Cablegate: Response: Impact of Rising Food and Agricultural Commodity

DE RUEHNR #1122/01 1201014
R 291014Z APR 08 ZDK






E.O. 12958: N/A

(C) NAIROBI 1100 (D) NAIROBI 1044 (E) NAIROBI 0970
(F) NAIROBI 0521 (G) NAIROBI 0681 (H) NAIROBI 0405
(I) NAIROBI 0358 (J) NAIROBI 0353 (K) NAIROBI 0352
(L) NAIROBI 0336 (M) NAIROBI 0192

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1. (U) This message responds to ref A request for Mission Kenya's
analysis on how rising food and agricultural commodity prices are
affecting Kenyan society. As instructed, it also lists post's
recent cables on this matter.


2. (U) Kenya's agricultural sector enjoyed robust 7% growth in 2007
and 6.1% growth in 2006, with leading export sectors, notably
horticulture, earning millions of dollars in foreign exchange.
However, as described in previous post reporting (refs B-M), two
months of ethnically-charged political violence, following a hotly
disputed December 27, 2007 presidential election, disrupted
transportation links and farm and business operations in Kenya.
Worst hit was the country's bread basket in the upper Rift Valley,
where thousands of predominantly Kikuyu farmers and dairymen had
their properties ransacked before being expelled. A January 21-24
assessment conducted by the World Food Program (WFP), Food and
Agriculture Organization (FAO), and Ministry of Agriculture
concluded that as many as 52,500 farm families in the Rift Valley
were displaced. In Western Province 40% of farmers were displaced.
According to a Ministry of Agriculture preliminary report, 98,000
farmers and their families were thrown off their land. The Kenya
National Federation of Agricultural Producers (KENFAP), an umbrella
organization for 1.4 million farmers, estimates that 80% of Kenya's
1.5 million farmers were affected by the violence in some way. As a
consequence, Kenya will require increased food imports and food
assistance at a time when global food prices are rising and its
foreign exchange earnings are falling due to a major drop-off in
tourists. According to the Kenya Tourist Board, there were
approximately 134,000 tourist arrivals in 1Q 2008, a figure far less
than half the projected 315,000. Earnings are expected to dip 23%
in 2008 to $811 million.

Staple Shortages Imminent in Kenya

3. (U) Because of the displacements and disruptions in the
agricultural sector, KENFAP agricultural analysts worry that Kenya
may suffer a food shortage in late 2008/early 2009. They predict a
significant shortfall in this year's corn harvest. In their
estimation, government stockpiles of maize held by the National
Cereals and Produce Board (NCPB) and an expected 2007-2008 harvest
of three million tons are only sufficient to meet domestic demand
for the next seven months. Agriculture Minister William Ruto
assured the public on April 23 that food stocks of 3.8 million bags
of cornmeal would suffice through August 2008. (Normally around 5
million tons, NCPB stocks fell to 2.07 million tons by April 1,
depleted by provisions given to Kenya's 350,000 displaced persons.)

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However, because of the instability, many farmers in the upper Rift
Valley were unable to work their fields ahead of this year's "late
rains." Ministry of Agriculture Permanent Secretary Dr. Romano
Kiome said April 23 that less than 50% of the arable land in the
north Rift Valley had been prepared for planting. Some 100,000
hectares might not be tilled this planting season. General
insecurity is making farmers leery of working their fields or
letting their harvested corn dry out. Upwards to one million bags
(90,000 tons) of corn are believed to be left on fields,
inaccessible to farmers, buyers, and millers. Another 300,000 tons
of corn ready for harvesting went unpicked. According to the Rift
Valley Province Director of Agriculture Leonard Ochieng Nambuya,
some 1.9 million bags of maize were destroyed just in his province.
One unconfirmed estimate claims 2.3 million bags were destroyed
during the post-election chaos.

4. (U) Kenya Cereal Growers Association CEO David Nyameino warns
that a food shortage is imminent, thus Kenya will likely have to
import substantially more corn and wheat in 2009 to satisfy demand.
According to the Eastern Africa Grain Council, Kenya already imports
of 60% of its wheat requirement, 75% of its rice requirement, and,
depending on the size of its corn crop, as much four million bags of
cornmeal. Nyameino announced in late March 2008 that Kenya will
likely mill 21 or 22 million 90-kilo bags of maize this year, down
sharply from a typical 34 to 36 million bags, against an average
yearly consumption of 32 million bags. (In 2007, Kenya harvested 34
million bags.) Prices are rapidly reflecting the shortfall in
supply. In December 2007, a bag sold for KSh1,000 ($16.15); by late
March that same bag was going for KSh1,400 ($22.60). As the
country's staple food, maize is a telling barometer for food
security and affordability. Before the crisis, a two-kilogram bag
of milled maize flour cost KSh50 ($0.80). In Nairobi, it now goes
for KSh80 - nearly $1.30; in Kisumu and other western cities it
costs KSh120 or $1.95. Most analysts concur with Nyameino that Kenya
will become a net importer of corn meal in 2009, forecasting that
corn production will dip between 20%-30% in 2008-2009.

5. (U) Representatives of the Regional Agricultural Trade and
Intelligence Network (RATIN) also predict Kenya will become a net
importer of maize in 2009. RATIN forecasts a 50% decline in
agricultural production. The network doubts that NCPB stocks will
sustain the nation until the next harvest. Even then, production
will be down considering the dismal purchase of corn seeds by
farmers in Kenya's corn belt. Given this scenario, maize is fast
becoming expensive. The most recent FAO survey shows that prices of
cereals such as maize have been increasing mainly due to inadequate
rains and the displacement of farmers in key growing areas of Kenya
during the recent violence. The survey reported that the price of a
ton of maize maintained a relatively stable price between $199 and
$202 within the period of May to September 2007 but began to rise
gradually between October-December to an average of $211. There was
a further rise to $219 a ton in January.

6. (U) The wheat harvest is also expected to experience a big
downturn. Key grain-producing districts, namely Uasin Gishu
Trans-Nzoia, and Lugari, will witness a serious decline in crop
production. The Agriculture and Rural Development Group (ARDG)
predicts grain production in 2008 will fall as much as 40% below
average. An estimated 207,000 tons of grain in the fertile Rift
Valley were destroyed during the violence. Kenya requires about
three million tons of grain per year. Production is expected to

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fall short by about 930,000 tons. Kenya's total wheat requirement
for milling into flour is around 900,000 tons per year, but Kenya
farmers produce only 300,000 tons. About two-thirds of Kenya's
wheat requirement is imported. Thus the increase in the price of
wheat is having a significant negative impact on price. Making
matters worse there is a 60% duty on imported wheat flour and a 35%
duty on wheat grain. The tax charged per ton of flour is $178.

Fears of Famine

7. (SBU) Analysts with USAID's Famine Early Warning System
Information Network (FEWS NET) and the Government of Kenya's Arid
Lands Resource Management Project (ALRMP) during a February 12 Kenya
Food Security Meeting reported a "bleak food security situation
throughout the country," especially in the Maasai rangelands. Only
the eastern pastoralists' area is in good shape. Conversely, there
is evidence of high malnutrition in the northwest pastoralists'
area. In what was their most worrisome appraisal, the analysts
estimate that less than 10% of the land in Kenya's grain basket, the
Rift Valley, has been prepared for planting. By now, 60% of the
land would have normally been tilled. With respect to conditions in
northern and northeastern Kenya, they blame severe water shortages
for rapid loss of pasture. In the coastal and southeastern
lowlands, they calculate that 60% of the maize crop has been lost
with food insecurity exacerbated by rising food and commodities

8. (SBU) In mid-February, KENFAP declared that Kenya's food
security is set to worsen. Fifty-seven members from various
agricultural sub-sectors from the country's eight provinces warned
in an advertisement that food prices are soaring because of the
political impasse. Expressing their concerns according to regions,
the agricultural reps said Nairobi is experiencing spiraling milk,
maize flour and vegetable prices, which have increased 50% to 100%.
Those from Western Province complained about the displacement of
about 40% of farmers from their farms and the burning of food in
stores. Nyanza Province's major problem, they said, remains blocked
roads and destroyed bridges, leaving it cut off from the rest of the
country. In Rift Valley Province, farmers are faced with high costs
in production inputs. Coast Province is dealing with hotel closures
and the lack of horticultural produce due to supply interruptions.
Eastern and Northeastern Provinces are confronted with decreasing
food stocks; there are fears that the two provinces might not
receive enough rainfall, threatening the fragile food security which
characterizes both. Livestock marketing has been hampered by
insecurity and high transportation costs.

9. (SBU) In contrast to the dire RATIN report, an April 17 "Kenya
Food Security Update" by FEWS NET, ALRMP, and the World Food Program
(WFP) concluded that there would likely be only a 15% reduction in
2008-2009 maize production because of the unrest and below average
rainfall in some areas of Kenya. A December 2007 "short rains"
assessment revealed that some areas of the country received less
than 75% of normal rainfall, thereby placing at risk an estimated
840,000 pastoralists in the arid and semi-arid lands of northern
Kenya. In its April 14, 2008 revised emergency appeal for Kenya,
the UN warned that if food assistance is not rendered to these needy
people, severe malnutrition, particularly among children under five
years of age and among pregnant and lactating mothers, could occur.

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Costly Cultivation

10. (U) In the wake of the political upheaval, Kenyan staple crop
farmers are struggling to purchase higher priced fertilizers,
herbicides, insecticides, and diesel fuel. The cost of land
preparation by tractors has skyrocketed 95% from $53/hectare to
$103/hectare. A 50-kg bag of di-ammonium phosphate fertilizer has
more than doubled in price from KSh1,650 ($26.50) to KSh3,800
($61.30). In some locales, it now goes for KSh4,000 ($64.50).
According to an early April 2008 FAO review, the average cost of
grain production per hectare has risen by 49% since January from
$196 to $293. The Kenya Cereals Growers Association estimates that
the high cost of farm inputs will result in reduced grain production
of between 30% and 40% in 2008. (Note: Kenya imports between
450,000 to 500,000 tons of fertilizer every year. Kenya's
fertilizer bill in 2008 is expected to hit KSh12 billion/$193.6
million, significantly more than its usual KSh8 billion/$129 million
annual tab. End Note.)

11. (SBU) Dairy farmers, too, have suffered. Last winter, Kenya's
dairy industry appeared on the verge of becoming a significant
foreign exchange earner, with prospects of lucrative sales of
powdered milk and other dairy products to South Africa, Egypt, the
Arab Gulf states, and Malaysia in the offing. In 2007 Kenya
exported 13.9 million liters of milk, mostly to neighboring Uganda
and Tanzania. Now, officials from Land O'Lakes, Brookside Dairy,
Spin Knit Dairy, New Kenya Cooperative Creameries (KCC), and other
milk producers bemoan the loss of Rift Valley dairy farms and
creameries, destroyed by looters.

12. (SBU) As a result of the mayhem and theft of dairy cows, milk
production is down over 20%, according to the Kenya Dairy Board
(KDB). Two major milk processors have closed. Unable to get their
raw milk processed, farmers have had to dump milk. The Minister of
Livestock Development Mohammed Kuti reported in mid-April that Kenya
dairymen lost an estimated 140,000 high quality dairy cattle and
suffered additional damages approaching KSh1.1 billion ($17.75
million). The industry lost an estimated KSh1 billion (over $16
million) just in January 2008, when production fell from 36.4
million liters in December 2007 to 28.4 million liters. KCC
Chairman Matu Wamae reports his company faces a deficit of over
200,000 liters per day and is unable to meet both local and
international demand.

13. (SBU) KCC director Kipkorir Menjo acknowledged February 13 that
low milk deliveries "threaten the future of external markets for our
products." According to the KDB, annual production in 2007 was 3.74
billion liters, up 4.2% from 2006. Because of the violence, the
daily milk intake in the formal sector shrank from 1.2 million
liters in December 2007 to 850,000 liters in January 2008, a drop of
over 29%. (Note: There are an estimated one million smallholder
dairy farmers in Kenya. The dairy cattle industry with an estimated
cattle population of 3.5 million head accounted for about 4% GDP in
2007. End Note.)

14. (SBU) Kenya Dairy Board Chairman Reuben Cheshire commented to
the press in early February that the violence had even interfered
with breeding programs and access to animal feeds, which could

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result in a long-term decline of milk production. He said
protracted violence would jeopardize the livelihoods of Kenya's
almost one million dairy farmers. Even with the reconciliation
deal, a Land O'Lakes representative foresees a long-term reduction
in milk production because of the number of dairy cattle stolen or
slaughtered and disruptions in the provision of artificial
insemination services. Worst hit dairymen will likely default on
their loans since they are unable to deliver milk. Some may elect
to start slaughtering their cattle to raise money.

Additional Agricultural Agonies

15. (U) Adding to Kenya's agricultural woes are setbacks in rice
production and meat exports. In mid-April the UN Office of
Humanitarian Affairs (OCHA) reported that a fungus known as "Rice
Blast" had destroyed 5,600 hectares of rice in Central province -
equivalent to 20% of annual output. As a result, Kenya will have to
increase its rice imports at a time when producing countries are
restricting exports. According to an OCHA spokesperson, "This risks
worsening Kenya's food insecurity and makes import of additional
quantities even more expensive. It is a fresh blow for this
country." Before the chaos, a 2-kg bag of rice sold for KSh245 or
$4; it now costs KSh325 or $5.25.

16. (U) More bad news came on April 21 when Livestock Minister Kuti
announced that the EU had cancelled Kenya's annual meat quota of
4,000 metric tons following confirmed reports that PPR (peste des
petits ruminants) had infested and killed thousands of goats and
sheep. In Samburu District alone, 50,000 sheep and goats succumbed
to PPR. Dr. Kuti said nearly three million sheep and goats were
at risk if proper vaccination is not done. In a statement the
press, the chairman of the Kenya Veterinary Association, Dr.
Christopher Wanga, said "if nothing is done soon, the losses will be
enormous." He called for disease control measures to be undertaken
in 80% of the country. In late April, Kenya Veterinary Department
disease control deputy director Dr. Bernard Mugenyo acknowledged to
stave off PPR his department would need to vaccinate about 7.3
million animals at a cost of KSh800 million ($13 million).

End Context.


A. DEMAND: In the wake of the January-February violence, consumption
patterns have definitely been affected, but we expect middle and
upper class Kenyans (who can afford to do so) to continue purchasing
favorite staples like corn meal and corn oil. However, with nearly
50% of the Kenyan population living on less than $1 per day, most
Kenyans will find it increasingly difficult to put food on the
table. Kenya will need food assistance to feed large numbers of
people in its arid and semi-arid northern and northeastern regions.
Our OFDA/DART team expects that the country's 350,000 IDPs will be
dependent on food assistance for some time. Kenya may hence become
more receptive to biotechnological ways of boosting crop yields and
improving food security.

B. SUPPLY: As explained above, the post-election turmoil impinged

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significantly on this year's growing season. Agriculture Minister
William Ruto admitted April 23 that the political unrest had more to
do with food price hikes and shortages than escalating fuel costs.
The government's stockpile of emergency maize reserves will suffice
for 2008. Thereafter, to feed its people, Kenya will be compelled
to import corn and a greater amount of wheat. There is no likelihood
that Kenya will use food crops for non-food purposes, such as
bio-fuels; but jatropa cultivation in arid areas has been proposed
for bio-fuel production.

C. ECONOMIC IMPACT: Kenyan consumers are now confronted with higher
prices for virtually everything off the farm. In March 2008, prices
for food, which is weighted at 50% of household expenses, were
almost 30% higher than in March 2007 (YOY). Kenya's consumer price
index (CPI) jumped 8.8% in January 2008, with seasonally adjusted
average annual inflation up to 10.5%. Annual inflation hit 19.1% in
February and then set another record (21.8%) in March. Kenya's CPI
rose 14.5% since the end of December, amounting to the biggest
quarterly jump since the severe drought of 2006. In the Lake
Victoria city of Kisumu, where the worst looting and destruction
took place, prices for eggs, potatoes, onions, and other staple
foods have doubled or even tripled since the election. Sugar, which
retailed for KSh65 a kilo at the beginning of the year, went up to
KSh90 before stabilizing at KSh80.

D. POLITICAL IMPACT: Kenyans appear to be so preoccupied with simply
making ends meet while pleading that their political leaders resolve
their differences, they do not have the time or energy to protest
rising commodity prices. (In the 1990s, Kenyans endured rapid
inflation in food prices without rioting, and they remain peaceful
this time, too.) Farmer associations have appealed to the new
Minister of Agriculture William Ruto to do something about the cost
of farm inputs. In response, Ruto announced in mid-April that the
government would subsidize the cost of fertilizers. In an effort to
jawbone down prices, Ruto also declared that it was unconscionable
for fertilizer producers to charge raise charges over 100% more for
a 50-kg bag of fertilizer.

The Cereal Growers Association and the Cerel Millers Association
have asked the Finance Ministry to waive the duty on wheat as part
of an effort to reduce bread prices, which since January 2008 have
increased 13% largely in reaction to the dramatic increase in the
cost of imported standard milling wheat from $234 per ton in January
2007 to $430 in January 2008. At the 12th annual meeting of the
Cereal Growers Association, growers said they could live with a $50
per ton duty. CGA Chairman Hugo Wood told the press this duty would
suffice to protect Kenyan wheat farmers. To date, efforts to zero
rate the high duties on corn (50%), wheat (35%), and rice (75%) have
been futile.

E. ENVIRONMENTAL IMPACT: Hungry Kenyans, among them IDPS, have not
hesitated to defy authority and illegally chop timber for firewood
and charcoal, cultivate crops, and herd cattle on public lands.
Displaced persons and impoverished internal migrants have foraged on
protected forest reserves in the Mau Forest and on Mt. Elgon. Over
the past year, there have been serious clashes between landless
peasants and the authorities (Kenya Armed Forces, Forest Service,
and Kenya Wildlife Service).

F. GOVERNMENT POLICY RESPONSE: The government is providing food to
350,000 IDPs and nearly 2 million Kenyans in the country's arid and

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semi-arid regions. By April 24, the GOK and World Food Program
(WFP) had distributed 8,566 metric tons of food through the Kenya
Red Cross Society. Of this amount, USAID provided 4,834 metric
tons. The Kenyan government vows to subsidize the price of
fertilizer, specifically calcium ammonium nitrate (CAN), to ensure
that crop yields to do not decline. The government has earmarked
KSh1.5 billion ($24.2 million) to purchase fertilizer in bulk to
ensure its availability. It has also obtained grants totaling
KSh4.6 billion ($74.2 million) from the World Bank and the
International Fund for Agriculture Development (IFAD) to help
rebuild the dairy sector.

Agriculture Ministry Ruto announced April 23 that he would form an
inter-ministerial task force to review the food situation and come
up with mitigation strategies before the NCPB stocks are exhausted.
On April 23 Ruto appealed to the USG for 1.5 million bags (or
135,000 metric tons) of white corn to supplement Kenya's national
grain reserves through August 2008. (Note: To date, in order to
avoid any GMO controversy, the USG has provided only cornmeal. End
Note.) In addition, Ruto said he would press the Kenya Seed Company
to reduce the cost of seeds by 30% to 40% as a way of easing the
cost of farm inputs.

According to the Tegemo Institute, a branch of Kenya's Egerton
University engaged in agricultural economic research, the government
is working on plans to harmonize tariffs on staple foods in line
with those of other East African Community members. For instance,
Kenya's current import duty on wheat is 35% compared to 10% for
Uganda and Tanzania. If realized, this reduction would make it
easier for importers to bring in wheat and other commodities to meet
local demand.

The government also plans to make certified seeds more accessible by
putting more emphasis on affordability rather than profitability.
Thus, the Kenya Seed Company will no longer operate as a commercial
enterprise but as a service deliverer, according to Agriculture
Minister Ruto. To date the government has distributed 1,200 metric
tons of seed and 100 metric tons of fertilizer in advance of the
long rains season.

Through Kenya's development plan entitled "Vision 2030," the
government plans to invest more in agriculture - especially large-
and medium-scale irrigation projects in the Tana and Athi River
basins. In the short term, though, there are immediate plans to
resettle IDPs, most of whom are farmers so they can get back to
their farms and take advantage of the August short rains to improve
food production. To ease their transition back into farm life, the
government will provide farmer IDPs with free fertilizer and seeds.

G. POST PROGRAMS AND POLICY PROPOSALS: FAS has repeatedly approached
the government recommending that it lower and eventually abolish its
tariffs on imported grains as a way to reduce bread prices
dramatically. USAID/KENYA and USAID/OFDA has joined with WFP in
providing food assistance to needy Kenyans. To date, as the largest
donor to WFP Kenya, USAID's Office of Food for Peace has provided
4,834 metric tons of cornmeal to Kenyans adversely affected by the
post-election turmoil.


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