Discussion Paper No. 18 of 2002 on Impact of Institutional and Regulatory Frameworks on the Food Crops Subsector in Kenya: 1990-1999

Abstract

This paper focuses on policy, institutional and regulatory reforms in the food crops sub-sector: maize, wheat and rice. Reforms in this subsector were expected to enhance market coordination and control, in addition to reducing exchange and transaction costs at each stage of the commodity system. It was expected that the reforms would stimulate growth in the sub-sector, which had deteriorated due to government involvement. Although drastic increases in nominal producer prices of maize, wheat and rice were recorded during the initial years of liberalization, the expected supply response has not been realized. Indices of input prices have had greater long-term rate of increase than those of output prices resulting in decline in domestic food production. This has lead to increased imports because consumption of the foodstuffs has been on the increase. The poor performance of the cereals sector can also be explained by existence of a poorly developed private sector whose growth has been stifled by high transactional costs and lack of capacity to undertake agricultural activities; a situation that has arisen out of slow institutional reforms and an unstable policy environment governing imports and exports. While the general policy has been to liberalize, the regulatory framework still supports controls, therefore conflicting with the commercial mandate of the institutions supporting the food crops. In some cases, as in the rice industry, the problem has been compounded by lack of reforms in the tenure system under which rice is grown. For the full benefits of reforms to be realized, there is need for rationalization of the policies, with the government investing in areas that reduce transactional costs, and creating a predictable policy environment for the private sector. Further, institutional reforms should ensure that adequate capacity exists to implement the policies. The regulatory framework needs to be harmonized with the policies and this should, to a great extent, be a participatory process between the policy makers and the farmers.