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Fact Sheet - TEGEMEO AGRICULTURAL MONITORING
AND POLICY ANALYSIS PROJECT KENYA

PROJECT BETWEEN TEGEMEO INSTITUTE/EGERTON UNIVERSITY AND
MICHIGAN STATE UNIVERSITY FUNDED BY U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT
KENYA TIME PERIOD: APRIL 1996 - CURRENT


Cooperating Institutions

Tegemeo Institute/Egerton University (Tegemeo)
Kenya Agricultural Research Institute (KARI)
Agency for International Development, Kenya Mission (USAID/Kenya)
Department of Agricultural Economics, Michigan State University (MSU)

Researchers Involved

Tegemeo Institute/Egerton University Researchers and Support Staff: Dr. Mary Mathenge, Director; Dr. Mercy Kamau, Dr. Lilian Kirimi, John Olwande, Raphael Gitau, Francis Karin, James Githuku, Mary Bundi, Mercy Mutua, Joseph Opiyo, Nthenya Kinyumu, Kevin Onyango, Joyce Makau, and Millicent Olunga

MSU Faculty and Staff: Thomas Jayne (Co-Principal Investigator), Melinda Smale (Co-Principal Investigator), and Margaret Beaver

Kenya Agricultural Research Institute Staff: Lawrence Mose, Daniel Karanja, and P.W. Maingi

MSU Graduate Students: Miltone Ayieko, Jordan Chamberlin, and Milu Muyanga

USAID Partners: Mervin Farroe and Julius Kilungo

Objectives of the Research and Policy Outreach Activities

The collaborative partnership between the Tegemeo Institute for International Development (Tegemeo) and Michigan State University's Department of Agricultural Economics (MSU) has three primary objectives:

1. to build local Kenyan capacity in the design, implementation, and analysis of household-level data collection for policy analysis and priority-setting purposes;

2. to provide baseline information and subsequent monitoring of smallholder production patterns and crop mix, input use, marketing behavior, measures of farm productivity, farm and off-farm incomes, food purchases and consumption, and other basic household-level information necessary to assess the impacts of changes in the agricultural policy environment on selected socio-economic and regional groups in Kenya; and

3. to identify strategies for promoting the productivity of smallholder agriculture, growth in smallholder real incomes, and food security. The research/policy analysis focuses broadly on three themes:

a. analyzing the effects of alternative national agricultural marketing, pricing, and trade strategies on commodity trade flows, smallholder welfare, producer and consumer price levels, and household food security;

b. identifying strategies to promote productivity growth and competitiveness throughout the entire food system, through the strengthening and coordination of markets -- most notably for commodities, inputs, and finance, in a sustainable manner; and

c. identifying strategies to promote commercialization and raise smallholder real incomes through public and private investments that raise rural productivity as well as reduce the cost and instability of staple food in deficit areas.

One key premise of the TAMPA project was that Kenyan policy makers and analysts lacked access to a representative picture of farmer, consumer and trader behavior and welfare. The last government published report (from the Central Bureau of Statistics Agricultural Survey) on the agricultural sector was based on data from 1992, before the implementation of key agricultural sector reforms. In the absence of up-to-date information on how rural and urban households were responding to the reforms, much of the policy discussion in the mid-1990s in Kenya was on the basis of conventional wisdom about the way that the rural economy worked.

Starting in 1997, Tegemeo Institute and MSU have conducted and analyzed large household-level surveys and trader surveys which have begun to provide a more objective vantage point for discussions on agricultural policy and poverty reduction strategies. The TAMPA household data have been made available for wide use by other users and researchers in Kenya. In more recent years, and with this newly-acquired empirical base of information, Tegemeo has expanded its outreach activities, and has attempted to foster a process of dialogue and consideration of empirical findings among the stakeholders in the agricultural sector.

For over a decade now, Kenya's agriculture and the national economy continue to perform poorly. Agricultural productivity is low and declining, and its competitiveness in both domestic and export markets has worsened. As the pace of globalization picks up with the implementation of the trading rules of the Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC), and World Trade Organization (WTO) to which Kenya subscribes, the survival and profitability of Kenya's agriculture will require marked improvement in productivity and competitiveness. This poses a major challenge for agricultural policy. At the same time, poverty has been increasing and deepening. Although agriculture provides about 25% of the nation's gross domestic product, a further 25% of GDP is derived from agricultural services such as transportation, processing, and marketing. Seventy-five percent of the population is directly or indirectly employed in agriculture. Poverty reduction, therefore, is dependent on marked improvement in agricultural productivity and growth. This growth must have a direct impact on household income. The need for reliable information and data based on empirical research and sound analysis for policy decision making is even greater and more urgent than ever before.

Research Approach

Methods

The project emphasizes the monitoring and assessment of smallholder welfare through household-level data, collected annually or in some cases, biannually. The first survey, implemented in 1997 and containing 1,548 households, was designed to obtain nationally- and provincially-representative baseline data on household indicators in each of Kenya's provinces containing significant crop cultivation. A second survey, revisiting a subset of 615 of these households, was completed in October 1998. A third survey round, revisiting the full sample of households visited in 1997, was implemented in June 2000. This panel data set provides the ability to track changes in household behavior and welfare in numerous areas of the country over a three-year time frame. Four additional surveys have been implemented in 2002, 2004, 2007, and 2010.

Various analytical approaches have been utilized under the project to suit the research objectives presented above. Please refer to the research output section of the Web page (http://www.aec.msu.edu/fs2/kenya/index.htm) for project reports, which contain details on methods specific to each study.

Research Issues

Current knowledge gaps about the behavior of smallholder households hinder the identification and adoption of empirically-based food policies and targeting programs to promote food security and productivity growth. By closing these knowledge gaps through the household-level information, the proposed project provides the empirical foundation to inform future government policy, donor programs, and NGO activities related to raising smallholder productivity and real income growth and food security.

Several key research activities undertaken to date have included:

Activity #1: Analysis of farmer production patterns and their determinants.

This activity has been important for understanding how food price stabilization programs, trade controls, and changes in marketing margins associated with liberalization, would affect farm production and marketing incentives in various regions, and substitution effects between crops. Household level data has also enabled the project to identify factors associated with household agricultural productivity. This information has been important in the task of identifying the key constraints on smallholder productivity growth and strategies required to relieve them.

Activity #2: Analysis of interactions between food markets and cash crop production.

Emerging evidence indicates that there are strong economies of scope between food and cash crop production. Cash crop promotion has often been associated with the successful coordination of input delivery, credit, and crop sale for food crops. However, there has been little effort to date to comprehensively review and identify, based on a wide range of case studies, how donors and governments would actually promote such synergies.

The reliability and efficiency of food markets critically affect farmers' willingness to forego food production in favor of higher-valued cash crop and activities. If food markets do not make reliable supplies of food available at tolerable prices, farmers' may not exploit the potential opportunities for increased incomes and foreign exchange that higher-valued cash crops may provide. This activity has been important in identifying how production of higher-valued crops and nonfarm activities has responded to changes in the price and stability of food supplies.

We are also beginning to learn more about constructive and meaningful ways by which the private sector can configure its operations in the post-liberalization environment to promote smallholder agricultural productivity. Recent research is showing that there are a wide variety of arrangements through which private marketing and processing firms have related to smallholders, each differing in their level of investment and support of smallholder production. The findings indicate that there are major differences in performance (i.e., intensity of input use, crop productivity, and smallholder incomes) across different types of cash cropping arrangements involving private firms and smallholders. The more successful cash cropping arrangements between smallholders and private firms have a markedly positive effect on food crop productivity and smallholder incomes. This emerging empirical work is beginning to strongly indicate that commercialization of smallholder agriculture, featuring high-valued cash crops, may have major spillover benefits for food crop productivity.

However, the ability to capture these synergies appears to depend crucially on how the private sector configures its operations vis à vis smallholders. The emerging evidence indicates that the ultimate impact on smallholder productivity differs according to the ability of the private sector and the state to craft institutional/contractual arrangements that contribute to mutual win-win situations for both farmers and the marketing firms. These arrangements cover items such as the level of infrastructural investments made by firms in support of smallholder production, farmers' access to credit and inputs, contractual and enforcement mechanisms that allow the firm to recover its credit and inputs extended to farmers, the process that determines the level of prices and price risk borne by farmers, and strategies to maximize processing capacity utilization. The private sector and governments in Africa are still learning in the post-reform environment about what kinds of arrangements are sustainable and potentially productive enough to justify risking large capital outlays. A major task for future research is to understand better how successful commercialization arrangements linking smallholders and marketing/processing firms have been structured so that their successful ingredients can be replicated and incorporated more broadly into commercialization strategies in other regions.

Activity #3: Policy-related impediments to agricultural productivity growth in Kenya.

The main hypothesis of this research is that a smallholder's ability to further increase crop productivity and commercialization will require a further shift into high-valued crops and more intensive use of productivity-enhancing inputs. However, there are two key processes at work that impede this transformation. First, a key problem with intensifying crop production relying only on domestic demand is that they suffer from inelastic demand (beyond some point of saturation of the domestic market). This will make sectors relying only on domestic demand vulnerable to large price swings/risks and declining returns if production capacity is geared-up only for limited local markets. This underscores the importance of developing wider market outlets with regional and international markets, and calls for greater focus on developing the infrastructural investments and market linkages with the wider world, which will increasingly involve the participation of bigger firms with deeper pockets, and market-friendly investments by governments.

The second force impeding the transformation to a more commercialized higher-valued crop sector in Kenya is the high cost of food-the price of maize is currently about US$200 per ton in most areas. If food markets are unreliable and impose high costs on rural consumers, then smallholders' (especially the resource-constrained ones) will have little incentive to shift to high-valued crops and make their families dependent on unreliable food markets to acquire their residual food needs. Important policy barriers are still in place that exacerbate this situation (e.g., the current import tariff on maize in Kenya). The key point here is that reducing costs and risks in the food system is a precondition to support transformation and productivity growth through specialization into high-valued crops.

In light of these considerations, this activity has been designed to identify the major policy factors contributing to high food prices in Kenya, and conduct simulation analyses of the effects of removing these policy constraints. Analytical issues have included the impact of permanently removing the maize import tariff on maize price levels; effects on cropping patterns and potential substitution into higher valued commodities; and the net impact on smallholder farm revenue and food expenditure patterns.

Activity #4: Commodity and input sub-sector studies (e.g., horticulture, maize, livestock, pyrethrum, etc.) to identify strategies to promote the development and performance of the agricultural system in Kenya.

These commodity-subsector activities have been designed to assess the performance of various commodity and input systems in Kenya, identifying major constraints and bottlenecks that hamper system performance based on insights from household-level and market-level data analysis. The activity has examined interrelationships between input supply, production, distribution, processing, consumption, and pricing to assess the broader implications of food pricing, marketing, and stabilization policies for the development of the food system.

Activity #5: Poverty monitoring and poverty alleviation strategies.

The Kenya government, in conjunction with its development partners, has embarked on a poverty reduction plan as expounded in the Poverty Reduction Strategy Paper (PRSP). Various donors and NGOs also have initiated efforts to reduce poverty. However, much of the discussion on poverty in Kenya is undertaken with very little empirical data about the nature and causes of poverty at the micro household or village level. This means that the poverty dialogue is couched in very general terms that do not allow for clear measurement of poverty or the effects of poverty alleviation strategies. Tegemeo and MSU have begun work on the measurement and definition of poverty in rural Kenya. This involves undertaking participatory poverty assessments combined with analytical survey data generated through household and enterprise level questionnaires. The resulting data can be analyzed to yield categories of households based on variables such as income, major economic activities, and access to various social amenities including infrastructure. By explaining differences in the level of poverty across households, this analysis may provide important insights for the development of poverty reduction strategies in Kenya.

The government and most NGOs involved in poverty alleviation will be implementing poverty reduction programs beginning in year 2001. Using data generated under TAMPA I, MSU and Tegemeo are currently adapting and improving methods, referred to here as income proxy models, first developed in Mozambique to estimate household incomes and income components through the use of easy-to-collect proxy variables. These methods also allow the tracking of household assets index meant to track household wealth. By the end of TAMPA I, MSU and Tegemeo had fully developed the models and was finalizing supporting procedures that will allow the generation of statistically defensible estimates of household incomes and income components within two months of data collection, and at a small fraction of the cost of collecting and processing full income surveys. By lowering the cost of this work, these methods will allow government, donors, and other interested parties to monitor these variables more closely over time. These methods provide regular insight as to how the rural economy is evolving. Having this information from a representative sample on a regular basis, rather than every 3-4 years, should help government and donors design and adapt policies and programs that are more attuned to the real needs of rural households.

An additional component of these household monitoring surveys will be the monitoring of perceptions and opinions on key issues of agricultural and rural development policy. Such information has already proven extremely valuable in national policy discussions. Representative and timely information on how the public views key economic issues would make the public's views more transparent, and would make it more difficult for policy positions to be taken that in fact are not supported by most Kenyans. Moreover, the survey results can be stratified by education level, region, income level (due to the use of income proxy models), and other characteristics that can be found to distinguish between peoples' perspectives. Depending on sample size, there may be a possibility of discrete choice analysis to identify factors associated with citizens' feeling one way or the other about a particular issue. This kind of research and dissemination has in other countries proven extremely useful in policy discussions.

Activity #6: The effects of adult death on agricultural production and household behavior in rural Kenya.

Analysis is nearing completion on household-level panel data for 1997 and 2000 to assess the effects of adult death on agricultural performance and household behavior. Of the 1,440 households that were enumerated in both the 1997 and 2000 surveys, about 7% of them incurred a death of a family member between 16 and 55 years that was stated as disease-related, between June 1997 and June 2000. Fixed-effects models are being run to estimate the effects of adult death in the household on household demographic patterns, farm production and income, non-farm income, and other changes in household behavior. Analysis on this topic is clearly important given the prevalence of HIV-AIDS and other causes of death in rural Kenya.

Activity #7: The role of rural labor markets in rural poverty alleviation.

For many years, Kenya has been undergoing a process of subdivision of smallholder land parcels. The result is that today, smallholders in the lowest land quartile own on average only 0.1 acres per capita, while those in the top quartile average about 2.7 acres per capita (KAMPAP data). Households with 0.1 acres per capita cannot possibly sustain themselves through agriculture, and must depend substantially on off-farm income, including wage labor. Rural labor markets are thus crucial to poverty alleviation in Kenya, yet little empirical analysis has been done regarding these markets. Types of rural employment available, wage rates, and factors influencing wage rates are some of the issues to examine.

This research topic will first use the 1997 KAMPAP and 2000 TAMPA data sets to critically describe land allocation and the role of rural wage labor in smallholder income strategies, including how this role differs among income-rich and income-poor households, and between land-rich and land-poor households. It also will examine how the role of wage labor changed for these households between the two periods and assess the extent to which rural labor markets have contributed to poverty alleviation. Finally, it will identify specific strategies that the government could adopt to increase wage labor opportunities in rural areas and especially to increase the access of poor households to those opportunities.

Research Implementation

Collaborative research between Egerton University, MSU, and KARI began in April 1997 under the Kenya Agricultural Monitoring and Policy Analysis Project (KAMPAP). Research between Egerton and MSU continued in January 1999 with the second phase of research, under the Tegemeo Agricultural Monitoring and Policy Analysis (TAMPA) project. This phase of activities under the TAMPA project is funded to April 15, 2001.

The proposed project stresses the "joint-products" approach, whereby research findings, local training and capacity building, and dissemination of policy implications to decision makers are all joint outcomes of an ongoing applied research process. Activities have revolved around three principal axes:

1. Collaborative Research. Consistent with the "joint product" approach, Tegemeo, KARI, and MSU collaborate to provide input into the design of the research program.

2. Capacity Building. The opportunity for analysts at Tegemeo, KARI, and MSU to develop research capacity and skills in the process of undertaking collaborative analysis is an important goal of the "joint products" approach.

3. Policy Dialogue. The project emphasizes ongoing dissemination of policy-relevant research results. Methods used to achieve this goal include: (a) stakeholder workshops, in which a broad range of commercial interests in a particular commodity subsector are organized to discuss researchers' analysis and policy implications; (b) more formal conferences and workshops; (c) dissemination of interim reports on key results to relevant government agencies, USAID, and other Kenyan and donor organizations to help inform discussion on agricultural production, marketing, and trade policy; (d) presentation of results at parliamentary meetings and other government policy fora; and (e) contribution to broad local understanding by presenting project findings in local Kenyan fora including newspapers, magazines, and through other local media.

A more recent approach taken under the TAMPA project has been to increasingly conduct outreach and policy dialogue activities through stakeholder meetings and participation in internal government discussions on key commodity policy issues. In some cases, Tegemeo has acted as vehicles through which various stakeholders have contributed to policy papers and other documents drawn by government. The directors of such organizations have periodically disseminated important draft policy documents to Tegemeo for comments and suggestions, which are then passed back to the directors. This process is designed to provide informal assistance to government policy makers in a low-key way, which in some cases enables policy makers to draw upon Tegemeo's work to a greater extent than would otherwise be the case.

Another area where Tegemeo is concentrating its effort to influence policy is that which involves education and sensitization of policy makers. Tegemeo has organized seminars and workshops with the parliamentary committee such as the Agriculture, Lands and Environment committee. In these meetings, parliamentarians are exposed to research findings estimating the potential gains or the negative effects of certain policies that are usually under consideration before such issues are presented to the floor of parliament for discussion. So far, Tegemeo has made presentations on maize, coffee, tea, sugar, and cotton at such parliamentarian meetings. Prior to the presentations to parliamentary committees, Tegemeo concentrated on organizing seminars for parliamentarians from areas producing certain commodities. Seminars have been held with the parliamentarians from the coffee and maize growing areas.

Recently, the government has requested that Tegemeo participate in the formulation of a Rural Development strategy to complement the development of the Poverty Reduction Strategy Paper currently being formulated. Tegemeo is contributing to both documents. Tegemeo is also assisting the private sector contribute to the debate on the ongoing consultation to finalize the poverty reduction strategy paper.

Tegemeo and MSU have also written several articles in the print media that touches on key policy issues relating to both producers and consumers. Articles have appeared in the Daily Nation, East African Standard, the People, the East African weekly newspaper, Market Intelligence bi-weekly magazine, and others. These articles have solicited public debate as evidenced by letters to the editors in these same newspapers, effectively opening up key policy issues to mainstream consideration and debate.