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CHAPTER 8. KENYA 1

I. INTRODUCTION

Agriculture, including livestock, forestry and fishing, accounts for about 27 percent of Kenya's GDP and for 60 percent of export earnings from trade in goods. The sector is of paramount importance, as 80 percent of the population depend on agriculture for their livelihood. The bulk of production is based on small-scale, family-farms, producing both food and cash crops, accounting for two thirds of agricultural output.

Kenya has implemented a series of economic reform measures since the mid-1980s. More sweeping reforms were undertaken in the early 1990s, aimed at encouraging the participation of the private sector in production, marketing, processing and trading of agricultural commodities. Most agricultural marketing boards have been restructured, eliminating their monopoly rights in pricing and marketing of products. As a result, most agricultural prices are now determined by market forces, with import and export parity prices being the main determinants of domestic prices. Tariffs have become the sole instrument for regulating trade.

These reforms were undertaken in a difficult period. The agricultural sector has stagnated for several years, growing at less than 2 percent per annum, compared to about 4 percent or higher in the 1980s. As result, Kenya faces a difficult food security situation. FAO estimates show that the proportion of the population subject to food insecurity in Kenya increased from 26 percent in 1979-81 to 41 percent in 1995-97, a very disturbing trend both in absolute and relative terms. For example, in sub-Saharan Africa as a whole the proportion declined from 37 percent to 33 percent over the same period. These outcomes are mainly the result of a reduced per caput supply of foods, which fell by 8 percent, from 2 146 kcal/day to 1 977 kcal/day between the two periods.

There is a feeling of frustration that the reforms have neither helped the agricultural sector nor improved food security. While the sector has failed to respond to policy reforms, some analysts in Kenya also feel that the increasingly liberal trade regime has compounded difficulties facing the agricultural sector, including rising imports of foodstuffs, notably maize, rice, wheat, sugar and dairy products. With such a high dependence of the population on agriculture and the predominance of small family farms, how the ongoing reform measures and how the AoA impact on Kenyan agriculture are critical issues. It is in this context of renewed expectation that Kenya seeks to participate in the new WTO negotiations on agriculture.

II. EXPERIENCE WITH IMPLEMENTING THE AGREEMENT ON AGRICULTURE

2.1 Market Access

In the UR, Kenya bound all its agricultural tariff lines at 100 percent. All "other duties or charges'' were also bound, at zero. Eighty-nine percent of all agricultural tariff lines are on ad valorem basis, about 10 percent are mixed tariffs2 and the remaining few are specific. Mixed tariffs are applied on a number of important basic food products, including wheat, maize, rice, sugar and milk. Kenya did not make any other specific commitments on market access, e.g. tariff rate quotas (TRQs). And since it chose the ceiling binding option rather than tariffication, it has no access to the special safeguard (SSG) provision of the AoA (Table 1).

Table 1: Kenya's Uruguay Round commitments on market access

Market access components

Commitments

· Bound tariffs

· Other duties or charges

· Special Safeguard (SSG) provision

· Tariff Rate Quotas (TRQ)

100 percent on all agricultural products

None (i.e. bound at zero percent)

No access

Not offered

During 1995-99, applied tariffs have consistently been below the bound rates. Although applied rates ranged from 0 to 75 percent, the simple average for all agricultural products was only 17 percent in 1999 3, which is considerably below the bound rate of 100 percent. Table 2 shows the simple average of the applied rates for selected major HS chapters in 1999. Cereals faced the highest tariffs (41 percent), followed by sugar and sugar confectionery (35 percent) and meat and dairy products (both 25 percent). The average for most other HS chapters ranged from 10 percent to 20 percent. Following the recent tariff reform, Kenya has reduced the number of bands carrying ad valorem rates to five (0 percent, 5 percent, 10 percent, 15 percent, 20 percent and 25 percent). The maximum ad valorem rates have also been lowered, from 60 percent in 1992 to 25 percent in 1999 (excluding suspended duties, see below).

Table 2: Applied MFN tariffs in 1999 1

HS Code

Description

Average

Minimum

Maximum

02

Meat and edible meat offal

25

25

25

04

Dairy products

25

25

25

07

Edible vegetables and certain roots and tubers

22

10

35

08

Edible fruit and nuts

22

10

35

09

Coffee, tea, maté and spices

15

15

15

10

Cereals

40.8

15

75

11

Products of the milling industry; malt; starches; inulin; wheat gluten

21.8

15

95

12

Oil seeds and oleaginous fruits

12.6

5

15

15

Animal or vegetable fats and oils

21.1

10

40

17

Sugars and sugar confectionery

34.5

15

95

18

Cocoa and cocoa preparations

21.2

10

30

1 Including basic customs tariffs and suspended duties.

Source: WTO, op.cit. Appendix Table A III.1.

Kenya also has the option of applying additional taxes (known as suspended duties or stand-by duties) on a number of products, mostly basic foodstuffs, which in 1999 included maize, rice, wheat, sugar, milk, tobacco products, certain fruits and vegetable oils. These duties were introduced in 1994 in place of variable duties that were formerly applied and are imposed upon request of a domestic industry on a discretionary basis. An Act of Parliament sets the maximum rates of suspended duties that can be applied at any time on any product at 70 percent. For example, in 1999, the total tariff on wheat flour, meslin flour and sugar of a polarimeter reading of 99.5_ or more could be as high as 95 percent, made up of 25 percent of basic tariff and the maximum applied suspended duty of 70 percent. These duties are also imposed on some semi- and fully-processed agricultural goods.

The option to apply suspended duties has attracted some questions by WTO Members. During the discussion of the Trade Policy Review of 2000, some Members expressed concern that the existence of the mixed and suspended duties made the tariff structure less transparent and threatened the otherwise good record of trade liberalization.

The response from Kenya was that suspended duties were necessary as a transitional measure following the abolition of variable levies.4 They were also required as a trade remedy measure as Kenya continued to face unforeseen import surges that threatened import-competing domestic sectors. In this context, Kenya was also asked questions at the WTO Committee on Agriculture (CoA) concerning the import ban on some dairy products instituted in January 1996 for a period of 12 months. The recourse to this measure was said to be necessary following a surge in untaxed, and therefore illegal, imports which caused unfair competition on the domestic market. This case also highlighted a problem facing many developing countries, namely that it is difficult for them to resort to WTO-compatible instruments like anti-dumping and countervailing duties when faced with import surges. The suspended duties were seen as a transitional measure pending the achievement of the necessary institutional capability to resort to the general WTO safeguards.

One other question asked at the CoA concerned restrictions on imports of maize seed, which were alleged to be inconsistent with GATT Articles III and XI as well as Article 4.2 of the AoA. It was explained that maize seed continued to be a quarantine crop under Cap. 324 of the Laws of Kenya due to the high risk of disease and insect pest. A number of phytosanitary protocols had been specified for the import of the seed, which was necessary in view of the extremely important role that maize played in the country's food security5.

In common with many other developing countries, there have been numerous cases where applied tariffs have had to be varied in response to specific, unforeseen domestic and external factors. Such variations have taken place in both directions. For example, in April 1998, in view of a tight grain situation, import duty on maize was waived for three months in order to encourage commercial imports to meet the deficit. Similarly, import duty on wheat was lowered in February 1998, from 75 percent to 35 percent. Sugar is another commodity where difficulties have been encountered from time to time. There were reports of sugar being "dumped" on the domestic market in 1996, in the light of which imports were regulated by high tariffs (around 65 percent) and other measures. As part of these measures, Kenya also had to closely monitor transit sugar, which is at times diverted into the local market.

Overall, Kenya has thus complied with its basic AoA commitment on market access, namely that all tariffs are bound and applied rates are below the bound rates. There were, however, some difficult experiences, too, mainly concerning "sensitive" food commodities where border policies deviated somewhat from the rules from time to time, e.g. a temporary import ban on dairy products. While it is true that mixed and suspended duties make the tariff structure less transparent, their existence does not breach Kenya's AoA commitments as long as the total applied tariffs remain below the bound rates. Kenya, however, is not alone in this situation.

The Common Market for Eastern and Southern Africa (COMESA) has plans for establishing a Free Trade Area by the year 2000 when all COMESA member countries are expected to adopt a CET. To move from the current applied rates to the CET could be complicated for some commodities.

2.2 Domestic Support

In the UR, Kenya did not submit detailed commitments on domestic support measures, essentially claiming that all such measures pertained to the exempted categories and/or were within the de minimis levels in the case of trade-distorting support measures. Notifications to the WTO for recent years on green box measures indicate that the total outlay was about US$53 million (2.7 billion shillings) in 1996 and US$65 million (3.8 billion shillings) in 1997 (Table 3), an increase of 22 percent. These are very small amounts compared with Kenya's agricultural output of roughly U$2 200 million. About 30 percent of the total outlay in 1997 was on agricultural education, followed by agricultural research (18 percent) and veterinary services (17 percent).

Like most other developing countries, Kenya initiated a series of liberalization measures several years before the conclusion of the UR. As a result, most trade-distorting subsidies were either eliminated or brought down to minimum levels. Initial agricultural policy reforms emphasized liberalization of the agricultural market and removal of price controls. Reforms concentrated first on export crops, where the policy was to align export prices at their export parity levels. Reforms directed at import-competing food crops faced much more difficulties than initially anticipated6. As a result, there were several instances of policy reversals. Also, recurring droughts and external shocks often complicated the reform process. The reform of the National Cereals and Produce Board (NCPB) in 1997 was an important and difficult step, because the Board had regulated for many years the marketing and distribution of the main food security commodity, namely maize.7

Kenya was asked very few questions at the CoA on its domestic support programmes, presumably because there was very little information on support measures. In one instance, it was asked to provide details on some green box measures (notably the purchase and maintenance of machinery and equipment and the construction of livestock handling facilities, dips and crushes) and the Committee was advised that these measures were consistent with the green box criteria.

There are no studies available, official or other, that measure the full range of support outlays in favour of producers. It is therefore only possible to discuss some issues in this area in a more general manner, based on other sources.

Table 3: Green box expenditures, 1996 and 1997 (in millions of shillings)

Type of measure

Programme description

1996

1997

       

General services

Agricultural education

1 064

1 127

 

Agricultural extension

482

447

 

Agricultural research

1

674

 

Livestock development services

337

438

 

Veterinary services

591

635

 

Rangeland development services

66

71

       

Public stockholding for food security purposes -strategic reserve operations

To procure and maintain strategic reserves of designated essential produce

201

400

Total

 

2 740

3 791

1 Agricultural research outlays for 1996 were included under agricultural extension.

Source: Notifications to the WTO.

As regards trade-distorting measures, as a developing country, Kenya can grant farm subsidies, under the de minimis provision, up to 10 percent of the value of production of particular crops. For non-product-specific support measures, e.g. fertilizers, the limit is 10 percent of the value of total agricultural production. Computations for other countries show that these limits are high and provide substantial scope for subsidization. For Kenya, the de minimis limit for non-product-specific subsidies would be roughly US$380 million.

As to product-specific subsidies, the limit would be roughly as follows (10 percent of the value of production of the crop): US$55 million for tea; US$43 million for coffee; US$39 million for maize; and US$5 million for wheat (produced in relatively small quantities). Although it seems unlikely that Kenya would come up against the AMS limits, given the scope for subsidization noted above, computation of these threshold levels would be useful to assess whether the AoA disciplines would constrain in any way the implementation of support measures, if and where and when required. To that end, it would be desirable to compute all support measures addressed by the AoA, categorize them under the various "boxes" and report to the WTO. Such an exercise would also have the advantage of enabling a claim to be made for transferring some of the non-product-specific subsidies to the SDT category, for which there is no limit, clearly specifying how "low-income" and "resource-poor" farmers are defined and estimating the share of the total subsidies flowing to them. Unnecessary questioning in the CoA could thus be avoided.

2.3 Export Subsidies

In the UR, Kenya did not report any subsidies on agricultural products contingent upon exports and accordingly has neither a commitment to reduce export subsidies nor the option of granting them in the future. In any event, it cannot afford this practice nor would it be in its interest. The AoA allows developing countries to provide subsidies to reduce the cost of domestic marketing and international freight, and Kenya could resort to this measure, if needed, on a limited scale, for selected products, e.g. cut flowers and fruit.

In common with many countries, the Government has introduced some incentives aimed at export promotion, of the nature listed under the Agreement on Subsidies and Countervailing Measures. For example, the Export Compensation Scheme, which was abolished in 1993, provided for tax rebates and under the Duty Remission Scheme, introduced in 1990, exporters of horticultural goods and agro-based products enjoy remission of import duties and value-added tax on imports used in their production. The amounts of subsidy granted under these schemes are certainly very small and so unlikely to be called into question.

III. EXPERIENCE WITH FOOD AND AGRICULTURAL TRADE

3.1 Agricultural Trade

Kenyan exports are dominated by agricultural commodities, particularly tea, coffee, pyrethrum and horticultural products (flowers, fruit and vegetables), which represent around 60 percent of total exports. Therefore, fluctuations in climatic conditions and in world prices of these commodities strongly affect export earnings. The share of agricultural products in total merchandise exports has been stable since 1993. Three commodities (tea, coffee and horticultural products) accounted for more than 75 percent of total agricultural exports in 1998, with tea alone making up more than 45 percent of this.

Total agricultural exports were on a rising trend over the 10-year period 1985-95, more than doubling from the beginning to the end of the period (from US$685 million to US$1 384 million) (Figure 1). Up to 1994 the increase was at the impressive linear rate of US$25 million per year. The growth was particularly marked during 1992-95, after which it stabilized. The average value of exports in 1995-98 was 46 percent higher than in 1990-94, as well as 27 percent higher than the extrapolated trend value (Table 4).

Table 4: Agricultural trade in 1990-94 and 1995-98 (average annual value, in million US$, and percentage change)

Period

Exports

Imports

Net exports

1990-94 actual (a)

1995-98 actual (b)

1995-98 extrapolated (c)1

(b) - (a) 2

(b) - (c) 2

832

1 215

958

383 (46%)

257 (27%)

287

426

406

139 (49%)

20 (5%)

545

788

552

243 (45%)

236 (43%)

1 Extrapolated value based on 1985-94 trend.

2 Numbers in parentheses are percentage changes over (a) and (c) respectively.

Source: Computed from FAOSTAT data. Agriculture excludes fishery and forestry products.

Agricultural imports, which amount to only 35 percent of agricultural exports, also grew rapidly, at the linear rate of US$27 million per year, over the 10-year period.8 Their average value in 1995-98 (US$426 million) was 49 percent higher than in 1990-94, but only 5 percent above the extrapolated trend value (because the 1985-1994 trend was strongly on the rise). Net agricultural exports consequently declined modestly from 1985 to 1991 but increased thereafter. As a result, their average value in 1995-98 was 45 percent higher than in 1990-94, with similar performance relative to the trend, which was basically flat.

The rest of this subsection reviews trade in the three products which accounted for 73 percent of all agricultural exports in 1995-1998: tea (37 percent), coffee (23 percent) and fruit and vegetables (13 percent) - see Table 5 .

Coffee was Kenya's top agricultural export in the 1980s but subsequently lost its position for various reasons which included declining world market prices, high export taxes and higher returns from competing crops. During 1985-94, the volume of coffee exports declined at the linear rate of 3 000 tonnes per annum and export earnings by US$19 million per annum because prices were falling strongly. The tonnage exported in 1995-98 was 10 percent lower than in 1990-94, but export earnings were 49 percent higher because of the price recovery. However, the tonnage was 11 percent higher than the extrapolated amount and (since export prices rebounded) export earnings were 151 percent higher. Thus, the performance was much better when viewed from the standpoint of the trend.

Figure 1: Agricultural trade, 1985-98 (in million US$; thick lines are actual values, thin lines are trends for 1985-94 extrapolated to 1995-98)

Source: FAOSTAT

Table 5: Exports and export unit values of major agricultural products, 1990-94 and 1995-98 (annual average)

     

Actual value

Trend value1

Percentage change

     

1990-94

1995-98

1995-98

(b/a)

(b/c)

Product

 

Unit

(a)

(b)

(c)

(d)

(e)

               

Coffee

 

million US$

188

281

112

49.2

151.5

   

000 tonnes

90

81

73

-10.0

11.4

   

US$/tonne

2 094

3 472

1 538

65.8

125.8

               

Tea

 

million US$

300

454

347

51.5

30.9

   

000 tonnes

178

246

205

37.9

20.0

   

US$/tonne

1 684

1 850

1 695

9.8

9.1

               

Fruit and

million US$

111

153

135

37.3

13.4

vegetables

 

000 tonnes

158

165

187

4.3

-12.1

   

US$/tonne

705

928

719

31.6

29.0

1 See note 1 to Table 4.

Source: Computed from FAOSTAT data.

At the same time, reform measures were under way. Until recently, the Coffee Board of Kenya (CBK), a parastatal, was responsible for a number of functions, which included processing, licensing and control of producers and processors, and the promotion of research. The Board's marketing monopoly was abolished in January 1999; it now exercises its marketing functions in competition with private operators. The Board is to be further restructured through the review of the Coffee Act, following which further liberalization of the marketing and processing activities is expected.

Tea overtook coffee as the largest export item in 1989 and has since consolidated its position. Kenya is now a leading tea exporter, accounting for 22 percent of world trade in tea. During 1985-94, the value of exports increased at the linear rate of US$11 million per annum, with volumes and prices contributing evenly. The experience since 1994 has been even better. The average value of exports in 1995-98 was 52 percent higher than in 1990-94, due to both volume (38 percent higher) and prices (10 percent higher). This performance was, however, less impressive when viewed from the standpoint of the strong trend, i.e. there was some deceleration in export growth.

As with coffee, the marketing of tea was formerly regulated by an authority, the Kenya Tea Development Authority (KTDA) and its parastatal, the Kenya Tea Board (KTB). The Authority was also involved in fixing producer prices and the Board was in charge of, inter alia, the promotion of the tea industry. The tea sector has been restructured since 1999. A Tea (Amendment) Bill was submitted to Parliament providing for the transfer of the regulatory powers to the KTB. The KTDA is to be converted into a management agency (under the Companies Act) responsible for the development of tea, i.e. production issues; it is to be sold to farmers through their factory companies. In addition, the packing and distribution of tea was liberalized in 1999, which has led to an increase in the number of firms involved in these activities.

As regards fruit and vegetables, horticultural products exported include various fruits (mangoes, strawberries, macadamia nuts, avocados, passion fruit, and pineapples) and vegetables (runner beans, snow and snap peas, baby corn, shelled peas, spinach, spring onions, aubergines, chilli, and okra) in their fresh or processed form, and cut flowers. Fresh products contribute some 50 percent to earnings from horticultural exports. Kenya is the world's fourth largest exporter of cut flowers, which account for nearly 40 percent of horticultural exports.

During 1985-94, total exports of fruit and vegetables increased at the linear rate of 7 000 tonnes per annum and US$5 million in value, while export prices declined slightly. The average volume of exports in 1995-98 (165 000 tonnes) was only 4 percent higher than in 1990-94, but since export prices rose 32 percent total export earnings were 37 percent higher. This performance is less impressive when compared with the trend up to 1994: the 1995-98 volume was 12 percent lower than the extrapolated figure but export earnings were 13 percent higher because export prices were much higher.

The Horticultural Crop Development Authority (HCDA), a parastatal mandated to advise growers, packers, transporters, distributors, processors and exporters, is being restructured, with a view to enabling the private sector to play a dominant role. For Kenya, access terms in the EU are of particular importance because that is its major market. It is felt that the present terms EU are far from being liberal, as EU tariffs on fruit and vegetables are both high and complex.

3.2 Food Trade9

Food products dominate Kenya's agricultural imports (88 percent of the total), but account for only a quarter of agricultural exports. Hence, the behaviour of food imports is similar to that of agricultural imports noted above. During the 10 years 1985-94 food imports were on a strongly upward trend, rising at a linear rate of US$27 million per year (Figure 2). They declined in 1995 and 1996 and surged in 1997, to remain at that level in the following year. The average value of imports in 1995-98 was thus 49 percent higher than in 1990-94 and about the same as the extrapolated value, i.e. in continuation of the trend (Table 6). Food exports also rose during the 10-year period, at the linear rate of US$19 million per year. They started to rise in 1992 and remained high in the subsequent years. The value of exports in 1995-98 exceeded the 1990-94 average by 38 percent but was 4 percent below the extrapolated trend value, as export growth decelerated after 1994. The overall outcome, in terms of net food imports, was highly negative: net imports in 1995-98 were 45 percent higher than in 1990-94 level and 15 percent above the extrapolated trend value.

Table 6: Food trade in 1990-94 and 1995-98 (annual average value, in million US$, and percentage change)

Period

Imports

Exports

Net imports

1990-94 actual (a)

1995-98 actual (b)

1995-98 extrapolated (c)1

(b) - (a) 2

(b) - (c) 2

250

373

370

123 (49%)

3 (1%)

207

286

297

79 (38%)

-11 (-4%)

43

88

72

45 (103%)

15 (21%)

1 See note 1 to Table 4.

2 Numbers in parentheses are percentage changes over (a) and (c) respectively.

Source: Computed from FAOSTAT data. Food excludes fishery products.

Figure 2: Food trade, 1985-98 (in million US$; thick lines are actual values, thin lines are trends for 1985-94 extrapolated to 1998)

Source: FAOSTAT

Table 7: Imports and import unit values of major food products in 1990-94 and 1995-98 (annual average)

     

Actual value

Trend value1

Percentage change

     

1990-94

1995-98

1995-98

(b/a)

(b/c)

Product

 

Unit

(a)

(b)

(c)

(d)

(e)

               

Rice

 

million US$

16

13

22

-16.9

-41.8

   

000 tonnes

54

45

76

-16.7

-41.2

   

US$/tonne

289

288

292

-0.2

-1.2

               

Wheat

 

million US$

45

75

60

67.1

25.6

   

000 tonnes

287

378

379

32.0

-0.2

   

US$/tonne

157

199

158

26.6

25.9

               

Maize

 

million US$

38

78

74

104.5

5.2

   

000 tonnes

229

377

439

64.7

-14.1

   

US$/tonne

166

206

169

24.1

22.4

               

All

 

million US$

109

177

175

61.5

1.1

cereals

 

000 tonnes

599

820

946

37.0

-13.3

   

US$/tonne

183

215

185

17.9

16.6

               

Vegetable

million US$

75

133

95

76.1

39.1

oils

 

000 tonnes

189

199

259

5.3

-22.9

   

US$/tonne

398

666

369

67.3

80.4

               

Sugar

 

million US$

47

32

71

-32.4

-55.7

   

000 tonnes

127

83

187

-34.6

-55.7

   

US$/tonne

368

380

380

3.3

-0.1

               

Fruit and

million US$

10

13

16

31.5

-17.4

vegetables

000 tonnes

21

18

41

-13.5

-55.8

   

US$/tonne

475

723

386

52.1

87.1

               

Dairy

 

million US$

5

4

6

-12.9

-38.7

products

 

000 tonnes

3

2

4

-47.8

-55.6

   

US$/tonne

1 353

2 258

1 635

66.9

38.1

See note 1 to Table 4.

Source: Computed from FAOSTAT data.

The total cereal import bill in 1995-98 was 62 percent (US$68 million) higher than in 1990-94, in large part due to an increase in volume (37 percent) rather than in prices (18 percent). Roughly 60 percent of the incremental cereal import bill was on account of maize and 40 percent of wheat. The 67 percent rise in wheat imports was due in almost equal part to prices and volume, while volume was the more important factor in the 105 percent rise in maize imports. For rice, reduced volumes explain fully the 17 percent drop in the value of imports. Thus, Kenya's experience with cereal imports during 1985-98 was not positive. However, from the standpoint of the trend since 1985 it appears much more favourable in that the tonnage imported in 1995-98 was 13 percent below the extrapolated trend figure; but the import bill did not fall because prices rose.

Imports of vegetable oils in 1995-98 were 76 percent higher than in 1990-94, almost entirely due to higher prices. In comparison with the extrapolated trend value for the period they were only 39 percent higher. This result, too, reflects largely the (80 percent) rise in prices; the tonnage imported was 23 percent below the trend value. In other words, in comparison with the trend the import situation was less unfavourable.

Experience with the import of sugar has been positive. Sugar imports in 1995-98 were 32 percent lower than in 1990-94, fully explained by reduced import volumes. In relation to the trend, they were even lower, reaching only 44 percent of the extrapolated trend value. This result was entirely due to volume, indicating a deceleration in imports.

Imports of fruit and vegetables in 1995-98 were 32 percent more than in 1990-94, entirely due to higher import prices, as the tonnage imported fell by 14 percent. The experience was positive when measured against the trend: imports were 17 percent lower than the extrapolated trend value but the tonnage imported was proportionately even lower.

Figure 3 shows how food imports have varied annually as a ratio of total agricultural exports. Initially (1985-88) around 0.15, it increased to 0.2 in 1989 and has fluctuated markedly thereafter, almost doubling from 1996 (0.23) to 1997 (0.43) and falling to 0.36 in 1998. The average value of the ratio was 0.30 in 1995-98, which was only 3 percent higher than in 1990-94, but 23 percent lower than the extrapolated trend value, a positive experience for Kenya.

Figure 3: Ratio of the total value of food imports to that of agricultural exports, 1995-98

Source: FAOSTAT.

IV. ISSUES OF CONCERN IN FURTHER NEGOTIATIONS ON AGRICULTURE

As noted in the introduction to this chapter, Kenya faces a difficult food security situation. With the very high dependence of the population on agriculture and a largely family structure of farming, how the ongoing reform measures, and how the AoA, impact on the agricultural sector is of critical importance. Therefore, food security concerns - which essentially means the state of the agricultural sector - should be central to any discussion of trade policy reform.

In the light of the experiences described above, the following paragraphs summarize some issues of concern for Kenya in the context of the new WTO negotiations on agriculture. They also point to areas where further analytical work would be helpful for the preparation of these negotiations.

Key provisions of the AoA and Kenya's commitments

It was seen in Section II that Kenya has implemented sweeping policy reforms, especially since the early 1990s, and that in consequence by the time the WTO Agreement came into force domestic and trade policies were already along the lines envisaged by the AoA. Reform measures continued during 1995-99, and compliance with the AoA is hardly an issue. The remaining few inconsistencies should disappear once the current phase of reform is completed in the near future.

Of the three main provisions of the AoA, Kenya was barely concerned with commitments on export subsidies, which it neither grants nor considers desirable or affordable. On domestic support measures, although the precise situation could not be determined because of lack of information on AMS levels, as in many other developing countries, rough estimates indicated that Kenya has considerable flexibility in granting these subsidies within the de minimis level, if required. Also, it has scope for subsidies falling in the SDT category. It is thus most unlikely that the AoA provisions have constrained directly Kenya's domestic support polices during 1995-98. Nevertheless, it would be in the country's own interest to compute the AMS levels carefully in order to see where it stands. The exercise would contribute to transparency and articulating a sound negotiating position for the new round. At the same time, the continuation of the SDT category of support should also be sought.

On market access, the ordinary tariff is now the only instrument for regulating almost all agricultural trade and applied rates have been below bound rates during 1995-99. Thus, compliance with the AoA rules is hardly an issue. But, apparently as with many WTO Members, border measures have sometimes deviated somewhat from the AoA rules (e.g. the temporary import ban on dairy products in 1996) for specific, short-term reasons, though they have constituted only a few, isolated, cases.

Although not a compliance issue, Kenya faced some questions from WTO members on its system of suspended duty, for lack of transparency and predictability. The duty is a form of variable levy which is applied by several WTO members - both developing and developed. The legitimacy of variable levies has not been clearly determined - the AoA seems to ban them, but they have scarcely been challenged in the WTO. Kenya's suspended duties differ from other, more commonly practised, forms of price band policies in that the surcharge is decided by the Government (within the capped 70 percent) rather than based on moving averages of world market prices or on domestic reference prices. It is difficult to state whether this feature (i.e. non-automaticity of the trigger) makes Kenya's scheme special and prohibited, or whether all price band policies belong to the same category as long as the total applied duty does not exceed the bound rate.

Thus, while Kenya needs to follow closely this debate at the WTO and elsewhere, what would seem more useful would be to analyze its own situation in detail, seeking answers to questions such as: why are these surcharges required in the first place if the ordinary tariff itself can be raised up to 100 percent; what are the specific reasons for imposing surcharges on a selected list of food products - is it exclusively a matter of food security?; what are the pros and cons of triggering the surcharges automatically, on the basis of world market prices or domestic reference prices?; what are the implications of not having access to the agricultural SSG?; should Kenya negotiate for such access in the new round and, if so, on what specific grounds?; and how should it approach the issue of further reduction of the WTO bound rates in the new negotiations, given the experience of the past five or six years?

Commodity-specific concerns

Of the three main export products (coffee, tea and horticultural products, including cut flowers), market access is most difficult for fruit and vegetables, for which EU is the main market. Unlike Morocco and Egypt, for example, Kenya does not have a bilateral agreement with EU under which quotas are allocated. As a result, exports are mostly of products that are off-season in the EU market. Although Kenya is a party to the Lomé Convention, the latter does not provide for preferential treatment by EU. Given its revealed comparative advantage in the production and export of fruit and vegetables, it is important for Kenya to analyze EU's complex import regime for those products, in order to be in a position to negotiate better access terms in the new round.10

As regards coffee and tea, there are few barriers in most markets to imports in their unprocessed forms. However, there is considerable tariff escalation in many major markets in respect of coffee.11 For example, the bound tariff on roasted coffee at the end of the UR implementation period would still be 8 percent in the EU and 12 percent in Japan (while green coffee enters duty-free) and for coffee extracts they would be respectively 11 percent and 39 percent. The situation is similar for leather products, which are potentially important export items. The urgency of eliminating tariff escalation and reducing tariff peaks on agricultural products was stressed in the Kenyan statement to the Third WTO Ministerial Conference at Seattle.

SPS and TBT Agreements

It was not possible in this study to document Kenya's experience with the implementation of these Agreements and how and to what extent agricultural trade was affected. Research in this connection should clearly be a priority area of work, drawing in particular on the experience of traders. Kenya has been active in drawing attention to the difficulties faced in these areas and in expounding its position. At Seattle, for example, it pointed out that the developing countries, including Kenya, had experienced serious difficulties occasioned by instances of arbitrary SPS requirements which had reduced market access. It proposed that a comprehensive review be undertaken to take into account the numerous difficulties faced by them in the formulation and application of the SPS measures and called for a transparent, non-partisan arbitration system of dispute settlement, with sufficient safeguards for consumers.

In 1999, at the session of the CoA, Kenya stated that Article 10 of the SPS Agreement, which required developed countries to take account of the special needs of the developing countries in the preparation and application of SPS measures, should be examined in the light of the implementation difficulties facing the latter. Examples given included: complex notification procedures; vague terminology such as "reasonable period"; and lack of implementation of the technical assistance promises in the Agreements. So as to ensure an effective participation of the developing countries in international standard-setting debates, Kenya also proposed that a regional approach be taken by developed countries in their assistance programmes.

Policy analysis for rationalizing border and domestic support measures in the context of COMESA and the WTO Agreement

At Seattle Kenya called upon the Ministerial Conference to urge the various WTO bodies to expeditiously recognize and accord observer status to existing regional integration arrangements, notably COMESA and the East African Community, so as to enable them to follow developments and decisions at the multilateral level more closely and ensure that programmes and policies that they devised and adopted at the regional level were coherent and consistent with those of WTO and that they were effective fora for providing technical assistance. COMESA has agreed to implement a Common External Tariff by the year 2004, at much lower rates than Kenya's current bound rate of 100 percent.

Given the difficulties faced by several developing countries that are parties to one or more regional agreements, as well as the to WTO Agreement, in bringing their common external tariffs into harmony with the WTO, analyzing these issues should be a priority area for Kenya and other COMESA members. One lesson from other regions has been that setting the common tariff itself becomes complicated where members of the regional agreement have different tariff commitments at the WTO.12 The present study revealed that very little work has been carried out on this subject and that there is little available underlying data. Technical assistance in carrying out such work, particularly if it also draws on the experience of other regions, would be useful.

Technical assistance

With increased globalization and the disciplining of the global and regional trade, the demand for analytical capacity, information and knowledge of markets and trade-related legal issues has increased considerably. Countries with weaker institutional capability to respond to these needs will be disadvantaged in trade. The same applies to improvements in physical infrastructure to expand trade, as well as upgrading SPS/TBT standards. While there is much that they can do themselves, the developing countries feel that the promises of technical assistance in the various UR Agreements have hardly been fulfilled and many of them are looking forward to the new WTO negotiations on agriculture to rectify the situation.

Three particular areas for technical assistance may be stressed here. First, there is an immense need for assistance to upgrade SPS standards. Second, assistance is required on agricultural policies, notably to adapt/adjust border measures in the new trading environment, including dealing with regional and multilateral trade agreements, as noted above. Third, there is need for the effective implementation of the Marrakesh Ministerial Decision on food-related difficulties. Kenya is classified as a net food-importing developing country in the context of the Decision, but has scarcely received any of the promised assistance. On the contrary, despite the substantial rise in food imports, the volume of food aid received has fallen sharply, from 53 percent of total cereal imports in 1986-88 to less than 8 percent in 1996-98. Thus, there is much for Kenya to prepare and negotiate for in the new agricultural negotiations.


1 Based on a background study prepared for the FAO Commodities and Trade Division by Hezron Nyangito, Nairobi.

2 The duty applied is either the specific or the ad valorem rate, whichever yields the higher revenue.

3 WTO 2000, Trade Policy Review. Kenya, 2000, Part B, chap. IV, para. 13

4 Variable levies were first introduced in 1994 on selected food products.

5 WTO, op.cit, in particular Part D (minutes of the TPRB meeting).

6 Ikiara, G.N., M.A. Juma and J.O.Amadi 1993, "Agricultural Decline, Politics and Structural Adjustment". In Gibbons, P. (Ed), Social Change and Economic Reform in Africa. Nordiska Africainstitutet, Uppsala.

7 Nyangito, H., 1999. "Agricultural Sector Performance in a Changing Policy Environment". In Kimuyu, Wagacha and Abagi (Eds), Kenya's Strategic Policies for 21st Century: Macroeconomic and Sectoral Choices. Institute of Policy Analysis and Research (IPAR), Nairobi.

8 The decline in imports in 1993 was largely a result of the devaluation of the currency that year as well as of the economic slump. The managed floating exchange rate system adopted by the end of 1994 contributed to the stability of the currency thereafter.

9 It should be recalled that FAOSTAT data on trade in food exclude fishery products.

10 The issues facing Mediterranean countries that compete with exporters enjoying preferential quotas for fruit and vegetables are discussed in some detail in the case study of Egypt in this volume. Many of these issues are relevant for Kenya.

11 For a detailed analysis of tariff escalation on agricultural products, see The impact of the UR on Tariff Escalation in Agricultural Products by J. Lindland, ESCP Paper No. 3, FAO 1997.

12 For example, where the common external tariff exceeds a particular country's WTO bound tariff, that country may have to compensate other WTO members for the excess.

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