‘ 33:7?1 -

 

 

 

 

 

 

 

 

$4.75)“.

‘1

A .

"fl

 

 

 

 

“I“ LIBRARY
,2“ , .. Michigan State
5977;17W/5é Umversrty

This is to certify that the
thesis entitled

COMPETITIVENESS OF MAIZE FROM WESTERN KENYA
AND EASTERN UGANDA IN KISUMU TOWN OF KENYA

presented by

THOMAS MAURICE AWUOR

has been accepted towards fulfillment
of the requirements for the

MS degree in AGRICULTURAL
ECONOMICS

 

 

RVA'W’

MaWesIsor’s Signature
4' l. 7 f— O 3

 

Date

MSU is an Affinnative Action/Equal Opportunity Institution

 

 

 

PLACE IN RETURN BOX to remove this checkout from your record.
TO AVOID FINES return on or before date due.
MAY BE RECALLED with earlier due date if requested.

 

DATE DUE

DATE DUE

DATE DUE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6/01 c:/CIRCIDateDue.p65-p.15

 

COMPETITIVENESS OF MAIZE FROM WESTERN KENYA AND
EASTERN UGANDA IN KISUMU TOWN OF KENYA

By

Thomas Maurice Awuor

A THESIS

Submitted to
Michigan State University
in partial fulfillment of the requirements
for the degree of

MASTER OF SCIENCE

Department of Agricultural Economics

2003

ABSTRACT

COMPETITIVENESS OF MAIZE FROM WESTERN KENYA AND EASTERN
UGANDA IN KISUMU TOWN OF KENYA
By

Thomas Maurice Awuor

The system of maize market control in Kenya, like in most parts of sub-Saharan Africa,
evolved out of a priority for ensuring national food security and safeguarding producer

interests through price support and consumer interests through maize meal subsidy.

Inefficiencies and high operational costs that contributed to national treasury deficits
triggered concerns by donors, international lenders and domestic pressures for maize
sector reform. The reforms these groups were advocating were maize market
privatization which, refers to the withdrawal of state agencies from grain pricing and
marketing activities, and maize market liberalization which, refers to the relaxation of
regulatory controls on private marketing. Both these reforms have been implemented on
and off between 1987 and 2000. The main aim of this thesis is to determine the outcome
of these reforms by comparing the profitability of maize production and spatial price
spreads before (1989/91) and after (1998/1999) maize market reforms in major maize
producing areas of western Kenya; and comparing the competitiveness of maize from
western Kenya maize, eastern Ugandan and South African in Kisumu town afler maize

market reforms.

DEDICATION

Dedicated to my wife Phoebe, daughter Christine and son Sali

iii

ACKNOWLEDGEMENTS
I am deeply indebted to Prof. Thom Jayne, for his excellent help, full dedication and
complete cooperation that has resulted in this thesis. I am also thankful to Prof. John
Staatz for his is thorough examination of the initial drafts and excellent help especially
with linking economic theory to my data observations. I am also thankful to Prof. Jack

Meyer's risk analysis input.

This work would not have been possible without the treasured assistance and knowledge
of Francis Karin. He helped organize and carry out data collection and preliminary and
organization from Kenya, Uganda and South Africa, together with his colleague, Justus

Kirimi; and to Monika Tothova, my colleague for proofreading my thesis.

I would also like to acknowledge the assistance of Gem Argwings-Kodhek and Mulinge
Mukumbu, both of who advised and helped into joining the MS program. Lastly, I would
like to thank Dr. Nguyo and all the stuff of Tegemeo Institute of Egerton University for
availing facilities and offering assistance whenever possible towards the completion of

this thesis.

iv

CONTENTS
LIST OF TABLES .................................................................. vii

LIST OF FIGURES .................................................................. ix

CHAPTER 1: INTRODUCTION

1.1 Introduction and Problem Statement ........................................... 1
1.2 Specific Objectives .................................................................. 2
1.3 Hypotheses ........................................................................... 3
1.4 Literature Review ................................................................... 4
1.5 Justification .......................................................................... 10

CHAPTER 2: METHODOLOGY AND ANALYSIS

2.1 Data .................................................................................. 11
2.2 Analysis .............................................................................. 16
CHAPTER 3: COMPARISON OF MAIZE MARKET COMPETITIVNESS
BETWEEN 1992 AND 1999 IN SELECTED WESTERN KENYA AREAS

3.1 Effect of liberalization on wholesale prices in some western

Kenya markets ..................................................................... 20

3.2 Effect of Maize market liberalization policy on financial
maize farm budgets ............................................................... 24

3.3 Effect of Maize market liberalization policy on traders'
financial budgets .................................................................. 31
3.4 Conclusion ......................................................................... 34

CHAPTER 4: COMPARATIVE ANALYSIS OF MAIZE PRODUCTION
IN EASTERN UGANDA AND WESTERN KENYA

4.1 Comparative analysis of maize production in Mbale (Uganda)
and Bungoma (Kenya) districts ............................................... 36

4.2 Comparative analysis of maize production in Iganga (Uganda)
and Lugari (Kenya) districts 1999 ............................................

4.3 Comparative analysis of Trans-Nzoia (Kenya) and Kapchorwa
(Uganda) maize production systems in 1999 ..................................

4.4.1 Evolution of capital-intensive maize production systems in
western Kenya and parts of eastern Uganda ............................

4.4.2 Cost of maize production in western Kenya and eastern Uganda...

4.4.3. Simulation Analysis: Effect of increased fertilizer use on maize
production costs ..............................................................

.4.4.4 . Profit margins of maize production in western Kenya and Eastern
Uganda costs. ...............................................................

4.4.5. Conclusion ....................................................................

CHAPTER 5: MAIZE MARKETING FROM EASTERN UGANDA
AND WESTERN KENYA TO KISUMU

5.1. Characteristics of cross-border maize traders ..........................

5.2 Analysis of cross-border maize transfer costs ..........................

5.3 Simulations of effect of costs of maize transfer on Kisumu
wholesale maize prices .......................................................

5.4 Conclusion ......................................................................

CHAPTER 6: CONCLUSION
Appendices ...........................................................................

Bibliography .........................................................................

vi

41

48

52

55

59

62

63

65

67

74

75

78

81

92

LIST OF TABLES

Table 1.4. Relationship Between Grain Prices and Household Preference...

Table 3.1. Summary Statistics of Wholesale Maize Producer in selected
towns and NCPB Producer Prices Before and after Market Reforms

(Constant 1999 Kshs prices per 90kg bag of maize) ................................

Table 3.2 1992 and 2000 Trans-Nzoia and Uasin Gishu Financial Farm
Budgets (2000 Constant Prices) .....................................................

Table 3.3. Average Maize Yields (Tons/ha) in Selected Western

Kenya Districts for Medium Scale farms. .......................................
Table 3.4 Changes in maize prices, costs and profits in 1992 and 1999 in
Trans Nzoia and Uasin Gishu ......................................................
Table 3.5 Maize tariffs since 1985 .............................................
Table 3.6 NCPB Progress of maize price margin 1984/1996 Kshs/90 kg.

Table 3.7 Costs and profits of Maize Trading between Kitale and Kisumu
(Constant 1999 Prices) .................................................................

Table 3.8 Mean maize margins before and after maize market
liberalization between Kisumu and Kitale (90kgs bags and

1999 constant rices) .......................................................................

Table 4.1 Bungoma and Mbale Districts 1999 medium-Scale Maize
Production Budget per acre .......................................................

Table 4.2 Cost elements of producing 90kg bag of maize in
Bungoma and Mbale Districts ...................................................

Table 4.3 Lugari and Iganga Districts 1999, Medium-scale Maize
Production Budgets per acre .....................................................

Table 4.4. Cost Elements of producing 90kg bag of maize in Lugari
and Iganga Districts ...............................................................

Table 4.5. Trans-Nzoia and Kapchorwa Districts 1999 Medium-Scale
Maize Production Budget per acre .............................................

vii

.23

25

26

27

29

30

31

32

38

39

43

45

49

Table 4.6 Cost elements of producing 90kg bag of maize in Trans-Nzoia
and Kapchorwa districts .........................................................

Table 4.7 Cost of Maize production per acre in 1999 ......................
Table 4.8 Cost of maize production per 90kg bag in 1999 .................

Table 4.9 Simulation of Fertilizer Use with Current Agronomic
Practices (Kshs/90kg bag) ...........................................................

Table 4.10 Production costs and profits in Eastern Uganda and
Western Kenya (Kshs/90 kg bag) ..................................................

Table 5.1 Cost Build-Up from Eastern Uganda and Western Kenya
to Kisumu July-October 1999 per 90kg bag ....................................

Table 5.2 Price spreads and their relationship with transfer costs ........

Table 5.3 Maize Mean Prices over three years(1997-1999) in Western
Uganda and eastern Kenya (in constant 1999 prices) ...........................

Table 5.4 Simulations of how costs affect Kisumu wholesale maize
Prices ....................................................................................

viii

50

55

55

61

62

69

71

73

74

LIST OF FIGURES
Figure 2.1 Map of Uganda and Kenya ............................................ 12

Figure 3.1 Wholesale Maize prices in Selected Markets in Western Kenya
from 1989 to 1999 (Constant 1999 prices) ........................................ 21

Figure 3.2 Price Spreads between Kisumu, Eldoret and Kitale per 90kg
Bag (Constant 1999 Prices) ........................................................... 33

Figure 5.1 The Regional Maize Marketing chain from Western Uganda to
Kisumu Kenya ........................................................................... 68

Figure 5.2 Maize Price Spread between selected eastern Uganda regions and
Kisumu .................................................................................... 75

APPENDICES
LIST OF FIGURES

Appendix 4.1a Wholesale Maize Prices for Selected Eastern Uganda and
Western Kenya (Constant 1999 prices) ............................................. 83

LIST OF TABLES

Appendix 3.1 A Maize Budget For Uasin Gishu Per Acre, Medium-Scale
1992 (Constant 1999 Prices) ......................................................... 81

Appendix 3.2 Synthetic Maize Budget For Trans-Nzoia Per Acre,
Medium-Scale 1992 (Constant 1999 Prices) .................................... 82

Appendix 4.1b Synthetic Maize Budget For Bungoma Per Acre,
Medium-Scale In 1999 ............................................................... 84

Appendix 4.2 Synthetic Maize Budget For Mbale Per Acre,

Medium-Scale In 1999 ................................................................. 85
Appendix 4.3 Synthetic Maize Budget For Lugari Per Acre,

Medium-Scale In 1999 ............................................................... 86
Appendix 4.4 Synthetic Maize Budget For Iganga Per Acre,

Medium-Scale In 1999 ................................................................ 87
Appendix 4.5 Synthetic Maize Budget For Trans-Nzoia Per Acre,
Medium-Scale In 1999 ................................................................. 88
Appendix 4.6 Synthetic Maize Budget For Kapchorwa Per Acre,
Medium-Scale In 1999 ............................................................... 89
Appendix 5.1 Characteristics Of Maize Traders In Kenya .................. 90

Appendix 5.2 Import Parity Price Of South African Maize In Kisumu... 91

GLOSSARY
ASAL Agricultural Sector Adjustment Loan
BDAO Bungoma District Agricultural Office
CSRSP Cereal Sector Reform Program
COMESA Common Market for Eastern and Southern Africa
EAC East Africa Community
IDAO Iganga District Agricultural Office
IDEA Innovative Development in Agribusiness Enterprises Project in Uganda
KARI Kenya Agricultural Research Institute
KDAO Kapchorwa District Agricultural Office
Kshs Kenya Shillings, on average Kshs75=$l in 1998/1999.
LDAO Lugari District Agricultural Office
MDAO Mbale District Agricultural Office
MSU Michigan State University
NCPB National Cereals and Produce Board
SAP Structural adjustment Programme
TDAO Trans-Nzoia District Agricultural Office

WFP World Food Program

xi

 

CHAPTER 1
INTRODUCTION
1.1 Introduction and Problem Statement
Maize market privatization refers to the withdrawal of state agencies from grain pricing
and marketing activities. Liberalization refers to the relaxation of regulatory controls on
private marketing (Jayne and Jones, 1997). In Sub-Saharan Afiica both privatization and

liberalization have been a source of much debate in the past 20 years.

After independence and prior to early 19905, food marketing consisted of several
channels from producers to consumers. The state intervention had a direct influence only
on some crops and/or intermediaries, but this still conditioned the terms of operation for
most of the other channels. The objective of food policy in the Sub-Saharan region was
food self-sufficiency. Food security was the official justification for governments to
intervene and set up complex food marketing systems (Seppala, 1997). Fiscal crisis and
the framework of policy-based lending by donors since the late 19803 strongly influenced
food market privatization and liberalization in this region. External leverage over
domestic agricultural policy was expanded through aid conditionality. The major
objectives of donors was getting the prices "right" through a competitive marketing
structure involving efficient private traders and reducing the fiscal burdens of state-

govemed marketing.

Now that food marketing reform has spread, albeit only partially, throughout most of

Sub-Sahara Africa, it is worth taking stock of the difference between the pro-reform and

 

post-reform eras. The main objective of this thesis is to determine how farmers and
consumers in specific areas have been affected by market reform. To do this, I examine
the effect of market reforms (privatization and liberalization) on the production and
marketing costs of maize from western Kenya and eastern Uganda in the western town of
Kisumu in Kenya. I assess how market reform and other factors have affected the
competitiveness of maize production in three comparable pairs of markets in western
Kenya and eastern Uganda. Western Kenya and eastern Uganda were selected because
they have comparable climate and farm sizes for maize production. These regions have

also been trading in maize for quite a long time, both illegally and legally.

It must be pointed out that many aspects of the maize market reform are yet to be
implemented. There are still international trade restrictions and National Cereals and

Produce Board (N CPB) activity that still influence trade flows and prices in Kenya.

1.2 Specific Objectives

The thesis will address the following issues:
1. Compare the profitability of maize production before (1989/91) and after (1998/1999)

maize market reforms in major maize producing areas of western Kenya.

2. Compare the spatial price spreads between selected producer and consumer markets
in western Kenya before and after maize market reforms between some major pairs of

markets in which there is maize trade.

3. Compare the competitiveness of maize from western Kenya maize, eastern Ugandan

and South African in Kisumu town after maize market reforms.

1.3 Hypotheses:

The overall hypothesis of this study is that the partially implemented maize market
reform has made maize production and marketing more efficient and has reduced

consumer maize prices.

Specifically, the following hypotheses will be tested:
1. Profitability of maize production for mediurn-scale commercial farmers in western

Kenya has increased after maize market reforms.

2. The spatial price spreads from maize surplus regions of western Kenya to Kisumu,
which is in a maize deficit region, have been reduced after maize market

liberalization.

3. Maize from western Kenya is competitive with maize from eastern Uganda and/or

South Africa in Kisumu under free trade.

 

1.4 Literature Review

The system of maize market control in Kenya, like in most parts of sub-Saharan Africa,
evolved out of a priority for ensuring national food security and safeguarding producer
interests through price support (Gordon et al. 1992) and consumer interests through
maize meal subsidy (Mulinge, 1992). The government and its analysts had long been
aware of inefficiencies and high operational costs of the maize marketing parastatal
National Cereals and Produce Board (N CPB). However, these were regarded as of
secondary importance relative to the direct control over food supplies and producer
incomes that were derived from market control. Although the pressure for reforms in the
maize marketing system began as early as 1966 with the publication of the
recommendations of the 1966 Maize Commission of Inquiry (Gordon et a1. 1992), it
became a major issue in the late 1980’s. This was when NCPB's deficits contributed to
national treasury deficits, triggering concerns by donors and international lenders in
addition to financially based internal pressures to reform. The main advocates for maize
market reforms pointed out that maize marketing activity was operationally more
efficient when carried out by the private sector and that this would result in increased
producer prices and lower consumer prices

(Argwings-Kodhek 1992 and Gordon et al. 1992). The wave of maize market reforms
mounted, and by early 1990's, the pressure for maize market liberalization not only came
from the donor community, which saw no sense in subsidization of an economy with
limited funds, but also from the farmers, who expected better prices and prompt payment

from the private sector.

In terms of agriculture, the aim of marketing reforms (as advocated by donors) on the
supply side was twofold: higher producer prices and, subsequently, greater production
levels. Later on, pressures emerged for keeping local consumer prices of food low. In
order to reach both objectives, a third objective, namely to decrease the cost of

marketing, was given a priority (Seppala, 1997).

Maize market reform started in 1988 with the partial relaxation of controls on maize
movement across districts. Restrictions on private inter-district maize trade were re-
imposed in early 1992. Later in 1992, the domestic maize sub-sector was again partially
liberalized; one year after the input sub-sector had been liberalized. The 1992 maize
market liberalization marked the end of monopoly trading in maize by the government
parastatal National Cereals and Produce Board (N CPB). Farmers were now free to sell
maize to NCPB or traders at prices agreed upon between them. Traders were free to get
maize from anywhere and sell in or out of Kenya. Since then, there have been studies
carried out that determined that a majority of small-scale, net- maize-buying farmers are
happy with the liberalized market (Argwings-Kodhek, 1999). But the complaints of a
minority of net-selling maize farmers (Argwings-Kodhek, 1998) with strong political
connections dictate the maize sub-sector policies, and this has resulted in the imposition

of import tariffs on maize.

While it is commonly viewed that most farm households in Kenya are sellers of grain and
therefore benefit from “high” grain prices, the fact is that most farm households in Kenya

do not produce enough grain to feed themselves and are actually net buyers of grain

 

(Argwings-Kodhek, 1999). The results of a 1999 Kenya household survey in 22
agricultural districts in Kenya (Jayne et al., 2000) found that on average, 52% of small-
scale farm households were net buyers of maize, 16% neither purchased nor sold maize,
and the remaining 32% were net sellers of maize. Only in the high potential maize
districts which includes Bungoma, Lugari and Trans-Nzoia which account for only 15%
of the population of Kenya, did the majority of small-holder households (68%) sell more
maize than they consumed. Only 18% of the households in the remaining areas of the
country were net sellers of maize. Of the net buyers, about 88% of them only purchased
maize (no sales), while 12% of them sold maize but bought more than they sold.

Before the maize market liberalization, it was assumed that most maize farmers were pro-
reform, a policy that was geared towards increasing their farm income. At that time, net-
sellers saw maize prices in local markets that were higher than NCPB producer prices in
most months. Many inferred that liberalization would make it easier for them to benefit

from higher selling prices. The private traders also paid promptly.

Many years after liberalization (post-reform), two groups of farmers have emerged. There
is a minority of net-maize-selling farmers, who prefer higher maize prices, and majority

net-maize-buying farmers, who prefer lower maize prices.

Table 1.4 Relationships Between Grain Prices and Household Preference.

 

 

% of households stating preference for
Agra-ecological zones High maize prices‘ Low maize prices‘
Northern Arid 18.5 81.5
Coastal Lowlands 6.3 93.8
Eastern Lowlands 23.5 76.5
Western Lowlands 6.4 93.6
Western Transitional 18.6 81.4
High Potential Maize 68.9 31.1
Zone
Western Highlands 25.6 74.4
Central Highlands 31 69
Marginal Rain Shadow 1.7 98.3

Source: Tegemeo Institute/Egerton University/KARI/MSU Household Survey 1997.
"‘ Relative to 1996/97, a period in which domestic real maize prices were low compared to most years in
the 19905.

The government, on the other hand, has imposed import tariffs to protect all farmers from
cheaper maize imports. Studies suggest that actually only 33% of the farmers are being
protected (Jayne et. al. 2000). This is thought to be the case because 67% of the small-
scale farmers are net maize buying farmers even when they grow maize. It may be argued
that if net-maize-buying farmers work in net-maize-selling farms, the former are not hurt
by higher maize prices. This may be true in some cases where these two types of farmers
are located together. This situation is however not common in Kenya. Consequently, net
maize sellers are demanding domestic maize price support through maize purchases by
NCPB at higher prices and protection from cheap maize imports through imposition of

import tariffs and variable duties.

Kenya is a member of both the Common Market for East and Southern Africa

(COMESA) East Africa Community (EAC). With the implementation of zero-tariff

 

policy by both of these organizations, there is a need to know how western Kenya farm
gate maize prices and consumer prices would be affected by the removal of tariff and
price support policies. This study attempts to look at how producer and consumer maize
prices would react to the absence of these policies through a comparative analysis of both

maize production and marketing between western Kenya and eastern Uganda.

Many studies were carried out in Kenya prior to or at the beginning of the privatization
and liberalization process to predict the outcome of this process. The results of most of
these studies predicted higher producer prices, reduced marketing margins, efficient flow
of maize from surplus to deficit areas, and reduced government expenditure in

maintaining maize stocks for food security.

In 1992, James Nyoro (1992) did a study on the competitiveness of the maize production
systems in Kenya. His study focused on the impact of the 1989-1993 maize market
liberalization program on maize competitiveness with other major domestic farm
enterprises, and internationally. The maize sector liberalization programs of 1989-1993
had the objective of achieving internal adequacy in maize production and maintenance of
strategic reserves (Kenya Development Plan, 1989-1993).

He observed that during most years, maize is potentially a tradable commodity and was
imported only when adverse weather conditions lowered its production and raised prices
high enough to trigger imports. The country had been mostly self-sufficient in maize
since the domestic producer prices of maize typically lay within the import parity price

and export parity price.

Under controlled maize prices and liberalized input prices (by 1991), he found that there
was a decrease in maize production in major maize producing areas between 1989 and

1992, because of a decrease in the use of fertilizer due to high fertilizer cost.

Nyoro concluded then that maize production costs between 1986 and 1991 had increased
in real terms while the gross revenue had stagnated. Hence area under maize decreased
because maize farmers switched to alternative crops that were more profitable, notably
wheat and dairy. Maize self-sufficiency in 1991 was thus realized at higher costs.

In the same year, Gem Argwings-Kodhek (Argwings-Kodhek, 1992) studied private
sector maize marketing in Kenya. His objective was to gain more insight in the private
maize marketing sector and find out if this sector would be able to fill the gap brought
about by the reduced role of the NCPB in maize marketing, since the liberalization

process was being implemented in phases.

His research included identifying major pairs of markets that engaged in maize trading,
types of traders, methods of trade, mode of transportation and storage. He concluded that
private maize trade was a vibrant part of the national economy but that the potential for
the traders to contribute to economic growth was constrained by rules and regulations.
These constraints resulted in several inefficiencies such as high marketing margins. He
advocated for a government policy that would make the maize marketing system more

efficient, competitive and financially sustainable.

Mark Odhiambo et al. (1994) also observed that the informal maize traders operated at
high costs and with a lot of operational and pricing inefficiencies under the controlled
maize sub-sector. He also noted that maize production in the country reached the peak in
1988/89 when the recorded production reached 30 million (90kg) bags. Since then,
production has tended to decline due to poor and unreliable weather, poor husbandry
practices, rising input costs and poor seed quality. The country thus resorted to maize
imports to meet the increasing demand, yet there was limited foreign exchange.

Other studies by Gabre-Madhin (1999) and Jayne et al.1997), besides reviewing the pre
and post liberalization maize markets, they emphasize the need to establish a regulatory

environment that facilitates private trade and improve productivity in maize farming.

1.5 Justification

This kind of study is essential because trade was one of the major reasons for reviving the
EAC and the creation of COMESA and the existence of these organizations, is already
creating pressure to reduce trade barriers. There is therefore a need to accurately
understand what the effects will be on trade flows and price levels. There is currently a
need for information on the relative costs of maize production in Uganda and Kenya, and
costs from points of surplus production to urban markets in Kenya. This is necessary to
assess regional implications for trade, farmer income and consumer food security in the

absence of trade restrictions.

10

CHAPTER 2

DATA AND METHODOLOGY

2.1 Data

This study was done between April and September 2000. While most of the data are time
series, maize production and marketing budgets were available only for 1991/1992.
These 1991/1992 farm budgets serve as baseline data to compare to maize production and
marketing data that were collected for this study for the 1999/2000 season.

The study areas were Trans-Nzoia, Bungoma, Lugari districts and Kisumu town, all in
western Kenya. In Uganda, Iganga, Mbale and Kapchorwa districts were covered. These
districts were selected because they were not only significant maize producing districts,
but also major sources of maize for Kisumu town. These districts are also close to each
other despite being in different countries, and this proximity provided a good scenario to
study regional competitiveness in maize production and marketing. The sample included

90 farmers and 37 maize traders. The area of study is in figure 2.1

II

FIGURE 2.1 STUDY AREAS IN EAST AFRICA

UGA ND“ KENYR
Kapchorwa

Mbale

Greater Igan.
Kannada °

 
   
  
  

Trans Nzoia

  

'- ungoma
"Risa muKakamc ga

fl TANZANIA

 

° Nalloli

. u

-. a... Study Areas

12

 

Data used in this survey included:

a. 1998/ 1999 Tegemeo/MSU maize production and marketing costs survey collected in
June 2000 for the western Kenya and eastern Uganda districts.

The identification criteria used in selecting farmers and traders in this paper were

commodity produced by farmers, region of production, scale and production technology.

This survey looked at medium-scale maize farmers2 who cultivate maize mainly for the
market. The aim was to look at their regional competitiveness in 1999 and compare their
domestic competitiveness with that in 1992. The rationale for picking

medium-scale, pure commercial maize farmers were as follows: Only a small proportion
of smallholder farmers sell maize. By contrast, all medium and large maize farmers sell
maize, and farmers in the 5-35 ha farm size category account for the bulk of national
maize sales excluding large-scale farms (Jayne et. A1 2000). Moreover, farmers in this
group are organized into powerful farm lobby, and they exert a predominant influence on
the policy process. Since the study examines the relative profitability of marketed maize
produced in various locations, it is appropriate to focus on the type of farms where
surplus, marketed maize predominantly comes from. Two, together with large farmers,
they are also a powerful lobby that influences maize policy in Kenya (Argwings-Kodhek,
1999), so the effects of market reforms on this set of farmers is likely to have an

important influence on the sustainability of the current system.

 

2 Medium-scale farmers in this paper refer to farmers with over 5 acres under maize up to 35 acres
depending on a region’s population density.

A stratified random sampling method was used in selecting a sample of 90 Medium-scale
farmers from all the six districts of study. After identifying the farmers and assigning
them numbers, 15 identification numbers were randomly selected for each district. These
farmers were then interviewed to get input and output maize data of the 1998/1999
season, which typically starts from March/April to November/December. From this data
and after careful comparison with secondary data, individual farm budgets for each
farmer were constructed. Within each district, the mode (the figure that occurs most
frequently) of each cost and income element of the individual farm budgets are used to
create a representative farm budget for medium-scale maize farmers in each district. The
individual budget items that are in the synthetic budget are those that are prevalent among
a group of farmers with similarities in geographic location, commodity produced,

technology usage and asset levels.

b. 1991/1992 representative farm budgets for the above western Kenya districts are from
1990/91 maize marketing study of Tegemeo Institute of Egerton University in
Nairobi, Kenya. Maize input and output data were collected from 14 medium-scale
farmers in each district through purposive survey technique (N yoro, 1992) from
which 14 farm budgets derived. Using the mode for each input and output item from
the 14 budgets, one representative farm budgets for each district was made which was

a composite of information obtained from several farmers.

0. Monthly wholesale maize prices from 1989 to at least 1998 for the following pairs of

towns in which there is maize trade: Mbale/Bungoma, Iganga/Lugari, and

Kapchorwa/Trans-Nzoia. These data were obtained from the Ministry of Agriculture

in both Kenya and Uganda.

1992 transportation and marketing costs for maize from Kitale and Eldoret to Kisumu
were obtained from maize marketing study by Tegemeo Institute of Egerton
University in Nairobi, Kenya. In that study, 326 people involved with private maize
trade in Kenya were interviewed. The post-farm maize marketing system of interest
to the 1992 study was the Kitale-Kisumu and Eldoret-Kisumu maize trade. Average
maize transportation and marketing costs were used to derive a single representative
maize trading budget for Kitale-Kisumu and Eldoret-Kisumu routes. Secondary data
on road infrastructure between 1992 and 2000 and changes in fuel costs were
collected to carry out a "with and without" analysis of maize transportation and

marketing.

In J une/August 2000 data on maize trade between Kitale and Kisumu by traders
similar to those of the 1992 study, was collected for this paper. A stratified sampling
technique was used in selecting a sample of 12 traders in this route. The same
procedure was used in selecting 25 other traders who marketed maize from the other

5 districts to Kisumu in 1999.

CIF Mombasa prices of South African maize in Kisumu were constructed from data
obtained from South Africa Exchange (SAFEX), the Kenya Ports Authority (KPA)

and the Customs Department of Kenya.

15

g. Exchange rates between Kenya, Uganda, South Africa, and US $ from 1988-1999
were obtained from the Ministry of Finance in Kenya.

h. Consumer price indices from 1988-1999 were obtained from the Ministry of Finance
and Kenya Statistical Abstracts for Uganda and Kenya respectively.

i. Time series rainfall data from all the six districts was also collected to cross check
1992 and 2000 data against historical data for a "with and without" analysis purpose.

j. Secondary data on government legislation with respect to maize marketing from 1987
to 2000 was collected and used extensively in explaining the differences in maize
production and marketing between 1992 and 2000 within some markets in Kenya,

and between western Kenya and eastern Uganda in 2000.

2.2 Analysis

For analytical purposes, this paper used a commodity sub-system framework. The
commodity subsystem is defined as the entire set of activities performed in production,
assembly, processing, distribution and consumption of a single product (Harrison et al.
1987). In particular the framework used here looks at vertical coordination in maize
production and marketing from the farm level to the wholesale level, focusing on

profitability at every level, with the aim of identify areas that need improvements.

Net profits, marketing margins and costs were used as measurements of

efficiency/competitiveness in the maize commodity subsystem.

The Maize farm-wholesale price spread is defined in this paper as the difference between
wholesale and farm-gate prices of whole grain maize in comparable quantity units. Under
competitive behavior,

Pj'Pi=Mij=Mij
Where PJ- is the wholesale price per 90kg bag of maize in consumption location i,
P: is the farm gate price of 90kg bag of maize in production location j,
MMJ-i is the marketing margin of 90kg bag of maize from production location j to
consumption location i, and,
MCJ-i is the marketing costs for 90kg bag of maize from production location j to
consumption location i. Efficient maize marketing, would imply that the marketing
margins would converge towards marketing costs. Profits for marketing maize would
therefore be low but still enough to induce trade in zones where trade occurred. If Pj'

PizMij>MCji for a sustained period, markets are not behaving competitively.

A great effort was made in this study to obtain comprehensive data on trader marketing
costs to ensure that trader profit (price spread minus observed marketing costs) was a
good measure of competitiveness and marketing margin when compared to marketing
cost. Since marketing costs vary by scale of enterprise, resulting in different net margins
for different firm sizes, a lot of effort was also made to interview similar kinds of maize
traders in terms of size and technology as alluded to earlier. Again, if a trader was
involved with marketing many commodities simultaneously, the size of margin and
percent of return to trader may vary by commodity, reflecting degree of value added and

marketing costs of a trader. Costs and returns from other commodity businesses were de-

linked from dominant maize trade. The percentage volume of each commodity trade was
used to allocate joint costs between different commodities. However, some costs are not
observable or are hard to measure. Such costs include search costs, risk premium, asset

depreciation, costs from opportunistic behavior and negotiations costs.

Lastly, net margins may reflect differing time periods and degree of value added through
storage, transportation, handling, grading, processing, and location of distribution. Due to
unavailability of panel data, and/ or consistent data on marketing costs, this study

represents a snap-shot comparison between 1991/1992 and 1998/1999. The results of this

analysis therefore, would have to be interpreted with caution.

Having explained the rationale of using trader profits, marketing margins and costs to

measure competitiveness and efficiency in maize production and marketing, the

remaining chapters are a series of comparative matrices of

a. maize production and marketing in western Kenya (1991/92 pre-reform and 1998/99
post reform)

b. competitiveness of maize production and marketing in western Kenya and eastern
Uganda (1998/99 post reform)

c. post-reform competitiveness of South African maize in western Kenya (1998/1999).

The effects of free regional trade in maize are then simulated to determine the effects of

reduction or elimination of maize trade barriers on the western Kenya maize production

and marketing profitability.

l8

The numeraire used in this study is a 90kg bag of maize because it is the most common
unit of measurement used in many studies and official government documents in Kenya

on issues concerning maize.

l9

CHAPTER 3
COMPARISON OF MAIZE MARKET COMPETITIVNESS BETWEEN 1992
AND 1999 IN SELECTED WESTERN KENYA AREAS
This chapter compares costs of medium-scale maize production and marketing to Kisumu
town from two selected major supply points in Kenya in 1992 and 1999, i.e., just before
maize market liberalization and after some market reforms. Our focus will be on price
spreads and net profits. This chapter starts by looking at the effect of maize market
liberalization on real prices in some western Kenya markets. For trading analysis, the
major western Kenya towns in this sample are Kitale in Trans-Nzoia district, Eldoret in

Uasin Gishu district and Kisumu in Kisumu district.

3.1. Effect of maize market reform on wholesale prices in some western Kenya
markets

Figure 3.1 shows the real monthly wholesale prices for 90kg bag of maize between 1989
and 1999 for Kitale, Kisumu and Eldoret maize markets. 1988 through 1992 is the period
of limited maize market reforms in Kenya under Cereal Sector Reform Program (CSRP)
(Gordon et al. 1992). The maize market reform during this period mainly focused on
making NCPB more efficient and allowing limited inter-district maize trade by private
traders. Not much was done in privatizing and liberalizing the maize market. Prior to
1993, official wholesale maize prices were pan-territorial and pan-seasonal. 1993 was the
year in which state agencies withdrew from grain pricing, there was relaxation of
regulatory controls on private maize, and the NCPB greatly reduced its purchases of

maize from farmers.

20

Figure 3.1 Wholesale Maize prices in Selected Markets in Western Kenya from
1989 to 1999 (Constant 1999 prices)

 

Kshs/90kg bag of maize

 

 

 

 

Kitale — — — — Kisumu Eldoret ——NCPB

 

 

 

L

Source: Prices are from the Market Information Office of the Ministry of Agriculture in Kenya.
Note that private prices refer to private maize market prices before 1993.

 

But since 1999, the NCPB increased its maize purchases again, and the government has
maintained a tariff on maize imports greatly raising the maize market price levels. So the
period between 1993 and 1998 is the post-market reform period. Note that different
prices were used in this figure. Pre 1993 prices are NCPB wholesale market prices. This
is because NCPB was the official and dominant maize wholesaler then. Post 1993 maize
prices are wholesale maize open market prices reflecting the dominant role of the private
sector in maize trade after 1993. Even in years of drought like 1990/91, there were no
variations in price to reflect low supply and whatever maize the government imported to
meet the shortfall, was sold at the pre-set official wholesale price. This can be seen in

figure 3.1 between 1989 and 1992. The gradually decreasing wholesale maize price in

21

this period was due to a reduction in NCPB price margin as a result of CSRP. It should be

noted that 1999/00 year was a low rainfall year.

However, due to the operational inefficiency of NCPB, trading losses were incurred by

the government (Gordon, 1992), increasing the fiscal burden of the government.

Although the span of time between 1989 and 1999 is relatively short, figure 3.1 shows
weather-induced variations in maize prices in western Kenya after market reforms. High
maize prices at the beginning of 1994 reflect the shortage of maize due to 1993 drought
and lower prices between end of 1994 and 1996 represent good year harvests. Declining
prices towards end of 1997 reflected anticipation of a good harvest in 1998 (Mutunga,
2000). Hence the fluctuating price patterns reflect weather-induced effects, which
determine maize supply. As is expected, prices are generally lower in surplus zones of
Kitale and Eldoret and higher in the deficit market of Kisumu. The three markets seem to

be well integrated since prices in the different markets track each other closely.

1995 and 1996 are the only years in this figure in which real wholesale maize prices were
lower than those of pre-reform period. Looking at Table 3.1, the average post-
liberalization minimum price is less than the pre-liberalization (before July 1992)
minimum, which may imply that depending on the weather and/or season, post-
liberalization (after July 1992), prices have in some occasions been lower than pre-
liberalization maize wholesale price. Generally, real market prices tend to be higher after

liberalization than before liberalization as depicted in table 3.1. This may be attributed to

22

partial maize market liberalization. This refers to a situation in which the government has

withdrawn from monopolizing maize trade but has in place some regulation and

intervention mechanisms that reduce domestic and international competitiveness of the

maize industry. For example, maize importation is still controlled by the government

through import tariffs and variable duties. The government also indirectly sets domestic

prices by announcing priori that it would buy big quantities of maize for strategic

reserves, at a price that is generally higher than the prevailing market price. It must be

noted that macro-economic instability, El-Nino and La-Nina weather effects within the

short 7 year period of observation may obscure the effect of market liberalization on real

wholesale maize prices in western Kenya.

Table 3.1. Summary Statistics of Wholesale Maize Producer in selected towns and
NCPB Producer Prices Before and after Market Reforms (Constant 1999 Kshs

 

 

 

 

 

 

 

 

 

prices per 90km of maize)
Kitalel Kisumu] Eldoret
Market Prices NCPB Prices

Before After Before After Before After Before After

(<July (>July

1992) 1992)
Mean 973 1036 1092 1225 1026 1 106 927 1218
c.v 0.25 0.32 0.32 0.27 0.36 0.31 0.17 0.23
Minimum 690 538 607 725 599 534 716 878
Maximum 1365 1952 1782 2002 1750 1892 1 106 1678

 

 

 

 

 

 

 

 

 

Source: Average Wholesale Prices from the Ministry of Agriculture, Kenya.

Note that there are NCPB depots Kisumu, Kitale and Eldoret, so market prices are being

observed for the same specific locations.

Table 3.1 further shows that generally the real price of maize in the deficit town of

Kisumu has increased just like the prices in the surplus areas of Kitale and Eldoret. Since

prices vary with weather and other factors, the range of prices after liberalization is quite

high, reflecting more variable prices than the pre-reform NCPB's pan-seasonal, pan-

23

 

territorial prices. Some of this variability is predictable and in fact necessary to induce
usefirl marketing firnctions by the private sector (Jayne et al. 1998). Overall, both market

and NCPB production prices have increased with reform.

3.2. Effect of Maize Market Liberalization Policy on Financial Maize Farm Budgets
The previous section showed market liberalization has had the major effect of increasing
variability of wholesale maize prices. However there has also been a general increase in
maize wholesale price levels in surplus and deficit areas. Table 3.2. and appendices 3.2.1,
3.2.2 and 4.3.1 Show the effects of partial maize market liberalization on farm budgets in

Lugari (approximated by Uasin Gishu) and Trans-Nzoia.

The large increase in labor cost for weeding is because most maize farmers in Trans
Nzoia reduced their use of chemical weeding due to high cost. Most farmers in
Lugari/Uasin Gishu stopped chemical weeding altogether in 1998/99. Shelling labor in
Lugari/Uasin Gishu went down because many farmers intensified their use of sheller
machines. The cost of gunny bags in Lugari/Uasin Gishu in 1998/99 went down
drastically compared to 1992/93 because most farmers in this region sell to private
traders unlike in Trans Nzoia. These private maize traders in turn use their own gunny
bags. Hence more farmers are using the same gunny bags for 2-3 years. Again selling to
private traders on the farm has made farmers in Lugari/Uasin Gishu do away with the
cost of transporting maize to the market. In Trans Nzoia, most farmers still sell to NCPB

and therefore incur costs for gunny bags and transportation to NCPB silos.

24

Table 3.2 1992 and 1999 Trans-Nzoia and Uasin Gishu
Financial Farm budgetggooo Constant Prices)

 

 

 

 

Trans Nzoia Uasin Gishu/Lugari
1991/92 1998/99 1991/92 1998/99

Items Kshs/acre Kshs/acre Kshs/acre Kshs/acre

Yields 22 25 20 17

Price/90kg 703 1,100 703 1,000

Revenue 15,466 27,500 14,060 17,000

Fixed costs/acre 550 3,750 500 1,250

Labor inputs

Planting 12 5

Weeding 14 400 6 600

Pest control 29 70

Top-dressing 70 60 44 90

Stocking 281 300 352 330

Desucken'ng 59 47

Maize dehusking 309 500 469 340

Transport to store 1 13 100 94 68

Transport to mkt 50

Shelling labour 111 125 140 34

Watchmen 94 l 50 200

Total labor inputs 1,092 1,685 1,227 1,662

Non-labor inputs

1" Plough 937 1,200 937 1,200

Ist Harrow 879 800

2"d Harrow 703 800 1,172 1,000

Planter hire 586 650 586 800

Hybrid seed 403 910 410 910

DAP Fertiliser 1,670 2,025 1,617 1.950

Top-dressing fertilizer 1 .213 1,425 797 1,800

CAN spreader 586 586

Herbicides 937 I .600 937

Weed spraying 650 500 586

Depterex 32 69

Sheller hire 450 500 375 425

Gunny bags 567 250 520 85

Transport to store 309 375 375 485

Trans to mkt 258 1,250 234

Land Rent per acre 400 2,000 400 2,000

Total non-labor inputs 10,580 14,285 9,601 10,655

Total costs 12,222 19,720 1 1,328 13,567

Costs/ bag 556 789 566 798

County council cess 155 141

Profit/acre 3,089 7,780 2,591 3,434

Profit/bag 147 31 1 137 202

 

SourcezTegemeo/MSU production and marketing costs survey, 2000.

In both Trans-Nzoia and Lugari, the costs of maize production per bag and profits per bag

increased after maize market reforms. This paper notes that the best procedure would

25

have been to trace the costs and profits every year over this period, but data from the
same set of farmers and traders over the entire period was not available.

Maize production costs in Lugari/Uasin Gishu increased by 41% in 1999 compared with
1992. These may be attributed to a decrease in maize yields in Lugari/Uasin Gishu from
20 bags of 90kgs per acre in 1992 to 17 bags per acre in 1999 (Table 3.3 below). Also,
increasing costs of inputs and mechanized activities may have increased the cost of maize
production. In Trans-Nzoia, despite an increase in maize yields from 22 bags to 25 bags
per acre, maize production costs per 90kg bag increased by an average of 42% in 1999

compared with 1992.

Table 3.3. Average Maize Yields (90kg bags/acre) in Selected Western Kenya
Districts for Medium-scale farms.

 

Years Lugari/Uasin Trans-Nzoia
Gishu
1991/92 19 20
1992/93 20 23
1993/94 16 15
1994/95 20 27
1995/96 20 20
1996/97 14 23
1997I98 16 1 7
1998/99 1 7 25
1 999/00 1 8 20

 

Source: District Agricultural Reports, 1991-2000, Kenya Ministry of Agriculture and Livestock
Development.

This increase in maize production cost can be attributed to increasing costs of inputs and

mechanized activities of inputs and mechanized activities.

Real farm gate prices have increased by 56% in Trans-Nzoia and 42% in Uasin

Gishu/Lugari. Consequently, profit per bag increased by an average of 44% in Trans-

26

Nzoia in 1999. In Lugari profit per bag has increased by an average of 11%. Calculations
as to how these averages were derived from table 3.4

Table 3.4 Changes in farm maize prices, costs and profits in 1992 and 1999 in Trans
Nzoia and Uasin Gishu

 

Trans-Nzoia 1992 1999 %
Change
in Profit

1 Price per 90kg bag 703 1100 56%
2 Cost, Trans-Nzoia per 90kg bag 556 789 42%
3 Profit at high price (Kshs 703 in 1992 and 1100/90kg bag 147 311 112%

in 1999)
4 Profit at low price (Kshs 703 in 1992 and 900/90kg bag 147 111 -24%
in 1999)

 

5 Average Profit 147 211 44%
Uasin Gishu/Lugari
Price per 90kg bag 703 1000 42%
Cost, Uasin Gishu/Lugari 566 798 41%

Profit at high price(Kshs 703 in 1992 and 1000/90kg bag 137 202 47%
in 1999)

Profit at low price(Kshs 703 in 1992 and 900190kg bag in 137 102 -26°/o
1999)

5 Average Profit 137 152 1 1%

h CAN-lb

 

Source: 1992 prices from Farm interviews for 1992 by Tegemeo Institute. 1999 prices, from 1998/1999
Tegemeo/MSU maize production and marketing costs survey, June 2000.

The farm gate price before 1993 was constant throughout the season due to monopoly
purchases by the NCPB at pan territorial and pan-seasonal prices. Prices vary after 1993
depending on the location and season. The high prices (row 3) and low prices (row 4) that
lead to high and low profits within a season refer to the highest and lowest farm gate
prices received by the farmers in our sample in 1992 and 1999 seasons. Since producer
prices were pan-seasonal as set by NCPB in 1992, they do not vary.

The increase in costs per bag in Trans-Nzoia is due to increasing costs of inputs such as
fuel, herbicides and fertilizer, most of which are imported and thus susceptible to foreign
exchange fluctuations, and the shilling has been depreciating. The increase in profit in

Trans-Nzoia is due to government indirect price support through purchases of strategic

27

food reserves by NCPB at higher prices, and protection of domestic maize market from
imports through tariffs and variable duties. In a year like 1998/1999, when there was a
shortage in maize production due to delayed rainfall, and in a month like July, which is
seasonally a month with decreased maize supplies, medium-scale farmers with stores get
high profits. Before market liberalization such high profits were not possible in the
formal and legal market because of pan-territorial and pan-seasonal pricing. The small
increase in average profits in Lugari/Eldoret is due to a competitive output price since
NCPB buying centers were closed in most of these areas. Farmers find it easier to sell
maize to traders than get involved with hauling maize to NCPB stores, which is more
common in Trans-Nzoia, where land parcels are generally bigger and crop output larger.
Generally, it can be deduced from table 3.4 that farm profits are under indirect NCPB
price support (high prices) and down under market prices (low prices) because costs gave
gown up between 1992 and 1999. The main cost that has gown up is land rental. Land

rental price is a function of and positively related to price support.

After partial maize market liberalization, prices have risen more than costs per unit
produced, therefore increasing maize production profit for medium-scale farmers. This is
because of tariffs (Table 3.5) and NCPB support prices (Table 3.6) that raise domestic
prices and farm profits have also increased. It must be noted, however, that weather and

season of sale also heavily influence wholesale maize prices and hence farm level profits.

28

Table 3.5 Maize Tariffs since 1985.

 

Day Month Year Tariff rate
28 6 1985 37%
29 6 1987 45%
15 1 1988 42%
16 5 1988 30%
21 6 1989 30%
22 9 1989 30%
25 5 1990 25%
9 11 1990 25%
4 6 1992 0
18 9 1992 29%
2 11 1992 0
21 8 1993 0
12 1 1994 0
15 6 1995 15% or 4Ksh/Kg
26 5 1995 0
29 12 1995 15% or 4Ksh/Kg
18 6 1996 25% or 2.5Ksh/Kg
21 6 1996 1.75 Ksh/Kg
14 1 1997 25% or 2.5Ksh/Kg
2 12 1998 25% or 2.5Ksh/Kg
2 11 1998 50%
17 5 1999 2% or 0.25 Ksh/Kg
17 1 1 1999 50%
13 6 2000 0
21 6 2000 25% or 2.5Ksh/Kg

 

Source: Kenya Gazette Supplementaries 1985-2000.

29

Tauoaemmmmmzzmmmmmbq

(a)
Freed

yea

I 1%4/85
21m
31m
41%7/88
51m
61m
71m
81991/m
91%1/92
101992193
11 1993/94
121993/94
13199394
14199394
151%

161995/%1
171995962
18199593"
19199596‘
2019951965

21 1995955
22199697
231997198
24198199

19992000
We

(13) (C) (d) (e) (f) (9) (h) 0) G)
Rodner dher "to-mu MIPS Sdlirg Goes ‘Vctotd GcK Price
price Bred price Oatead price Nbg‘rs cost Stbsidyinw'ttnt
Costs bradds absid/
(Mimi costs (M) (W) (60 (em)
156m- 329) 1839) 239.60 50.70 8.84 188.90
175.00 3290 207.90 284.65 7675 $9 207.51)
188(1) 3290 220.90 284.65 6375 28m 2219)
183(1) 329) 20.9) 284.66 6375 23% 220.9)
201.00 3290 2339) 297.15 6325 27.04 2339)
221.00 3290 25390 320.3) 669) 8.35 25351)
250.00 3345 28345 115.75 3313) 32.35 11.22 3235 39420
300.00 4595 34595 101.3) 3585 1262 366 1262 447.25
420.00 45.95 465% 110.50 47200 605 1.3) 605 576.45
600.00 4595 645.95 120.9) 670.0) 24.05 3.72 24.05 7&85
600.00 77.00 6770) 204.70 6700) (7.00) -1.03 (7.00) $1.70
950.00 9250 1.04250 231.90 6700) (37250) 435.73 (37250) 1,323.40
950.00 9250 1.04250 290.90 950.0) (£50) 887 (Q50) 1.32140
950.00 104.00 1,054.11) 226.11) 1,280.00 22600 21.44 22600 1.251(1)
920.00 1(250 1.02250 257.50 1.251(1) 257.50 25.18 257.50 1,280.00
920.00 1(250 112250 257.50 $5.0) (57.50) -5.62 (57.50) 1280.00
990.00 10250 1.02250 44611 915.00 (107.50) -10.51 (107.50) 1,468.61
moo 10250 1.02250 4(611 $6.0) (157.50) -15.40 (157.50) 1,428.61
6100) 65.00 675m 3&87 $50) 190.00 28.15 190.00 1130.87
600.0) 6500 6650) 38587 $50) 200.00 mm 210.00 1,050.87
6000) 65m 6650) 319.56 97200 307.00 46.17 307.00 $4.56
600.0) 65.00 665.11) 319.56 97200 307.00 46.17 307.00 $4.56
800.00
1,200.00
1,200.00

1 PrioemJeumrlineff16issellingpricnaaplicaflewef121hJJy,1995
2Prioestnxmerrrhrlirreft17istherevisedsellingpioewef1%Agfi1w5
3Riceslnmreurbrlire#18isflereisedsdlirgpioewef221dAgsL1995

4 PliestnmreufierlinemmsoererisedwdmepimwefmsmerbaAQw
5 Priestndueurbrlineffzo isthe revised pudtaseprioewef 18th Decarba,1995

6 Prioestrtmremrtarlineif21 istherevisedsdling pioewef4th be,19%

Sauce ltensatl’rorgrf, Naiord medsmdPromoeBoad Itersgll'lug'rj, aflu’smmilaim

30

3.3 Effect of Maize market liberalization policy on traders' financial budgets

This section looks at the effect of maize market reforms on a typical maize trader's
budget. Data were available to compare lorry maize traders who move maize from Kitale
to Kisumu in both 1992 and 1999. Generally, lorry maize traders are those who own or
hire a 10 tons lorry that can be transport 100 bags of maize weighing 90kg each. Since
Kitale is a major source of maize for most regions in Kenya, Kitale-Kisumu maize trade
budgets would be used as proxies to other regional trading in maize for purposes of
comparing 1992 and 1999. Figure 3.7 shows the changes in 1992 and 1999 maize trader's
budgets in constant 1989 prices.

Table 3.7 Costs and profits of Maize Trading between Kitale and Kisumu (Constant
1999 Kshs/90kg bag)

 

 

Cost/Profit Items Mode of prices
1992 1999 Change

1 Kitale Farm gate price (July) 703 1100 56%
2 Transport to local assembly store 30 25 -17%
3 Storage costs at local store 12 20 67%
4 Mark-up at local assembly store 40 80 100%
5 Bribes 15 0 -100%
6 Transport to Kisumu 116 125 8%
7 Storage costs at Kisumu 10 7 -30%
8 Marketing costs at Kisumu 26 20 -23%
9 Landed cost in Kisumu(sum rows 1 through 8) 952 1377 45%
10 3 Month average wholesale price in Kisumu (May to July 1000 1460 46%
11 Profit/90kg bag (row 10-9) 48 83 73%

 

 

Source: Rows 1 through 9, 1998/1999 Tegemeo/MSU maize production and marketing costs survey, June
2000
Row 10 Wholesale prices from Ministry of Agriculture, Kenya
: Row 11 Authors Compilation

The margins fit into the comparison of mean maize margins between Kitale and Kisumu

during the years before and after maize market liberalization periods as shown in table

3.8.

31

Table 3.8 Mean maize trading margins before and after maize market liberalization
between Kisumu and Kitale per 9&8 bag and 1999 constant prices).

 

Kitale-Kisumu

 

Before After
Liberalization Liberalization
(Before July (After July

 

 

 

 

 

 

 

 

1992) 1992)
Mean 195.4 206.39
Standard Deviation 0.484 0.6624
Minimum 106.2 -246.5
Maximum 365.6 447.69

 

Source of prices: Ministry of Agriculture, Kenya, 2000.

The mean trading margins and standard deviations are derived from the average margins
of traders in the sample in both 1992/93 and 1998/99. In the cost items, bribing costs are
no longer there since it is now legal to trade in maize domestically and internationally.
Marketing costs in Kisumu wholesale market have also gone down because of reduced
paperwork to verify legal trading in maize and also because volumes per trader in the
market has increased, resulting in cost reduction per bag in marketing costs. Transport to
the local assembly store has decreased because there are many more assembly stores and
therefore less distance to these stores in 1999 compared to 1992. However, the cost of
storage has increased mainly due to cost of chemicals, rent and a slightly longer average
period of storage. Profits per bag to traders have increased by 100% at local assembly
level and 73% for a typical Kisumu maize wholesaler. This is due to many traders
focusing on time and spatial arbitrage as opposed to only the latter, which was their main
activity before 1993. It should be noted that official maize prices prior to 1993 were pan-
territorial but there were small traders who still engaged in maize trade illegally and who
profited from spatial arbitrage. The cost of maize purchase also increased by 56% from

1992. This is because 1999 was a year with a shortage in domestic maize supply due to

32

bad weather. Transport costs have increased by 8%, reflecting high fuel prices and
deteriorating road infrastructure (Argwings Kodhek, 1999).

The high price of maize delivered from Kitale at Kisumu in 1999 was due to poor
weather. This is expected because as shown earlier, these two markets seem to be
reasonably integrated. Generally, traders' mark-ups have increased slightly suggesting
that they have more market power. Table 3.8 shows that there as been an increase in
maize marketing margins between Kisumu-Kitale and Kisumu-Eldoret in 1998/99
compared with 1992/93. Figure 3.2 corroborates this by showing an increasing trend in
price spreads between Eldoret-Kisumu and Kitale-Kisumu. Except for a few years like
1994/95 and 1996/97, generally the maize price spreads between Kitale, Eldoret and
Kisumu have been increasing.

Figure 3.2 Price Spreads between Kisumu, Eldoret and Kitale per 90kg bag
(Constant 1999 Prices).

 

2,500

e e e T m

2.000

"9. .io

{‘91s
%r

1 .500

    

Kshs/90kg bag of maize

 

 

 

 

 

1,000
500
1w 7. H
0
03 O ‘— N (‘3 V In ‘0 N 00 O)
«2 0: °.> °.> 0? as or °.> 0? °.> 0?
C C C C C C C C C C C
(U (U (U (U (U N (U (U (U (U (U
_) fl .3 _’ _) —) -’ _) fl _) -3
Years
Kitale Kisumu ------- Eldoret I

 

 

3.4 Conclusion

Maize market liberalization started in the late 1980's, but few meaningful changes in the
policy environment were made before 1992. This liberalization process has not been
comprehensive and has been implemented piecemeal and marred with reversals. It is
referred to as partial market liberalization process in this paper. Major elements of
government control that remain are variable import taxes and current price support in
selected areas by NCPB. These trade barriers are compatible with WTO provisions up to
2005. However, trade barriers are not allowed under EAC and COMESA requirements of

which Kenya is a member.

Although the period of observation between 1993 and 1999 may be short, the piecemeal
maize market liberalization process has had the effect of increasing the real price of
maize as was shown in table 3.1. Relatively higher farm profits have been achieved
because the government no longer sets one common price, there are trade barriers that
increase the price of imported maize and also, there is indirect price support through
purchases of maize by NCPB at higher than market prices. Maize trading net profits at
Kisumu for traders delivering Kitale maize seem to have increased, as was shown in table
3.7 and 3.8. It had been predicted (Argwings-Kodhek, 1992) that maize traders' profits
would increase after liberalization to levels that would induce them to engage in trading

maize.

34

Hence, incomplete maize market liberalization has not met the policy objectives of
providing lower maize prices for consumers when domestic prices are compared with

regional and world maize prices.

Most of the data used to reach these conclusions are from 1998/1999 (which was a poor
rainfall year) and 1992/1993. Data for the years in between has been used whenever they

were available. Hence these conclusions must be read with caution.

The next 2 chapters will look at the competitiveness of maize production and marketing

in western Kenya if there were‘ free regional trading. The focus would be

competitiveness of maize produced in eastern Uganda and western Kenya in Kisumu.

35

CHAPTER 4
COMPARATIVE ANALYSIS OF MAIZE PRODUCTION IN EASTERN UGANDA AND
WESTERN KENYA

4.1 Comparative analysis of maize production in Mbale (Uganda) and Bungoma
(Kenya) districts

This section compares 1999 farm-level maize production budgets in Mbale district of
Uganda with those of Bungoma district of Kenya. These two districts, like Iganga district
of Uganda and Lugari district of Kenya, and Kapchorwa district of Uganda and Trans-
Nzoia district of Kenya, were selected not only because they are (or are nearly) adjacent
to each other but also because they have similar agro-climatic conditions and household
land parcels. Mbale, like Bungoma, is a major maize-producing district, ranked third
overall in Uganda for maize production (Mbale DAO, 2000). Its maize production system
is characterized by small to medium producers using predominantly labor-intensive
methods. Average household land size in Mbale is 2.5 acres. However, most commercial
maize farmers have on average 4 acres under maize. The main crops in the district are
coffee, bananas, horticulture, and maize. Maize is second to bananas in terms of national
consumption, although this is changing, especially in eastern Uganda ( Iganga
DAO,2000). Many farmers do not use fertilizer (95%), citing lack of financing as a
constraint; however with government and NGO projects, fertilizer use is increasing
steadily. Yields average 18 bags (of 90kg) per acre1 using Longe 1 seed and 20-25 bags
with hybrid seed. Use of Longe 1 seed2 with some fertilizer, is the production system

being encouraged by the government and NGO organizations (IDEA, 2000). This system

 

' This corresponds to .66tons per ha
2 Longe 1 seed is an improved open pollinated variety of maize produced by the Uganda agricultural
Research Institute.

36

of production in Mbale is the one used for comparison with the Bungoma maize system

in Kenya.

Bungoma District is a major maize producing area in Kenya. Its large to medium-scale
farmers in the northern end of the district bordering Trans-Nzoia are surplus maize
producers (BDAO, 2000). However, farmers who will be compared with those in Mbale
are medium- scale maize producers in agro-ecological zones similar to that in Mbale.
Their land parcels are similar to those in Mbale, although their production system is more
capital intensive. This study looked at medium-scale farmers with 4 acres under maize.

The average yield per acre of these types of farmers in Bungoma was 13 bags (of 90kgs).

Table 4.1 shows medium-scale farm-level production budgets per acre for Bungoma
district of Kenya and Mbale district of Uganda respectively. Appendices 4. lb and 4.2
present the more detailed farm budgets from which table 4.1 is derived. Appendix 4.1a
shows wholesale maize prices in different towns of eastern Uganda and western Kenya
over time in constant 1999 prices. Yields in Mbale are 18 bags of 90kg on average
compared with 13.5 bags of 90kg in Bungoma. This is so despite the use of improved
open pollinated variety in Mbale as opposed to Hybrid seed in Bungoma, which are
known to be better than open pollinated varieties. Also the rate of fertilizer usage in
Mbale is lower than in Bungoma. Hence higher maize yields even when open pollinated
maize seed is used with less fertilizer in Mbale suggest that land in Mbale is more fertile
than in Bungoma, where maize yields are low despite use of hybrid seed and higher

amounts of fertilizer.

37

Table 4.1 Bungoma and Mbale Medium-scale Maize Production Budgets per acre in

 

 

1999.

Bungoma Mbale
Items Kshs/acre Kshs/acre
Yields 14 18
Price (Kshs/90kg bag) 1000 765
Revenue 13500 13770
Fixed costs/acre 1125 1000
Labor inputs
Planting 250 450
Weeding 1400 l 500
Top-dressing 50 300
Stocking 200
Maize dehusking 203 500
Transport to store 27 200
Shelling labor 203 450
Total labor inputs 2332 3400
Non-labor inputs
1" Plough(Tractor Hire) 1500 1500
F urrowing(Tractor Hire) 250
Seed 910 600
DAP Fertilizer 2025 1050
Top-dressing fertilizer 1425 900
Gunny bags 135 176
Transport to store 405 270
Land Rent per acre 1500 1200
Total non-labor inputs 8150 5696
Total costs 1 1607 l 0096
Costs/bag 860 561
Profit/acre 1893 3675
Profit/bag 140 204

 

Source: Mode of Bungoma and Mbale farmers 1999 budgets with maize sale in June-August,
1999 Tegemeo/MSU maize production and marketing costs survey, June 2000

Table 4.1 shows that maize production in Bungoma (Kenya) uses more non—labor cost
inputs than in Mbale (Uganda), with Kshs 9,335 of the total costs of producing maize in

one case being non-labor costs items compared with Mbale’s Kshs 6696.

38

Table 4.2 Cost elements of producing 90kg bag of maize in Bungoma and Mbale

 

districts
Activity Bungoma % Mbale %
Kshs/bag Kshs/bag
Planting labor 19 2 25 4
Weeding labor 104 12 83 15
Fertilizer Application 4 0 17 3
Harvesting labor 47 5 64 11
Mechanized Land Preparation 130 15 83 15
Planter 0 0 0 0
Seed 67 8 33 6
Fertilizer 256 30 108 19
Chemical Weeding 0 0 o 0
Harvesting(Capital Items) 40 5 25 4
Land Rental 111 13 67 12
Fixed costs 83 1 1 56 10
Total Costs 860 87 561 83
Farm gate price 1000 765
Farm profit 140 13 204 17

 

 

Source: Mode of farmers of cost and revenue items of farmers 1999 budgets. Farm gate prices are actual
prices received by farmers between June and August 1999. 1999 Tegemeo/MSU maize production and

marketing costs survey, June 2000

Table 4.2 shows the cost elements of producing 90kg bag of maize in Bungoma and

Mbale districts. The five major cost items of medium-scale maize production in

Bungoma district of Kenya are Fertilizer (30%), mechanized land preparation (15%),

land rental (13%), weeding labor (12%) and fixed costs (11%). Harvesting expenditure in

Kenya is only 5%. The six major cost elements of medium-scale maize production in

Mbale district of Uganda are fertilizer (19%), mechanized land preparation (15%),

weeding (15%), land rental (11%), harvesting (11%) and fixed costs (10%).

Using tables 4.1 and 4.2, appendices 4.1b and 4.2, in Mbale, the average rate of fertilizer

application in Mbale is 30kgs of DAP and 30 kg of top dressing Urea fertilizer per acre,

compared with Bungoma, which uses 75kg of DAP and 75 kg of top dressing CAN

fertilizer. With the cost of DAP being Kshs 35/kg in Uganda compared with 27Kshs/kg

39

in Kenya and Urea in Uganda costing Kshs 30/kg compared with CAN at l9Kshs/kg in
Kenya, the cost of fertilizer is more expensive in Uganda than Kenya. Hence, the high
cost of fertilizer use per bag of maize produced in Kenya is due to high intensity of
fertilizer use. The other major difference is seed cost. In both Districts, the amount of
seed used is 10kgs per acre. However, the Longel variety of seed used in Mbale is a
composite variety akin to Katumani composite in Kenya. It is cheaper, at Kshs 60 per kg,
than Hybrid 627 used in Bungoma, which costs Kshs 92 per kg. Seed in Kenya is a major

cost element due to price but not quantity.

Of the 6 major cost elements in maize production in Mbale, four are non-labor cost items;
fertilizer and mechanized land preparation, fixed costs and land rent. Weeding and

harvesting are the two types of major labor inputs. In Bungoma, the four major non-labor
cost items are fertilizer, mechanized land preparation, fixed costs and land rent. Weeding

is the only major labor input.

The relatively high cost of weeding in Uganda is mainly due to a high number of people
engaged in weeding in Uganda. Land preparation accounts for 15% of the total cost of
producing 90kg bag of maize in both districts, despite an extra land preparation activity
of furrowing in Bungoma.

Poor land fertility in Bungoma compared with Mbale resulted in more fertilizer being
used and consequently higher fertilizer cost per 90kg bag of maize produced. A high

percentage (IDAO, 2000) of Mbale farmers does not use fertilizer.

40

The farm gate price of maize in Mbale is Kshs 765 per 90kg bag. It is Kshs 1000 in
Bungoma (1999 Tegemeo/MSU maize production and marketing cost survey, June
2000). However, as table 4.1.2 shows, profit make up 13% of the total price of a 90kg
bag in Bungoma and 17% in Uganda. This shows that farmers in Mbale get higher profits
than in Bungoma despite a farm gate price difference of Kshs 235 per 90kg bag. This
corroborates the relative advantage of maize production in Mbale compared with the
adjacent Bungoma district for similar farmers in similar zones. This further suggests that
Mbale can sell maize to Bungoma and other parts of Kenya if the costs of transactions do
not surpass Kshs 235 per bag between June and August, which was the observed period
of maize sale. The next section will look at competitiveness of Iganga maize production.

4.2 Comparative analysis of maize production in Iganga (Uganda) and Lugari
(Kenya) districts 1999

This section, compares 1999 financial budgets of farm-level maize production in Iganga
district of Uganda and Lugari district of Kenya. Iganga district is one of the biggest maize
producing districts in Uganda (IDAO, 2000). It had total of 45,000 hectares under maize
for two seasons. Composite (Longe 1), local varieties, Zimbabwe Hybrid and Uganda
Hybrid B are the major varieties preferred because their seeds can be used for three
seasons before loosing vigor. Currently, the use of hybrid seed is gaining a lot of
popularity, although the average cost of 100Kshs per kilogram is a constraint for most
farmers. It is estimated that about 60% of all maize farmers in Iganga use hybrid or
Longe. In 1999, a total of 100 metric tons of hybrid seed were sold to farmers. On
average, household land parcels are 2.5 acres. But this study looked at small to medium-

scale commercial maize farmers with average land size of 8 acres under maize. These

41

farmers, most of whom use hybrid seed, are the ones compared with Lugari farmers in

Kenya.

Lugari district in Kenya is also a major maize producing area in Kenya. Its medium to
large- scale farmers are surplus maize producers (LDAO, 2000). However the farmers
who will be compared with those in Iganga are those with land sizes of 8-10 acres under
maize, in agro-ecological zone similar to that in Iganga. Table 4.3 is the financial farm-
level maize production budgets of Bungoma and Iganga districts. More details on inputs

used in the derivation of table 4.3 are in appendices 4.3 and 4.4

In Table 4.3, planting in Lugari is predominantly done by hired machinery, while it is
done by labor in Iganga. Hence the big cost difference in the cost of planting labor. Maize
shelling is mostly done by machinery with less labor requirements as opposed to manual
shelling in Iganga. Again this explains the huge differences the cost of shelling labor and
sheller machine hire. In Iganga, shelled maize is transported to the farm store by manual
labor as opposed to using tractor trailer which, is the common practice in Lugari. Hence
the cost differences in labor costs and non-labor costs in transporting maize to the farm

SIOI‘C.

42

Table 4.3 Lugari and Iganga Medium-scale Maize Production Budgets per acre in
1999.

 

 

Lugafl Iganga
Items Kshs/acre Kshs/acre
Yield (90kg bags/acre) 17 21
Price received from 1000 675
traders (Kshs/90kg bag)
Revenue 17000 14,175
Fixed costs/acre 1250 1,000
Labor inputs
Planting 0 500
Weeding 600 1,800
Top-dressing 90 400
Stocking 330
Maize dehusking 340 500
Transport to store 68 250
Shelling labor 34 525
Watchmen 200
Total labor inputs 1662 3,975
Non-labor inputs
lSt Plough (Tractor Hire) 1200 1,500
Harrowing(Tractor Hire) 1800
Hybrid seed 910 1,100
DAP Fertilizer 1950 1,200
Top-dressing fertilizer 1800 1,050
Shelling 425 0
Gunny bags 85 210
Trans to store 485 0
Land Rent per acre 2000 1200
Total non-labor inputs 10655 6260
Total costs 13567 1 1235
Costs/bag 798 535
Profit/acre 3434 2940
Profit/bag 202 140

 

Source: Mode of Lugari and Iganga 1999 farmers budgets with maize sale in June-August.
1999 Tegemeo/MSU maize production and marketing costs survey, June 2000.

Table 4.3 shows that maize production in Lugari (Kenya) uses more non-labor cost inputs

than in Iganga (Uganda), with Kshs 10,655 of the total costs of producing maize in one

43

acre being non-labor costs items compared with Mbale’s Kshs 6,260. Reasons as to why
maize production in the three districts of Bungoma, Lugari and Trans-Nzoia in western
Kenya use less labor compared with the three districts of Mbale, Iganga and Kapchorwa
in eastern Uganda, are explained later in section 4.4. The above tables also show that
maize yield per acre in Iganga is 21 bags of 90kgs compared with 17 bags in Lugari.
10kgs of hybrid maize is used in both districts, but the rate of fertilizer application is
30kg of DAP and 30kg of Urea top-dressing fertilizer in Iganga. In contrast, 75kg of
DAP and lOOkg of CAN top-dressing fertilizer is applied per acre in Lugari. The high
yield in Iganga even when less fertilizer is applied, suggests that either Uganda Hybrid B
or Zimbabwe hybrid 625 seed varieties used in Iganga, are higher yielding than Hybrid

627 Or 614 used in Lugari and/or there is greater land fertility in Iganga.

Table 4.4 presents the cost elements of producing 90kg bag of maize in Lugari and
Iganga districts. In Lugari, the three major cost elements are fertilizer (29%), mechanized
land preparation (16%) and land rent (15%). The six major cost elements of maize
production in Iganga district are Fertilizer (20%), weeding labor (16%), mechanized land

preparation (13%), land rent (11%), harvesting labor (1 1%) and seed (10%).

Using tables, 4.3 and 4.4 and appendices 4.3 and 4.4, in Iganga, the average rate of
fertilizer application is 30kgs of DAP and 30 kg of top dressing Urea fertilizer per acre.
In contrast, in Lugari farmers use 75kg of DAP and 100 kg of top dressing CAN
fertilizer. The cost of DAP is 40Kshs/kg in Iganga compared with 27.5Kshs/kg in Kenya,

and urea in Uganda costs 35Kshs/kg compared with CAN at 19.5Kshs/kg in Lugari.

44

Table 4.4 Cost Elements of producing 90kg bag of maize in Lugari and Iganga
Districts

 

 

Lugafi Iganga

Activity Kshslbag % Kshslbag %
Planting labor 0 0 24 4
Weeding labor 35 4 86 16
Fertilizer Application 5 1 19 4
Harvesting labor 57 6 61 11
Mechanized Land 129 16 71 13
Preparation

Planter 47 6 0 0
Seed 54 7 52 10
Fertilizer 221 29 107 20
Chemical Weeding 0 0 0 0
Harvesting(Capital Items) 59 7 10 2
Land Rental 118 15 57 11
Fixed costs 74 9 48 9
Total Costs 797 72 535 79
Farm profit 202 28 140 21
Farm gate price 1000 675

 

Source: Mode of cost and revenue items from1999 farmers’ budgets. Farm gate prices are actual prices
received by farmers between June and August 1999.
1999 Tegemeo/MSU maize production and marketing costs survey, June 2000

Hence, the high cost of fertilizer use per bag in Kenya is due to greater intensity of
fertilizer use in Lugari. Weeding is a major cost element in Iganga. This can be attributed
to relatively more rainfall and slightly higher temperatures in Iganga, which provide an
environment for a more prolific weed growth. Mechanized planting in Lugari also
provides more uniform soil coverage by maize, hence reducing the need for second
weeding. This is not very common in Iganga. Hence weeding is not a major expense in
Lugari like in Iganga. Iganga being labor intensive in maize production. The price of
weeding labor in Iganga district is higher than in Lugari district because it is done at the
time of peak demand for labor. Land preparation is mechanized in both districts, but it is
the second important cost element in maize production in Kenya and only the third in

Iganga. Tractor hire in Lugari is 1200Kshs per acre compared with 1500Kshs per acre in

45

Iganga because there are fewer tractors for hire in the latter area. However since in
Lugari, furrowing is undertaken and it costs 1000Kshs/acre, land preparation costs in
Lugari are higher than in Iganga. Harvesting and seed costs are the last two major cost
elements in both areas. Harvesting is relatively cheap in Lugari because of use of a
sheller machine. It gets out more grain from the ear than beating sacks with sticks, which
is the slow labor practice in Iganga district. The Uganda maize hybrid B seed costs

110Kshs compared with the Kenya hybrid seed 627, which costs 91Kshs per kg.

In conclusion, the higher yield in Iganga is achieved even when less fertilizer is applied,
suggesting that either Uganda Hybrid B or Zimbabwe hybrid 625 seed varieties used in
Iganga, are higher yielding than Hybrid 627 or 614 used in Lugari and/or there is greater
land fertility in Iganga. Consequently, the major source of higher production costs in
Lugari is the cost of non-labor inputs, especially fertilizer, land preparation and planting
costs. With the high amounts of fertilizer currently being used in maize production by
farmers in Lugari, improving seed productivity and/or other husbandry practices seem to
be the major source for potentially increasing maize yields per acre to be competitive
with Iganga district.

Hence Iganga has a cost advantage in maize production. Area under maize production is
increasing because it has now become a major cash crop, which takes a short time to
mature and costs less to produce relative to other crops. It is also easier to store and has a
ready market in Uganda and other neighboring countries including Kenya (IDAO, 2000).
Iganga’s comparative advantage in maize production is corroborated in table 4.2.3. While

Lugari farmers receive a higher price of lOOOKshs per 90kg bag of maize and make a

46

28% profit margin, Iganga farmers receive Kshs 675/90 kg bag and still make a 21%

profit margin.

47

4.3 Comparative analysis of Trans—Nzoia (Kenya) and Kapchorwa (Uganda) maize
production systems in 1999

This section compares the 1999 financial budgets of maize production in Kapchorwa
district in Uganda and Trans-Nzoia district in Kenya. Kapchorwa district borders Kenya
to the west. It is the biggest maize-producing district in Uganda. The farm sizes are small
in the western and southern part of the district around 5 acres. The eastern side has
relatively big land parcels, and for this study the average farm sizes looked at is 20 acres
under maize. Maize planting is between March and May and harvesting is between
October and January. Maize and dairy are the major farm enterprises in Kapchorwa.
Trans-Nzoia neighbors eastern Uganda. It is the major maize-producing district in Kenya
(TDAO, 2000). It is also home to relatively large-scale farms compared with most parts
of Kenya. While farm sizes vary between the 7 divisions in the district, this study looked
at farms with 28 acres under maize on average. The district's elevation ranges between
1400-2600 meters above sea level and the rainfall pattern is unimodal. All crop output
comes from the normally highly reliable long rain season. Maize is planted between
March and May and harvested between December and January. Maize, maize seed,
sunflower and dairy are the principal agricultural enterprises. Table 4.5 and appendices
4.5 and 4.6 represents medium-scale farms maize production budgets per acre for the

year 1999, in Trans-Nzoia and Kapchorwa districts.

Again for the same reasons cited for Lugari, land preparation is done by machinery in
Trans-Nzoia as opposed to labor as in Kapchorwa. Hence the big cost difference in labor
for planting and planter hire. Tables 4.5 and appendices 4.5 and 4.6 show that maize yield

per acre, are 25 bags of 90kg in both districts when 10kgs of Kenya hybrid 627 are used.

48

Table 4.5 Kitale and Kapchorwa Medium-scale Maize Production Budgets per acre

in 1999.
Trans-Nzoia Kapchorwa

 

 

Items Kshs/acre Kshs/acre
Yield (90kg bag/acre) 25 25
Price received from traders (Kshs/90kg 1100 675
bag)

Revenue 27500 16875
Fixed costs/acre 3750 1250
Labor inputs

Planting 0 250
Weeding 400 2000
Top-dressing 60 200
Stocking 300 300
Maize dehusking 500 600
Transport to store 100 200
Transport to market 50 0
Shelling labor 125 1250
Watchmen 150 0
Total labor inputs 1685 4800
Non-labor inputs

l5t Plough 1200 1500
1St Harrow 800 l 500
2"d Harrow 800 0
Planter hire 650 0
Hybrid seed 910 1150
DAP Fertilizer 2025 1500
Top-dressing fertilizer 1425 1250
Chemical weeding 1600 0
Weed spraying 500 0
Sheller hire 500 0
Gunny bags 250 188
Transport to store 375 750
Trans to market 1250 0
Land Rent per acre 2000 1000
Total non-labor inputs 14285 8838
Total costs 19720 14888
Costs/bag 789 565
Profit/acre 7780 1988
Profit/bag 311 80

 

Source: 1999 Tegemeo/MSU maize production and marketing costs survey, June 2000

T However, the rate of fertilizer application is only 50kg of DAP and 50kg of top-
dressing fertilizer urea. In contrast, the rate of fertilizer application per acre in Trans-
Nzoia is 75kg of DAP and 100kgs of CAN. This suggests that either the use of top-
dressing fertilizer urea and/or greater soil fertility in Kapchorwa results in higher maize
yields than in Trans-Nzoia. Table 4.3.2 represents the cost elements producing 90kg bag

of maize in Trans-Nzoia and Kapchorwa districts.

The four major cost elements in Kapchorwa are fixed costs (19%), fertilizer (18%),
mechanized land preparation (14%) mechanized shelling (12%) and chemical weeding
(11%). The first three major cost elements in Kapchorwa are land preparation (20%)
fertilizer (18%), harvesting labor (16%) and weeding labor (13%).

Table 4.6 Cost elements of producing 90kg bag of maize in Trans-Nzoia and
Kapchorwa districts

 

Trans-Nzoia Kapchorwa
Activity Kshs % Kshs %
Planting labor 0 0 10 2
Weeding labor 16 2 80 13
Fertilizer Application 2.4 0 8 1
Harvesting labor 49 6 94 16
Mechanized Land 112 14 120 20
Preparation
Planter 26 3 0 0
Seed 36.4 5 46 8
Fertilizer 138 18 110 18
Chemical Weeding 84 11 0 0
Harvesting(Capital Items) 95 12 37.5 6
Land Rental 80 10 40 7
Fixed costs 150 19 50 8
Total Costs 789 72 565 88
Farm profit 311 28 80 12
Farm gate price 1100 675

 

 

Source: 1999 Tegemeo/MSU maize production and marketing costs survey, June 2000

50

Fixed costs expense is high in Trans-Nzoia due to depreciation of large maize stores.
Storing maize for sale in off-season months is a phenomenon that is increasing, especially
among medium to large-scale farmers in Trans-Nzoia. In contrast, storage of maize for
sale later on is not widely practiced in Kapchorwa and stores are generally smaller,
resulting in lower depreciation costs. The high cost of fertilizer in Trans-Nzoia is not
because of cost but quantity applied per acre. While fertilizer costs 27 Kshs per acre for
DAP and 19 Kshs for CAN in Trans-Nzoia, they are 30Kshs and 25Kshs respectively in
Kapchorwa. However only 50kgs of both are applied in Kapchorwa per acre of maize, as
opposed to 75kgs of each on average in Trans-Nzoia. Mechanized land preparation is
more expensive in Kapchorwa due to high cost of hiring tractors because there are fewer
tractor services compared with Trans-Nzoia. Labor-intensive maize harvesting costs more
in Kapchorwa, mostly because of the many people involved in shelling activity and this
applies to weeding too. It is also a significant cost element in Kenya, where shelling is
done by machinery. Use of herbicides is a common practice in the medium-scale maize
farming in Trans-Nzoia because of scarce labor resources during this critical time. At this
time, even most small-scale farmers who supply labor to large farms are busy weeding

their small maize crops.

The major difference in costs of producing one bag of maize between Trans-Nzoia and
Kapchorwa is due to the low costs of production and especially in non-labor cost items.
Land rental in Kapchorwa is half that in Trans Nzoia probably because there is no price
support in Kapchorwa that bids up land rental rates in Trans Nzoia. Other non-labor cost

items such as chemical weeding and harvesting are also lower in Kapchorwa because

51

more labor is used in maize production in Kapchorwa than in Trans Nzoia. The lower
costs of intermediate and fixed inputs more than compensates for the high labor cost of
labor-intensive maize production in Kapchorwa in producing the same quantity of maize

per acre as in Trans Nzoia.

While the cost of producing maize in Trans-Nzoia is higher than in Kapchorwa, the farm
profit from 90kg bag of maize is 28% in Trans-Nzoia compared with 12% in Kapchorwa
because of the higher farm gate prices in the latter. The high farm gate price in Trans-
Nzoia may due to various factors. One major factor is that the government still
determines maize prices through NCPB and NCPB buys mainly from Trans Nzoia
district. The higher rates of farm profit in Trans-Nzoia may be one reason why the land

rent per acre is higher than in Kapchorwa.

4.4.1 Evolution of capital-intensive maize production systems in western Kenya and
parts of eastern Uganda

One of the major findings of this study is the high level of capital intensity of maize
production in Kenya generally and in Kapchorwa in Uganda. The relatively high capital
intensity in Kapchorwa may be due to cheaper capital costs as opposed to Iganga and
Mbale in eastern Uganda. Before further analysis, the evolution of this biochemical and

mechanization of maize production is briefly explained.

Kenya’s agriculture has since colonial times been characterized by a dual size structure.
On one hand are the large commercial farms, which during colonial times were

exclusively owned by European settlers, producing high-value cash crops such as coffee,

52

tea, pyrethrum, wheat, and dairy products for the export and the internal urban market.
These were and have remained highly mechanized enterprises and are quite important to

the Kenyan economy.

At independence, the area covered by these large farms was 3 million ha. Since then
about 1 million hectares have been taken over under the various government schemes and
subdivided for settlement by African farmers as small (less 5 ha.) and medium-scale (5-
25 ha.) farms. Most of these farms are in the high potential areas, where both the rainfall
is adequate and soils are highly fertile. In contrast are the small-scale farmers found all
over the country. A significant proportion of these farmers lived in the African reserve
lands during the colonial period and owned fragmented parcels of land, on which they
practiced subsistence agriculture. As a consequence of the Maumau wars in the early
19505, the Swynnerton Plan was adopted in 1954. That plan led to a land consolidation
program on these African farms, and the small farmers were encouraged to grow high-
valued cash crops such as coffee, tea, and pyrethrum. At independence, some of the
landless people from these African reserves, as well as the small-scale farmers, were
settled in some of the land acquired by the Government from the European settlers. A
number of mechanization schemes were started in 19605 to help these settlers in opening
up their new lands as well as construct soil conservation structures (Muchiri et al. 1990).

These schemes were both owned and operated by government as well as privately.

Initially, these tractor hire schemes (both Government and private) were quite successful,
as there was a high demand for their services as most farmers grew annual crops - wheat,
maize, beans, etc. This also coincided with the time when hybrid maize was being

introduced in Kenya, with the resulting higher yields (Gerhardt, 1975). Due to the high

53

yields, and hence increased production, many farmers in the newly settled lands used
intensified their use of machinery, especially in extensive cereal production. With the
fragmentation of the land due to population pressure, hand tool technology has become
the predominant type of technology in the smallholder sector in the high potential areas.
Agriculture, however, is quite intensive in land use due to the favorable climate and the
range of cash and food crops that can be produced. Draught/animal technology is unlikely
to be adopted in these areas, as grazing is not available and the opportunity cost of land is
too high to make draught animals economical. In the main cereal producing areas,
tractors cultivate the farms and some of the medium and small-scale farmers hire tractors
for cultivation. It is estimated that in addition to the 300 public owned tractors available
for hire, there are over 3400 tractors owned by small and meditun-scale farmers that are

engaged wholly or principally in contracting work.

54

4.4.2 Cost of maize production in western Kenya and eastern Uganda

Table 4.7 shows the cost of maize production per acre, while table 4.8 shows the same

costs per 90kg bag.

Table 4.7 Cost of Maize production per acre in 1999

 

Bungoma Mbale Lugari Iganga Trans- Kapchonrva
Nzoia

Activity

Planting labor 250 450 0 500 0 250
Weeding labor 1.400 1 .500 600 1 .800 400 2.000
Fertilizer Application 50 300 90 400 60 200
Harvesting labor 632 1.150 972 1.275 1.225 2.350
Mechanized Land Preparation 1 .750 1 .500 2,200 1 .500 2.800 3.000
Planter 0 0 800 0 650 0
Seed 910 600 910 1.100 910 1.150
Fertilizer 3.449 1.950 3.750 2.250 3.450 2.750
Chemical Weeding 0 0 0 0 2.100 0
Harvesting(Capital Items) 540 446 995 210 2.375 938
Land Rental 1.500 1.200 2.000 1.200 2.000 1.000
Fixed costs 1.125 1.000 1.250 1.000 3.750 1.250
Total Costs 11,606 10,096 1 3,567 11 .235 1 9,720 14,888

 

 

Source: Mode of farmers of cost and revenue items of farmers 1999 budgets. Farm gate prices are actual
prices received by farmers between June and August 1999.

Table 4.8.Cost of maize production per 90kg bag in 1999

 

Bungoma Mbale Lugari Iganga Trans- Kapchorwa
Nzoia

Planting labor 19 25 0 24 0 1o
Weeding labor 104 83 35 86 16 80
Fertilizer Application 4 17 5 19 2 8
Harvesting labor 47 64 57 61 49 94
Mechanized Land Preparation 130 83 129 71 112 120
Planter 0 0 47 0 26 0
Seed 67 33 54 52 36 46
Fertilizer 256 108 221 107 138 110
Chemical Weeding 0 0 0 0 84 0
Harvesting(Capital Items) 40 25 59 10 95 38
Land Rental 111 67 118 57 80 40
Fixed costs 83 56 74 48 150 50
Total Costs 860 561 797 535 789 565

 

 

Source: Mode of farmers of cost and revenue items of farmers 1999 budgets. Farm gate prices are actual
prices received by farmers between June and August 1999

When the costs of production are compared across the three regions in Kenya, Trans-

Nzoia has the highest cost per acre. The difference in costs of production between Trans-

55

Nzoia and Lugari is land preparation, chemical weeding and harvesting costs. The former
incurs around Kshs 7275 per acre or Kshs 250 per bag on these activities alone. The
difference between the high costs of production in Bungoma compared with the low cost
of production in Lugari is due to high cost of land preparation, planter hire and the sheller
machine. As observed earlier, the high cost is due to costly non-labor inputs. However,
relatively higher output yields in Trans-Nzoia make the cost of production per 90 kg bag
of maize the lowest at Kshs 789 among these three regions of Kenya. Lugari’s cost of
production is Kshs 798 per 90kg bag; it is Kshs 860 in Bungoma, which has the lowest
cost per acre at Kshs 1 1,606. But the low cost per acre translates into a high cost per bag
because the average yield per acre in Bungoma is only 13.5 bags. While there are
differences in the cost items of producing maize in Trans-Nzoia, Lugari and Bungoma as
depicted by costs per acre, maize productivity per acre is the major determinant of costs
per bag. Although the cost of maize production per acre in Trans-Nzoia is 70% higher
than in Bungoma and 45% higher than in Lugari, maize yields are 90% higher than in
Bungoma and 50% higher than in Lugari. This translates into lower costs of maize
production per bag. The high maize productivity in Trans-Nzoia can be attributed to high

soil fertility and/or better agronomic practices.

As noted in earlier studies (Kodhek, 1999), yields in the prime production areas of the
lower highlands which include Upper Bungoma, Lugari and Trans-Nzoia districts

( the grain basket of the north rifi that produces the bulk of marketed maize) range from
12 to 30 bags per acre in normal years. Yields reflect soil fertility and/or production

practices, the quality and timeliness of land preparation and weed control, the use of

56

certified seed and the quantity of fertilizer used. Higher yields in Kenya are associated
with higher costs of production per acre, but with lower costs per bag produced. Cash
flow constraints and the almost complete lack of production credit mean that those who
can invest in optimal production practices are those with adequate working capital,
usually implying large land holdings and/or off-farm sources of income. Reforms in
maize marketing mean that prices are quite low immediately after harvest, and rise
significantly towards the middle of the following year. Those who can hold out get a
much higher return from their maize production than the typical small-holder who must
sell immediately to meet such pressing cash needs as December ceremonies and January
school fees.

Since Bungoma uses the same type of seed as in Trans-Nzoia and Lugari and relatively
high quantities of fertilizer, the relatively low yields may be due to lower rainfall, lower
soil fertility and/or poor crop husbandry practices. Maize production involves

implementing the right agronomic practices at the right time.

The data suggest in part that in Trans-Nzoia and Kapchorwa mechanization has increased
yields. Mechanization in these districts has improved the quality of farming operations.
Reasons for relatively higher maize yields in Trans-Nzoia and Kapchorwa include deeper
ploughing and thorough incorporation of weeds and crop residues, row planting, correct
placement of fertilizers through use of machinery; superior and thorough crop protection
against weeds, and better harvesting operations due to use of machinery. Timely
execution of agricultural tasks is crucial in predominantly rain fed maize production, and

as has been observed in the last few years, rainfall tends to be unreliable and erratic in

57

most cases (Mrema 1990). The untimely completion of such tasks as planting can mean
complete loss of the crop, whereas untimely completion of subsequent operations such as
weeding and harvesting can lead to substantial reduction in the harvest. Machinery in
these districts has also helped in reduction of drudgery in performing agricultural tasks
(Makanjuola, 1990). Reliance on human muscle as maize area is expanded is difficult,
arduous and expensive in the hot climate of eastern Uganda and Western Kenya. With
competition between school and off farm income, labor costs are increasingly becoming
expensive. The high number of tractors and other farm machinery in Trans-Nzoia
compared with other regions depresses the price of farm services, resulting in lower costs
to farmers. While per acre costs of machinery is very high, proper and timely application
of maize agronomic activities yield higher outputs for Trans-Nzoia farmers, resulting in
lower costs per bag. Bungoma district has fewer medium-large scale farms (N yoro, 1992)
than Lugari and Trans-Nzoia. The cost of machinery is higher in Bungoma due to lower
availability of machinery as a result of fewer and relatively smaller medium to large
farms. Oxen fiirrowing is still common (Nyoro, 1992).

Kapchorwa district in Uganda, the district that produces more maize than any other
district in Uganda, has the highest cost of production per acre and per 90kg bag at Kshs
14,888 and Kshs 596 respectively. Most commercial maize farmers have relatively larger
farms compared with the other two districts and, as mentioned earlier, maize production
is more capital intensive than on smallholder farms. From the budgets, it is apparent that
machinery services are expensive in eastern Uganda relative to western Kenya. There are
not yet as many tractors and other farm machinery in Kapchorwa as in Trans-Nzoia in

Kenya, which is the adjacent district. And there was not any observation of cross-border

58

farm services from Kenya to Uganda. The rate of fertilizer use in Kapchorwa seem to be
low compared with Trans-Nzoia, which has similar agro-ecological zone (soil type,
elevation and temperature and rainfall). On average maize yield is the same as in Trans-
Nzoia yet less fertilizer is used per acre. This suggests that soil fertility is higher in
Kapchorwa leading to the need for less fertilizer. In Mbale and Iganga, yields are high
with even little fertilizer use. But the farms are relatively small compared with
Kapchorwa. Maize production in Iganga and Mbale is labor intensive and fertilizer
application is also lower at 30kgs of DAP and 30kgs of Urea per acre. Maize yields are
lower at 18 and 21 bags per acre respectively, compared with 25 bags per acre in
Kapchorwa. However, the costs per 90kg bag are lower in Iganga and Mbale compared
with Kapchorwa. This may be attributed to fertile soils that have been used for
production of bananas and other crops and are increasingly being used for maize
production. The costs may rise, though, with increasing use of fertilizer to replenish the
soils, which is being encouraged by the government and non-govemmental organizations

(IDAO and IDEA, 2000).

Also, NCPB price support in Kenya and intensive buying in Trans Nzoia seem to have
bid up the land rental rates in Trans Nzoia district increasing the cost of maize

production per bag in Trans Nzoia compared with Kapchorwa.

4.4.3 Simulation Analysis: Effect of increased fertilizer use on maize production
costs

This section simulates the effect of increasing the intensity of fertilizer use on farm

profitability and relative production costs. Increasing fertilizer usage to get optimum

59

yields has been the objective of the department of agriculture in Mbale, Iganga and
Kapchorwa, and many non-governmental organizations (IDEA and IDAO, 2000).
Specifically, promotion of fertilizer usage has focused on showing farmers how yields
increase with more fertilizer usage under prevailing agronomic practices. The district
agricultural offices recommend 50kgs per acre of both basal and top dressing fertilizer
per acre for maize production in Mbale and Iganga, as this is affordable and appropriate
with current agronomic practices. In parts of Kapchorwa, increasing fertilizer application
to 75kgs per acre is recommended (KDAO, 2000). Other labor and non-labor costs will
also change especially those that are dependent on intensity of inputs and yields
harvested. Usage of more fertilizer does not significantly affect such labor costs as
fertilizer application as it has been observed that the same labor force can apply another

50kg of fertilizer per acre at the same cost (IDEA and IDAO, 2000).

Increasing both basal and top dressing fertilizer usage to 50kg per acre, increases yields
about three bags in Mbale and Iganga, and four bags in Kapchorwa. These yield increases
are those projected by the Iganga, Mbale and Kapchorwa districts department of
agriculture (Iganga, Mbale and Kapchorwa District Agricultural Offices, 2000). Fertilizer
field trials by the department of agriculture and non-governmental organizations have
shown yield increases of 3-6 bags with increased fertilizer application rates of both basal
and top dressing up to 50kgs per acre in Mbale and Iganga and 75kgs/acre in Kapchorwa
with the current agronomic practices. Yields are higher if agronomic practices are also

improved (IDAO and IDEA 2000). Specifically, the maize output/fertilizer input ratios

60

for a normal production season are 38kgs/kg of fertilizer for Mbale, 16kgs/kg of fertilizer

for Iganga and 13kgs/kg of fertilizer in Kapchorwa in eastern Uganda.

Table 4.9 shows the effect of increasing fertilizer application rate in Mbale, Iganga and

Kapchorwa to 50kgs per acre of both basal and top dressing fertilizer.If the Ministry of

Agriculture in Uganda intensifies its campaign of increasing use of fertilizer to replenish

soil fertility in Mbale, Iganga and Kapchorwa, the change in costs of maize production

would actually be a marginal reduction in cost (table 4.9).

Table 4.9 Simulation of the effects on maize production costs per 90kg bag resulting
from increased fertilizer use in selected areas of eastern Uganda.

 

 

 

Mbale Iganga Kapchorwa
Cost of maize Increasing Existing Increasing Existing Increasing Existing
production per 90kg DAP by situation both DAP situation both DAP situation
bag in 1999 20kg/acre based and Urea based and Urea based

and Urea on farm by on farm by 25kg/acre on farm

by surveys 20kg/acre surveys each. surveys

15kgs/acre. each. Output

Output Output increases by

increases increases by 3 bags of

by 3 bags of 90kg/acre

6 bags of 90kg/acre

90kg/acre

Cost of maize production per 90kg bag in 1999

Planting labor 20 25 20 24 9 1o
Weeding labor 68 83 72 86 71 80
Fertilizer Application 14 17 16 19 7 8
Harvesting labor 52 64 51 61 84 94
Mechanized land 68 83 60 71 107 120
Preparation
Planter 0 O 0 0 0 0
Seed 27 33 44 52 41 46
Fertilizer 157 108 150 107 125 1 10
Chemical Weeding 0 0 0 0 0 0
Harvesting(Capital 20 25 8 10 33 38
Items)
Land Rental 70 67 59 57 42 40
Fixed costs 57 56 49 48 52 50
Total Costs 553 561 529 535 572 596

 

 

61

While there is no incentive for farmers to increase their fertilizer use under current
agronomic practices, it is important to note there is a potential for further cost reduction
in maize production in Mbale, Iganga and Kapchorwa districts. Hence they have a
comparative advantage in maize production compared with Bungoma, Lugari and Trans-
Nzoia with the potential of even cheaper production costs with better agronomic

practices.

4.4.4. Profit margins of maize production in western Kenya and Eastern Uganda
Table 4.10 shows farm gate profits as a percentage of farm gate prices of a 90kg bag of
maize. Farm gate profits are higher in Mbale and Iganga districts compared to Bungoma
and Lugari respectively.

Table 4.10 Production costs and profits in Eastern Uganda and Western Kenya
(Kshs/90 kg bag)

Mbale Bungoma Iganga Lugari Kapchorwa Trans-
Nzoia
Cost 561 860 535 798 596 789
(Kshsl90kg bag)

 

Profit 204 140 230 202 79 31 1
(Kshs/90kg bag)

Farm gate price 765 1.000 765 1.000 675 1.100
of 90kg bag

% profit/90kg 27% 14% 30% 20% 12% 28%
bag
20
Average area 6 6 10 10 20

under maize
(acres)

25 25
Average yields 18 14 21 17
(90kg
bags/acre)

Average Income 22,032 11,340 48,300 34,340 39,500 155,500
from maize
(Kshslyear)
Source: 1999 Tegemeo/MSU maize production and marketing costs survey, June 2000

 

 

 

 

62

However, Trans-Nzoia's maize production profit (28%) is higher than Kapchorwa's
(12%) This is due to the policy of domestic price support through NCPB, as the board
buys strategic maize reserves at higher prices while cheap imports are discouraged
through higher import tariffs. This also shows how powerful, the medium to large-scale
maize farm lobby is, as they are the ones who benefit from higher maize prices
(Argwings-Kodhek, 1999). The high profits in Mbale and Iganga compared with
Bungoma and Lugari may be due to high demand for maize in both Mbale and Iganga
which are the main maize market towns in Eastern Uganda, for consumption and

wholesale to WFP, and Kenya.

4.4.5. Conclusion

At farm level, complete market liberalization would eat into the high profit margins of
farmers in western Kenya. Figure 3.1 showed higher NCPB prices in some years and
months when the market prices are low. Given the powerful lobby of maize farmers and
the extent to which net buying farmers and urban consumers, most of whom have
farming backgrounds, are sympathetic to maize farmers plight irrespective of scale, it has
not been smooth to fully implement structural changes in the maize sub-sector in Kenya.
The above tables show that external maize trade liberalization and elimination of NCPB
price supports would bring competitiveness and lower consumer prices if farm gate price
reduction is passed on to consumers. The best approach would be simultaneously
focusing on ways of reducing cost of per unit maize production (Yangeen et al. 1990) that
would improve farm incomes and soften farmer's opposition to reforms and the opening

up the maize market to allow for maize imports. Policy makers should not take costs as

63

given, but rather seek to help farmers reduce their production costs through cost-effective

public sector investments in seed research and market infrastructure.

64

CHAPTER 5
MAIZE MARKETING FROM EASTERN UGANDA AND WESTERN KENYA
TO KISUMU
This chapter looks at post-farm marketing of maize from eastern Uganda and western
Kenya to Kisumu town in western Kenya. The major objective is to determine whether
Ugandan maize would be competitive in Kisumu in the absence of tariffs and other
external trade barriers, and how this would affect price levels in Kisumu and the price
levels in surplus western producing districts of western Kenya. It starts by describing the
characteristics of cross-border maize traders first. It is important to note that this study is
static and does not attempt to estimate how maize prices or volume of trade would

change when costs change.

5.1. Characteristics of cross-border maize traders

This section borrows heavily on previous trade studies by Ackello-Ogutu, Gabre-Mahdin
and James Nyoro. In her 1999 study, Gabre-Mahdin found that maize trading businesses
are generally very small, with between 1 and 4 salaried employees on average in both
countries. F irrns appear to rely more on temporary or day laborers, who were responsible
for weighing, sacking, and loading or off-loading maize. In terms of their business assets,
most traders in both countries did not have significant business assets, with only one-fifth
of traders possessing their own storage facilities or a grain transport vehicle. This may be
due to the lack of financing for small enterprises that are often unable to obtain formal
credit. She also found that two-thirds of Ugandan traders own and use telephones, in

contrast to only 35% a figure corroborated by Nyoro et al. for Kenyan maize wholesalers.

65

Gabre-Mahdin also found that in both Uganda and Kenya, the majority of traders
indicated that it was difficult to rent trucks during the harvest season as well as during the
period in which there was high demand for transport of-cash crops (coffee and tea). In
both countries, transport rates appear to increase up to roughly 40% in these periods. In
most studies, transport bottlenecks have been associated with poor roads. It may also be
due to limited number of trucks in a period due to competing interests especially in the

post harvest period.

Both Ugandan and Kenyan traders on average store maize for a period of two weeks.
This indicates that traders may not be taking advantage of temporal arbitrage
opportunities (Gabre-Madhin, 1999). This may be attributed to lack of sufficient capital
or it could mean that the NCPB pricing policies eliminate private incentives to store by

reducing infra-year price variation.

In Kenya, around 10% of maize traders use credit (N yoro et al. 1999), and of these, only
6% of the traders obtained bank loans. Most Kenyan traders appear to rely to a far greater
extent on informal credit from family and friends. In contrast, 38% of Ugandan traders
obtained bank loans and 37% of traders used informal loans. Selected characteristics of
Kenyan traders and the marketing chain are shown in appendices 5.1 and 5.2

respectively.

66

Our study corroborated Madhin's and Nyoro et al. in that traders in both Uganda and
Kenya exhibit a similar pattern, in which purchases are conducted in distant markets
while sales are conducted in the trader’s own market. Due to heavy concentration of
traders in Eastern and Western Kenyan towns and the fact that only traders (wholesalers)
located in these large regional markets were interviewed, they exhibited a pattern in
which they were only concerned with one long-distance transport activity (from purchase

market to own warehouse) per transaction.

5.2 Analysis of cross-border maize transfer costs

The price spread between supplier and destination markets can be compared to the cost
of transferring maize from Uganda to Kenya to determine whether margins are
competitive in the years where trade occurs and whether price spreads were within the

parity price band.

In years where Ugandan exports to Kenya are substantial, efficient market flows would

be characterized by the following relationship.

PK-P U 2 I
Where PK represents the price of maize in consumption areas of Kenya
PU represents the Ugandan maize price in surplus production areas

t represents the cost of transferring grain from Uganda to Kenya
Perfect spatial arbitrage occurs, when the price difference equals the transfer cost. When
the price spread PK-Pu falls lower than t, trade cannot take place without traders incurring
a 1055. Indeed, this is a situation of autarky. If the price differential remains above t for a

sustained period, markets are not behaving competitively.

67

Figure 5.1 is a flow diagram depicting the most common observed maize flow channel
from eastern Uganda to Kisumu town in Kenya and . Table 5.1 shows the cost build-up
for the informal maize trade from Eastern Uganda and Western Kenya to the maize

deficit town of Kisumu in Kenya.

Figure 5.1 Regional Maize Marketing Chain from Western Uganda to Kisumu
(Kenya)

 

Ugandan
Medium-scale

 

 

 

 

 

Ugandan Village
Assemblers

 

 

 

 

 

Ugandan Regional
Assemblers

 

 

 

 

 

‘ Ugandan Border
Traders

 

 

 

 

 

Kisumu Regional
Wholesalers

 

 

 

 

 

Kisumu
Retailers

 

 

 

 

 

Kisumu
Consumers

 

 

 

Source: Author's compilation

68

Table 5.1 Cost Build-Up from Eastern Uganda and Western Kenya to Kisumu
J uly-October 1999 per 90kg bag

 

Cost Items Bungoma Mbale Lugari Iganga Trans- Kapchorwa Durban,
Nzoia South
Africa'
1 Farm gate price 1000 765 1000 675 1100 675 8782
2 Transport to 25 23 25 23 25 23 0
local assembly
store
3 Storage costs 30 10 25 15 20 8 0
at local store
4 Mark-up at 70 55 80 75 80 100 0
local assembly
store
5 Transport to 0 90 0 45 0 113 1113
border
6 Storage costs 0 5 0 5 0 5 0
at Border store
7 Mark-up at 0 53 0 75 0 91 0
Border store
8 Transport 0 25 0 25 0 25 0
across border
9 Border costs“ 0 54 o 54 o 54 192‘
10 Bribes 0 90 0 90 0 90 0
11 Transport to 75 150 95 100 125 200 425
Kisumu
12 Storage costs 7 7 7 7 7 7 7
at Kisumu
13 Marketing 20 20 20 20 20 20 20
costs at
Kisumu
14 Landed price in 1227 1346 1252 1209 1377 1410 1633
Kisumu (sum
of rows 1
through 13)
15 Three Month 1460 1460 1460 1460 1460 1460 1460

average price
in Kisumu(May
to July)
Source: 1999 Tegemeo/MSU maize production and marketing costs survey, June 2000
South African prices are from SAFEX.
Details on costs of importation are in appendix 5.2.1
South African farm gate price is actually F.O.B price Durban.
Transport to border is shipment costs with insurance to Mombasa
Border costs are costs of covertly moving small quantities over the border to avoid detection by
customs authority
5. Border costs for South African maize refers to costs of importation at Mombasa, Kenya. Taxes are
Excluded because we are analyzing maize importation into Kenya with no taxes/avoided taxes.

P959:-

69

This table only provides cost build-up for informal maize trade, the most common type
of maize cross-border trade between Kenya and Uganda. Informal cross-border trade
activities between Kenya and Uganda are significant and involve movement of large
amounts of both agricultural and industrial goods. This informal trade in maize,
constituted about 3% of Kenya's national production figures for maize in 1995 (Ackello-
Agutu, 1997). This translates to roughly 15% of marketed supply. Even during maize
movement control in Kenya, which was supposed to prevent Kenyan maize from
crossing to neighboring countries, movement across Kenya's borders was occurring. But
there was a net flow of maize from Uganda and Tanzania into Kenya (Argwings-
Kodhek, 1992). Due to lack of adequate personnel and financial resources, it is extremely
difficult for government officials to apprehend traders who do not use the official
channels. Indeed, in most cases, no effort is made to do so since customs and security
personnel benefited in one way or another from informal trade (Ackello-Ogutu, 1997).
Maize from East Afiica was charged an import duty of Kshs 2.50 per kg and a fee of
2.75% of the value of a 90kg bag of maize for import declaration form, at the border in
1999. With these taxes eastern Ugandan maize is no longer competitive in Kisumu. Yet
our observation was maize still flowed to Kenya with the import tax in place. This lends
credence to earlier studies and the omission of official taxes in the cost build-up as
shown in table 5.1. It, however, includes other "taxes" in the form of bribes and border
transfer costs, which are done clandestinely and are relatively low, compared to the

official tax.

From table 5.1, maize from Mbale reaches Kisumu more expensively than maize from
Bungoma by about Kshsl 19 per bag during the period of study. This is due to four main

reasons:
1. A high transport cost because Mbale is further from Kisumu than Bungoma.

2. A higher cost of getting maize across the border in small consignments to avoid

taxation

70

3. Extra cost of bribing customs personnel to evade tax

4. Extra cost of bribing the police in case a trader is apprehended for evading tax.

The last three cost items make up 29% of the total costs of transfer of maize from Mbale
to Kisumu. The major cost elements of transferring maize from Bungoma to Kisumu is
transport (44%) and storage, which also makes up 44% of all the total costs of maize
transfer. The latter cost includes mark-ups for storage function. Marketing cost is mainly
made up of licenses for wholesaling maize in Kisumu wholesale market. It is a fixed sum
paid by all traders. It also includes the cost of loading and unloading, which again is the
same for all traders since they contract the same people. The high costs of transferring
maize from Mbale to Kisumu, reduces the net profits accruing to traders to 8%, as
opposed to Bungoma's 19% as seen in table 5.2. The 19% net profit of traders
transferring maize from Bungoma to Kisumu only accrues to those few traders who can

store maize for at least 4 months.

Table 5.2 Price spreads and their relationship with transfer costs

 

 

Eastern Uganda Western Kenya
Mbale Iganga Kapchorwa Bungoma Lugari Trans-
Nzoia
1 Buying Price 765 675 675 1.000 1,000 1.100
2 Prevailing Market 1.460 1.460 1.460 1.460 1.460 1,460
price in Kisumu
3 Price Spread (2-1) 695 785 785 460 460 360
4 Transfer costs 581 534 735 227 252 277
5 Price Spread-Transfer 114 251 50 233 208 83
costs (34)
6 Traders profit as % of 8% 21% 4% 19% 17% 6%

retail price (5I2)
Source: 1999 Tegemeo/MSU maize production and marketing costs survey, June 2000. Kisumu wholesale
prices are fiom the Ministry of Agriculture in Kenya.

Iganga's maize, like Mbale's, reaches Kisumu via the Busia border crossing, but cheaper
than Lugari's by Kshs 43 per 90kg bag. The transport cost from Iganga to Kisumu is
slightly higher than from Lugari to Kisumu by about Kshs 7, and costs of bribing is Kshs

144 (sum rows 9 and 10 in table 5.1) or 27% of the total transfer costs. Yet Iganga's

maize is still cheaper than Lugari's maize in Kisumu. The lower cost of Iganga's maize in

71

 

Kisumu is due to the lower costs of production of maize in Iganga, which results in lower
farm gate price of maize in Iganga. Table 5.3 corroborates this. The profit of traders

moving maize from Iganga to Kisumu is 21% as opposed to 19% from Lugari.

The Kapchorwa maize reaches Kisumu mixed with Mbale maize and also comes through
the Suam border crossing, which is along the two districts' border. The latter route is the
one used in this study. Maize from Kapchorwa reaches Kisumu at a slightly higher price
than Kitale's by Kshs 33 per 90kg bag. Although farm gate price of maize is lower in
Kapchorwa than in Kitale, the landed price of Kapchorwa maize in Kisumu is higher
than Kitale's. This is because maize from Kapchorwa incurs border crossing costs and
bribes along the way to sustain tax evasion, higher transport costs due to being further
away from Kisumu, and poor sections of road network between Kapchorwa and Kitale
town in Trans-Nzoia. The net profit to traders involved in moving maize from
Kapchorwa to Kisumu is 4% compared with moving maize from Kitale to Kisumu which

results in 6% net profit (Table 5.3), making the latter more competitive.

While maize from South Africa may not be competitive in Kisumu due to a high
transport cost, it is competitive in coastal and eastern areas of Kenya without import
taxes. It would still have to compete with maize from Narok and parts of Central and
Eastern province, which were not covered in this paper. This suggests that if prices of
maize were reduced for net-buying small-scale farmers, different areas of Kenya would

have to be supplied from different sources depending on competitiveness.

In absolute terms, price spreads are generally higher for maize from eastern Uganda to
Kisumu compared with maize from western Kenya. Table 5.3 is a general indication of
the price levels in the towns we have analyzed and neighboring regions over three years

(1997-1999).

72

Table 5.3 Maize Mean Prices over three years (1997-1999) in Western Uganda
and eastern Kenya (in constant 1999 prices)
Place leale Iganga KapchorwalKitale Kisumu Eldoret

Kshs/90kg bagl 115 1114i 10641 126 1550 131

Source: Kenya wholesale prices are from the Ministry of Agriculture in Kenya.
Uganda wholesale prices are from the Ministry of Agriculture and Ministry of Finance and IDEA.

 

 

 

 

 

 

 

 

 

 

Distances from eastern Uganda to Kisumu are far compared with western Kenya, with
exception of Iganga. Hence, transfer costs which mainly consists of transport, border
crossing and bribing costs, are generally higher by on average of 42% from eastern
Uganda to Kisumu compared with transferring maize from western Kenya to Kisumu.
Also while western Kenya maize traders only incur two major cost elements of storage
and transport, eastern Uganda traders incur extra costs in terms of border crossing and
bribes as mentioned earlier. These comprise 27 to 43% of the total transfer costs from
eastern Uganda to Kisumu (table 5.1) depending on where the maize is coming from.
Still eastern Uganda maize traders get lower but positive and competitive net profit
mark-ups compared with their counterparts in western Kenya with exception of Iganga
because they purchase maize at lower prices. This implies that with an eminent
reduction/removal of the tariff by 2005 as stipulated in the EAC charter, maize from
eastern Uganda would be more rewarding to traders and would be cheaper to Kisumu

consumers.

Therefore, despite the distance, high transport costs and costs related to Kenya maize
market protection, Uganda maize reaches Kenya at competitive prices. High farm gate
prices and a marketing system that is slightly less competitive than eastern Uganda's
makes western Kenya maize generally less competitive than Uganda's in Kisumu even
with the informal costs incurred on circumventing import tariff. However since Uganda
is currently a small exporter of maize to Kenya, the price of eastern Uganda maize does
not significantly affect the Kisumu wholesale maize price. However without tariff, cheap
maize supply from Uganda could increase to levels in which it may decrease the price of

maize in Kisumu town. Further, since eastern Uganda harvests maize one month earlier

73

than western Kenya, eastern Uganda farmers may especially be able to exploit a specific

market window early in the season.

5.3 Simulations of effect of costs of maize transfer on Kisumu wholesale maize

prices

This section combines chapters 4 and the preceding sections of this chapter. It was
expected with the on set of external trade liberalization, that the border crossing costs and
bribes would be eliminated from the traders' costs of moving maize from eastern Uganda
to Kisumu. If this happens, then the landed price of maize in Kisumu from Mbale, Iganga
and Kapchorwa would decrease by about 10%, 14% and 8% respectively. If we assume
that the proportion of maize from eastern Uganda is big enough to affect the wholesale
price in Kisumu, and further that the cost reduction is passed on to consumers, then
wholesale price of maize in Kisumu would decrease by about 12% between June and

July (Table 5.4).

Table 5.4 Simulation of how marketing costs affect Kisumu wholesale maize prices
Three Month Landed cost New landed price in % Reduction

 

average price in Kisumu Kisumu with no in Landed
in Kisumu (May July 1999 border costs and price at
to July 1999) bribes. Kisumu
all passed to
consumers'
Eastern Uganda
Rows 1 2 3 (2-3)/2
Mbale 1460 1346 1206 10%
Iganga 1460 1209 1040 14%
Kapchorwa 1460 1410 1291 8%
Western Kenya
Bungoma 1460 1227 1227 0
Lugari 1460 1252 1252 0
Trans-Nzoia 1460 1 377 1377 0

 

*This is calculated by subtracting columns 6 through 10 of table 5.1 from the average price spreads
between Mbale, Iganga and Kapchorwa to Kisumu.

74

Figure 5.2 shows the price spreads between selected eastern Uganda, western Kenya and

Kisumu between 1997 and 1998.

Figure 5.2 Maize Price Spread between selected eastern Uganda regions and
Kisumu town in Kenya

 

 

 

Price Spreads (Kshs/90kg bag)

 

 

Kitale

 

 

 

 

------- Mbale —- -— Iganga - - - -Kapchon~a Lugari

 

 

 

 

Source: Maize wholesale prices are from the Ministries of Agriculture of both Kenya and Uganda

For most months, the price spreads between Lugari and Kitale in Trans Nzoia in western
Kenya are higher than from eastern Uganda. The reduction and/or elimination of import
tariffs makes the price of maize from all these three eastern Uganda districts lower than
from Lugari and Trans-Nzoia districts in western Kenya. This would make maize from

eastern Uganda more competitive in Kisumu.

5.4 CONCLUSION

Chapter 4 showed that western Kenya medium-scale farmers, on average, have higher
profit margins than their counterparts in eastern Uganda. This was attributed to
government protection through NCPB maize purchases at higher prices and imposition of

tariffs.

75

Doing away with domestic maize market protection may induce further production of
maize in eastern Uganda for the maize-deficit market in Kismnu and its surroundings
with the increased imported volumes forcing a reduction in prices of maize in western
Kenya in the long run. We saw in chapter 4 that this is possible because eastern Uganda,
even under the current scenario of using a mixture of open pollinated and hybrid seed,
limited biochemical and machinery use, has a comparative advantage in maize
production.

If competitiveness is measured in terms of costs and net profits accruing to maize
producers and marketing agents, then clearly, eastern Uganda maize production is
competitive. Maize marketing from eastern Uganda is however less competitive due to

tariffs that increase other cost such as bribery costs, of transferring maize to Kisumu.

Kenya's political-economic policy has resulted in the protection of medium to large- scale
farmers, all of who are net-maize seller at the expense of the 67% small-scale farmers

who are net maize buyers and urban consumers.

In the USDA FAS World Grain Circular, one author wrote: "the competitive ability of the
United States in world grain markets is more a function of policies than it is of production
costs. The ability of the US to penetrate new markets depends more upon its ability in
international trade negotiations than in its ability to lower costs. This is not to say that the
US should ignore neither its satisfied customers nor the opportunity to increase our

productivity and lower costs (F AS USDA, World Grain Circulars, 1990).

76

In this regard, eastern Uganda's maize market penetration of Kenya and the subsequent
more efficient and competitive maize production in western Kenya may need a bigger
push from Uganda or within the realms of East African Community than from the Kenya
government itself. As it is, the government values protecting farmers irrespective of
whether they are net maize buyers or consumers and as long as there is sympathy from

urban consumers and other small scale farmers.

77

CHAPTER 6

CONCLUSION

The main objectives of this study were to:

1. Compare the profitability of maize production before (1989/91) and after
(1998/1999) maize market reforms in major maize producing areas of western

Kenya.

2. Compare the spatial price spreads between selected producer and consumer
markets in western Kenya before and after maize market reforms, between some

major pairs of markets in which there is maize trade.

3. Compare the competitiveness of western Kenya maize with eastern Ugandan and

South African maize after maize market reforms.

Farm level data and secondary data were collected for 1998/99 season in 2000. 1992 data
from Tegemeo Institute maize marketing study was used has the basis of comparison
between pre-maize market reform period before 1993 and post maize market reform
period after 1993. The analysis method was mainly static comparative matrices of:

1. maize production and marketing costs in western Kenya (1991/92 pre-reform and

1998/99 post reform)

78

 

2. competitiveness of maize production and marketing in western Kenya and eastern

Uganda (1998/99 post reform)
3. post-reform competitiveness of South African maize in western Kenya

(1998/1999).

The effects of removing external trade barriers between western Kenya and eastern

Uganda are:

1.

Kisumu wholesale maize prices would be lower in most years, as cheaper imports
from eastern Uganda would increase due to relatively low maize production costs in
eastern Uganda, offsetting a higher transfer cost to Kisumu.

If the government maintains price support policy through NCPB, and effectively
barred maize imports from Uganda, the costs of maize to consumers in Kisumu would
rise as Kenyan maize displaced by Ugandan maize in filling a high demand would be
sold to NCPB at the support price.

If EAC charter is to be upheld by 2005, this means that Kenya/Uganda trade barriers
will need to be reduced. Hence there is an urgent need from the standpoint of Kenyan
maize producers to work on reducing costs of maize production in western Kenya, so
that western Kenyan maize can be more competitive against eastern Uganda maize
when the time comes to conform to EAC rules. Or western Kenya farmers should

explore alternative crops.

This study has identified two major leverage points of achieving higher farm income and

efficient maize marketing of maize in western Kenya. First the maize market

liberalization process, as was shown chapter 4, needs to facilitate productivity increases

79

at farm level. While lower maize prices would weed out inefficient marginal farmers,
who are mostly small-scale, medium to large-scale western maize farmers would have to
supply maize to the former at lower prices, which is possible through increased
productivity. Eastern Uganda's more fertile soils result in higher yields per acre and lower
farm gate prices, making eastern Uganda maize competitive in Kisumu. Also, the
govemment’s price support policy through NCPB has probably been capitalized into land
rental rates, raising the costs of maize production in western Kenya.

Two, other institutional reforms and public infrastructural investments, which accompany
price reform and make it more effective, need much more emphasis. These include
investment in rural road infrastructure, access to credit by small traders and farmers, a
more efficient price dissemination mechanism, standards and quality control. Apparently,
conditionality linked to Agricultural Sector Adjustment Loan (ASALS) and Structural
adjustment Program (SAPs) by the World Bank, included investment in these market-
supporting areas, but they are not emphasized in the implementation of ASAL or SAP

(Seppala et al. 1997). Improvements in these areas would further reduce the cost of maize

transfer from western Kenya to Kisumu, making it more globally competitive.

80

 

APPENDICES

APPENDIX 3.1 A MAIZE BUDGET FOR UASIN GISHU PER ACRE, MEDIUM-SCALE 1992
(Constant 1999 Prices)

Labor Inputs

Planting(.1 mandays‘lacre per acre @ Kshs 47/manday) 5
Top-dressing(.75 mandays per acre @ Kshs 59/manday) 44
Weeding(.1 mandays/acre at Kshs 59/manday) 6
Pest control(.25 mandays/acre @ Kshs 28159/manday) 70
Desuckering( 1 manday/acre @ Kshs 47/manday) 47
Stooking(5 mandays/acre @ Kshs70/manday) 352
Maize dehusking(5 mandays/acre @ Ksh594/manday) 469
Transport to store(2 mandays/acre @ Kshs 47/manday) 94
Shelling labor(1 mandays/acre @ Kshs 70/manday) 70
Weighing. sewing 8 loading( 1 mandays/acre @ Kshs 70/manday) 70
Sub Total 1.226
Non-labor inputs

Ploughing( Kshs 937/acre) 937
2nd Ploughing 0
Harrowing(Kshs 586/acre) 1.172
Planter hire(Kshs 586/acre) 586
Maize seed( 10kgs/acre @ Kshs 41/kg) 410
DAP fertilizer (75kgs/acre @ Kshs 22/kg) 1.617
CAN fertilizer(@Kshs 16 per 50kg) 797
CAN spreader (Kshs 586/acre) 586
Depterex(1kgs/acre @ Kshs 157/kg) 69
Transport to store (17 bags/acre @ Kshs 19) 375
Sheller hire(17 bags @ Kshs 19/bag) 375
Gunny bags (20 bags for two years @ Kshs 52/bag) 520
Transport to NCPB (20 bags/acre @ Kshs 12/bag) 234
Weed spraying(Kshs 586/acre) 586
Herbicides(2litres/acre @ Kshs 469) 937
Sub Total 9.197
Output

Maize (20 bags of 90kg @ Kshs 703 per bag) 14.061
Total Revenue 14.061
Total Costs 10.423
Cost/bag 521
Pre Tax Profit 3.638
Taxes 141
County council cess 141
PROFIT (AFTER TAX) 3,497
Profitlbag after tax 175

Note: A manday is equivalent to 6 hours of work by a man or a woman
Source: Tegemeo/MSU production and marketing costs survey, 2000.

81

APPENDIX 3.2 SYNTHETIC MAIZE BUDGET FOR TRANS-NZOIA PER ACRE, MEDIUM-

SCALE 1992 (Constant 1999 Prices)

Labor inputs

Planting(.25 mandays/acre per acre @ Kshs 47/manday)
Pest control(.5 mandays/acre @ Kshs 59/manday)
Weeding(.12 mandays/acre at Kshs 59/manday)
Top-dressing(1.5 mandays per acre @ Kshs 47/manday)
Desuckering( 1 manday/acre @ Kshs 59/manday)
Watchmen( 2 mandays per acre @Kshs 47/manday)
Stooking(4 mandays/acre @ Kshs70/manday)

Maize dehusking(5.5 mandays/acre @ Kshs 56/manday)
Transport to store(2.2 mandays/acre @ Kshs 52/manday)
Shelling labor(1.25 mandays/acre @ Kshs 47/manday)
Weighing. sewing 8 loading( 1.1 mandays/acre @ Kshs 47/manday)
Sub Total

Non-labor inputs

1st Plough(Kshs 937/acre)

1st Harrow(Kshs 879/acre)

2nd Harrow(Kshs 703/acre)

Planter hire(Kshs 586/acre)

Hybrid seed(10kgs/acre @ Kshs 40/kg)

DAP Fertilizer(75kg/acre @ Kshs 22/kg)
Herbicides(2.5litres/acre @ Kshs 375)

Weed spraying(Kshs 703/acre)

Top-dressing fertilizer( 75kg/acre @ Kshs 16/kg)

CAN spreader (Kshs 586/acre)

Depterex(0.25kgs/acre @ Kshs 129/kg)

Transport to store (22 bags/acre @ Kshs 14)

Sheller hire(22 bags @ Kshs 23/bag)

Gunny bags (22 bags for two years @ Kshs 52/bag)
Transport to NCPB (22 bags/acre @ Kshs 12lbag)

Sub Total

Output

Maize yield (22 bags/acre)

Total Revenue(22 bags @ Kshs 703)

Total Costs

Cost/bag

Pre Tax Profit

Taxes

County council cess

PROFIT (AFTER TAX)

Profit/bag after tax

Source: Tegemeo/MSU production and marketing costs survey, 2000.

82

Value

12
29
14
70
59
94
281
309
113
59
52
1.092

937
879
703
586
403

1 .670
937
703
1.213
586
32
309
516
567
258
10,299

15468
15468
1 1391
518
4076

1 55
3922
1 78

 

APPENDIX 4.1a WHOLESALE MAIZE PRICES FOR SELECTED EASTERN UGANDA AND

WESTERN KENYA (CONSTANT 1999 PRICES).

 

 

 

 

 

 

 

 

 

 

 

 

2500
2000 ~ - - ~ — —---'---+
or
8
c”1500 -
x
o
2
g 1000 —~
in
x
500
0 I 1T 1 l l l l l l
0.9“ .3 A9‘ 9“ Q9“ 9‘ «9‘5 99’ (99’ 9‘"
30 @0 étb 3‘) 90 $0 30 @% érb 30
Years
--Mba|e +lganga —r—Ka chorvva
—Kitale - - - isumu —-—-El oret

 

 

 

 

 

 

83

APPENDIX 4.1b SYNTHETIC MAIZE BUDGET FOR BUNGOMA PER ACRE,
MEDIUM-SCALE IN 1999

Revenue (14 bags/acre @ Kshs 1000/bag) 13500
Fixed costs/acre 1125
Labor inputs

Planting(S mandays/acre per acre @ KshsSO ) 250
Weeding(Twice,10 mandays/acre at Kshs 70,each time) 1400
Top-dressing(1 mandays per acre @ Kshs 50) 50
Stocking (l manday/acre @ Kshs 200) 200
Maize dehusking(l3.5 bags/acre @ KshslS/bag) 203
Transport to store( 1 3.5 bags/acre @ Kshs 2/bag) 27
Shelling labor(13.5 bags/acre @ Kshs 15 per bag) 203
Total labor inputs 2332
Non-labor inputs

1‘5t Plough( Kshs 1500 per acre) 1500
Oxen furrowing (Kshs 250/acre) 250
Hybrid seed(10kgs/acre @ Kshs 92/kg) 910
DAP Fertilizer(75kg/acre @ Kshs 28.5/kg) 2025
Top-dressing fertilizer( lOOkg/acre @ Kshs 20.5/kg) 1425
Gunny bags (13.5 bags @ Kshs S/bag) 135
Transport to store(l7 bags/acre @ Kshs 30/bag) 405
Land Rent per acre 1500
Total non-labor inputs 8150
Total costs 11607
Costs/bag 860
Profit/acre 1833
Profit/bag 140

Source: Tegemeo/MSU production and marketing costs survey, 2000.

84

 

APPENDIX 4.2 SYNTHETIC MAIZE BUDGET FOR MBALE PER ACRE,
MEDIUM-SCALE IN 1999

Revenue (18 bags/acre @Kshs 765) 13770
Fixed costs/acre 1000
Labor inputs

Planting(9 mandays/acre per acre @ KshsSO ) 450
Weeding(twice with 10 mandays/acre each time @ Kshs 75) 1500
Top-dressing(6 mandays per acre @ Kshs 50) 300
Maize dehusking(lO mandays per acre @ Kshs 50 per acre) 500
Transport to store(4 mandays @ Kshs 50) 200
Shelling labor(18 bags @ Kshs 25 per bag) 450
Total labor inputs 3400
Non-labor inputs

lSt Plough( Kshs 1500 per acre) 1500
Hybrid seed(10kgs/acre @ Kshs 60/kg) 600
DAP Fertilizer(30kg/acre @ Kshs 35/kg) 1050
Top-dressing fertilizer( 30kg/acre @ Kshs 30/kg) 900
Gunny bags (21 bags @ Kshs 9.75/bag) 176
Transport to store(] 8 bags/acre @ Kshs 15/bag) 270
Land Rent per acre 1200
Total non-labor inputs 5696
Total costs 10096
Costs/bag 561
Profit/acre 3675
Profit/bag 204

Source: Tegemeo/MSU production and marketing costs survey, 2000.

85

 

APPENDIX 4.3 SYNTHETIC MAIZE BUDGET FOR LUGARI PER ACRE,
MEDIUM-SCALE IN 1999

Revenue (17 bags/acre @Kshs 1000) 17000
Fixed costs/acre 1250
Labor inputs

Weeding( 10 mandays/acre at Kshs 60) 600
Top-dressing( l .5 mandays per acre @ Kshs 60) 90
Stooking(l manday/acre @ Kshs 330) 330
Maize dehusking( l 7 bags/acre @ Kshs 20/bag) 340
Transport to store( 1 7 bags/acre @ Kshs 4/bag) 68
Shelling labor(1 7 bags/acre @ Kshs 2 per bag) 34
Watchmen( 1 manday per acre @Kshs ZOO/acre) 200
Total labor inputs 1662
Non-labor inputs

lSt Plough( Kshs 1200 per acre) 1200
Furrowing (Kshs 1000/acre) 1000
Planter hire(Kshs 800/acre) 800
Hybrid seed(10kgs/acre @ Kshs 92/kg) 910
DAP Fertilizer(75kg/acre @ Kshs 27.5/kg) 1950
Top-dressing fertilizer( lOOkglacre @ Kshs 19.5/kg of CAN) 1800
Sheller hire(17 bags @ Kshs 25/bag) 425
Gunny bags (17 bags @ Kshs 5/bag) 85
Transport to store(l7 bags/acre @ Kshs 28.5/bag) 484.5
Land Rent per acre 2000
Total non-labor inputs 10655
Total costs 13567
Costs/bag 798
Profit/acre 3434
Profit/bag 202

Source: Tegemeo/MSU production and marketing costs survey, 2000.

86

APPENDIX 4.4 SYNTHETIC MAIZE BUDGET FOR IGANGA PER ACRE,
MEDIUM-SCALE IN 1999

Revenue (21 bags/acre @Kshs 675) 14,175
Fixed costs/acre 1,000
Labor inputs

Planting(lO mandays/acre per acre @ KshsSO ) 500
Weeding(twice with 12 mandays/acre each time @ Kshs 75) 1,800
Top-dressing(8 mandays per acre @ Kshs 50) 400
Maize dehusking(10 mandays per acre @ Kshs 50 per acre) 500
Transport to store(S mandays @ Kshs 50) 250
Shelling labor(21 bags @ Kshs 25 per bag) 525
Total labor inputs 3,975
Non-labor inputs

lSt Plough( Kshs 1500 per acre) 1,500
Hybrid seed(10kgs/acre @ Kshs llO/kg) 1,100
DAP Fertilizer(30kg/acre @ Kshs 40/kg) 1,200
Top-dressing fertilizer( 30kg/acre @ Kshs 35/kg of Urea) 1,050
Gunny bags (21 bags @ Kshs lO/bag for 2 years) 210
Land Rent per acre 1200
Total non-labor inputs 6260
Total costs I 1235
Costs/bag 535
Profit/acre 2940
Profit/bag 140

Source: Tegemeo/MSU production and marketing costs survey, 2000.

87

 

APPENDIX 4.5 SYNTHETIC MAIZE BUDGET FOR TRANS-NZOIA PER ACRE, MEDIUM-

SCALE IN 1999

Revenue (25 bags/acre @Kshs 1100)

Fixed costs/acre

Labor inputs

Weeding(IO mandays/acre at Kshs 40)
Top-dressing(1.5 mandays per acre @ Kshs 50)
Stooking(l manday/acre @ Kshs 300)

Maize dehusking(25 bags/acre @ Kshs 20/bag)
Transport to store(25 bags/acre @ Kshs 4/bag)
Transport to market(25 bags/acre @ Kshs 2/bag)
Shelling labor(25 bags/acre @ Kshs 5 per bag)
Watchmen( 1 manday per acre @Kshs ISO/acre)
Total labor inputs

Non-labor inputs

lSt Plough(Kshs 1200/acre)

I" Harrow(Kshs 800/acre)

2"d Harrow(Kshs 800/acre)

Planter hire(Kshs 650/acre)

Hybrid seed(10kgs/acre @ Kshs 91 .8/kg)

DAP Fertilizer(75kg/acre @ Kshs 28.5/kg)
Top-dressing fertilizer( 100kg/acre @ Kshs 20.5/kg)
Chemical weeding(2 litres/acre @ 800/litre)

Weed spraying(Kshs 500/acre)

Sheller hire(25 bags @ Kshs 20/bag)

Gunny bags (25 bags @ Kshs 20/bag)
Transport to store(25 bags/acre @ Kshs lS/bag)
Trans to market(25 bags/acre @ Kshs 50/bag)
Land Rent per acre

Total non-labor inputs

Total costs

Costs/bag

Profit/acre

Profit/bag

27500

3750

400
60
300
500
100
50
125
150
1685

1200
800
800
650
910

2025

1425

1600
500
500
250
375

1250

2000

14435
19720
789
7630
311

Source: Tegemeo/MSU production and marketing costs survey, 2000.

88

 

APPENDIX 4.6 SYNTHETIC MAIZE BUDGET FOR KAPCHORWA PER ACRE, MEDIUM-

SCALE IN 1999

Revenue (25 bags/acre @Kshs 675) 16875
Fixed costs/acre 1250
Labor inputs

Planting(S mandays/acre per acre @ KshsSO ) 250
Weeding(lO mandays/acre at Kshs 100) 2000
Top-dressing(2 mandays per acre @ Kshs 100) 200
Stooking(l manday/acre @ Kshs 300) 300
Maize dehusking(25 bags/acre @ Kshs 24/bag) 600
Transport to store(25 bags/acre @ Kshs 8/bag) 200
Shelling labor(25 bags/acre @ Kshs 50 per bag) 1250
Total labor inputs 4800
Non-labor inputs

1”t Plough(Kshs 1500/acre) 1500
l" Harrow(Ksh5 800/acre) 1500
Hybrid seed(10kgs/acre @ Kshs 115/kg) 1150
DAP Fertilizer(SOkg/acre @ Kshs 30/kg) 1500
Top-dressing fertilizer( 50kg/acre @ Kshs 25/kg of urea) 1250
Gunny bags (25 bags @ Kshs 15/bag) 188
Transport to store(25 bags/acre @ Kshs 30/bag) 750
Land Rent per acre 1000
Total non-labor inputs 8838
Total costs 14888
Costs/bag 565
Profit/acre 1988
Profit/bag 80

Source: Tegemeo/MSU production and marketing costs survey, 2000.

89

APPENDIX 5.1

 

CHARACTERISTICS OF MAIZE TRADERS IN KENYA

Characteristics 7 Agemblers Wholesalerspisassernblers ‘Retallers All average

‘1 Number in Suivey 7 _ _ _ 7297 77 7777437 50 797 50
ZIType of _Busl_:ness . 7 _ . 7

with retail shop 7 38 28 72 66 51

_ I17n7m7a7172e meal trade 7 _ 217 _ 187 18 33 23

lin fertilizer trade 7 i 8 _ 8

In wholesaling grain 17 7 7 3 10

'in transport business 16 16

7In_p[ncessing trade 23 7 23

using agents for selling 19 16 4 5 11

3 borrowed credit 7 4 16 14 5 10
Source of credit: _ 7 7 7

‘ Banks 7 100 437 72

1160 ' _ __ 0 7 67 100 50 39

7 traders 7 _7 7 0 _ 50 25

4 Giving out loans: 7 . __ 7 7 _

farmers 7 _ 7 60 20 6 6 23

Traders 7 7 40 60 87 94 70

571N101 telephone 7' 18 35 28 9 23

6 Difficulties accessing credit ’ 96 65 51 84 74

7 Own store 7 367 257 18 30 27

777 78 Hire store ' 7 7 60 7 70' 92 83 817

9 Use brokers 1 437 7 77 53 53 57

7_10 License required 7 g 96 _ 357 71 33 59

11.700 visual inspection 77 100 7 93 95 1007 97

7 12 Use commodity exchange 7 ‘ 0 _ 0 0 0 7 0

. 77173 Use futures contract 7 7 0 4 _ 2 0 2

14 Determine quality visually 98 7100. 100 99

7157 Satisfied with grading _ 7 _ _ 577 _ 58 74 81 68

7 16 Cost/km good road 2 7 77 7 7 1 3 7 2.6 2 1 2.6

17 Cost/km bad road 5 6 27 2 5.6 3.7 3.8

Source: Maize Traders Survey (Nyoro et. a1). Tegemeo Institute 1999.

90

APPENDIX 5.2 IMPORT PARITY PRICE OF SOUTH AFRICAN MAIZE IN KISUMU

 

Costs and Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Ton Per 90kg Per Bag 90kg
Bag no taxes

Tons/bagslshipment 25000 1 1
FOB Per ton/bag 130 878 878
Shipping [Ton/bag 15 101 101
08F Mombasa (S) 145 979 979
Insurance 1 10 10

Exchange rate 75 75 75
CIF Mombasa (US$) 146 989 989
CIF Mombasa (Kshs) 10984 989 989
Import Duty (25 %) 2746 247 0
Suspended Duty (50 %) 5492 494 0
Total Taxes 8239 741 0
Importation Charges 2137 192 192
Pre-Shipment Inspection 302 27 27
(2.75%)
Port Charges 431 39 39
($5!Ton+VAT)
Stevedoring etc. 1294 116 116
($1 5/ton-I-VAT)
Clearing and Forwarding 110 10 10
(1%)
Free On Shore Mombasa 15867 1697 1373
Transport to Nairobi 2500 225 225
Transport to Kisumu 200 200
FOB Kisumu (Aug 1999) 2122 1798

 

Source: Customs Department of Kenya. 2000.

91

 

 

 

BIBLIOGRAPHY

Ackello-Ogutu C.1997. Unrecorded Cross-Border Trade Between Kenya and Uganda.
Technoserve/University of Nairobi. Nairobi. Kenya.

Argwings-. Kodhek. 1998. Contemporary Issues Determining the Future of Kenyan
Agriculture: An Agenda for Policy Research. Tegemeo Institute. Nairobi.

Argwings-Kodhek.1999. Policy Issues Facing the Maize Sector in the North Rift.
Background Document for The Maize and Wheat Stakeholder Consultation in Kenya,
December 1999. Nairobi, Kenya.

Brandow E George. 1976. Appraising the economic performance of the food industry.
Lecture in Agricultural economics. ERS/USDA 1977

Bungoma District Agricultural Office, personal communication Kenya, July 2000.
FAS USDA World Grain Circulars. Marketing years differs among countries. 1990.

Gabre-Madhin, 1999. A Study of Maize Trade between Kenya and Uganda. Africa
Technical Families-Agriculture 1(AFTA1). World Bank. Washington, DC.

Harrison Kelly, Donald Henley, Harold Riley , James Shaffer. 1987. Improving food
marketing in developing countries. Experiences from Latin America. Working paper no.

9. Dept of Agricultural economics Michigan State University,USA.

Holtzman J, J Lichte and J Teffi. Using Rapid Appraisal to Examine Coarse Grain
Processing and Utilization in Mali. Pg 53. Michigan State University.

Iganga District Agricultural Office, personal communication Uganda August 2000.

Jayne T and Jones S. 1997. Food Marketing and pricing Policy in Eastern and Southern
Africa: A Survey. World Development Vol. 25 pp1505-1527.

Jayne Tom, Yamano T, Nyoro J, and Awuor T. 2000. Balancing Rural Interests in
Kenya’s Maize Pricing and Marketing Policy. Michigan State University, Dept of
Agricultural Economics. Working paper number 7, Tegemeo Institute of Egerton
University, Nairobi, Kenya.

Kapchorwa District Agricultural Office, personal communication Uganda August 2000.

Lugari District Agricultural Office, personal communication Kenya August 2000.

Makanjuola G, T. Abimbola and U. Anazodo. 1990. Agricultural mechanization policies
and strategies in Nigeria. Commonwealth Secretariat. London.

92

 

Mas-Collel A, M, Winston and J, Green Micro-economic Theory. Page 428.
Mbale District Agricultural Office, Uganda 2000.

Mrema GO 1990. Synthesis of the Afiican Experience in Agricultural Mechanization.
Commonwealth Secretariat. London.

Muchiri G, C. Mbara, and C. Mwanda. 1990. Agricultural mechanization policies and
strategies in Kenya. Commonwealth Secretariat. London.

Mutunga N. 2000. Harvest assessment in Kenya. FEWS Kenya Nairobi. Kenya.

Nyoro J, Kiiru M and T. Jayne. 1999. Evolution of Kenya's maize marketing systems in
the post-liberalization era. Tegemeo Institute/Michigan State University and ECAPAPA.
Nairobi. Kenya.

Nyoro James.1992. Competitiveness of Maize Production Systems in Kenya. Paper
presented at stakeholders seminar on Maize Supply ad marketing under Market
Liberalization in Kenya, June 1992. Nairobi, Kenya.

Nyoro James.1998. Trends in regional agricultural productivity. Tegemeo Institute.
Nairobi.

Odhiambo Mark . 1994. The Kenya Maize Sub-Sector Study. A Rapid Appraisal
Approach. Kenya Market Development Project (USAID). Nairobi. Kenya.

Seppala P. 1997. Food Marketing Reconsidered: An Assessment of the Liberalization of
Food marketing in Sub Sahara Africa pp 35-47.

Trans-Nzoia District Agricultural Office, Kenya. 2000.

Yanggen David, Valerie Kelly, Thomas Reardon, and Anwar Naseem. 1990 Incentives
for Fertilizer Use in Sub-Saharan Afiica: A Review of Empirical Evidence on Fertilizer
Response and Profitability by International development papers. Department of
Agricultural Economics. Michigan State University.

Yanggen David, Valerie Kelly, Thomas Reardon, and Anwar Naseem. 1990 Incentives
for Fertilizer Use in Sub-Saharan Africa: A Review of Empirical Evidence on Fertilizer
Response and Profitability by International development papers. Department of
Agricultural Economics. Michigan State University.

93

EEEEEEEEEEEEEEEEEEEEEEEEEEEE

llullllllllllillllllllllllll