Policy incentives and competitiveness of maize production in Trans-Nzoia District - Kenya

Abstract

Maize production in Kenya has fluctuated over the years as a result of climatic conditions and policy constraints. The pricing and marketing policies used for maize in Kenya have shifted over the years. During the colonial era and the independent period up to 1980, the policies emphasised direct government controls on prices and marketing for maize. With reference to prices, it set prices in a bid to encourage farmers to increase maize production. With regard to marketing, it controlled the marketing system completely and legally - its main agent was the National Cereals and Produce Board (NCPB). These have been gradually liberalised since 1980. From 1980 to 1992, the implementation of the reforms has been an on-and-off affair. It was in 1986, that the government officially spelt out the wide range of the policy reforms to be undertaken. Significant implementation of the reforms in the maize sub-sector began in 1993. All restrictions on maize movements and trade were removed with effect from the 1995/1996 season. The policies before the reforms led to poor seasonal and regional integration of the maize market, fluctuations in prices, and disincentives to increased maize production. However, even after the implementation of the reforms, maize production in Kenya continued to decline. As such the government has been importing maize during periods when the supply could not meet the demand. For instance, in 1992, 1993 and 1994, the country imported 414926, 12874 and 650 387 tons of maize, respectively. Using 1996 as the base year, this study was undertaken to determine the extent to which policy (input and output pricing policies) and market related factors affect maize production and producer incentives in Trans-Nzoia district. The other objectives were to determine the farm-level competitiveness of maize production as compared to wheat and sunflower, to determine the efficiency of maize production and to simulate the likely effects of exchange rate and producer price changes on maize production. Using the Policy Analysis Matrix (PAM) methodology, the study found that there were disincentives for maize production. The private producer price had been depressed by 23 percent relative to its social equivalent in 1996. However, all the production systems studied (large and small-scale maize, wheat, and sunflower) were competitive. The social profits for the maize systems were positive. Social profits are a measure of efficiency. The large-scale system was more efficient than the small-scale system. The implication is that - subdivision of large-farms is detrimental to efficient production of maize. Since small-scale maize production is dominant in Kenya, the study recommended intensified use of intermediate inputs such as fertilizers to increase the yields currently observed on these farms. Simulation of the exchange rate by a further 10 percent devaluation increased the social profits for all systems of maize production and thus efficiency in maize production. However, it would not create incentives for increased maize production given that its effect is only through the tradable inputs and output, ignoring the domestic factors. To create incentives therefore, requires combined forces that would have effects in the tradable inputs and outputs and also in the domestic factors of production. A free maize market is likely to result in maize producer price fluctuations from one season to another and also from year to year. The price variations would result in production fluctuations. The study recommended that the NCPB should actively play its role of market stabilisation. In this case the NCPB would act as a buyer and seller of last resort in a bid to stabilise prices within a floor and a ceiling band representing acceptable price variations.