The Central Bank of Kenya released the Agriculture Sector Survey for January 2024,  highlighting the sector’s significant contribution to the country’s economy. Accounting for an estimated 33% of the GDP, agriculture serves as the backbone of Kenya, playing a vital role in generating foreign exchange through the sale of cash crops such as coffee and tea.

The sector, however, went through a contraction during the Covid-19 period due to prolonged drought and has only begun recovering. Improved weather conditions in the past year have seen it expand by 7.0 percent. 

The Agriculture Sector survey was first carried out in 2022 in order to aid in making monetary policy decisions, given the importance of the consumer price index as a tool to measure inflation and thereby guide monetary policy decisions. 

The survey focuses on prices, output, farm inputs, factors affecting production, credit access, and suggestions for improvement.

The January 2024 survey shows an increase in the prices of key food items, particularly cereals and processed foods, influenced by factors like transport costs and high input costs. This can also be attributed to the increase in fuel prices after the fuel subsidy was removed in August last year. President Ruto also eliminated a maize subsidy, causing the prices to rise. 

Favourable weather conditions, however, saved the day through increased output, and this is expected to lower prices of agricultural goods in the coming months. The survey assessed wholesale and retail prices, output expectations, and factors affecting production, drawing respondents from markets and farms in major towns. 

Retail prices of most key food items remained stable or slightly higher, except for tomatoes and onions, which experienced a decline. Prices of non-vegetables increased due to seasonal factors, international developments, and elevated energy costs.

Inflation 

Expectations for this month (February 2024) indicate a decline in general price levels. Processed and unprocessed milk prices are expected to decrease further due to increased pasture from favourable rainfall. Prices for onions, carrots, tomatoes, and potatoes are expected to decline due to the recent rainfall. However, price expectations for vegetables such as kales/sukuma wiki, cabbages, spinach, and traditional vegetables show a less pronounced decline in February 2024, influenced by seasonal factors. 

Consumer price expectations reveal a decline in the share of respondents anticipating inflation in the next one and three months. The short rains positively impacted the production of key food items, contributing to lower inflation expectations. Reductions in fuel prices also played a role, though concerns about import costs and global supply chain interruptions persist.

Farmer concerns

The report has positive expectations for both acreage and output of select crops in the next harvest, attributed to favourable weather conditions and the availability of quality and affordable fertiliser after the government imported cheap fertiliser. 

The report also noted a slight decline in the proportion of respondents accessing subsidised fertiliser in January 2024 compared to the previous survey in November 2023. 

In assessing credit accessibility for farmers, the report noted that credit mainly came from banks, Saccos, friends/family, and the Hustler Fund. The credit was used for financing farm implements, inputs, and labour. Barriers to credit included high-interest rates, lack of collateral, and fear of crop failure.

Farmers, however, cited factors affecting the marketing and sale of farm produce, such as price fluctuations, price distortion by middlemen, and competition from imports. Contract farmers face fewer challenges than others, as terms are agreed upon in advance.  The impact of geopolitical factors such as the Russia-Ukraine war has diminished over time, and labour costs, although important, are seasonal.

Economic optimism

Optimism about economic performance in the next three months improved significantly, reflecting the positive impact of favourable weather conditions on agriculture. However, there is a slight decline in optimism about the economy’s performance in the next year, attributed to uncertainty over the long rainy season and concerns about global geopolitical tensions affecting the Kenyan economy. The depreciation of the shilling is also a contributing factor, even though the shilling’s position somehow improved this week. 

The report gives suggestions for improvement in the sector, which vary by region and the crops grown, including water conservation measures, input cost reduction, and subsidising equipment and inputs. General recommendations included stabilising prices through mechanisms like purchasing maize through the National Cereals and Produce Board (NCPB) and implementing punitive measures for selling low-quality inputs, addressing high fuel prices, enhancing water access, and deepening access to affordable credit facilities.

In summary, the agriculture sector shows an overall heightened economic optimism, primarily influenced by favourable weather conditions.