Access to East Africa\'s Agricultural Markets

THE AFRIQUEST RESEARCH CENTRE LTD

Access to East Africa’s Agricultural Markets Kenya n 11/28/2016

Table of Contents Executive Summary................................................................................................................................. 4 Grocery Retailers in Kenya .................................................................................................................. 7 Chapter One: Introduction .................................................................................................................... 12 1.1

Historical context .................................................................................................................. 12

1.2

Political context..................................................................................................................... 12

1.3

Socio Economic Outlook ....................................................................................................... 13

1.4

Overview of the Agriculture sector ....................................................................................... 15

Chapter Two: Livestock Sector Overview ............................................................................................ 17 2.1

Introduction .......................................................................................................................... 17

2.2

Structure of the livestock sub sector .................................................................................... 18

2.3

Livestock resources ............................................................................................................... 20

2.4

Livestock breeds.................................................................................................................... 20

2.5

Livestock productions ........................................................................................................... 22

2.6

Livestock consumption ......................................................................................................... 24

Chapter Three: Livestock Feeds and Nutrition in Kenya ....................................................................... 26 3.1

Introduction .......................................................................................................................... 26

3.2

Production and Supply .......................................................................................................... 26

3.3

Demand ................................................................................................................................. 28

3.4

Livestock feeds business ....................................................................................................... 29

Pigs Feed ........................................................................................................................................... 31 Chapter Four: Animal Health ................................................................................................................ 33 4.1

Introduction .......................................................................................................................... 33

4.2

Livestock Diseases ................................................................................................................. 33

4.3

Policy and Legal framework ................................................................................................. 34

Chapter Five: Value chain in the Livestock Sub-Sector ......................................................................... 35 5.1

Introduction .......................................................................................................................... 35

5.2

Domestic Market: Wholesalers/ distributors and retailers ................................................. 37

Wholesalers / distributors ................................................................................................................ 37 Grocery Retailers in Kenya ................................................................................................................ 37 5.2

Dairy Industry ........................................................................................................................ 39

5.3

Pigs Sector ............................................................................................................................. 40

Chapter Five: Agriculture Machinery .................................................................................................... 41 Chapter Six: Stakeholders in the Livestock Sector .................................. Error! Bookmark not defined. 2

Chapter Seven : SWOT Analysis ............................................................... Error! Bookmark not defined. 7.1

Opportunities identified for investment .................................. Error! Bookmark not defined.

Chapter Eight: Conclusion ........................................................................ Error! Bookmark not defined. References ............................................................................................... Error! Bookmark not defined. Appendix .................................................................................................. Error! Bookmark not defined.

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Executive Summary Background Kenya is characterized by a rapidly growing population, rapid urbanization and growing urban poverty, water scarcity, falling food production and low resilience to climate change. This can be perceived as both positive and negative. It is positive because a rapidly growing population and rapid urbanization provides a huge market for consumer goods. On the flip side, the combined effects of climate change and rapid population growth are increasing food insecurity, environmental degradation and poverty levels in Kenya. Overall Kenya’s socio economic outlook is attractive, ranking higher than Uganda, Tanzania and Ethiopia in higher education and training, goods market efficiency, labour market efficiency, financial market development, business sophistication and innovation. This means that it has the advantage of a dynamic economy with a strong private sector, which makes it possible to adapt quickly to market forces. Agriculture is the mainstay of the Kenyan economy as it accounts for 26% of Kenya’s Gross Domestic Product (GDP) directly and another 25% indirectly making the sector outlook promising. The sector is made up of three main sub-sectors which are agriculture, livestock and fisheries. Structurally these sub sectors fall under several ministries, parastatals and several programmes. The livestock sub-sector is important to the economy of Kenya as it contributes over 30% of the farm gate value of agricultural commodities, about 10% of the national GDP and at least 50% of the agricultural GDP. Despite the sectors importance, the sector has not lived to its expected potential due to numerous challenges facing it. The biggest change is lack of a centralised approach to development and growth of the sector as a single entity. Kenyan economic development is governed by an all-encompassing development plan developed in 2006–07 (usually called in short ‘Vision 2030’) ‘to develop a globally competitive and prosperous nation with a high quality of life by 2030’. The aim is to maintain a sustained economic growth of 10% per year, develop a just and cohesive society that enjoys equitable social development in a clean and secure environment, and politically develop an issue-based, people-centred, resultoriented and accountable democratic political system. Despite the policies related to livestock that are in place, they have not created an enabling environment to support sustainable growth in the sector. Kenya has recorded poor performance in live animals export which stands at 185,000 annually compared to its neighbouring countries like Somalia’s 4.6 million and Ethiopia’s 1.9 million animals. Stakeholders in the livestock sub-sector are now calling for a review of livestock related policies and formation of a livestock sector board. Kenya has a huge livestock resource base which is estimated at 99 million units - 25.7 million indigenous and 6 million exotic chicken, 14 million beef cattle, 3.3 million dairy and dairy crosses, 27.7 million goats, 17 million sheep, 2.9 million camels, 1.8 million donkeys and 0.3 million pigs In general, the Kenyan livestock sector has a wide range of both local and imported breeds. The existing local and localized breeds are superior under the prevailing conditions. These breeds are 4

currently being displaced by imported "exotic" breeds- a trend that has been criticised as a threat to long-term sustainability. In the dairy sector, most major international genetics companies like ALTA, WWS, SEMEX and ABS etc. are present in Kenya. Livestock production and Consumption Animal production contributes about 5.5% of the GDP and accounts for about 22% of the agricultural GDP and over 40% of farm gate value of agricultural commodities (Economic Survey 2015). The value of livestock and livestock products increased from Kshs.38,895.9 million in 2008 to Kshs. 88,305.3 million in 2012 (Economic Survey, 2013). The livestock sub sector has the potential to provide adequate supply of all animal products and by-products to meet domestic needs and generate surplus for export. Thus, the sub sector has potential to play a significant role in reversing poverty levels and contribute to economic growth and therefore enabling the country to attain its objectives of Kenya Vision 2030. Production constraints include: low productivity, poor breed characterisation, inadequate breeding services, poor animal husbandry, inadequate extension and advisory services, inadequate feeds and feeding, disease challenges, high cost of inputs and poor access to markets and inadequate integration of industry players. Consumption of livestock products are expected to increase due to increasing per capita consumption and population growth. It is expected that meat especially pork and poultry, consumption will double in the period 2000 to 2030. Animal feeds Livestock feed accounts for 60 – 80 percent of the production costs in livestock farming in Kenya, depending on the intensity of production. It is therefore clear that animal feed is the single most important input in livestock production and a key determinant of the economic viability of any livestock business. Given the genetic make-up of the livestock species in Kenya, noted for enduring hardship but not for productivity, competing in international markets without adequate feed and health provisions is not likely to pay off. Kenya has the largest animal feeds industry and still growing in the East Africa region, attributed to its growing and dynamic livestock sector. However for several years the animal feeds industry has never met the demand of the market. The demand for animal feeds has consistently outstripped production through the years. This clearly presents a gap in the market that can be filled by new entrants in the market to meet demand. Further the investment prospects are promising considering the high demand and the growing livestock sector. In 2014 t he value of purchased manufactured feeds more than doubled to reach KSH 11.4 billion. Considering that production does not meet demand, this means that value is way below what it ought to be. 5

With such prospects one would think that the animal feeds industry would be taken seriously in Kenya. This does not seem like the case. Animal feeds are produced as a milling by products such as maize bran, wheat bran, and rice bran. Most of the locally produced cereals are destined for human consumption. It is no wonder the consumption of feeds outstrips production. This means that there is still room in the market for new entrants to meet demand. Animal Health Animal health is among the leading priorities in animal productivity and must be guaranteed at all stages of production. Due to inadequate focus on animal health enterprises involving food animals have low returns on investment resulting in high poverty levels in animal producing areas There are two main diseases that are of a major concern in the country.  Contagious bovine pleuropneumonia (CBPP) from the north.  Foot and Mouth Disease (FMD) is the other disease. Kenya is actually referred to as FMD country. FMD is endemic and annual outbreaks occur. Other disease threats include:  Antrax: There are occasional outbreaks especially after droughts or severe floods, and blackleg.  East Coast Fever: is challenging with exposure and treatment and tick control as the only control strategies since the development of an effective vaccine so far has been without results.  Brucellosis in the dairy sector is on the increase and would require a control strategy  anaplasmosis,  theileriosis, and  contagious bovine pleuropneumoniae.  Pigs are confronted with a number of diseases of which African swine fever (ASF), foot-andmouth disease, and porcine cysticercosis are the most important The main challenge in regards to animal health is lack of information on basic animal nutrition and disease control, especially amongst small holder farmers. Livestock veterinarians are available to tend to health issues and administer vaccines. However, reaching levels of production with which they could take advantage of those resources is still a challenge. Animal health policies were formulated on the assumption that the government would provide the majority of clinical services at subsidised rates. Despite the withdrawal of the government from veterinary services provision laws affecting the livestock sector remained unchanged and restrict the development of privatised and decentralised system. Value chain in the Livestock sector Major actors in the livestock and red meat value chains include input suppliers (forage producers), pastoral producers, livestock traders, ranch owners and managers, slaughterhouses, butcheries and processors, and meat packers and exporters.

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Important service providers (who are not technically value chain actors) include  Brokers, who negotiate between pastoralists and traders and play an important price-setting role,  Veterinarians and community animal health workers  The extension service is one of the priority instruments in the agricultural sector to help (resource) poor farmers to improve and increase their production within core poverty alleviation programmes.  Transportation providers. The value chains are primarily geared toward the domestic market, which consumes approximately 99% of domestic production. Small volumes of meat are exported by the newly re-operationalized KMC and private meat exporters who use KMC’s facilities for a fee, as well as Choice Meats (a subsidiary of Farmers Choice), while the exporter LTMS-K and individual ranchers export small volumes of live animals to Mauritius, Burundi (mainly goats), and Uganda. Grocery Retailers in Kenya Retail in Kenya is changing slowly from urban markets and hawkers into supermarket systems or modern retail. Supermarkets and high end butcheries mainly provide meat products to the high end markets. Low end is mainly served by low end butcheries. Milk of unknown origin and raw is still hawked, most of the meat seen in butchers’ windows bears veterinary stamps, but it is likely that considerable amounts go through informal channels to hawkers and the many cheap restaurants. Supermarkets sell both branded packed milk and dispensed milk that they have either bought directly from farmers or cooperatives. The supermarket trade opens opportunities for value addition through the preparation of cuts, ready tocook or ready-to-eat products, branding and advertisement. Modern retail expansion in Kenya remains below 20%, with neighbourhood kiosks, market stalls and independent small grocers having a wider footprint. Some of the leading supermarkets that sell meat and dairy products are:  Nakumatt – value share 8%, High end market  Tusker Mattresses = value share 7%, High end to middle end  Naivas – value share 4%, High end to middle end  Uchumi – value share 3%, High end to middle end Huge prospects in the grocery retail industry: Rising disposable incomes, growing foreign investor confidence and continued government investment in the infrastructural development of roads and energy, as well as a growing shopping centre culture will be instrumental in promoting grocery retailers in Kenya. Export market There are three major export abattoirs, of these only KMC slaughters significant numbers of animals for export. The other two Farmers Choice—which primarily processes pork for the domestic market, albeit with limited exports to the Middle East and Mauritius—and Hurlingham primarily target the domestic market, with minor exports on the side. 7

There is rising interest in the dairy sector particularly in the processed milk business in a response to the anticipated leap in demand for commodity, driven by rapid urbanisation, population and income growth. This shows the huge prospects in the dairy sector which has attracted both local and foreign investors. Agricultural Mechanization The country has not operated with a clearly defined agricultural mechanization policy. This, together with the existing legislation framework has not sufficiently addressed agricultural mechanization challenges leading to the low level of agricultural mechanization in the country. The consequences have been environmental degradation, social and economic problems including deterioration in produce quality, low agricultural production and under-utilization of production plants such as in the animals feeds enterprises. Stakeholders in the Livestock Sector The stakeholders in the sector are the livestock keepers, animal breeders, livestock traders, the Ministry of Livestock Development, Veterinary Pharmaceutical industry, Non Governmental Organisations, regional and international organizations such as OIE, training and educational institutions such as Universities. Kenya Meat Commission: Established in the early 1950s through an act of parliament with an objective of providing a ready market for livestock farmers and high quality products to consumers. It is a public institution and by far the oldest and the most experienced meat processor in Kenya and the largest in East African region. Farmer’s Choice Limited: Kenya’s largest abattoir. This facility combines slaughtering and processing, and is a private company established in 1975 as Kenya Meat Processors Ltd. - a subsidiary of the Block Hotel Group. Products from the factory have a number of outlets in the domestic market: o tourist hotels around Nairobi (20%); o tourist hotels at the coast (10%); o lodges and institutions (5%); o major supermarkets (Uchumi, Nakumatt, Tuskys) (15%); o o ther mass markets (kiosks, retail outlets) (50%).  The company also exports its products. The size of the Kenyan domestic market (mainly due to the size of its tourist industry) has also encouraged Farmer’s Choice to improve overall quality. Kenchic Ltd: Kenchic Limited is the largest fully integrated poultry company in East and Central Africa with a grandparent operation, broiler and layer parent stock, hatchery, commercial broiler farms and a processing plant. o Kenchic is also a major supplier to fast food chains and the hospitality industry o There are about 33 fast food restaurants across the country that use the brand name. Some international clients include international franchise like Galitos, Steers, KFC and inflight caterer NAS servairs

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New Kenya Co-operative Creameries: New KCC, a Government parastatal, is the oldest and biggest dairy by assets in Kenya, with operations in Nairobi, Kiganjo, Sotik, Nyahururu, Eldoret, Kitale, Mombasa and other parts of the country. The dairy started as a creamery co-operative in 1925, growing to be one of the most iconic brands and companies before and after independence of Kenya.  New KCC has lost its position as Kenya’s second biggest dairy market share to Githunguri Dairy Farmers Cooperative processor of the Fresha milk brand  According to KDB statistics indicate that New KCC now controls 15% of the raw milk market losing out to Githunguri that commands 16% Potential for investors Potential lies on  Development of disease free zones. Zoning is a “public good” investment where Government will be the lead agency financing the animal health control and product safety aspects and in creating the right environment for the private investors in the meat and dairy value chains. The available investment opportunities include meat and milk production, processing and international marketing of the commodities emanating from the zones. Further there are markets that have shown interest and indicated possibility of importing Kenya’s meat and Milk, once safety and health conditions have been satisfied, are Israel, Qatar, United Arab Emirates, Iran, South Africa, Malaysia, European Union and Allana Company of India.  Meat processing o Beef processing units to be put up in major production area such as Nakuru and Eldoret in Rift Valley Province. o Poultry and Pig processing; at present commercial poultry processing are almost under monopoly. There is an opportunity to set up a second large scale production and processing facilities in order to supply chicken and pig products at affordable prices to the Kenyan consumers and Export market. o Game meat; this is a new area, which has a very wide investment scope such as in ostrich farming, crocodile farming among other emerging livestock opportunities which have proven to be profitable.  Other livestock products o Production of milk surpasses the demand at peak seasons leading to a heavy loss. There is a potential in investing in processing milk into powder for local market and export. There is untapped potential in goat milk processing. o Currently branded eggs are few in the market. Branded eggs that are clean and affordable have potential especially with the growing middle class with increased income  Animal feeds and mineral supplements: There is also inadequate and uneven distribution of mineral supplementation. There is therefore potential in production, purification and packaging of mineral nutrients and fabrication of milling and pelleting equipment.  Growth in the livestock agribusiness. With increased demand for livestock products in the export market there is need to improve the livestock breeds to increase the quality and productivity of animals for better prices. This offers investment opportunities in 9

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Breeding materials in poultry production. The ever increasing demand overwhelms the production capacity of the available hatcheries. o Superior livestock breeding materials and breeding services to increase the quality and productivity. Empowering farmers / knowledge sharing. There is need for knowledge on good farming practices that will focus on implementing better management to increase productivity and establishing effective biosecurity measures that reduce the risk of disease. The main driver for farmers to participate and adopt the recommended practices will be higher productivity and production and thus income. o One possible area of empowering farmers is through training in collaboration with government’s existing structures such as the ministries and extension services. Sharing knowledge through ICT platform eg SMS etc. Improved genetics : Especially in small ruminants like pig and rabbit production, input of new genetics is needed since small and medium sized producers have all started up from the same genetic material and are now, due to uncontrolled breeding, confronted with a narrow genetic base leading to inbreeding and reduced productivity. Quality inputs: Where necessary, the quality of the input materials (e.g. feed and water quality) need to be improved. This will create commercial opportunities especially for the poultry and pig supply industry to get more involved in business in Kenya. Through improved levels of animal health, nutrition and growth, the overall animal welfare will enhance. o Animal feeds: Kenya has a livestock production system which heavily depends on grass production.  The livestock industry will have to switch its dependency on maize to other ingredients, such as cassava and sorghum. More production of diseaseresistant varieties of both crops is required.  Quality of animal feeds is another area that can present opportunity. Currently there are challenges with the quality of feeds due to lack of and costly raw materials. This presents an opportunity for investing in raw material importation at affordable costs. Further this challenge can be addressed by exploring alternative raw materials for feeds production.

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Strengthening veterinary services: Develop and improve both public and private laboratory infrastructure to ensure basic veterinary care, high-quality diagnostics and a contribution towards increased food safety assurance. Improve the availability of quality vaccines and reduce the use of antibiotics.

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Improvement of slaughter houses. This may only work out well if the government works in partnership with the private sector

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Development of high quality value chain: There is a big need to support the development or further development of value chains at all levels and in all sectors. Eg meeting international standards has been a challenge for Kenya for a long time. There is potential of developing a branded high-quality beef produced on game ranches/conservancies using the newly developed system of livestock keeping that is in harmony with nature. Kenyan Boran cattle 10

that are known for their superb carcass and meat quality can be used. The business model has become game viewing/tourism and livestock production. Kenya Boran cattle, raised exclusively in conservancies, together with wildlife, forms a brandable product for which premium prices in the local high-end market and in future perhaps even in the export markets, can be achieved. 

Mechanization is generally low in agriculture sector. There is therefore opportunity of importing machinery and equipments along with spare parts and servicing options

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Chapter One: Introduction 1.1

Historical context

According to the World Bank statistics, Kenya has a population estimated at 46.1 million and it is increasing by an estimate of one million per year. This East African country lies on the equator and is bordered by Ethiopia (North), Somalia (East), Tanzania (South), Uganda (West), and Sudan (Northwest), with the Indian Ocean running along the southeast border. Kenya is a diverse nation of 42 distinct ethnic groups. Official languages are Swahili and English and the currency is Kenyan Shilling.

Fig 1: Map of Kenya

1.2

Political context

Kenya’s political context has been heavily shaped by historical domestic tensions and contestation associated with centralisation and abuse of power, high levels of corruption, a more than two decades long process of constitutional review and post-election violence. Despite these incidences, Kenya is generally perceived as a politically stable country which is important for economic growth and attracting foreign investments. In addition political stability provides an enabling environment for private sector to do business. The approval of the new constitution in 2010 and relatively peaceful elections in March 2013 are milestones constituting steps forward in Kenya’s transition from political crisis. One of the greatest achievements that the country has gained from the 2010 constitution is the Devolution system of government. This ushered in a new political and economic governance system which is intended to be transformative and strengthen accountability and public service delivery at local levels. 12

1.3

Socio Economic Outlook

Kenya is characterized by a rapidly growing population, rapid urbanization and growing urban poverty, water scarcity, falling food production and low resilience to climate change. The combined effects of climate change and rapid population growth are increasing food insecurity, environmental degradation and poverty levels in Kenya. Despite this discouraging picture, Kenya has the largest and most diverse economy in East Africa, with an average annual growth rate of over 5% for nearly a decade. The World Bank’s most recent Kenya Economic Update (KEU) March 2016 projected a 5.9% growth in 2016, rising to 6% in 2017. The report attributed the positive outlook to low oil prices, good agriculture performance, supportive monetary policy, and ongoing infrastructure investments. Kenya strategic location makes it the economic and transport hub of East Africa which gives a competitive edge over its neighbouring countries. In August of 2016, the 2015 Banking Bill which capped lending interest rates was signed into law. Interest rate spreads in Kenya in the past have been considered to be generally higher than that of its peers. The effects of the rate regulation remains to be seen and could vary from the intended affordable loans to the low income households and small businesses, to reduced profitability for the banking sector and increased charges on commercial bank products. In terms of Human Development Index (HDI) Kenya ranks highest in the region. Its entrepreneurship and human capital give it huge potential for further growth, job creation and poverty reduction. The recent discovery of oil and other mineral resources creates great potential for the Kenyan economy. However, despite a decline of the country’s absolute poverty rate, wealth has not been distributed equally. Kenya is one of the most unequal countries in the sub-region. Forty two percent of its population of 44 million, live below the poverty line. The inequality in the society is by income, by gender, and by geographical location. Poverty is highest in the arid and semi-arid areas that cover about 80% of the land area and are inhabited by about 20% of the population. Poverty also affects the coastal area, which receives fewer resources. Rapid population growth is another major challenge, further complicated by high unemployment rates especially among the youth. More than 70 per cent of Kenya’s population are below the age of 30 and the population under age 14 alone amounts to 43 percent. Table 1 shows a glance of the country.

Table 1: Kenya at a glance Geography Population

Kenya at a Glance Eastern Africa, bordering the Indian Ocean, between Somalia and Tanzania 46,790,758 note: estimates for this country explicitly take into account the effects of excess mortality due to AIDS; this can result in lower life expectancy, higher infant mortality, higher death rates, lower population growth rates, and changes in the distribution of population by age and sex than would otherwise be expected 13

(July 2016 est.) Population growth Urbanization

1.81% (2016 est.) urban population: 25.6% of total population (2015) rate of urbanization: 4.34% annual rate of change (2010-15 est.)

Major urban areas

NAIROBI (capital) 3.915 million; Mombasa 1.104 million (2015), Kisumu Poverty Considered one of the world’s poorest countries GDP (purchasing power $141.6 billion (2015 est.) parity): GDP (Per capita $3,200 (2015 est.) income) Exports $5.982 billion (2015 est.) Export commodities Tea, horticultural products, coffee, petroleum products, fish, cement Export partners Uganda 11.2%, US 8.3%, Tanzania 8.1%, Netherlands 7.4%, UK 6%, Pakistan 4.2% (2015) Imports $15.56 billion (2015 est.) Import commodities machinery and transportation equipment, petroleum products, motor vehicles, iron and steel, resins and plastics Import partners China 30%, India 15.5%, UAE 5.7%, US 4.8%, Japan 4.7% (2015) Natural Resources limestone, soda ash, salt, gemstones, fluorspar, zinc, diatomite, gypsum, wildlife, hydropower Monetary Units Kenyan Shillings (KES or KSH) Languages English (official), Kiswahili (official), numerous indigenous languages Ethnic Groups Kikuyu 22%, Luhya 14%, Luo 13%, Kalenjin 12%, Kamba 11%, Kisii 6%, Meru 6%, other African 15%, non-African (Asian, European, and Arab) 1% Religion Christian 83% (Protestant 47.7%, Catholic 23.4%, other Christian 11.9%), Muslim 11.2%, Traditionalists 1.7%, other 1.6%, none 2.4%, unspecified 0.2% (2009 est.) Literacy definition: age 15 and over can read and write total population: 78% male: 81.1% female: 74.9% (2015 est.)

Sources: Various – World bank 2015, CIA World Factbook 2011, The World Factbook, 2014; The State of the World's Children, 2014, CIA World Factbook and other sources, 2015

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Overall Kenya’s socio economic outlook is attractive at least regionally for business prospects and investment ventures. According to the World Economic Forum, Kenya is the most competitive economy in the region. Kenya ranks higher than Uganda, Tanzania and Ethiopia in higher education and training, goods market efficiency, labour market efficiency, financial market development, business sophistication and innovation. This means that it has the advantage of a dynamic economy with a strong private sector, which makes it possible to adapt quickly to market forces. More importantly, Kenya has a relatively well-educated population and a well-trained workforce, which puts it in a better position to take up the jobs of the future.

1.4

Overview of the Agriculture sector

Agriculture is the mainstay of the Kenyan economy as it accounts for 26% of Kenya’s Gross Domestic Product (GDP) directly and another 25% indirectly. This makes the sector the second largest contributor after service sector. The sector outlook is promising and with a combination of trends as shown in the extract from Agricultural mechanisation policy of 2015 below, ensures positive prospects in the short to medium term “Further the sector accounts for 65% of total exports, provides more than 18% per cent of formal and 70 percent of informal employment in the rural areas. It generates about 70 percent of raw materials for agro-industrial production and generates 45 percent of government revenue. Further, the agricultural growth has a catalytic effect on the other sectors with an estimated growth multiplier of 1.64, compared to 1.23 for other activities. The sector is therefore a key driver towards the realization of 10 percent annual economic growth envisioned in Kenya Vision 2030. It also has a critical role to play with respect to reduction of extreme poverty and hunger in line with the Millennium Development Goal No. 1. “ Ministry of Agriculture Livestock and Fisheries, 2015. Agricultural Mechanisation Policy. About 80% of Kenya’s population work at least part-time in the agricultural sector, including livestock and pastoral activities. Over 75% of agricultural output is from small-scale, rain-fed farming or livestock production. This clearly shows the importance of agriculture to the economy of Kenya. Inadequate infrastructure continues to hamper Kenya’s efforts to improve its economic growth to the 8-10% range so that it can meaningfully address poverty and unemployment. International financial institutions and donors remain important to Kenya's economic growth and development, but Kenya has also successfully raised capital in the global bond market. Kenya issued its first sovereign bond offering in mid-2014. The agricultural sector is made up of three main sub-sectors which are agriculture, livestock and fisheries. Structurally these sub sectors fall under several ministries, parastatals and several programmes. The agriculture related ministries include; the Ministry of Agriculture, Ministry of Livestock Development, Ministry of Fisheries Development and the Ministry of Cooperative Development and Marketing. The ministries are the top organs in agriculture policy formulation and implementation. Closely related are the Ministry of Water and Irrigation, Ministry of Land, Ministry of Natural Resources and Environment and Ministry of Regional Development. These ministries have different organizational structures but at times have conflicting roles thus making the agriculture sector structure complex. 15

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Chapter Two: Livestock Sector Overview 2.1

Introduction

The livestock sub-sector is important to the economy of Kenya as it contributes over 30% of the farm gate value of agricultural commodities, about 10% of the national GDP and at least 50% of the agricultural GDP. The sector employs about 50% of the agricultural labour force. Domestic livestock also supply the local requirements of meat, milk, dairy products and other livestock products while accounting for about 30% of the total marketed agricultural products. Livestock farming is practiced in all parts of Kenya either under the pastoral extensive system in the Arid and Semi Arid Lands (ASALs) or under intensive, ranching and smallholder systems. The pastoral and commercial ranch systems traditionally contribute to the supply of beef and small stock meat. In addition to its contribution to the country’s GDP, the livestock subsector importance is positioned in the Kenya’s Vision 2030. Vision 2030 specifically aims at planning and implementation of 4-5 Disease Free Zones and livestock processing facilities to enable Kenyan meat, hides and skins to meet international marketing standards. It foresees this leading to more domestic processing of these products for regional and international markets. The vision also highlights specific strategies aimed at addressing the needs of the sector- transforming key institutions in agriculture and livestock to promote household and private sector agricultural growth; and increasing productivity of crops and livestock. The importance of the sector cannot be disputed; however, the sector has not lived to its expected potential due to numerous challenges facing it. The biggest change is lack of a centralised approach to development and growth of the sector as a single entity. Within the livestock sector, the dairy sub-sector is a little more developed and structured relative to beef cattle, goats, sheep and camel. 

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Dairy sub-sector continues to face challenges in the areas of animal husbandry, disjointed inputs supply, poor sector service delivery and lack of financial access by small scale producers, its success can largely be attributed to the role played by the Kenya Dairy Board in the regulation and production, marketing, distribution and supply of dairy produce. The meat sub-sector on the other hand is highly fragmented, poorly managed and riddled with inefficiencies that affect profit potential, predictability and meaningful planning along the entire value chain. Confusion within the policy framework has also been reported. The sector also suffers inadequate production facilities such as abattoirs and cold facilities especially in pastoralist areas which constitute up to 88 percent of the country’s landmass.

These challenges have seen Kenya denied access to key markets for livestock products despite it’s potential. Challenges faced by pastoralist also affect the sector’s productivity. These challenges include:  Climatic hazards – The areas where pastoralism is practiced receive low and unreliable rainfall. At times they experience prolonged drought. This leads to lack of water and sufficient pasture for the animals.

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Pests and diseases – Pests such as ticks and the tsetsefly, and diseases e.g. rinderpest, anthrax, east coast fever etc. are common in the pastoral areas. This has contributed to the death of large herds of animals. Overstocking – In most instances the pastoralists keep large herds far exceeding the land carrying capacity. This has led to soil erosion and environment degradation. Poor pastures – Most of the pastoral areas are underlain by poor soil. This cannot support quality pastures. Most areas are thus covered by poor pastures consisting of taft grasses and bare land. Cattle rustling – This is a big cause of insecurity among the pastoralists and it always leads to loss of life and destruction of property. Inadequate transport network – The pastoral areas are inaccessible. Fanners are therefore not able to get their animals to the market. Inadequate veterinary services – Extension services in the pastoral areas are inadequate hence it is difficult to treat or improve the animals. It is difficult to provide these services due to insecurity and given that the pastoralists are always on the move. Structure of the livestock sub sector

The top organ in regards to regulation and policy formulation is the Ministry of Livestock Development (MoLD) which was established in April 2008 as a result of a split from former Ministry of Livestock and Fisheries Development. The mandate of the ministry is “to promote, regulate and facilitate livestock production for socio-economic development and industrialization”. 

The departments in the ministry include the Department of Veterinary Services (DVS) and the Department of Livestock Production (DLP).  In addition, the ministry has a number of special programmes that include; NALEP, the ASAL Based Livestock and Rural Livelihoods Support Project, Central Kenya Dry Areas Programme (CKDAP), Smallholder Dairy Commercialisation Programme, the Pan-African Tsetse and Trypanosomosis Eradication Campaign Programme (PATTEC), the Pan-African Control of Epizootics (PACE), the Kenya Agricultural Productivity Project (KAPP) and the South Nyanza Community Development Project Kenyan economic development is governed by an all-encompassing development plan developed in 2006–07 (usually called in short ‘Vision 2030’) ‘to develop a globally competitive and prosperous nation with a high quality of life by 2030’. The aim is to maintain a sustained economic growth of 10% per year, develop a just and cohesive society that enjoys equitable social development in a clean and secure environment, and politically develop an issue-based, people-centred, resultoriented and accountable democratic political system. For the agricultural and livestock sector, the following flagship projects were developed:  Preparation and passage of consolidated agricultural policy reform legislation.  Development and implementation of a 3-tiered fertilizer cost reduction programme.  Improving the value gained in the production and supply chain through branding Kenyan farm products.  Planning and implementation of four or five disease-free zones and livestock processing facilities to

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enable Kenyan meat, hides and skins to meet international marketing standards. There will be more domestic processing of these products for regional and international markets. Creation of publicly accessible land registries under an improved governance framework. Development of an Agricultural Land Use Master Plan. Tana River Basin Agricultural Development Scheme.

The sub-sector is mainly guided by the following policies  the National Livestock Policy and Acts of Parliament including Animal Diseases Act, Cap 364;  Veterinary Surgeons and Veterinary Para Professionals Act, No 29, 2011;  Meat Control Act, Cap 356; Hides, Skins and Leather Trade Act, Cap 359 and Dairy Industry Act, Cap 336;  National Dairy Development Policy; National Poultry Policy; National Rabbit Development Strategy; and National Beekeeping policy. These programmes policies have potential of creating enabling legal environment for investors in the sector. As mentioned earlier the agricultural sector is characterised by complex structures of institutions and policies. Some of these policies have been reported to be conflicting therefore causing some challenges in the agriculture sector which impacts negatively to the development of the sector. Some of the policies which have been put in place to address the conflicting policies are as shown below: Agriculture Fisheries and Food (AFFA) Act, 2013, the Crops Act, 2013 and the Kenya Agricultural and Livestock Research (KALR) Act, 2013  consolidated the numerous pieces of legislations within the Agriculture Sector to address the overlap of functions, obsolete legislations and to benefit from economies of scale.  The Acts provided for the establishment of Agriculture Fisheries and Food Authority (AFFA) and Kenya Agricultural and Livestock Research Organization (KALRO). Other relevant existing legislation include  the Land Act, Standards Act Cap 496, Appropriations Act, Dairy Act, Fisheries Act, Water Act 2002, National Cereals and Produce Board Act, Micro and Small Enterprises Act, Environmental Management and Coordination Act (1999), Devolution Act, Intergovernmental Relations Act, 2012. Despite the policies related to livestock put in place, they have not created an enabling environment to support sustainable growth in the sector. Kenya has recorded poor performance in live animals export which stands at 185,000 annually compared to its neighbouring countries like Somalia’s 4.6 million and Ethiopia’s 1.9 million animals. Stakeholders in the livestock sub-sector are now calling for a review of livestock related policies and formation of a livestock sector board. They believe that the policies review is the way to turn around the sector which is performing way below its potential.

19

2.3 Livestock resources Kenya has an impressive livestock resource base which is estimated at 99 million units. This comprises of 25.7 million indigenous and 6 million exotic chicken, 14 million beef cattle, 3.3 million dairy and dairy crosses, 27.7 million goats, 17 million sheep, 2.9 million camels, 1.8 million donkeys and 0.3 million pigs. (2009 National Population Census).

Fig 2: Livestock population Pigs CamelDonkeys 2% 1% 3%

Sheep 17%

Goats 28%

Chicken (indegenous and exotic) 32%

Beef cattle 14%

Dairy cattle 3%

Kenya is broadly self-sufficient in most livestock products but is a net importer of red meat mostly through informal cross border trade – this happens in the porous boundaries of neighbouring countries of Somalia, Ethiopia, Sudan, Uganda and Tanzania. 2.4 Livestock breeds In general, the Kenyan livestock sector has a wide range of both local and imported breeds. Especially in the case of ruminants the existing local and localized breeds are superior under the prevailing conditions. The indigenous breeds are said to be more resilient to climate change and diseases. These breeds are currently being displaced by "exotic" breeds imported from the developed world. A trend reflecting a drive to increase short-term productivity has been criticised as a threat to long-term sustainability. The common breeds found in Kenya are shown in the table below: Table 2: Common cattle breeds Breed Milk production is high; Feed requirements is very high; Meat production Friesian 20

is high; cow’s milk has low butter/fat content; Average Live-Weight is 600kg; very sensitive to management

Aryshire

Friesians are important for both dairy and beef production (i.e. they are dual purpose) Milk production is high; Feed requirements is high; Meat production is fair; her milk has relatively low butter fat content; Average Live Weight is 450kg;

Guernsey

Major importance is dairy Body size is medium; Milk production is moderate; Average Live Weight is 400kg;

Jersey

Major importance is dairy Body size is medium to small; Milk production is moderate; The cow is not a meat breed; Feed requirements is relatively low;Milk has high butter fat; Average Live-Weight is 350kg

Sahiwal

Iimportance is dairy They are heavily built in body; Milk production is relatively low; Some are difficult to milk; Average Live-Weight is 500kg Sahiwals are good breeds for marginal areas and the breed is important for both dairy and beef (Dual purpose)

East African Zebu

Simmental

The breed has a prominent hump; Milk production is low; It is a very hardy animal; It is late maturing; East African Zebu are disease tolerant; Average Live Weight is 350kg The breed is important for both dairy and beef (Dual purpose) Milk production is high; Meat production is high; Forage requirements is high; The Breed requires high standards of management; Average Live Weight is 750kg; They are important for both dairy and beef (Dual purpose)

Charolis

Beef production is good; Forage requirement is high; Average Live Weight is 800kg

Hereford

They are important for beef production Beef production good; Forage requirement high; Average Live Weight is 550kg

Boran

The breed is important for beef production The breed has a prominent hump; Beef production is good; They are good for harsh conditions; Average Live Weight is 500kg; The breed is important for beef production

21









2.5

In the dairy sector, most major international genetics companies have their footprints in Kenya . Some of these companies include ALTA, WWS, SEMEX and ABS etc. There are also smaller initiatives to introduce Fleckvieh, learn about ET, MOET and the collection and storage of semen by the French Livestock Institute. Sheep and Goats: the breeds present can hardly be improved by any foreign genetics. Probably some imports of dairy goat genetics, if a serious dairy goat keeper with the potential and possibilities can be identified. Pigs: At the moment the performance of the existing pigs is low due not only to suboptimal management but also to the genetics and inbreeding. There is no active pig producers’ association, but if such an association were to be formed it could take charge of a breeding nucleus to support its members with superior breeding material. Poultry: Commercial poultry production is fully based on the few remaining commercial poultry breeding companies and there is little to add. For the family poultry sector the old dual-purpose breeds might have a future for improved scavenging systems. An example of such a line is Bovan Nera’s, with the added advantage of sex-linked colouring of DOCs, making for easy sexing. Livestock production

Livestock production is a major economic and social activity for the communities living in both high rainfall and arid and semi-arid lands (ASALs). In the ASAL, it accounts for nearly 90% of the employment opportunities and nearly 95% of the family incomes. The ASAL region contains 24 million hectares of land suitable for livestock worth Kshs 173.4 billion, with an annual turnover of Kshs 10 billion. However, production still falls far below potential due to a number of challenges that must be addressed if the region is to achieve the national goals and the MDGs. Animal production contributes about 5.5% of the GDP and accounts for about 22% of the agricultural GDP and over 40% of farm gate value of agricultural commodities (Economic Survey 2015). The value of livestock and livestock products increased from Kshs.38,895.9 million in 2008 to Kshs. 88,305.3 million in 2012 (Economic Survey, 2013). The livestock sub sector has the potential to provide adequate supply of all animal products and by-products to meet domestic needs and generate surplus for export. Thus, the sub sector has potential to play a significant role in reversing poverty levels and contribute to economic growth and therefore enabling the country to attain its objectives of Kenya Vision 2030. Production constraints include:       

low productivity, poor breed characterisation, inadequate breeding services, poor animal husbandry, inadequate extension and advisory services, inadequate feeds and feeding, disease challenges, high cost of inputs and poor access to markets and inadequate integration of industry players. 22

Beef 





There are indications that while Kenya is self-sufficient in most livestock products, it is not the same in red meat production. Beef demand outstrips supply and it is expected the demand will continue to grow into the near future. This growth is driven by increasing urbanisation and growing middle class. The implication is that Kenya will continue to be a meat deficit country and will possibly not be able to develop a strong external market. This clearly a gap in the market that needs to be addressed. o The local demand for beef is higher compared to all other meats, mainly because all Kenyan communities keep cattle and beef prices are relatively low. Kenya meets its high national demand for beef by importing large volumes of cattle through cross border trade. Kenya’s average annual beef production is about 320,000 metric tones. There is great export potential for Kenya’s beef cattle. For along time, the three main traditional markets for Kenya and the countries in the Horn of Africa were the Middle East and other neighboring African countries for live cattle, sheep and goats, while the European Union market is for beef. Main export destinations for meat and meat products are the Gulf States—with exports historically limited to the UAE but expanding to Qatar, Oman and Kuwait in 2010. Tanzania and Somalia, with other African countries accounting for the remainder. In 2010, Middle Eastern countries (including Egypt) surpassed sub-Saharan African countries as the largest importers of Kenyan meat, accounting for 63 percent of all exports. African countries accounted for the other 37 percent, with Asian and European importers accounting for 0.36 percent and 0.03 percent respectively. Exports to Asia and Europe are too low.

Mutton and Goat meat 

 



The sheep and goat industry contributes about 30% of the total red meat consumed in the country. On average, the production of meat from sheep and goats is about 70,000 metric 10 tonnes per annum. n addition, sheep and goats produce other products such as wool, skins and milk. The bulk of the sheep and goats are reared in the Arid and Semi-Arid Lands (ASALs) under nomadic pastoralism, and to a limited extent, ranching systems. The population of sheep and goats is estimated at about 6.1 million. Given the high nutritional value of dairy goat milk, and also their production efficiency with respect to their land space utilization, there is high potential for the development of the dairy goats enterprise.

Milk  

Milk production is adequate for domestic needs; in 2014 recorded milk production amounted to 541,300,000 litres. Milk production is concentrated in the Rift Valley and Central Provinces. Together, these two provinces contain about 80% of Kenya's dairy cattle population.

23



Dairy production accounts for 12% of the total value of agricultural output. About 300,000 small dairy farmers produce 80% of the milk.

Poultry produce  The commercial poultry sector is producing over one million chicks per week,(Dr. Humpreys, Head Breeders Association, 2012).  The features of the commercial market are a growing urban population and growing retail sector (fast food branches, supermarket branches and restaurants). The demand of commercial chicken (whole, half, parts, grilled and fried chicken) and eggs is high and growing. Table 3: Eggs production Year Quantity no of trays 2012 197,062,582 2013 170,213,441 2014 171,183,941

Value Kshs 59,118,774,730 61,064,032,250 51,355,182,240

Kenya faces many challenges and constraints with respect to cattle production and livestock development. These constraining factors are as follows:  weak policy and legal frameworks;  low livestock productivity;  reoccurring drought and erratic weather conditions, which affect livestock feed and water supply;  high cost and low quality of animal feed available to producers;  the prevalence of transboundary animal and zoonotic diseases and pests, coupled with inadequate technical capacity for disease control;  weak delivery of extension services;  high transport costs and dilapidated marketing infrastructure;  unreliable data and information management in the livestock industry.  Food safety issues: The major food safety issue is that more than 90% of all birds in Kenya are slaughtered on farm or in the homestead. From a hygiene and HPAI point of view, this is an undesirable situation. It will require extensive training and awareness raising to make people change in this respect.

2.6

Livestock consumption

Table below shows, it is expected that meat consumption will double in the period 2000 to 2030. Especially pork and poultry meat consumption are expected to triple as a combined effect of increasing per capita consumption and population growth.

24

Table 4: Expected changes in consumption in Kenya between 2000 to 2030 ‘000 metric Tons 2000 2030 Beef 286.9 514.3 Mutton 55.8 90.5 Pork 11.4 37 Poultry 54.8 164.6 Total 408.9 806.4

% increase 179% 162% 325% 300% 197%

25

Chapter Three: Livestock Feed and Nutrition in Kenya 3.1 Introduction For all livestock owners, livestock feeding and nutrition is a major concern because it affects production and productivity. Inadequate nutrition is a major cause of low live-weight gains, infertility and low milk yields in dairy cattle. Also pig, chicken, dairy goat and many other livestock producers have expressed challenges in feeding their animals optimally. Like most Eastern African countries farmers feed their livestock food and residue crops. According to the National Livestock Policy, livestock feed accounts for 60 – 80 percent of the production costs in livestock farming in Kenya, depending on the intensity of production. It is therefore clear that animal feed is the single most important input in livestock production and a key determinant of the economic viability of any livestock business. The significance of developing the feeds industry cannot be over-emphasised in light of the recent drive to maximise returns from the livestock sector through export revenues and domestic marketing. Given the genetic make up of the livestock species in Kenya, noted for enduring hardship but not for productivity, competing in international markets without adequate feed and health provisions is not likely to pay off.

3.2

Production and Supply

The size of the animal feed industry in Kenya has been steadily increasing in the last ten years, mainly due to the growth of the livestock sector. Production of animal feeds registered a 13.2% growth which was mainly driven by poultry feeds which grew by 26.8%. Production of cattle feed grew by 1.2% during the same period (Economic Survey 2015). The value of purchased manufactured feeds more than doubled to reach KSH 11.4 billion in 2014

26

The figure below shows that demand for animal feeds have consistently outstripped production through the years. This clearly shows a gap in the livestock feeds industry. Fig 3:

According to the Association of Kenya Feeds Manufacturers (AKEFEMA) the installed production capacity is adequate to meet the demand. However, actual capacity utilization is constrained by inadequate and erratic supply of raw materials coupled by high cost of some of the ingredients, such as oil-seed cakes and meals, finer mineral elements, fish meal, amino-acids. Lack of these raw materials and costs have greatly compromised the quality and quantity of production. For the livestock sector to meet its potential then the livestock issues needs to be addressed. This presents an opportunity for businesses or investors who would like to invest in the livestock industry. The opportunity lies in steady supply of raw materials at an affordable cost. Another possible option is introducing alternative raw materials that are affordable to the local market. The main livestock feeds consist of roughages, concentrates, minerals and vitamins. The raw materials originate from cereals (corn, wheat, barley, oats, and millet), legumes and oilseeds cakes (soybeans, and cotton seed cake) and animal by-products (fish meal, blood meal, meat and bone meal). Industry sources indicate that fishmeal as a protein source has become expensive and unreliable due dwindling supply and the industry is keen on replacing it with cheaper alternatives, such as soya. The prospects of high investment returns are possible considering the high demand and the growing livestock sector that the feeds industry serves. These prospects have attracted a number of companies in the grain and flour and oil businesses. In early 2014, Bidco Ltd, a leading edible oil and consumer products company in East Africa, announced its entry into animal feeds manufacturing. The company is initially targeting only the Kenyan market but hopes to later expand to the region through its existing distributor network. 27

In 2008 there were about 100 registered livestock feed manufacturers, and by 2013 the number had increased to about 150. Of these, twenty are also large grain millers, and eight are oil seed manufacturers. There are also nearly fifty registered raw material importers and six suppliers of feed premixes (mineral, vitamin and other mineral elements). In addition, there are hundreds of home/community-based formulators whose growth is driven by the desire by farmers to contain spiralling production costs.

3.3

Demand

As mentioned earlier, the poultry and dairy sub-sectors in Kenya absorb most of the feed. Both subsectors are based on intensive production systems and located in high potential rural and semi-urban areas, where commercial demand for milk and meat is high. In the lower potential rural areas, extensive livestock keeping is practiced, and livestock nutrition is rarely supplemented with concentrates. Fig 4:

Aquafeeds: Aquafeeds was first introduced in Kenya in 2009 when the GOK initiated the Economic Stimulus Program (ESP), a program that aimed at regenerating the economy following the slump resulting from the 2007/2008 post-election crisis. The government allocated about Ksh 3 billion to promote fish farming across the country. The idea was quickly bought by the non–traditional fish farming regions. However, one key challenge that faced the implementation was the availability of aquafeeds. In the absence of established aquafeed manufacturers, fish farmers resorted to home-made feeds. Currently, some of the existing animal feed manufacturers are exploring investments in specialized manufacturing plants due to sustained demand.

28

3.4

Livestock feed business

Kenya has the largest animal feeds industry in the East Africa region, attributed to its growing and dynamic livestock sector. Like many other regional countries, animal feed is not given the importance it deserves. Animal feeds are produced as a milling by products such as maize bran, wheat bran, and rice bran. Most of the locally produced cereals are destined for human consumption. It is no wonder the consumption of feeds outstrips production. This means that there is still room in the market for new entrants to meet demand. Production of oil crops is also low; making it inevitable for the animal feeds industry to fill the raw material supply gap with imports. Currently the industry imports cereal bran, soya bean meal and oil seedcake mainly from Uganda, Tanzania and India. Ukraine by virtue of being a major source wheat imports is also indirectly a major supplier of wheat bran and pollard. Due to the political stability in Ukraine the industry is currently faced with a surge in prices for wheat bran and pollard. Most of the feed premixes (amino acids, minerals and vitamins) are imported from Israel and Western Europe, according to the State Department of Livestock. The following tables illustrate key raw materials import quantities and supplying countries. Table 5a: Supplying countries and key raw materials imported Kenya: Cereal Bran Imports, Main Sources: 2008 – 2013 Partner Country World Uganda Tanzania United States India

Unit

Quantity 2008

2009

2010

2011

2012

2013

10,942

35,213

35,245

55,246

58,842

26,097

7,582

28,795

33,310

38,610

44,597

14,165

3,358

6,418

1,935

16,636

14,150

11,683

-

-

-

-

93

195

-

-

54

21,371 16,787 2,587 1,996 -

18,125 11,867 2,459 1,892

17,170 8,848 6,511 1,783 27

25,574

37,616

29,535

T T T T T

Kenya: Soyabean Meal Imports, Main Sources, 2008 – 2013 World 8,814 9,493 15,092 India 7,790 9,492 9,124 Uganda 4,802 Netherlands 1,024 1,161 United States Kenya: Oilcake Imports, Main Sources, 2008 – 2013 World 46,974 54,848 50,368

29

Tanzania Uganda Source GTA

45,474 1,500

45,704 8,985

39,919 10,432

22,188 3,161

25,750 11,505

27,805 1,729

Kenya is also engaged in some import and export trade of feed and fodder with several of its trading partners. Table 5b: Supplying countries and key raw materials imported Kenya: Feed and Fodder Imports Main Source 2008 -2013 Partner Un 2008 2009 2010 country it World T 15,7 38,1 38,4 00 93 86 Uganda T 7,58 28,7 33,8 2 95 62 Tanzania T 6,16 7,76 1,93 2 1 5 China T 37 115 311 United T 780 532 830 Kingdom South T 290 301 616 Africa Turkey T 261 312 254 United T 17 20 64 States Singapor T 9 27 e Greece T 71 Netherla T 61 38 59 nds Kenya Feed and Fodder Exports, main destinations 2008 – 2013 World T 12,0 20,3 27,8 93 98 71 United T 11,3 18,7 26,7 Arab 01 65 90 Emirates Vietnam T Oman

T

Uganda

T

603 454

674

428

2011

2012

2013

62,9 33 41,6 10 16,8 86 1,42 3 926

64,2 81 45,5 97 14,1 50 1,00 0 809

32,0 77 14,4 93 11,7 43 997

573

548

710

244 73

323 261

525 349

304

275

341

144 73

258 97

322 299

31,8 21 25,9 58

57,8 14 44,0 83

64,0 08 50,9 29

432

9,88 2 2,64 6 652

5,77 8 3,83 2 2,79

4,32 7 434

975

30

Tanzania Rwanda Libya Egypt Zambia

T T

213

123 11

486 54

321 36

25

230 37

1 255 90 90 90 76

Source: GTA Poultry Feed  Most of the large-scale farmers mix their own poultry feed rations, while small-scale farmers have formed cooperative societies and opened feed mills.  The main ingredient of feed is cereals – especially maize and wheat, with soya and fishmeal used as sources of protein. In commercial feed, large variations in quality occur. Concentrates are available but very expensive.  The cost of feed increased by 450% in the period 2009–12 (KENPFA). The addition of 16% VAT to animal feed and no possibility to transfer higher production costs to the customers by higher meat prices pose a further challenge for the poultry industry.  Challenges the feed industry is facing this area include the poor quality and high cost of ingredients and concentrates; inadequate and hard-to-access mineral supplementation; the unavailability of local sources of vitamins, amino acids, and macro- and micro-nutrients; and frequent droughts.  The main local producers of poultry feeds are: Unga Feeds; Ngeca Feeds; Sigma Feeds; Belfast Millers; Wann Feeds; Pembe Millers; Mombasa Maize Miller; Chania Feeds; Ngae Feeds Nakuru; Uzuri Feeds Nakuru. Pigs Feed 









The main resources for feeding pigs are cotton seed cake and prairie meal, with gluten feed as a source of protein. Pigs are in competition with humans for maize, their main source of energy. Other energy sources include milled by-products such as the bran from wheat, maize and rice, along with maize grain, wheat grain and semi-refined oil. Limestone is the main local mineral source. Although there is no shortage of animal feed in Kenya, the cost is high and in some areas quality is not the best. Concentrates, for instance, are available but very expensive. The main feeds types manufactured are Pig Creep pellets for piglets, Sow & Weaners for breeders and Pig Finisher for fatteners. Sow & Weaner, which is preferred by most farmers, is produced in the highest volumes by most companies. Challenges facing this area include a poor quality and high cost of ingredients as well as concentrates; inadequate and hard-to-access mineral supplementation; unavailability of local sources of vitamins, amino acids, macro- and micro-nutrients; frequent drought. The main pig feed manufacturers import as source of protein are soya feed premix from Europe and India; sunflower and cotton cake from Tanzania and Uganda and fish from Tanzania. The following energy sources are imported especially in years when the country 31







experiences famine: maize from Tanzania and COMESA countries (in 2009, Farmer’s Choice imported maize from Argentina); wheat grain from Tanzania; rice bran from Uganda, vitamins, mineral supplements and trace minerals in pig feeds are imported from Europe. Many commercial pig farmers also grow food crops, the surplus produce or by-products which can be used to feed the pigs. This food source plays an important role in pig feeding, especially in free range and small-scale production systems. Crops and by-products include sweet potato vines, kales, cabbages, Napier grass, sugar cane cuttings, sugar cane tops, garden weeds, mangoes, tomatoes, oranges, avocadoes, peelings and market by products/ waste. The use of feeds such as cereal residues, cassava and potatoes has been shown to save up to 20 percent on feed costs for growing pigs and 50 percent for breeding pigs. Other byproducts include brewers waste, rumen contents and slaughter blood from slaughter slabs. These are either given to the pigs as is, or mixed with kitchen leftovers. Some farmers also cook the blood and mix it with ugali (cooked maize meal). Another source of feedstuffs for pigs is swill from schools, hotels and government institutions. Farmers around these institutions collect the leftovers to feed their pigs. Some institutions, especially schools and prisons, feed their own pigs with the available kitchen leftovers. The drawbacks are that the safety, amount and quality of feed is not guaranteed and pigs fed inadequate and unbalanced diets will have low weight gains.

32

Chapter Four: Animal Health 4.1 Introduction Animal health is among the leading priorities in animal productivity and must be guaranteed at all stages of production. Due to inadequate focus on animal health enterprises involving food animals have low returns on investment resulting in high poverty levels in animal producing areas. Poor health as well as poor nutrition is costing Kenya production. For the livestock sector to continue growing as expected health issues in the sector must be addressed. 4.2 Livestock Diseases Most the diseases that affect livestock in Kenya are mainly vector borne nature - spread by flies and ticks. Kenya’s tropical climate during the rainy season provides plentiful plant growth, but it also means great conditions for insect survival. As such, most cattle and goat owners treat their animals with insecticide sprays once a week. Some insecticides have become ineffective due to frequent use over the years. There are two main diseases that are of a major concern in the country. A continuous concern for the livestock sector is the reintroduction of contagious bovine pleuropneumonia (CBPP) from the north. Foot and Mouth Disease (FMD) is the other disease. Kenya is actually referred to as FMD country. FMD is endemic and annual outbreaks occur. The results of this disease is usually devastating especially small farmers’ livelihood. Although the commercial ranches vaccinate, many cattle in the pastoral community are not vaccinated. Government vaccination programs are in place to help limit the spread of FMD, but many times this falls short leaving many herds vulnerable. With the increasing density of wildlife in areas where cattle are kept, the incidence of tick-borne diseases is increasing due to a higher tick load. Other disease threat include:  Antrax : There are occasional outbreaks especially after droughts or severe floods, and blackleg.  East Coast Fever: is challenging with exposure and treatment and tick control as the only control strategies since the development of an effective vaccine so far has been without results.  Brucellosis in the dairy sector is on the increase and would require a control strategy  anaplasmosis,  theileriosis, and c  ontagious bovine pleuropneumoniae.  Pigs are confronted with a number of diseases of which African swine fever (ASF), foot-andmouth disease, and porcine cysticercosis are the most important The main challenge in regards to animal health is lack of information on basic animal nutrition and disease control, especially amongst small holder farmers. Livestock veterinarians are available to tend to health issues and administer vaccines. However, reaching levels of production with which they could take advantage of those resources is still a challenge. One of the areas that need improvement in the sector is the veterinary services. It is becoming more apparent in light of recurring bans imposed by importing countries that there is need to strengthen the services.

33

4.3 Policy and Legal framework Animal health policies were formulated on the assumption that the government would provide the majority of clinical services at subsidised rates. Despite the withdrawal of the government from veterinary services provision laws affecting the livestock sector remained unchanged and restrict the development of privatised and decentralised system. It is only in recent years that a veterinary policy was developed. The policy provides a definite roadmap for the development of animal resources in Kenya. It addresses animal health, production, welfare, food safety and trade among other concerns. It is hoped that with the new policy will provide an enabling legal environment for the private sector and investors as well.

34

Chapter Five: Value chain in the Livestock Sub-Sector 5.1 Introduction Before liberalization of Kenya’s livestock sector, cattle marketing were regulated by the Kenya Meat Commission (KMC), a monopolistic meat processing organization supplying major urban areas, and the Livestock Marketing Division (LMD), which carried out activities to facilitate organized livestock marketing in Kenya. With the support of the LMD, the KMC established several stock routes, holding grounds and quarantine areas to divide the country into disease prone and Disease-Free Zones. Additionally, meat and livestock prices were controlled, and other slaughterhouses were prohibited from entering major urban areas until 1977. Although the KMC collapsed after market liberalization in 1987/88, some of its stock routes are still functioning today, despite their dilapidated state. Major actors in the livestock and red meat value chains include input suppliers (forage producers), pastoral producers, livestock traders, ranch owners and managers, slaughterhouses, butcheries and processors, and meat packers and exporters. Important service providers (who are not technically value chain actors) include  Brokers, who negotiate between pastoralists and traders and play an important price-setting role,  Veterinarians and community animal health workers: The task of the Kenyan government’s Veterinary Department is to prevent and control animal diseases and pests in order to safeguard human health, improve animal welfare, increase livestock productivity, ensure high quality livestock and their products, and facilitate domestic and international trade. o The extension service is one of the priority instruments in the agricultural sector to help (resource) poor farmers to improve and increase their production within core poverty alleviation programmes. Whereas in the past the government was responsible for providing all of it at no cost to the farmers, extension is now broadly seen as a complex system whereby services are provided by a range of private and public sector entities. As a result of flaws in the public extension system, a third type of extension service has emerged: the privatized agricultural extension initiatives provided by private companies, NGOs, community-based organizations (CBOs) and faith-based organizations (FBOs). Private extension provision is generally skewed towards well-endowed regions and high-value crops.  Transportation providers. The value chains are primarily geared toward the domestic market, which consumes approximately 99% of domestic production. Small volumes of meat are exported by the newly re-operationalized KMC and private meat exporters who use KMC’s facilities for a fee, as well as Choice Meats (a subsidiary of Farmers Choice), while the exporter LTMS-K and individual ranchers export small volumes of live animals to Mauritius, Burundi (mainly goats), and Uganda.

35

Fig 5: Livestock value chain

5.2

Domestic Market: Wholesalers/ distributors and retailers

Wholesalers / distributors In Nairobi, most cattle are sold through markets in Dagoretti and Njiru markets. Kiamaiko, Njiru and Dandora markets are known for sheep and goats. Animals are purchased by slaughterhouses, butchers and retailers, then slaughtered and sold to butcheries throughout the city. There are also wholesale meat traders who purchase animals for slaughter and then distribute the meat to butcheries in the city. Others purchase animals, slaughter them and wait for meat buyers at the slaughterhouse. These wholesalers / distributors include KMC and markets e.g. Burma in Nairobi and Ongata Rongai. Grocery Retailers in Kenya Retail in Kenya is changing slowly from urban markets and hawkers into supermarket systems or modern retail. However, at the bottom end of the market the name of the game is still cost reduction and as cheap as possible. Supermarkets and high end butcheries mainly provide meat products to the high end markets. Low end is mainly served by low end butcheries. Milk of unknown origin and raw is still hawked, most of the meat seen in butchers’ windows bears veterinary stamps, but it is likely that considerable amounts go through informal channels to hawkers and the many cheap restaurants. Supermarkets sell both branded packed milk and dispensed milk that they have either bought directly from farmers or cooperatives. Table 6: Milk sold through formal channels in Kenya Year

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Quantities, mln ltrs

197.3 274.1

339.5

360.2

423.1

398.5

406.5

515.7

549.0

495.2

Kenya’s volume of milk processed per year through the formal channels has grown more than 150% in the decade to 2013. Source: KDB The supermarket trade opens opportunities for value addition through the preparation of cuts, ready to-cook or ready-to-eat products, branding and advertisement. The growing middleclass is becoming quality conscious and the supermarket sector is taking advantage of that. Trends Modern retail expansion in Kenya remains below 20%, with neighbourhood kiosks, market stalls and independent small grocers having a wider footprint. According to Euromonitor country report modern grocery retailers fiercely competed for strategic locations and customers as disposable incomes rose. Kenyan market has also attracted international interest, through direct investment, such as that by Walmart Game, Carrefour and Botswana’s Choppies. FDI has played a key role in promoting consumer confidence and spending as international brands entered the country to take maximum

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advantage of the retailing opportunity that Kenya presents. Some of the leading supermarkets that sell meat and dairy products are shown in the table below: Table 7: Leading supermarket outlets that sell meat and dairy products s in Kenya Supermarket Value Coverage Market Pricing Comment share segment Nakumatt 8% Major urban High end Retail Private Family owned towns nationwide Tusker 7% Major urban High end to Retail Private Family owned Mattresses towns middle end nationwide Naivas 4% Major urban High end to Retail Privately owned towns middle end nationwide Uchumi 3% Major urban High end to Retail Parastatal. towns middle end Experiencing nationwide challenges due to managerial issues. One of the oldest supermarkets Prospects There are huge prospects in the grocery retail industry which also supports the livestock sector. Rising disposable incomes, growing foreign investor confidence and continued government investment in the infrastructural development of roads and energy, as well as a growing shopping centre culture will be instrumental in promoting grocery retailers in Kenya. Export market Kenya’s exports of meat and meat products are small, constituting only 0.2-0.3 percent of the country’s export earnings. There are three major export abattoirs, of these only KMC slaughters significant numbers of animals for export. The other two Farmers Choice—which primarily processes pork for the domestic market, albeit with limited exports to the Middle East and Mauritius—and Hurlingham primarily target the domestic market, with minor exports on the side. In 2010, KMC begun slaughtering carcasses for export by air to UAE, Kuwait, Qatar, Saudi Arabia, Tanzania, Uganda, DRC, Sudan and Egypt. KMC slaughters export livestock on contract and delivers chilled carcasses to the airport. In one day, KMC may export approximately 20 MT, of which only 20 percent belong to KMC while the other 80 percent belong to private exporters. Most of the exports are sheep and goat carcasses.

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Dairy Industry In Kenya majority of the milk producers are small scale farmers. About 90% of the milk produced by smallholder milk producers sold through formal or informal channels, whereas the remaining 10% is retained for the own consumption of households and for feeding calves. The collection and bulking of raw milk from farmers is the first step in the marketing chain. Milk channelled onto the market is delivered through a diverse range of actors in the informal and formal chains, including collectors, transporters, and traders operating on the informal market, and collection agents, transporters or employees operating on behalf of the processing companies. Milk collection centres, also called “milk hubs”, facilitate this step. By the end of 2000 there were around 1,500 licensed informal milk traders in the country. Four main categories of traders are recognised by the KDB. These are producers, milk bars, mini-dairies and cottages. These traders pay an annual licence fee ranging from KShs 1,000 to KShs 5,000. According to the Kenya Dairy Board, only 34 processors were operational in 2004, processing 1,000,000 litres of milk per day. The cooperative is the most common structure for milk marketing. The role of the structure is to improve the efficiency of the value chain, capture for more value for farmers, and address the increasing demand in urban markets for value-added products through various retail outlets. In Kenya there were 337 cooperatives, supported by 344,000 members as of 2000 (Kenya DMP, 2010). Cooperatives provide a range of services to their members, including milk collection, cooling and distribution. They also supply inputs, provide services (artificial insemination and veterinary drugs notably), give access to credit, and deliver extension services. o Kenya has the most advanced and organised cooperative structures in the region, with some cooperatives processing and marketing value-added products such as the Githunguri and Limuru cooperatives. There are huge prospects in the dairy sector which has attracted both local and foreign investors. This rising interest in the dairy sector [particularly in the processed milk business is a response to the anticipated leap in demand for commodity, driven by rapid urbanisation, population and income growth.

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BUSINESS DAILY N SUMMARY

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Billionaire investors are queuing to pump big money into Kenya’s dairy industry, attracted by a rapidly expanding market whose size is expected to more than double in the next 10 years  Deepak Kamani is the latest deep-pocketed investor to target the dairy market with plans to build a fresh and powdered milk plant in Nyahururu.  Mr Kamani follows in the footsteps of Africa’s richest man Aliko Dangote of Nigeria who has announced plans to set up a factory in Kenya to produce dry milk for local and export markets.  French food group Danone last year acquired 40% stake in Brookeside and announced plans to help the company expand its product portfolio and reach in East Africa  The upcoming ventures are expected to intensify competition in a sector that is dominated by Brookside Dairies, a firm controlled by the Kenyatta family – which has been tightening its grip of the sector with a series of acquisitions in the past 5 years http://www.businessdailyafrica.com/Corporate-News/Investors-plan-to-pour-billions-into-dairyindustry/539550-2632030-15i55k4/index.html

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Pigs Sector There are livestock markets in all areas of the country, unlike for other livestock, there are no live pig markets in Kenya. Animals brought to market include cattle, sheep, goats, donkeys and camels but not pigs. Live pigs are traded on farmers’ premises. The farmer calls the trader, or traders visit the farmers, especially in the traditional free range systems where traders move from village to village looking for pigs. Farmer’s Choice Limited does not buy live pigs. Farmers transport live pigs to the factory and are paid according to cold dressed weight (CDW) after slaughter. Farmers buying weaner pigs get them from other farmers whose sows have farrowed. The few breeders provide breeding stock. The National Pig Breeding Unit at KARI, Naivasha used to sell breeding stock to farmers regularly but breeding was suspended in 2008. There is hope that it will be revived but for the time being there is no organized or regular sale of stock. In the meantime, there is a drive to organize pig farmers into groups and cooperatives able to organize and manage live pig trade markets.

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Chapter Five: Agriculture Machinery Agricultural mechanization is a key input in the agricultural sector production value chain. The main types of mechanization in the country include the use of human, animal-drawn and motorized machinery, implements and equipment. The Government in collaboration with the private sector have taken a lead in the development and promotion of mechanization in agriculture. This is inline with the Kenya Vision 2030 which advocates for increased land under agricultural production through agricultural The country has not operated with a clearly defined agricultural mechanization policy. This, together with the existing legislation framework has not sufficiently addressed agricultural mechanization challenges leading to the low level of agricultural mechanization in the country. The consequences have been environmental degradation, social and economic problems including deterioration in produce quality, low agricultural production and under-utilization of production plants such as in the animals feeds enterprises. The past agricultural reforms coupled with the increase in population have generally resulted in diminishing size of farm units which have negatively impacted on agricultural mechanization. Furthermore, this trend is expected to continue in the foreseeable future and hence it is imperative that the mechanization activities take cognizance of this fact. Production costs within the sector are still high due to high costs of inputs, poor and long marketing chains, low level of mechanization and high transport costs. The use of agricultural machinery has generally declined; the purchase of new machinery declined from an annual average of 1500 pieces 20 years ago to about 300 per year in the last 3 years. This has been due to the high costs arising from taxation and maintenance. The use of animal-drawn equipment such as ox-ploughs has also remained low due to their technological inappropriateness. Most of the farm equipment, machinery and spare parts are imported. Further, the increased reduction in farm size through sub-division makes the use of large machinery and mechanization of farming generally uneconomical. Land in the high- and medium-potential areas as well as in arid and semi-arid lands (ASALs) remains underexploited for agricultural production. Much of the available cropland remains under-utilized with smallholders using only 60 per cent of their land for agricultural production. To increase agricultural productivity and improve farming as a business, farmers need capital investment for infrastructure, value-addition technologies and general farm development.

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