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Structural Implications of Economic Liberalization on Agriculture and Rural Development in Kenya PAUL GAMBA Historical perspective Import Substitution Policy (ISP) dominated the pre and post colonial Kenyan economy up to 1980. Created dualities in the agricultural and rural economy 1980 onwards- SAPs and Economic reforms 1993 Economy classified as open Coincided with Political reforms especially the clamor for increased democratic space. Macro and micro variables were perceived to be stable during ISP Changed to instability from early 1990s following Economic and Political reforms Several policies reformulated, Acts were amended while organizations, institutions and parastatals commercialized and privatized Unsynchronized liberalization processes created major hurdles in effecting reforms GDP and AgGDP trend Real GDP mirror AgGDP but AgGDP is declining-more non-agricultural contribution Kenya's AgGDP and Real GDP trends, 1964-2002 (Kshs. Billions) 120 100 80 60 40 20 0 19 64 19 66 19 68 19 70 19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02 Real GDP AgGDP Causes of structural changes Political reforms that resulted in Economic Recovery Strategy and Strategy for RevitalizingAgriculture Economic reforms:-trade reforms, monetary and fiscal reforms, institutional and market reforms Changing environmental regimes and production levels Increasing population pressure on natural resources-resulting to land subdivision into uneconomical plots Rural poverty Observed Outcomes of economic reforms Generally declining agricultural productivity Declining agricultural revenue Changes in production structure-increased/ decreased input use/ adoption of intensive production technologies Emerging, diminishing markets and enhanced distribution systems (labour, land markets) Shifts in sources of rural household incomes and new livelihood strategies Increasing poverty incidences Labour force migration (shifting) i.e. rural depopulation and increasing urban population concentration Changing value chains (integration and concentration) Improved institutional efficiency Influence on the on-going processes of segmentation and concentration 1)Changes in production and productivity trends Productivity (output per Hectare) declining on specific sub-sectors coffee, sugarcane and maize, while increasing in tea. 2)Input productivity-land and labour While initially increased, now declining Labourand land productivity(AgGDP/Ha)1964-2002 16000 14000 12000 10000 8000 6000 4000 2000 land productivity (AgGDP/ag areaHA) Kshs) labour productivity(Ksh) 20 02 20 00 19 98 19 96 19 94 19 92 19 90 19 88 19 86 19 84 19 82 19 80 19 78 19 76 19 74 19 72 19 70 19 68 19 66 0 19 64 3)Changes in rural household income sources Source of income Crops Livestock Business Salaries and remittances Total income %change 1997/04 -40% -57% +20% +198% -60% 4) Declining agricultural revenue Revenue from agricultural production currently declining in all major agricultural productions • Coffee • Tea • Sugar • maize 5)Poverty incidence increasing 1992 1994 1997 Rural 46.33% 46.75% 52.93% Urban 29.29% 28.95% 49.2% overall 46.3% 52.3% 56.78% 6)Value chain integration and concentration Domestic Input markets Fertilizer Seed AI Domestic Output markets Initially dominated by Parastatals Liberalization opened up market to multiple players Risk of private monopolies real 6)Value chain integration and concentration Effects of globalization on producers beginning to bear EUREPGAP (Horticulture) Traceability (Livestock) 6)Value chain integration and concentration Coffee and Tea export chains are integrated (producer and export price differentiation minimal) coffee Nairobi auction and producer prices coffee Nairobi auction price trends and prices paid to farmers 350000 coffee auction price nrb (Kshs/tonne) coffee prices paid to farmers kshs/tonne 20 04 20 02 20 00 19 98 19 96 19 94 19 92 19 90 19 88 19 86 19 84 19 82 19 80 19 78 19 76 19 74 19 72 19 70 19 68 300000 250000 200000 150000 100000 50000 0 19 66 tea farmer prices tea domestic exportprices 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 180 160 140 120 100 80 60 40 20 0 1985 Kshs/Kg Tea producer and export prices Dairy industry Producer and consumer prices 1986-2001 producer price 01 20 99 98 consumer prices 19 19 97 19 96 19 95 19 94 19 93 92 19 19 91 19 90 19 89 19 88 19 87 19 86 19 85 8 7 6 5 4 3 2 1 0 19 Increasing consumer and declining producers prices in dairy industry Dairy producer and consumer prices Kshs Concentration ratio Dairy industry-segmented i.e. increasing consumer and declining producer prices Dairy industry value chain CR 2CR 4CR 1999 42% 65% 2001 64.5% 79.5% 7)Land and labour markets Labour market opening up-increasing wage levels Land markets diminishing-declining proportion land offered for rent Transition impasses Diminishing on-farm employment opportunities Weak producer organizations Declining productive land Fixed capital that cannot be adjusted in the short run (constrains engagement in new enterprises) Prohibitively high compliance costs Transition impasses Under-developed contract and business ethics culture Inappropriate Legislative and regulatory framework Adjustments in rural and agricultural economies Reduced R-U migration (New urban centres) Period Migration rate Pre liberalization 1961/80 7.66 Transition 1981/92 6.84 Liberalization 1993/02 1.93 Post-liberalization 2003/04 -2.09 Forest products marketing- forest degradation Increased off-farm income and remittances (developing rural financial services) Adoption of intensive production technologies Intensified use of inputs such as fertilizers Perceived GAPS for the second phase Migration and labour force Determinants of migration, destination and sector of choice Remittances- from abroad and within the country Remittances, poverty, investment and welfare in migrants home area Value chain analysis Market (input and output) concentration in major value chains. Market integration (vertical and horizontal integration) Impacts of liberalization (reanalysis) on specific sectors of the rural economy, poverty and household welfare Examine livelihood strategies adopted due to the effects of liberalization especially in selected areas and enterprises Discern factors influencing choice of enterprise mix / livelihood strategies Liberalization, urbanization and poverty Effects of liberalization on urbanization and urban poverty Baby Sereria Thank you