Analysis of social profitabiity and comparative advantage of domestic wheat production in Kenya
Abstract
Kenya imports over 50% of its domestic wheat requirements. The
potential import bill for wheat is projected to reach US $ 545
million over the 1991-2000 period. Further, wheat imports
denominated in Kenya shilling, constitute more than 50% of the
grain imported into Kenya every year (table 1.3) . Given this
background, it lS seen that Kenya makes a large outlay on wheat
imports. This has prompted reactions from the government aimed at
trying to close the gap between domestic wheat production and
consumption. The present effort is to expand wheat acreage.
However, since the competition for land has become very stiff, it
has a very high opportunity cost. Putting extra land under wheat
will mean removing land from another crop or livestock enterprise.
Therefore, Kenya has to have comparative advantage in wheat
production to make further expansion in wheat acreage economically
optimal.
This study used the domestic resource cost methodology to
estimate comparative advantage of wheat production in Kenya. This
methodology allows the researcher to find out which among a set of
alternative production acti vi ties is relatively most efficient,
ignoring the effects of distortions in the economy resulting from
government policies and market failures. The DRC methods generates
several measures of relative economic efficiency of production
alternatives. One of these measures, net social profitability
(NSP), indicates the contribution of each production alternative to
national income, measured in terms of social net returns to land.
A second measure, the resource cost ratio (RCR) r indicates the
efficiency of each production alternative in using domestic
resources to earn (or save) foreign exchange. Comparison of social
profitability and lor resource cost ratios provide an empirical
measure of the underlying pattern of comparative advantage because
both measures capture the ability of production alternatives to
contribute to national income.
Domestic resource cost analysis show that given the 1993
production technology and price environment, wheat production in
the high potential areas is inefficient. However, Kenya has
comparative advantage in wheat production in the low potential
areas. Results of sensitivity analysis showed that if yield in the
recommended wheat technology rose by 11% or alternatively, if the
world price exceeded 168. 45$/t at the current yield level, the
recommended wheat tecbnology will become efficient in the high
potential areas.
The fact that wheat is still grown in the high potential areas
points to other motivating factors. For instance, wheat production
is less labor intensive and wheat takes shorter time to mature than
maize. In some places like Mau Narok, the one year required for
maize to reach maturity dissuades farmers from putting their land
under maize despite its relative profitability. In addition, recent
observations show that domestic price of wheat is firmer than that
of maize. Availability of cheap maize imports has brought pressure
to bear on maize price and the disparity between the recommended
price and the actual prices has been substantial.
Analysis showed that past policies taxed maize farmers by
pricing maize below its import parity price. On the other hand,
policy transfers on wheat has been minimal because wheat has been
priced at its import parity. There was an implicit tax on dairy
production because the 1993 market prices of agro-chemicals were
higher than the estimated long-term social prices. Since it has
been found that there is greater potential for wheat production in
the low potential areas, there has to be concomitant efforts to
protect this fragile agricultural land. Longer lease periods are
necessary to give incentives to the leasers to invest in land
conservation measures. In future, more research efforts should be
focused on increasing wheat productivity than has been the case
presently. Growth in productivity of wheat is essential in making
wheat production competitive. The current average wheat yield of
1.8 tones per hectare ip low compared to international average
yield level of 3 tones per hectare.
Citation
Master of Science in Agricultural Economics,Publisher
University of Nairobi Department of Agricultural Economics