Rain Fed Economy – Why Economists and Kenyans are looking to the skies for a living

Tea Farmers In Kenya

Tea Farmers In Kenya

NAIROBI – The Kenyan Economy is largely dependent on rain, or at least the abundance of it. From rain fed agriculture that determines the cost of the food basket (that determines livelihood of farmers and the agriculture ecosystems), to hydro power systems that constitute about 47% of the country’s power supply, the economic outlook has most economists, monetary and fiscal policy makers, and the Kenyan consumers looking at the skies, hoping for some drops of the liquid gold from the skies.

According to the Kenya Meteorological Department (KMD), rainfall in Kenya was at near normal levels over most parts of the country during the October -December 2014 ‘short – rains’ season.

However, there were certain regions of Kenya, for example areas in South Eastern Kenya, and more localized areas in Central and North Eastern regions of Kenya, which recorded depressed rainfall (i.e. >25% below long term averages).

Looking forward to the March— May 2015 “Long Rains” Season, the KMD expecst depressed rainfall over most of the eastern part of the country.

However, rainfall over most parts of Western and Central areas of Kenya (typically Kenya’s breadbasket), are expected to be near-average, with a slight tendency to be above – average in several parts of Western Kenya.

It is therefore clear that economists and Monetary Policy makers will be holding their breath and looking to the skies during this season, hoping that the rain will not dent the Government’s plans of reporting double figure growth moving forward.

Kenyan annual inflation rate rose to 6.31 percent in March of 2015, from 5.61 percent reported in the previous month mainly due to increase in food cost. Compared to March 2014, food prices increased 10.96 percent, the strongest growth since October of 2013.

Agriculture and the Food Basket

Agriculture in Kenya dominates Kenya’s economy. 15–17 percent of Kenya’s total land area has sufficient fertility and rainfall to be farmed, and 7–8 percent can be classified as first-class land. Agriculture is widely known to be the backbone of Kenya’s economy and over 60% of the adult population in Kenya depend on the sector for livelihood.

The annual economic reports produced by Kenya National Bureau of Statistics for the past decades have always indicated a positive correlation between the national economic growth and the growth of the agricultural sector and the sector is said to contribute about 26 % of the national GDP.

Farming is the most important economic sector in Kenya, although less than 8 percent of the land is used for crop and feed production, and less than 20 percent is suitable for cultivation. Kenya is a leading producer of tea and coffee, as well as the third-leading exporter of fresh produce, such as cabbages, onions and mangoes. Small farms grow most of the corn and also produce potatoes, bananas, beans and peas.

However, over 70% of agriculture in Kenya is rain-fed:  pastoralists herding their livestock across Northern and Southern arid and semi-arid areas, to thousands of small scale farmers who time the bimodal rainfall each year to plant their mostly subsistence crops, the situation compares largely to the African forefathers who looked up to the sky and made offerings to the gods for rain.

The rainfall trends in past years reflect a dire situation – inconsistent and less than average rainfall has caused the farmers and government alike to seek more sustainable solutions, but the road is so near yet so far. Government intervention is far from solving the problem in terms of financing and extension services interventions.

The 2013/2014 budget summary showed that only 2.4% of the overall budget was allocated to agriculture yet Kenya committed to allocate at least 10% of her budget towards the sector following the “Maputo declaration” in 2003.

The gross loan portfolios as compiled by Kenya Bankers Association (2012) showed that only 4.6 % of all loans disbursed were harnessed to agriculture and this is far much below the gross loan portfolio to the agriculture sector in Tanzania which currently stands at 10%.

The extension service is one of the critical change agents required in transforming subsistence farming to a modern and commercial agriculture to promote household food security, improve income and reduce poverty. However there is limited access to extension services in most parts of the country with the National extension staff: farmer ratio standing at 1:1,500. This situation has hindered most farmers from keeping pace with changing technological advances.

The demand pull inflation caused by inadequate supply of food following inadequate rains therefore is no surprise.  Inadequate food supply, against a growing population is largely the main factor behind soaring inflation in 2012-2014, and the immediate past experience and outlook does not make good promise either.

The Hydro-Power Reliance

Olkaria Geothermal Plant

Olkaria Geothermal Plant

Hydroelectric power in Kenya currently accounts for about 37% of installed capacity, which is about 761MW. Though Kenya has made great strides in adopting Geothermal Energy, which now accounts for over 39% of total power produced, the effect of low water levels in the hydro power dams still remains a concern as the power distributors are then forced to rely on expensive diesel powered generators to plug the gap.

High cost of electricity is largely to blame for slowdown in manufacturing sectors, and cost push inflation in the past. The Kenya Energy Policy and Government initiatives that have resulted into the current mix of geothermal – hydro and diesel power is however poised to provide a more sustainable cost of power, and put inflation on hold, as long as expansion of geothermal bases and the eagerly awaited coal fired power is plugged into the power grid.

One Million Acre Irrigation and Geothermal: Light at the end of the tunnel

In 2014 Kenya sought a new solution to its food insecurity with the launch of a Ksh250 billion ($2.9 billion) million-acre irrigation scheme here in Galana/ Kulalu in Hola.

The scheme could help unlock the potential of the country’s arid and semi-arid lands, bringing 500,000 acres under maize and adding 40 million bags to the annual maize harvest — effectively doubling the country’s maize production. It would also bring 200,000 acres under sugarcane, a 37 per cent increase on the current 528,000 acres, as well as 150,000 acres under beef ranching.

A further 150,000 acres will support dairy farming, fruit, vegetables and flower farming. The government has allocated Ksh3.6 billion ($42.3 million) in the current financial year for the irrigation project. Initial planting of maize in the one-million-acre Galana/Kulalu irrigation scheme is set to begin in March on the Model 10,000 acre farm, with the first harvest expected in 3 months.

The project is being undertaken in phases with the first stage comprising development of a 10,000-acre model farm, development of 200,000 acre pilot farm and one mega dam in phase two, and Phase three will see the implementation of the remaining recommended enterprises.

The irrigation scheme appears to be perhaps the greatest promise of a sustainable and plentiful food basket that Kenya has been yearning for years and is set to ensure cost of food remains within sustainable levels for the over 40million Kenyans.

Geothermal Energy also has a great promise, set to move hopes from reliance on the skies to consistent, renewable and cheap power source. By 2030 Kenya aims to have 5,530 MW of geothermal power or 26% of total capacity. This will make Kenya’s largest source of electricity clean energy by 2030, with a medium-term target of installing 1,887 MW by 2017.

Geothermal power plants, have a prominent place in Kenya’s overarching development plans. These include the Vision 2030, the NCCAP (National Climate Change Action Plan), and the current ‘5000+ MW in 40 months initiative’. Geothermal power has the potential to provide reliable, cost-competitive, baseload power with a small carbon footprint, and reduces vulnerability to climate by diversifying power supply away from hydropower, which currently provides the majority of Kenya’s electricity.