Structural Implications of Economic Liberalization on Agriculture and Rural Development in Kenya

1
Structural Implications of Economic
Liberalization on Agriculture and Rural
Development in Kenya
PAUL GAMBA
2
Historical perspective

• Import Substitution Policy (ISP) dominated the
  pre and post colonial Kenyan economy up to 1980.
• Created dualities in the agricultural and rural
  economy
• 1980 onwards- SAPs and Economic reforms
• 1993 Economy classified as open
• Coincided with Political reforms especially the
  clamor for increased democratic space.

3

• Macro and micro variables were perceived to be
  stable during ISP
• Changed to instability from early 1990s following
  Economic and Political reforms
• Several policies reformulated, Acts were amended
  while organizations, institutions and parastatals
  commercialized and privatized
• Unsynchronized liberalization processes created
  major hurdles in effecting reforms

4
GDP and AgGDP trend

• Real GDP mirror AgGDP but AgGDP is declining-more
  non-agricultural contribution

5
Causes of structural changes

• Political reforms that resulted in Economic
  Recovery Strategy and Strategy for
  RevitalizingAgriculture
• Economic reforms-trade reforms, monetary and
  fiscal reforms, institutional and market reforms
• Changing environmental regimes and production
  levels
• Increasing population pressure on natural
  resources-resulting to land subdivision into
  uneconomical plots
• Rural poverty

6
Observed Outcomes of economic reforms

• Generally declining agricultural productivity
• Declining agricultural revenue
• Changes in production structure-increased/
  decreased input use/ adoption of intensive
  production technologies
• Emerging, diminishing markets and enhanced
  distribution systems (labour, land markets)

7

• Shifts in sources of rural household incomes and
  new livelihood strategies
• Increasing poverty incidences
• Labour force migration (shifting) i.e. rural
  depopulation and increasing urban population
  concentration

8

• Changing value chains (integration and
  concentration)
• Improved institutional efficiency

9
Influence on the on-going processes of
segmentation and concentration

• 1)Changes in production and productivity trends
• Productivity (output per Hectare) declining on
  specific sub-sectors coffee, sugarcane and maize,
  while increasing in tea.

10
2)Input productivity-land and labour

• While initially increased, now declining

11
3)Changes in rural household income sources
Source of income change 1997/04
Crops -40
Livestock -57
Business 20
Salaries and remittances 198
Total income -60
12
4) Declining agricultural revenue

• Revenue from agricultural production currently
  declining in all major agricultural productions
• Coffee
• Tea
• Sugar
• maize

13
5)Poverty incidence increasing
1992 1994 1997
Rural 46.33 46.75 52.93
Urban 29.29 28.95 49.2
overall 46.3 52.3 56.78
14
6)Value chain integration and concentration

• Domestic Input markets
• Fertilizer
• Seed
• AI
• Domestic Output markets
• Initially dominated by Parastatals
• Liberalization opened up market to multiple
  players
• Risk of private monopolies real

15
6)Value chain integration and concentration

• Effects of globalization on producers beginning
  to bear
• EUREPGAP (Horticulture)
• Traceability (Livestock)

16
6)Value chain integration and concentration

• Coffee and Tea export chains are integrated
  (producer and export price differentiation
  minimal)
• coffee Nairobi auction and producer prices

17
Tea producer and export prices
18
Dairy industry

• Increasing consumer and declining producers
  prices in dairy industry
• Dairy producer and consumer prices

19
Concentration ratio

• Dairy industry-segmented i.e. increasing consumer
  and declining producer prices
• Dairy industry value chain CR

1999 2001
2CR 42 64.5
4CR 65 79.5
20
7)Land and labour markets

• Labour market opening up-increasing wage levels
• Land markets diminishing-declining proportion
  land offered for rent

21
Transition impasses

• Diminishing on-farm employment opportunities
• Weak producer organizations
• Declining productive land
• Fixed capital that cannot be adjusted in the
  short run (constrains engagement in new
  enterprises)
• Prohibitively high compliance costs

22
Transition impasses

• Under-developed contract and business ethics
  culture
• Inappropriate Legislative and regulatory framework

23
Adjustments in rural and agricultural economies

• Reduced R-U migration (New urban centres)

Period Migration rate
Pre liberalization 1961/80 7.66
Transition 1981/92 6.84
Liberalization 1993/02 1.93
Post-liberalization 2003/04 -2.09
24

• Forest products marketing- forest degradation
• Increased off-farm income and remittances
  (developing rural financial services)
• Adoption of intensive production technologies
• Intensified use of inputs such as fertilizers

25
Perceived GAPS for the second phase

• Migration and labour force
• Determinants of migration, destination and sector
  of choice
• Remittances- from abroad and within the country
• Remittances, poverty, investment and welfare in
  migrants home area

26

• Value chain analysis
• Market (input and output) concentration in major
  value chains.
• Market integration (vertical and horizontal
  integration)
• Impacts of liberalization (reanalysis) on
  specific sectors of the rural economy, poverty
  and household welfare

27

• Examine livelihood strategies adopted due to the
  effects of liberalization especially in selected
  areas and enterprises
• Discern factors influencing choice of enterprise
  mix / livelihood strategies

28

• Liberalization, urbanization and poverty
• Effects of liberalization on urbanization and
  urban poverty

29

• Baby Sereria

30

• Thank you