Discussion Paper No. 100 of 2009 on Wheat Import Demand and Welfare Effects of Import Controls in Kenya

Abstract

Wheat is the second most important cereal in Kenya after maize and it plays an important role in enhancing food security. Despite this importance, the industry has been facing competition from import of cheap wheat. To protect wheat producers, Kenya imposes an import tariff of 35 per cent, a safeguard mechanism granted by Common Market for Eastern and Southern Africa (COMESA) protocol as from 2001, on wheat grain imports. However, even after the imposition of import tariffs, wheat production has not improved and competitiveness is still low with increasing wheat imports, while consumer prices for wheat and wheat products are on the increase. Thus, the tariff burden is being passed to the consumers. There has been inadequate evidence to guide decision making on whether to continue with the safeguard mechanism depending on the effect to producers, consumers and importing fi rms. This study estimates import demand function for wheat to provide a bearing on the decision making regarding wheat import tariffs. Further, welfare effects under import tariffs are estimated. The study uses time series data from 1980-2007 and employs Instrumental Variable Two Stage Least Squares (IV2SLS).