrial processing, storage, transport, finance,
and feedback from markets.
Agriculture in developing countries often is characterized by dual value chains
operating in parallel for the same product:

 one informal or traditional, and the other formal or modern.

 Small holders are frequently involved in informal chains that deliver products to local
middlemen and then to small local stores.

 Formal value chains can deliver the same product, usually in better or more uniform
quality, from larger farms or more organized groups of small farmers to more
commercial wholesalers and from there to supermarkets or exporters.

This duality has been accentuated by the explosive growth of supermarkets in developing
countries. It can limit many small producers to markets characterized by low-quality
products, and low prices and low returns for them — hence a frequent concern is to find ways
to integrate small producers into more modern value chains, both domestic and export-
oriented.

A value chain chart.

Value chain analysis

A value chain approach in agricultural development helps identify weak points in the chain
and actions to add more value.

In Kenya, for example, analysis of the dairy value chain identified critical needs for more
local milk cooling points, more collaboration between dairy plants and farmers and greater
diversification of final products. In Guatemala, the world’s largest producer of cardamom,
reviews by Heifer International and the Norman Borlaug Institute for International
Agriculture revealed that critical value chain weaknesses are total lack of varietal
development over 100 years and lack of development of more diversified markets for
cardamom as an input to processed foods, cosmetics and health products. In the Philippines,
the analysis found a need for fishermen to deliver more uniform-sized fish to processors, for
government to enforce corresponding regulations and for processors to offer fishermen
contracts that contain credit. And in Vietnam, a value chain analysis of a cassava industry
driven by growing demand inside the country and from China identified issues regarding
depletion of soil fertility (unsustainable farming methods), management of wastewater from
starch plants, and the need for better direct links between small farmers and processors.

Another example is sorghum in Africa. It has multiple end uses, including as porridge, flour,
snacks, couscous and other products for human consumption; inputs for beer production; and
feed for poultry and animals. However, yields of these grains have increased only slightly,
and the sales of the grains to markets other than animal feed face obstacles in the value
chains.

Farmers could expand their profits from these multiple potential markets if solutions
were found for value chain issues such as:

CHALLENGES FACING AGRICULTURAL VALUE CHAIN IN AFRICA

1. Poor quality of seeds and varieties inappropriate for the various uses.

2. Poor quality of product at harvest, with grains of inconsistent size and coloration.

3. Inadequate threshing techniques and post-harvest drying and storage, which reduce
quantity and market quality.

4. Inadequate grading.

5. Insufficient market development and communication with markets regarding varieties and
quality of produce desired.

6. Insufficient training and finance for improved post-harvest management.

This analysis underscores the importance of sorghum growers and breeders recognizing that
managing for food quality can increase their access to more markets. In Uganda, a brewery
strengthened the sorghum value chain by offering farmers production contracts with
guaranteed prices along with quality requirements, which led many more farmers to grow the
grain.

As these examples illustrate, finding ways to improve value chains can be very important for
raising small holders’ incomes. Without being linked into markets they are condemned to
produce only for subsistence — better markets can lift them out of poverty. But making this
leap requires more knowledge, and many actors along the value chain can help supply this
crucial ingredient.

SANREM realizes that Agricultural Value Chains (AVCs) have become very important in determining
countries’ trade competitiveness in a globalized world. In Africa, where agriculture is the backbone in many
economies, SANREM envisions they are important not only in enhancing export competitiveness, but also in
developing sustainable agricultural systems, alleviating poverty and promoting financial inclusion, especially of
the rural poor. In our analysis we have concluded that developing countries are expected to be the leading source
of demand growth for agricultural products in the next few decades. In the developing world in general, and
particularly in SSA,

demand for food is expected to grow significantly in the future and require more resources for three main
reasons:

First, population is increasing faster than in any other region. Currently estimated at 925 million, SSA’s
population is forecast to reach 1.2 billion in 2025 and 2 billion in 2050. By 2050, one in five people in the world
will live in SSA, by 2100 one in three up from one in 7.6 currently – according to forecasts by the UN (Medium-
fertility variant).

Second, incomes are rising steadily. SSA’s average GDP per capita is forecast to increase by around 30%
between 2010 and 2030, by 80% between 2030 and 2050. This drives an increase in food demand per capita but
also a diet change away from basic staples and grains as the growing middle class is seeking higher-value foods
such as fruits and vegetables, meat and dairy products.

Urbanization is happening fast, this is the third reason why demand for food will increase. Urbanization further
contributes to changing preferences towards animal proteins and processed foods. Today, around one-third of
SSA’s population lives in urban areas; by 2035, it may be half. The fastest growing population and the highest
rate of urbanization in the world, together with a growing middle class, will drive a surge in food demand in
SSA.

Key participants and other key

components in AVC
SANREM has identified five main components to consider in VC analysis, as depicted in the figure below.
These are the actors directly providing inputs, producing and distributing the product; the relationships and
embedded services between these actors; the markets, the financial, general and specialized services coming
from sources external to the production and distribution chain, and the enabling environment, including tax and
trade policies and regulations

Primary Producers/Farmers: The primary producers/growers in AVCs are very important actors and their
position in the chain becomes the key driver to determine the sustainability of the VCs. Majority of farmers in
African countries are single cash crop farmers supported by some food production, or vice versa. However, there
are also specialized chain actors, who are able to produce quality cash crops for the AVC. Others may be multi-
activity chain farmers, who are not only involved in production process but also in other activities of VC like
grading, primary processing, and local marketing. The best actors are the market lined producers, who perform
multiple activities (in terms of marketing, transport, production and processing), but such farmers are very few
in developing economies

Agri-Input Dealers are crucial to the AVCF as they not only provide seeds, pesticides, fertilizers and farm
equipment (machinery) to farmers but also act as extension arms providing technical information to the farmer.
This is a crucial input in the VC and its capacities and quality will determine to a large extent the quality and
quantity of the end-produce. Just as with any other small trader, this player will be driven by the profit and a
desire to increase sales volumes. Capacity building on this tier will ensure that the farmers get the right advice.
In case of small holders, this tier may have to be supported by the aggregator (processor) to ensure that the
farmer gets the right quantity and quality of inputs.

Agri-Processing Companies play a major role in adding value to the agri-commodity and in many cases will
link up with wholesalers or retailers to market the product. Agri-processing companies can be small scale
enterprises or can even be large corporations having multi-country operations.

1. Enhancing Value Chain Productivity

Competitiveness is determined by the productivity (value per unit of input) with which a firm or value chain
uses its human, capital, and natural resources. Productivity depends on the value, uniqueness, and quality of a
product, in addition to the efficiency with which it is produced.
a. Assessing strategic productivity
1. The primary means of increasing value chain productivity is by choosing appropriate markets and
products and by adding new product features and service components that enable companies to increase
the value of their product and, hence, its price. This “strategic” or “market price–related “productivity can be
as important as “operational” productivity in determining competitiveness.

When evaluating a value chain’s strategic productivity, the key questions to consider are:

1. Which product segments are currently being offered by the companies in the chain? Do they represent the
full range of segments that could be offered? Do they represent the highest-value segments in the industry?
2. Which markets are currently being served by the companies in the chain? Do they represent the highest-
value markets?
b. Assessing operational productivity
2. A second way to improve value chain productivity is through operational productivity, improved
technology, manufacturing, and service processes within specific segments of the value chain. By
introducing new technology that improves processes and management systems, key players in the value chain
can lower their costs and raise the productivity of their businesses and the value chain overall.

The following questions are useful in evaluating the operational productivity of a specific segment of the value
chain and developing strategies to enhance it:

1. How do our costs compare to the price for the product indifferent markets (that is, which markets are
profitable to serve based on the current cost structure)? Are we excluded from competitively serving key
markets because of our cost structure?
2. How do the costs of the value chain compare to other competing value chains?
3. What are the key trade-offs between cost and quality for the product?
4. Who is in control of the cost drivers?
5. What are the opportunities for lowering costs without compromising quality?
c. Assessing the quality of supply chain management
3.Focusing on supply chain management in terms of costs of raw materials, transportation logistics,
communications, and information technology aspects of the chain that have generated great efficiencies in
manufacturing, retailing and other industries is a third way to fully understand the underlying drivers of
competitiveness.

When evaluating the supply chains, SANREM considers the following key questions:

1. Is the relationship among buyers and suppliers in the value chain cooperative or adversarial?
2. How effective is the flow of information along the value chain (market trends, changes in price, external
cost pressures)? How aware are the producers of the downstream market dynamics of the industry (market
trends, demand conditions, pricing)?
3. How sensitive is the overall cost structure to the cost of raw materials?
4. How do logistics services affect the cost of raw materials and intermediary products?
5. What is the availability of supporting services (financial, logistics, administrative) across activities in the
value chain?
6. How long does it take for a product to go from initial production to end-market? How does this compare
with competing value chains?
d. Assessing human resources across the value chain
4. The next driver of value chain productivity is the quality of human resources available for the chain to
tap. This may involve enhancing motivation, management, and training at the firm level, both by upgrading the
overall education system and through utilizing specialized institutes. Upgrading the technical and management
skills of an entire value chain requires close cooperation of the firms along the chain and the supporting
government and academic institutions.

The following questions can be considered when assessing the level of human resources across the spectrum of
activities in a value chain:

1. What incentives are present to encourage firms to invest in the technical and management skills of their
employees? Do firms have difficulty retaining trained talent?
2. What supporting educational services are available to firms locally to increase the skill levels of their staff?
(industry certifications, IT training, technology application)
3. How well do the academic institutions know the needs of industry? Is the curriculum aligned with the
specific skill requirements of the industry?
4. Are there industry standards for industry skill levels? Do the academic institutions teach to these standards?
5. How do the skill levels of the value chain’s workforce compare to competitors along key skills categories?

e. Assessing the business environment

5. The quality of the business environment ultimately serves agate-keeping function, and often a negative
one. Productivity increases are achieved at the firm and value chain levels by improving the quality of
business strategy and operations for example, by forming new partnerships with international firms in their
value chains that provide access to markets, technology, finance, and know-how.

DEFINE UPGRADING

Process upgrading - increasing the efficiency of internal processes such that these are significantly
better than those of rivals, both within individual links in the chain, and between the links in the chain. -
Product upgrading - introducing new products or improving old products faster than rivals.

Constraints for Developing Countries on Value Chain

Upgrading
1. Market Access and Market Orientation: Quality demands, internationalization and market differentiation
have led in developing countries to the emergence of distinct food sub-systems with specific quality and
safety requirements, leaning on different market channels, e.g. local, national and international markets.
Market access is dependent on technological capabilities of producers, available infrastructures, bargaining
power and market knowledge and orientation.
2. Resources and (physical) Infrastructures: Getting access to markets is not a sufficient condition for
developing country value chains to be able to sell their products. Supporting infrastructures, resources
including knowledge and capabilities are conditional for these chains to be successful. Typical constraints
faced by companies in developing countries include lack of specialized skills and difficult access to
technology, inputs, market, information, credit and external services (Giuliano et al. (2005). These factors
enable or constrain value chain upgrading
3. Institutional Voids: Regulative institutions encompass legislation and government regulations and policies
that companies can use and/or have to comply with. Developing countries are often characterized by
institutional voids, defined as “situations where institutional arrangements that support markets are
absent, weak or fail to accomplish the role expected from them”. Government legislation, regulations and
policies can constrain value chain upgrading, amongst other ways by setting trade barriers for production
materials and production technology, by limiting the flow of information, national as well as international,
by imposing unfavorable taxes and by denying infrastructural investments that would benefit value chains.
Women in Agricultural Value Chain Development
1. Gender inequalities in modern agricultural value chains
In modern value chains, men are concentrated in higher status, more remunerative contract farming since they
generally control household land and labour, while women predominate as wage laborers in agro-industries.
Women workers are generally segregated in certain nodes of the chain (e.g. processing and packaging)
that require relatively unskilled labour, reflecting cultural stereotypes on gender roles and abilities. Segregation
and the casual or temporary nature of contracts limit women’s opportunities to acquire new technical and
entrepreneurial skills, increasing the risk of redundancy if their jobs are automated or if men are favored in
technical training.

2. Women farmers and entrepreneurs face higher entry barriers than men in modern value
chains
Women nearly always have less access than men to assets, credit, services, markets and information on
new technologies, consumer preferences and export trade requirements. This reduces their chances of
entering into contract farming agreements. Small producers, especially women, are often excluded from
higher value domestic and export markets because they lack the transportation, cold stores, processing
facilities, communications and information. While cooperatives and producer organizations are increasingly
providing these services, relatively few women are members because of costs or social constraints.
3. Women farmers and entrepreneurs in traditional value chains
Although men are increasingly moving into food crops as returns to export crops fall, women often remain the
main drivers of traditional value chains in local markets for fresh or processed foods such as vegetables, fruits,
grains, tubers, dairy products and fish. As the returns are often low and all producers need support to increase
productivity and incomes, women are in particular need as they tend to have poorer access to inputs, extension
and markets.

Interventions to improve productivity and income in some value chain nodes can increase workloads for
men or women. Problems can arise if women’s workloads are increased but the benefits (income) go to men.

4. Women need special support to participate in value chain development

The time women spend in productive work can impact negatively on child care, health and nutrition, and
increase the incidence of child labour and children dropping out of school to take over their mother’s
domestic or care work, unless labor-saving equipment and child care facilities are introduced. Women’s
market access is often restricted by lack of child care or sanitary facilities in market places and cultural
limitations on travel outside their communities.

Addressing Challenges of Women in AVC through Policy

Options
To ensure that rural women and their communities benefit fully from value chain employment opportunities, a
combination of measures should be considered by governments, international agencies, the private sector and
civil society:

1. Create an appropriate enabling environment to promote agricultural value chains with a

focus on the poor
Integrate gender equality goals into the provision of core public goods including rural infrastructure, an
improved investment climate, better natural resource management, and the design and enforcement of labor
legislation in the agricultural sector. This should also include improved women’s access to land (e.g. preferential
treatment in land titling or land reform programs), and raise awareness on women’s customary or legal rights to
inherit, buy or use land.

Introduce affirmative action for women workers and entrepreneurs (jobs, training, credit, child care,
representation in decision-making processes, legal rights to own property and engage in legal acts without
a male relative’s signature, fiscal or other incentives).

2. Promote good practices

Analyze on-going changes in existing and emerging value chains at local, national and international level, and
their gender impacts on farmers and workers (including power relations governing relative returns at each
node), and identify policies/ actions to improve gender equality.

3. Foster women’s participation in producer and worker organizations and decision-

making processes
Provide incentives to enhance women’s participation in producer and worker organizations and capacity
building training for women leaders, taking account of their workloads and cultural constraints. Involve
women in farmer, worker, • home-worker or micro-entrepreneur study groups, provide them training
in technical and negotiation skills, and help them to network amongst women and with men. Women’s
cooperatives should be strengthened through support to improve the development, branding, quality and
marketing of their products, labor standards and price negotiation.

Specific policies
a. Reduce gender inequalities in modern agricultural value chains: Introduce and enforce legislation against
gender discrimination, sexual harassment and gender wage inequalities.
b. Reduce entry barriers for women farmers and entrepreneurs in modern value chains: Improve women’s
access to land, technology, knowledge and certification of product quality and safety, markets, price
information, credit and insurance to enhance their ability to work as contract farmers

c. Improve women’s returns in traditional value chains: Improve small farmers’ productivity and product
quality through better training, technologies, inputs and storage, with special attention to women.

d. Reinforce agricultural transformation with social strategies: Improve social policies to protect poor
farmers and workers, especially women, from the negative effects of market liberalization and privatization

Agricultural value chains in Sub-Saharan Africa: From a development challenge to a business opportunity

RECENT STATISTICS

Agriculture holds the key to broad-based economic growth, poverty reduction and food security in Sub-
Saharan Africa (SSA). This is due to the importance of the sector for SSA economies, the extent of rural poverty
and the dependence of 50 million small farms on agricultural incomes. It is well documented that growth
generated by agriculture in SSA is several times more effective in reducing poverty than GDP growth in other
sectors.

Agriculture is still the backbone of many African economies, generating 25% of GDP on average in SSA –
and much more in many countries. The broader agribusiness sector is estimated to account for close to half of
GDP. Developing the sector is also central to economic diversification in several SSA countries, e.g. Angola and
Nigeria.

Agricultural development lags behind in SSA. While overall GDP grew at over 6% annually between 2001 and
2008, agricultural GDP grew at 3.4%. In a global context, SSA is the only region which has failed to improve
agricultural productivity, due to various reasons including under-investment, poor infrastructure, insecure land
tenure, unfavourable price policies and weak institutions.

Agriculture has huge potential in SSA. The region has vast amounts of uncultivated land – close to half of
global availability, untapped water resources and large scope for improvements in inputs to increase yields.
Boosting African agriculture is also seen as a way to fulfil increasing global demand.

Import dependency is growing in spite of this potential. In 2011, SSA imported USD 43 bn worth of
agricultural commodities while exporting USD 34 bn worth, with obvious consequences in terms of ability to
generate foreign exchange and vulnerability to global prices.

Developing smallholder agriculture is key, given the predominance of small farms and their efficiency when
taking all inputs into account. Agribusiness companies increasingly partner with smallholders for the benefit of
both. Unlocking SSA’s agricultural potential also requires governments’ commitment and investments, closing
the infrastructure gap, facilitating trade and improving financing as well as skills and technology.

SSA is also attractive as a fast-growing consumer food market. Urban food markets are set to quadruple and
the food and beverage markets to reach USD 1 trillion by 2030. The region’s biofuel market is also growing.
There is increasing investor interest in SSA along the whole food supply chain, given its untapped potential for
both domestic sales and exports in more conducive macroeconomic and political contexts.

Agricultural policy-- describes a set of laws relating to domestic agriculture

and imports of foreign agricultural products. Governments usually implement
agricultural policies with the goal of achieving a specific outcome in the
domestic agricultural product markets.

1. Key Policy Issues

Agricultural policy in Kenya revolves around the main goals of
 increasing productivity and income growth, especially for smallholders;
 enhanced food security and equity,
 emphasis on irrigation to introduce stability in agricultural output,
 commercialization and intensification of production especially among small scale
 farmers;
 appropriate and participatory policy formulation
 and environmental sustainability.

The key areas of policy concern, therefore, include:

 Increasing agricultural productivity and incomes, especially for small-holder

farmers.
 Emphasis on irrigation to reduce over-reliance on rain-fed agriculture in the
face of limited high potential agricultural land.
 Encouraging diversification into non-traditional agricultural commodities and
value addition to reduce vulnerability.
  Enhancing the food security and a reduction in the number of those suffering
from hunger and hence the achievement of MDGs.
 Encouraging private-sector-led development of the sector.
 Ensuring environmental sustainability.

Key policy concerns

i. Declining agricultural performance: Declining performance of the sector in
terms of its growth, has been one of the major concerns facing policy makers and
those having interests in the sector. The performance of agriculture, which
remains the backbone of the economy slackened dramatically over the post
independence years from an average of 4.7% in the first decade to only below 2%
in the 90s. This decline culminated in a negative growth rate of -2.4% in 2000. As
a sector that engages about 75% of the country’s labour force, such a decline
implies lower levels of employment, incomes and more importantly, food
insecurity for a vast majority of rural Kenyans. It is instructive to note that a
sizeable proportion of the rural labour force (over 51%) are engaged in small-
scale agriculture and that women are the majority in the sector. A decline in
agriculture has thus far reaching implications in terms of employment and
income inequality as well as food security for the country (UNDP 2002).

 Despite its declining performance, agriculture has continued to support the

livelihoods of over two thirds of the labour force. This was mainly because the
decline in agriculture’s performance since the mid 1980s was not matched with
any real transformation in the economy which would have ensured that the
share of other sectors in GDP and employment increased as agriculture’s share
declined (ILO 1999). As a result, incomes have continued to decline as poverty
has continued to entrench itself in the rural areas.

 It is recognised that low productivity, reflected in low yields per acre of land is
among the main sources of high unit production costs in agriculture in Kenya.
Among the reasons that explain this is the inability by farmers to afford readily
available modern technologies of farming. The objective of policy makers in this
area, therefore, is to increase output using improved technologies of farming,
which would inevitably increase farm productivity and hence farmers incomes.

 Agricultural productivity can be increased, farmers incomes raised, more people

fed and in deed, the general economic welfare enhanced. The SRA (2004-2014)
recognises this and that to improve smallholder farm productivity as well as
increase incomes, smallholder farming must be changed from producing for
subsistence to commercial profitable businesses. It will then attract private
entrepreneurs willing to invest therein and employ modern farming techniques
necessary to achieve increased productivity. When agriculture is technology-led,
not only is food security achievable but also poverty alleviation is also possible.
Inability to afford new and readily available farming technology, however, is
partly blamed on poor access to financial resources, especially in a nation where
the majority, and not only farmers, are poor and the financial markets have not
developed to support agricultural investment.
  Poor marketing facilities and institutions are some of the constraints to increased
agricultural production. The major marketing constraints comprise high
transportation costs due to dilapidated roads, improper handling, poor storage
facilities and wastage. These result in fluctuations in both productions and
incomes. For livestock marketing, limited cattle holding grounds and meddling
with stock-routes has limited access to markets. Promoting marketing of
agricultural produce will require that holding grounds, watering points, stock-
routes and livestock markets be developed; the private sector be encouraged to
invest in slaughter houses and cold storage; local authorities in collaboration with
the private sector invest in storage facilities; the government provides all-
weather rural access roads, improve communication facilities and market
information systems among others. The two sets of interventions, in enhancing
agricultural productivity and marketing systems as recognized too by the SRA
(2004-2014) will lead to agricultural growth.

ii. Limited high potential agricultural land and over-reliance on rain fed
agriculture. Only about 17% of the country’s land is high and medium potential
agricultural land where most intensive crop and dairy production take place. The
rest is arid and semi arid, not suitable for rain fed agriculture. This means that
increasing agricultural production will have to come from intensification of land
use in the high and medium potential lands. The high reliance on rain fed
agriculture vulnerable to weather variability leads to fluctuations in
production and incomes especially for rural areas. There is low utilisation of
irrigation potential with only less than 7% of the cropped land under irrigation 1.
Poor rains always lead to poor agricultural performance and the subsequent
famines affecting large sections of the population. This spills over to negatively
affect agricultural incomes and hence investments in rural areas.

 Droughts and floods have increased in frequency and intensity in the immediate
past three decades, resulting in high crop failure and livestock deaths. The
current ravaging drought is a stark reminder to this. In addition, increased land
degradation has also decreased land resilience thereby exacerbating the effects
of droughts and floods leading to devastating famines that claim increasing
human and livestock lives. Recurrent droughts, floods and the associated losses
are concerns that have featured much in public debate in the recent past.

 Over reliance on rain-fed agriculture, therefore, can be seen as one of the major
causes of food insecurity. Despite the enormous potential for irrigation, irrigation
based farming is not widely practiced. It is developed under large-scale irrigation
schemes for crops like rice a few farmers have their own irrigation systems for
export crops like horticultural produce and a limited number of smallholders
practice small scale irrigation farming. This has been due to low utilisation of
water, lack of efficient technologies, destruction of rainfall catchment areas, poor
management of government irrigation schemes, degradation of surface water,
uncontrolled exploitation of underground water, leading to a drop in the water
table and increase of water extraction costs, sluggishness in permit allocation for
use of water, the lop sided Nile Treaty among others. Putting more emphasis
on
1
Kenya has 540,000 hectares of irrigable land but less than 90,000 hectares have been irrigated
(SRA 2004).
 irrigation is important in increasing arable land, productivity per acre of land,
stability of agricultural output during adverse weather conditions and stemming
famines achievable only with addressing factors that hinder irrigation efforts.

iii. Limited diversification of Agricultural production: Narrow base of agricultural

products, especially exports leads to high vulnerability of incomes to the
international market trends. The sector is characterised by weak vertical
integration, made worse by weak institutions and support services for
agricultural exports. Only a few commodities (coffee, tea, dairy, maize, wheat,
beef, and horticulture provide livelihood for over 85% of the population while
coffee and tea alone provide 45% of the wage employment in the sector.
Closely linked to this is the narrow base for agricultural exports (UNDP 2002).

 Primary agro-based products constitute about 51% of the country’s total exports,
with the value of exports from agricultural sector accounting for 64% of total
exports (Kenya 2003)a. Despite the potential for exports of fresh produce and
the, it only accounts for 3% of the total production of fresh produce. This is
mainly due to limited diversification, and low value addition in agricultural
exports. The challenges to the diversification of agricultural exports, which hinder
the realisation of the potential include; poor outdated technology that hinders
the processing of agricultural products into high value products, limited access to
breeds with high yield potentials, WTO regulations that increase the cost of
imported seeds and planting materials, limited capacity by quality assurance
bodies to ensure compliance with international standards and the imposition
of non tariff barriers to trade like sanitary and phytosanitary standards.

 Kenya has not exploited its agricultural potential to the full which is necessary to
diversify into no-traditional commodities. This would improve and stabilise
agricultural output, productivity, incomes, significantly check famine and thus
food insecurity. The country has varied climatic conditions suitable for diversified
agriculture into specialised niches like horticulture, herbs, spices, fruits and even
lean beef, but which have not been exploited to the fullest despite very
good efforts made in horticulture and fruits. There is also a vast fish potential
that has remained unexploited. The inability to effectively monitor and enforce
compliance and rules governing offshore territorial waters has curtailed full
exploitation of the offshore fishing potential. However, full exploitation of this
potential has been hindered too by lack of equipment to undertake deep-sea
fishing and the availability of more lucrative alternative sources of livelihood
found in the tourist industry.

 Produce from agriculture is commonly marketed with minimal processing

resulting in low revenue earning capacity to farmers, fishermen and creation of
fewer employment opportunities for citizens. Efforts should be made to enhance
agro-processing to increase value of agricultural exports and enhance their
income earning potential. Some of these measures recognized by SRA (2004-
2014) include, provision of appropriate incentives for establishing agro-industries
in rural areas; focused research on value addition regarding processing, storage
and packing of agricultural produce; promotion of partnerships between
smallholders and agribusiness; improvement of supportive infrastructure, e.g.,
rural access roads, rural electrification, water and telecommunications; and
undertake training
 for farmers and farmer institutions in value addition among others. The media has
recently highlighted the plight of mango farmers who cannot market their bumper
produce.

 There is also limited exploitation of the regional market potential. The regional
markets that have resulted from regional integration, e.g., in the East African
Community (EAC), Common Market for Eastern and Southern Africa (COMESA),
etc., and trade liberalisation are yet to be exploited to a significant level. The
government needs to encourage trade in agricultural produce across borders,
improve and/or provide quality control services, capacity build farmers and fish
traders on sanitary, phytosanitary and zoo sanitary measures and international
standards, build effective systems to gather and utilize information on external
market opportunities, enhance efficiency in port and airport handling services to
eliminate delays and costs, designate disease free zones to speed up access to
export markets for livestock and their products. Furthermore, the country can
become a regional hub for exports to the opened up markets through regional
integration and trade liberalisation to the Far East as well.

iv. Poor and inadequate rural infrastructure: Poor infrastructure including poor
rural roads, markets and transport systems that result in high transactions costs
for farmers and inaccessibility to input and output markets are among the main
concerns for the sector. The performance of the sector is affected right from the
production to marketing domestically and even internationally. For exports this
means lack of sustainable supply of raw materials due to uncontrolled
production, with gluts alternating with shortages as well as
uncompetitiveness since high transport costs are reflected in high prices. Poor
infrastructure has also contributed to the poor market integration in the country.

 Although agriculture has over the years contributed more than proportionately
to GDP growth in comparison to other sectors, this has been partly due to
infrastructure established through efforts made for specific commodities. Some
of these include provision and maintenance of rural access roads to facilitate the
movement of agricultural produce to markets, establishment of agro-based
industries to increase the value of agricultural produce, education, training and
extension services to enhance the adoption of modern farming techniques,
establishment of local market centres to open up markets for farmers
produce, rural electrification to facilitate agro-processing and safe storage for the
produce. Most of these services have been provided centrally by the government
through various concerned implementing ministries, until when new fiscal
reforms were initiated after the realization that the productivity of the funds
ware not very effective.

Inadequate and declining research in agriculture: During the first decade of

independence, agricultural research emphasized cash crops and major food crops led to
major break through in these commodities, which largely contributed to increased
agricultural production. There was however insufficient appreciation of the economic
aspects of small scale farming, leading to research being based on input levels that were
uneconomical to the small farmers. Productivity from small scale farms has therefore been
lower than from the large sc ale farms. Agricultural research was also not coordinated,
until the creation of the national scientific and research council. Training for agricultural
extension staff also expanded.
  Inadequate research, especially demand driven research, coupled with
ineffective extension and delivery system of research findings has been yet
another concern. The decline in government allocation to the sector has
contributed to this continuing trend. The results here include decline in other
agricultural services like
 artificial insemination services,
 lack of good quality seed and planting materials for farmers.
 High costs have led to inadequate application of improved purchased inputs on most
of the farms.
 A major concern with respect to research is also that the limited research activities
generally cover only export crops, ignoring the essential food crops. The research
system in place for agriculture also faces a number of problems like lack of strong
research-extension-farmer linkages, inadequate funding, and high turnover of
research scientists due to poor incentives.

 The provision of services has also been affected by too many official
interventions especially in commodity marketing and pricing, characterized by
proliferation of parastatal activities in pricing controls of agricultural
commodities. Institutional failure due to lack of capacity by the private sector to
take over the functions previously performed by the state after liberalization of
the sector. Limited investment and coordination by local research institutions like
KARI and institutions of higher leaning is also a concern.

 A number of constraints have however hindered further progress in research.

Lack of well defined priorities that reflect policy pronouncements, lack of
monitoring and evaluation, the low use of trained scientists from institutions of
higher learning and low funds for research have all contributed to the
concern. The ability of Kenyan agriculture to play its role in the economy
depends on the research agenda that the country charts out for its national
agricultural research system. The international agricultural research centers
should therefore only complement local research output. Although agricultural
research is currently coordinated by Kenya Agricultural Institute (KARI), a critical
problem is availability of research funds. Research expenditure as a percentage
of GDP remains below 10%, although most financing has been done by donors.

v. Agricultural sector financing and related activities. The lack of finance for
agriculture limits increasing production and investment in value addition
activities in agriculture. Inaccessibility to credit especially for small scale farmers
and especially women has limited the range of activities, the type of technology
used and the scale of operations that a farmer can adopt on his farm. Agricultural
credit available to farmers has tended to diminish over time since independence.
Although there have been a number of institutions that have been involved in
agricultural financing over time, actual investment in the sector has been small.
Thus to improve agricultural productivity and incomes, especially of smallholders
most of whom reside in rural areas, access to affordable financial credit is
important to enable them acquire new farming technology - a necessary input in
realizing the higher productivity goal.
  There has been a bias of credit towards large farms and cash enterprises. Poor
mobilization of financial resources through weak cooperative system, and grass
roots organizations needs to be addressed.

vi. Limited development and exploitation of the livestock sector. Despite the long
recognized potential of the livestock sector, this potential remains largely
unexploited. Kenya’s livestock sector contributes 10% to the GDP and about 42%
of total agricultural output (Republic of Kenya 2002). It supplies the domestic
requirements of meat, milk, dairy products and other livestock products, and
accounts for about 30% of all marketed agricultural output. The sector also earns
foreign exchange through the export of live animals, hides and skins, dairy
products and processed pork products besides providing raw materials for agro-
based industries. It employs 50% of total agricultural labour force. Although
livestock keeping is commonly practiced through out Kenya, more than 60% of all
Kenya’s livestock is found in the ASAL where it employs 90% of the local
population. The livestock sector is charged with ensuring self sufficiency in
livestock products (Republic of Kenya 2002; Ministry of Livestock and Fisheries
Development 2006).

 The development of the livestock sector is however constrained by a number of

factors.
 Recurrent droughts that lead to massive losses in livestock and therefore livelihoods
for the pastoralists are a major concern.
 This, coupled with lack of reliable markets has seriously undermined efforts to realize
the full development potential of the sector.
 Since the liberalization of domestic marketing of agricultural products, which reduced
the role of marketing boards like Kenya Meat Commission (KMC) and Kenya
Cooperative Creameries (KCC), the marketing of livestock and livestock products was
left to private traders, who lacked the capacity to take over the role of the state
corporations (ILO 2002).
 The marketing problem has been aggravated by the poor state of infrastructure,
which increases the marketing costs.

 The high costs of inputs and veterinary services have also constrained the
development of the sector.
 The withdrawal of government subsidies as part of economic reforms meant that
many farmers became unable to afford such services, leading to reduction in
their use.
 The privatization of artificial insemination services has in effect increased costs,
which has led to decline in the use of such services. This has led to the problem
of poor quality livestock through problems of inbreeding and limited use of
improved inputs.
 Diseases and pests also pose a challenge to the sub-sector due to weak
inspectorate and quality assurance as well as lack of enforcement of the existing
rule and regulations governing the movement of livestock and their products.
 The high potential for exports from livestock and livestock products
remains unexploited due to inadequate capacity in standardization and quality
control as well as inadequate processing capacity. This has meant that the
livestock sector is largely dominated by primary production with little processing
of produce. The shortage of high quality breeding stock acts as a further
constraint to the exploitation of exports from the livestock sector. The lack of
quality control and standardization of livestock products has significantly
hindered access to foreign markets as local farmers fail to meet export health
standards and quality requirements.
  Due to pressure from other competing land uses, the high and medium potential
areas have been turned into growing of subsistence crops. This has meant that
alternative management systems for livestock production have to be adopted.
While in the high potential areas livestock production is threatened by population
pressure, in the ASALs, it is problems of land degradation, droughts, and soil erosion
that are the main threat. Inadequate water facilities, poor marketing infrastructure
and poor animal husbandry practices as well as poor slaughtering practices limits the
quality of hides for exports.
 Other policy concerns in the livestock sector arise from the marketing of products
like dairy. Milk marketing was liberalized in 1992, leading to the proliferation in the
market of private processors and informal traders/hawkers of raw milk. Critical
issues that have emerged influencing the development of the sector therefore
include, marketing arrangements for private traders, product quality control and
assurance as well as the management of strategic reserves. The production and
marketing of beef products has been affected mainly by the collapse of the KMC.
Although Kenya has the potential to meet her domestic demand for meat and
realize a surplus for export, local producers continue to face problems of drought,
and poor marketing outlets that limit their production. Poor timing of livestock sales,
with majority of pastoralists selling their stock under very desperate circumstances,
is another problem.
 There is therefore need for programmes that enhance access to appropriate
production technologies and inputs as well as increasing the efficiency and overall
productivity of the sector.
 The revitalization of the livestock sector will therefore require among other things,
the rehabilitation of marketing infrastructure facilities, facilitating the private sector
to invest in both primary and secondary livestock processing plants close to
production areas. It will also be necessary to develop programmes that promote and
support the production of feeds that augment the conventional feeds. Reviving and
privatizing the KMC to provide a market outlet for livestock will also contribute to
reducing the vulnerability of livestock farmers especially pastoralists whose
livelihoods depend on livestock. This is especially important in addressing the
problem of food security in the ASALs.

vii. Lack of a comprehensive land use policy: This has over time led to difficulties of
access and utilization of land. The country lacks a clearly articulated land policy with
the result that issues like land use, management, tenure reforms and environmental
protection are inadequately addressed through the existing systems (Kenya 2001).
Land is an important resource in agriculture in Kenya and lack of access to or
ownership of land is considered one of the major causes of poverty (UNDP 2002).
The scarcity of agricultural land makes the issue of land use policy a critical one. Only
less than 20% of the country’s land surface is high and medium potential. The PRSP
identifies the improvement of land uses management as one of the ways of
improving agriculture.
 Issues on land that are relevant to agricultural development include conflicts
between different land uses due to the lack of a coordinating body that can ensure
harmony between different users (Kenya 1994). Harmonisation of different
development activities that can foster optimal land use and control of
environmental degradation is a critical issue..
 The failure by the existing land conservation policy and the need to have attendant
laws to generate environmentally sound land use habits for sustainable