“An Empirical Analysis of Market and Price Structure of Maize Sector in Kenya”
GILBERT KIMUTAI ARAP BOR
REG. NO. D.PHIL/046/07
SCHOOL OF BUSINESS & ECONOMICS
DEPARTMENT OF MARKETING AND MANAGEMENT SCIENCE
1 Background to the study
Maize is the staple food for the majority of Kenyans, as it is to many low-income populations across the countries of Eastern and Southern Africa. According to the USAID policy synthesis, it accounts for 50% of the low-income household expenditure in Kenya. Argwings-Kodhek and Jayne (1997)indicate that since the full liberalization of the market for maize in December 1993, average maize meal prices have declined by 31%, 51% of this decline being attributable to a decline in milling margins and the remaining 49% being due to lower grain prices in 1995 in response to a favorable harvest.
Over the past two decades, Kenya like most other developing countries has implemented two major economic reforms in her staple grain markets. In the mid 1980’s, the reform of food markets was an important component of the economy-wide Structural Adjustment Programs (SAPs) adopted by developing countries (Minot and Goletto, 2000). The SAPs entailed the privatization and liberalization of staple grain marketing and pricing in over 20 counties in Africa (World Bank, 1994).
In the 1990’s, the SAPs were deepened by Kenya’s tariff reduction commitments at the multilateral trade negotiations that culminated in the creation of the World Trade Organization (WTO). The key multilateral rules affecting grain trade relate to the Uruguay Round’s Agreement on Agriculture (URAA), whose main pillars are improved market access, reduced domestic support and the elimination of export subsidies. Among the WTO modalities, the market access commitments have had the most important impacts on grain marketing in Kenya.
The grain market reforms have been concentrated in the maize sector because of its strategic importance as Kenya’s key staple food and a source of income for a vast majority of the population. Prior to the SAPs, maize markets in Kenya were strictly controlled by the government that enforced administratively determined uniform prices across regions and seasons. Maize marketing was monopolized by the National Cereals and Produce Board (NCPB), a state sponsored single-desk marketing board. Kenya’s maize sector reforms began in the mid 1980’s and intensified through the 1990’s resulting in a fully decontrolled market by the end of 1993. Thus, by the time of signing the URAA in 1995, the country was implementing the SAPs, and had substantially liberalized its grain markets. Currently, the government intervenes in the maize sector via two main policy instruments: the operations of the National Cereals and Produce Board (NCPB) and the application of import tariffs. The NCPB remains active in a liberalized market, but its role has been confined to the management of a national strategic grain reserve and a buyer of the last resort (Wangia et al., 2001). The application of import tariffs was effected in the 2009 maize shortage period when the government was forced to lift the existing import duty on imported maize as a price-cushioning strategy to ensure millers would not raise consumer prices. The reverse action was applied to local supply side when the Ministry of Agriculture imposed and export ban on Kenyan produced maize, to chagrin of maize farmers in the main grain producing districts who had started to cash in on high export prices, mainly obtainable from South Sudan.
The impacts of trade liberalization on Kenya’s maize sector have however, proved to be controversial. On the one hand, farm lobby groups argue that increased market access lowers producer prices, which serves as a disincentive to production and thus a direct threat to food security (Mghenyi,...