agriculture and food processing in kenya world bank launch event

Agriculture and Food Processing

in Kenya

World Bank Launch Event

October 2015

1

Contents

Kenya’s agro-processing sector: Status and Opportunities

Current strengths

Recommendations to improve this sector

Challenges to overcome

2

Agro-processing in Kenya is a USD 3.25 Bn market, 40% of which is

manufacturing value-add

1 Based on GVA

2 Based on overall manufacturing

3 Production value based on FAO STAT – does not equal agriculture GVA

Source: Kenya Bureau of Statistics, COMTRADE 2013, FAO 2012, EUROSTAT

Domestic

production

(USD3 13.1 bn)

Imports

(USD 2.0 bn)

Raw consumption

(USD 9.5 bn)

Raw export

(USD 2.5 bn)

Raw consumption

(USD 1.1 bn)

Processing

value add

(USD1 1.3 bn)

Processing inputs

(USD 1.1 bn)

Processing inputs

(USD 0.9 bn)

Processed agro-

products market

Domestic market

(USD 2.75 bn)

Export market

(USD 0.5 bn)

40% of total value

of processed goods

is manufacturing

value-add

2013 industry revenue, Kenya

3

Agro-processing accounts for 3.2 % of GVA, 2.4% of employment,

and 8.5% of exports in Kenya

SOURCE: Source

8.04.9

6.0

Exports

0.5

0.1

0.2

18

Imports

88.7

0.1

6100% =

43.0

48.5

Livestock AgricultureOthers Crop processingAnimal processing

Exports and imports

% of trade, 2013

Employment

% of employment, 2013

GVA

% of GVA, 2013

100% = 37

GDP

3.0

22.6

6.0

68.2

0.2

5.7

0.4

Formal

employ-

ment

2.0

2100% =

Total

employ-

ment1

30.1

2.3

61.7

0.5

13.8

20

2.5

80.9

Bn USD M empl. Bn USD

SOURCE: Kenya Bureau of Statistics, COMTRADE 2013

1 Informal employment estimated for processing activities based on manufacturing sector informal employment share

Related sectors Focus

3.2% 2.4% 8.5%

4Source: FAO STAT 2012, COMTRADE

Sub-sector contribution, 2013, ‘000 tonnes

Share of processing is low in all product groups – fruits and

vegetables currently dominate processed exports

Ind.

crops

Live-

stock

Dairy

and eggs5,064

Meat 590

Sugar

cane5,823

Fruits &

vegetables13,722

Coffee,

tea419

-5

-2

-1

-1

-318

0

72

50

3

243

Processed

Un-processed

4,456

5,823

412

13,310

56

363

30

608

561

Raw vs. processing2 Trade balance

Product

category

Agricultural

production1

High-

value

crops

Ind.

crops

1 2012 data 2 Data estimated from trade data and industry interviews

5

Agro-related products account for more than half of Kenya’s exports

Source: Comtrade, Kenya Bureau of Statistics

73 (1%)

Animal and animal products 78 (1%)

Wood and wood products 99 (2%)

Raw hides, skins, leather & fur 104 (2%)

Plastics/rubbers 105 (2%)

Machinery/electrical 181 (3%)

Metals 229 (4%)

Footwear/headgear

Stone/glass 29 (1%)

32 (1%)

Miscellaneous 64 (1%)

Transportation

Chemicals and allied industries 340 (6%)

Textiles 426 (7%)

Foodstuffs 441 (8%)

Petroleum 962 (17%)

Vegetable products 2,630 (45%)

Combined

agro-related

products

account for

53% of

exports

Exports of goods

$million USD, 2013

6

However, there is untapped potential: only 16% of Kenya’s agricultural

exports are processed, lower than in peer countries

Source: Comtrade, 2013

USD per capita, 2013Agro-exports per capita

163

197 75

5693837729

Ethiopia

21

0 21

Uganda

32

1121

Tanzania

24

618

Nigeria

37

8

Kenya

16

Ivory

Coast

240

67

11

Indo-

nesia

108

15

South

Africa

158

Ghana

213

ProcessedUnprocessed

32 8 53 86 16 22 25 34 1

Processed (%)

Processing agricultural goods yields a ~70% increase in value on average

7

Vege-

tables

Fruits

Production and trade for top products, 2013

Pineapples and beans are the only high-value

crops that are currently processed and exported

SOURCE: SourceSOURCE: FAO STAT 2012, COMTRADE 2013

Avocados

Tomatoes

50

237

Sweet

potatoes

532

Potatoes 1,243

316

Beans

218

Mangoes 490

Bananas

Pineapples

Cassava

162

693

0

0

6

0

0

0

1

0

0

0

0

0

0

1

38

100

54

217

Processed

Raw

0

0

0

0

0

6,367

940

8,359

1,914

Mn USD

Exports

Product

category

Agricultural

production

Already developed exports

Potential for processed exports

Processing

share

Low

High

N/A

Low

N/A

N/A

Low

High

Low

Processed world

trade

Key takeaways:

Processing industry

is established in

beans and

pinapple

There are

processing

opportunities in

potatoes and

tomatoes, which

represent a large

global market

Bananas and

Mangoes have

substantial

production, but

insignificant

processed export

market

8

There is significant local opportunity to tap into the $3.8 billion agro-

imports market in East Africa

Source: Comtrade8

India: rice

Ukraine: wheat

Indonesia:

palm oil

Malaysia:

palm oil

Australia:

wheat

Top 5 import partners:

USD millions

▪ Indonesia 518

▪ India 406

▪ Malaysia 240

▪ Ukraine 144

▪ Australia 123

Key takeways:

▪ Kenya imports ~$1.3

billion of raw and

processed products

such as palm oil,

wheat, and rice

▪ Other countries in the

region import $2.5

billion worth of similar

raw and processed

products

▪ Kenya has not fully

capitalized on this

local and regional

opportunity

$ 100-250m

$ 250-500m

> $500m

9

0% 5% 10% 15% 20% 25%

Nigeria

Côte d’Ivoire

Uganda

Morocco

Botswana

Kenya

Egypt

Namibia

Mauritius

Zimbabwe

Ghana

Burkina Faso

Madagascar

Tunisia

Percentage of total agro-processed exports to the USA by country, 2010

US agro-processed imports (2014)

Kenya can increase its 4% share of the $111 billion US import market

Source: UN Comtrade

Grains and feeds

Cotton, tobacco,

and seeds

Livestock products

Horticultural

products

Oilseeds and

oilseed products

Sugar and tropical

products

USD 111 billion

10

Contents

Current strengths: Kenya’s comparative advantage

Kenya’s agro-processing sector



11

Kenya compares well to its neighbors in trade access and strategic

environment, but will have to improve on some key cost factors

Kenya

Tanzania Bangladesh

Ethiopia India

China

Uganda

Strategy criteria

Kenya’s

strategic

position

Labor

quality

Quality of

life

Ease of

doing

business

Financing

Political

stability

Market

access

Regulatory

environment

More favorable

Cost criteria

More favorable

Kenya’s

cost

position

Labor costs

Labor tax

costs

Property/

energy

costs

Logistics

costs

Corporate

tax costs

12

▪ Throughput demand is

expected to increase

significantly by 2020

▪ Massive port

infrastructure planned –

might outpace

expected demand

growth

▪ Competitiveness of

corridors will decide on

utilization of ports

Source: Press, World cargo news, Containerization intl., Southern Africa Trade Hub, Safiri, Transnet, Bus-ex, USAID, Worldbank,

DP Investor presentation

CONTAINERS ONLY

ESTIMATES

1 Twenty-foot container equivalent Unit

2 Throughput at Mombasa, without the new Lamu port which is planned to have three times Mombasa's capacity (planned for 2030)

3 Only Durban and Richardsbay are included

Current throughput

TEU1 ‘000

Total

Tanzania

Mozambique

South Africa

(Eastern)3

Kenya2

Planned capacity

by 2020 TEU1 ‘000

~33,500

~20,500

~1,200

~9,000

~1,600

~1,200Djibouti

Kenya possesses the advantage of a major East African port, but will

face competition from peers who are expanding capacity

~600

~900

~2,300

~4,600

~300

~500

Country

13

Contents




Current strengths

14

The main challenges agro-processors face are land access and

infrastructure

Challenges in agro-processing

▪ Land with good transport infrastructure is 2 – 8x more expensive

than in Tanzania, Ethiopia and Egypt

▪ Poor investment in infrastructure in agricultural areas serves as a

major roadblock for expansion of agro-processing activities

▪ Yields on fruits, vegetables, dairy, and meat are 30 to 50% lower

than global leaders due to smallholder inefficiencies, poor seed

quality and lack of irrigation

▪ Potato varieties are unsuitable for processing since historically,

seed focus has been on productivity and disease resistance but not

on suitability for processing

▪ Market links and information for farmers are lacking, and there is

poor alignment between processors’ demands and farmers’ supply

▪ Governance and arbitration institutions are needed to manage

contracts and ensure the security of supply from farmers

15

Key takeways

▪ Bad road network in

Kenya leads to

– Slow and costly

transportation

– Damaging of

product packaging

(especially for

palm oil)

▪ Transportation across

country borders is

therefore complicated

Only 10% of Kenya’s road network is classified as “good”

Source: Kenya Roads Board, Industry interviews

TotalPoor

161

91

Fair

54

Good

16

10% 34% 56%

Length of road network (km thousands)

Poor quality of roads is a constraint for packaged product processing

as packages are often damaged

% Share of total

16

Contents




Current strengths

17

Agricultural

production

Agro-

processing

Value chain

integration

Exp

ort

mark

et

foc

us

Do

mesti

c m

ark

et

foc

us

Infrastructure

development

Initiatives

We have identified key initiatives to drive processing

of domestically grown agricultural products Agro-processing focusAgricultural focus

Solution space

1 Based on potentials identified by large private sector players in horticulture

$100M

$80M

$500M

$200M

2

3

4

1

$180M

$80M $70M

6 7

5

8

$50M

Kenyan tea brand for exports1

Increased Kenyan coffee

production2

Potato processing for export3

Processing of high-value

horticulture e.g. mangos, passion

fruit1

4

Substitution of sugar imports

through productivity improvement

in sugar mills

5

Meat processing for growing

domestic market and export

market (long-term)

6

Dairy processing for growing and

informal domestic market and

export market (long term)

7

Develop cold chain infrastructure 8

18

We propose 4 strategic thrusts as the initial priority

for the agro-processing sector

SOURCE: Source

PRELIMINARY

Description

Potential (conservative estimate)

Employment

Employees

Investment

M USD

GDP

M USD

Big bets

Agropolis1

▪ 1-3 flagship projects to revitalize

and modernize the agro-industrial

sector

▪ Focus value chains: mangoes,

passion fruit, beans, peas,

cassava, potatoes

Mombasa

food hub2

▪ Agro-processing and logistics

center at Mombasa port serving

as a regional hub

▪ Importing, processing and

packaging of palm oil, wheat,

rice, etc.

Transact

ional

Integrated

value

chain

projects

3

▪ 3-5 agro-processing projects, led

by integrated players

▪ Focus areas:

– Revival of sugar industry

– Dairy hubs: cold chain

corridor

– Industrialized meat hub

Suppor-

ting

Kenyan

branding4

▪ Establishment of a Kenya tea

brand as a branding flagship

project

400-600

100-200

50-60,000

5-10,000

550-600

100-300 2-10,000 20-150

400-600 20-30,000 250-300

50-60

19

Key questions for discussion

▪ Do you agree with the solution space and recommendations?

▪ What could be Kenya’s niche in the global agricultural market?

▪ How can businesses better take advantage of trade agreements

like AGOA?

▪ What are the key capabilities and skills that we need to build in

the workforce?

▪ What are the critical infrastructure needs for this sector in

Kenya?

▪ How can businesses better capture the regional market?

agriculture and food processing in kenya world bank launch event

Documents