Agriculture still key to economic growth

President Kibaki looks at ripe coffee berries after opening the Nairobi Trade Fair at Jamhuri Park in Nairobi. PHOTO/STEPHEN MUDIARI

The stark reality is that for economy to grow fast enough to lift Kenya to a middle-income country, agriculture must be given more attention. Studies show that shifting economic strength from agriculture to other sectors, such as ICT, as growth anchors would expand the divide between the rich and food poor.

But as the county moves to revive farming, it will first have to tackle a bigger challenge of reduced, delayed and, in some cases, total failure of rainfall and drying up of water basins as result the plunder of the country’s forests.

The importance of agriculture as a key pillar of the country’s wealth has been shoved in the forefront by the current economic slow-down.

After the country hit a historic high of 7.1 per cent in economic growth in 2007, it is agricultural that gave the first signs of waning momentum with the Kenya National Bureau of Statistics (KNBS) saying the sector, which controls about a quarter of the country’s wealth base, had been contracting since the third quarter of 2007.

The effect is that with the accelerated deterioration of farming revenues due to post-election violence in early 2008, the economy recorded a dismal 1.7 per cent growth rate in 2008. Some of the key crops that drive the economy include maize and, the staple food in many households as well as export crops like flowers, fruits, vegetables, tea and coffee.

Because their incomes are able to trickle down to the villages, they are seen as an effective way of enriching the rural population, a majority of whom rely on agriculture.

And with the sector showing no sign of recovery, the government has indicated that it will be reviewing its 2009 growth projections downwards from the earlier estimate of 3.2 per cent. That effectively puts in doubt the country’s wider plan of reducing poverty through wealth creation in the short-term.

“Persistent drought... is seen as the main cause restraining the economy from attaining its growth potential,” KNBS says in its second quarter economic review. Kenya needs to grow at a sustained growth rate of 10 per cent to achieve its goal of becoming a middle-income country by 2030.

But the importance of fixing agricultural activities to accelerate economic growth is not a new discovery, only that for now the urgency has grown with the country falling prey to poor policies and prolonged drought, which have resulted to food shortage.

A 2003 economic analysis of the Kenyan economy showed that between 1987 and 2001, the rate of growth of the non-agricultural sectors depend strongly on how agriculture performed.

Non-agricultural growth increased by 30 per cent of the agricultural growth rate in the same year, and by 10 per cent in the previous year. It’s not just in Kenya where agriculture has been the key to development and poverty alleviation. This is a trend seen in some of the major economies, including China.

“When agriculture grows, overall economic growth reduces rural and urban poverty faster,” The 2003/07 Secretary of State for International Development the Department for International Development (DfID), Hilary Benn said a 2005 report. DfID is a United Kingdom state organisation established in 1997 to help fight poverty in the world.

The report titled, “Growth and poverty reduction: the role of agriculture”, says that every additional $1 generated from agricultural activities leads to a further income of between $0.96 in Niger and $1.88 in Burkina Faso elsewhere in the economy.

In Kenya, that effect is even more significant, as the “multipliers” from agricultural growth are three times as large as those for non-agricultural growth.

It gets more interesting with government data released in 2005 by the then Minister for Agriculture, Kipruto arap Kirwa, during the Kenya’s April 11-12 Consultative Group with donors showing that agriculture contributes over 53 per cent of country’s gross domestic product (GDP) - 26 per cent direct and 27 per cent indirectly.

The close correlation between agriculture performance and the overall economy is captured by trend analysis of the country’s growth statistics. Mr Kirwa’s presentation showed that from the 1960s to mid 1980s, Kenya’s rate of economic growth averaged 5-6 per cent per year largely due to strong growth in agriculture.

Between the mid 1980s and the turn of the millennium, the sector’s growth rate declined, reaching a low of negative 4.1 per cent in 1992/93 due to drought and reduced funding.

That slowed down the country’s economic growth rate from 1.4 per cent in 1998 to a negative 0.3 per cent in 2001. The recovery of agriculture from 1.2 per cent in 2002 to a high of 6.5 per cent in 2005 pushed the overall economic growth to a historic high of 7.1 per cent in 2007.

Over the 2002/06 period, something else interesting happened: the number of Kenyans living below the poverty line reduced from 56.8 per cent of the population to 46 per cent.

Nothing surprising

Historical data analysis conducted by the Agriculture and Natural Resources Team of the UK Department for International Development in collaboration with Anne Thomson of Oxford Policy Management, Oxford, shows that rates of poverty reduction have been very closely related to agricultural performance – particularly to the rate of growth of productivity from farming activities.

“In simple terms, this indicates that the countries that have increased their agricultural productivity the most have also achieved the greatest reductions in poverty,” the two institutions note.

China presents the best example of how improvement in agriculture can help in poverty reduction. Between 1981 and 2001, China was able to reduce the population living in absolute poverty from 64 per cent to just 16.6 per cent, thanks to agriculture.

In contrast, due to negligence of agriculture the number of people in absolute poverty effectively doubled in sub-Saharan Africa over the same period.

“The problem is particularly acute where people depend on rain-fed agriculture, in particular sub-Saharan Africa, where the impact of new technologies has been less apparent and agricultural productivity has generally stagnated and even fallen in some areas,” the DFID paper notes.

True, according to KIPPRA (Kenya Institute of Public Policy Research and Analysis), a local think-tank, the hardcore poor (those who remain hungry even after spending all their income only on food) in Kenya are in the rural areas.

In India, analysis has shown that the rural sector growth reduced poverty in both rural and urban areas, while economic growth in urban areas did little to reduce rural poverty, signifying the importance of agriculture in overall economic growth.

So as Kenya looks to accelerate its economic growth, policymakers will have to increase investment in agricultural research, technology and revive the collapsed government-run extension service. Shift to agri-based industrialisation should then be anchored on a successful farming production, experts say.

Perhaps that is what informed the government’s decision to give more support to agriculture in the current budget, with strong commitments to revive irrigation and rehabilitate arid and semi-arid areas.

According to a paper published in 2002 by Mr Mwangi Kimenyi, then an economic researcher with the KIPPRA, Kenya’s highest potential for industrialisation lies in agri-based industries.

“Therefore, even though it is true that industrialisation can play a key role in poverty reduction, it is important to keep in mind that such industrialisation will necessarily have to be supported by agriculture,” says Mr Kimenyi in a paper titled “Agriculture, Economic Growth and Poverty Reduction.”

“Accelerated investment in agricultural research is particularly urgent because Kenya will not achieve reasonable economic growth and poverty reduction without an increase in agricultural productivity.”