Agriculture is the backbone of numerous countries, globally ensuring food security and providing employment and livelihoods. Nevertheless, farmers encounter various challenges, including inefficient harvesting practices, limited market access, and low productivity. In response, governments and policymakers frequently enact reforms to modernise and enhance the agricultural sector.

This blog examines Kenya’s many changes as we develop agriculture-related policies. We’ll also contrast a few of these policies with those of East African nations. The following reforms are either made to benefit the government or the farmer. Among them are:

1. Tax
2. Policies
3. Subsidies

While some measures serve as means for revenue collection, others directly address the challenges farmers face. It is essential to note that in most East African countries, the agricultural sector operates within the informal economy, leading to the introduction of new regulations to address sector-specific issues.

Tax

The Kenyan government has long struggled with taxing the agriculture sector due to the prevalence of small-scale, largely unregistered farmers. Various tax laws have been instituted to address this challenge, including a 5% withholding tax on agricultural produce. One strategy for collecting this tax involves farmers’ cooperatives, where the cooperative group withholds a portion of payments upon delivery of each produce.

Additionally, the government is exploring other taxation measures such as exemptions, standard ratings, and zero ratings. Notably, grain storage facilities are among the tax-exempt entities that help reduce grain wastage. However, the recent elimination of maize seed exemptions has rendered them less affordable for farmers.

Looking at other East African markets, Tanzania imposed a 2% withholding tax on agricultural, livestock, and fishery products in 2021. Most of the taxes will be passed on to consumers.

Reforms

The government has implemented reforms to ensure market access to overseas markets while safeguarding local farmers against competition from cheap imports. These reforms are enforced through local regulators or regional bodies like COMESA. In November 2023, Kenya secured a two-year extension of sugar safeguard measures, subjecting sugar exports from COMESA countries to custom duties to protect the local market from the influx of cheap sugar.

Upon expiration, sugar from COMESA countries can be imported duty-free. Comparing production costs, Malawian sugar is produced at USD 215, Swazi sugar at USD 275, and Kenyan sugar at USD 210 at the farm level.  This means that although Kenyan sugar is competitive locally, COMESA sugar can be imported at a similar price in case of a deficit.

Significant reforms have been underway in the realm of coffee. Under the new government, the National Coffee Exchange (NCE) has established a cupping laboratory to streamline pricing. This marks a departure from previous methods, where farmers determined the price.

Contrastingly, in Uganda, coffee companies are permitted to sell directly to the market without regulatory oversight. Moreover, Uganda withdrew from the International Coffee Organization due to perceived biases favouring importers over producers.

Subsidy

Fertilizer remains a critical issue in Kenya, impacting farmers nationwide. Access to subsidized fertilizers has been inconsistent, leading to occasional price spikes and threatening farmers’ livelihoods. However, fertilizer subsidy programs can potentially lower agricultural production costs and subsequently contribute to reducing food prices.

On several occasions, the government has stated that subsidized fertilizer should be available on the market. In 2023, they disclosed the sale of 34,000 bags of fertilizer at Kes 2500, down from Kes 3500, benefiting over 200,000 farmers. Yet, the true impact of this initiative on the market remains uncertain.

Other nations have successfully implemented subsidy programs like Tanzania’s National Input Voucher System (NAIVS), established in 2002/2003. While designed to assist small-holder farmers in purchasing government-subsidized fertilizer, the program inadvertently widened the gap between small and large-scale farmers. Despite its intended purpose of supporting smallholders, large-scale farmers also gained access to the program, exacerbating inequalities.

Conclusion