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REPUBLIC OF KENYA

MINISTRY OF AGRICULTURE

STATUS REPORT ON KENYA COTTON SECTOR

ICAC PLENARY MEETING AT TASHKENT, UZBEKISTAN 23– 27 OCT 2017

COMPILED BY AGRICULTURE AND FOOD AUTHORITY – FIBRE CROPS DIRECTORATE OCTOBER, 2017

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TABLE OF CONTENT PAGE

EXECUTIVE SUMMARY 3

1.0 BACKGROUND 5

2.0 ANNUAL PRODUCTION STATISTICS AND CHALLENGES 7 2.2.1 BIOSAFETY IN KENYA 9 3.0 COTTON GINNING 11 4.0 THE TEXTILE AND APPAREL MANUFACTURE 14

7.0 MARKETING 16

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Executive Summary

Cotton is considered under the Vision 2030 and in the National Medium Term Plan as

one of the most important industries to implement the long term Arid and Semi-Arid

Lands (ASAL) development initiatives and industrialization strategy. It is among the

cash crops that thrive well in the country fragile ASAL regions where few other

economic opportunities exist.

In June 2015 Kenya launched its Industrial Transformation Program. This is a detailed

roadmap to the transformation of the industrial sector into a competitive sector through

promoting local production, improving regional market access and taking advantage of

global niche markets. This program has prioritized cotton, textile and apparel sub

sectors. Through the program, the country is aiming to achieve $ 1 billion in exports

from cotton – textile sector (i.e. fibre production, textile manufacturing and apparel

manufacture) while creating an additional 150,000 jobs by year 2019.

Agriculture and Food Authority (AFA) is projecting a production target of 100,000

hectares of cotton through efficient production schemes by 2021 from the current

30,000 hectares.

The government recognizes that cotton industry is governed by the global trade

initiatives under the WTO and it is paramount to compare its industry status quo with the

rest of the world by striving to instill global competitiveness in the sector. This

constituted the basis for the government to join the International Cotton Advisory

Committee (ICAC) as a full member 10 years ago, in June 2007. Kenya notes and

continue to advocate for a level playing field through fair cotton production, trade and

support systems in the domestic and in the international arena because it is only

through fair practices that countries will achieve sustainable industrialization goals

through measurable positive results from the Industry.

Under implementation are deliberate approaches to spur economic growth in this

important sector such as provision of policies that are sensitive to the value chain

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concerns. This report highlights the status of the country’s entire cotton value chain and

is presented as country statement to the 76th plenary meeting.

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1.0 BACKGROUND

1.1 Cotton production and marketing activities are mainly handled by private ginning

companies with the National Government being involved with policy direction that

aim to create an enabling environment for active private sector participation to

develop the sector.

1.2 In 2013, the legal framework that managed the sector was revised with

establishment of the Agriculture and Food Authority (AFA) through an Act of

Parliament, the Agriculture and Food Authority Act, 2013. Through the act, AFA

was established to regulate and promote agricultural commodities including the

cotton industry by seeing the implementation of the Crops Act, 2013. The Cotton

Amendment Act of 2006 was repealed thereby transforming the former Cotton

Development Authority into the present Fibre Crops Directorate.

1.3 Cotton co-operative societies and unions are being transformed to create six (6)

cotton production clusters countrywide to handle the primary activities relating to

cotton, i.e. production, marketing and farmers’ payment and processing.

1.4 Cotton research in Kenya continue being handled mainly by the newly

transformed Kenya Agricultural and Livestock Research Organization (KALRO)

1.5 Cotton is currently grown solely by small- scale farmers in more than half of the

total number of Counties comprising an estimated 40,000 growers

1.6 In the last 3 years production has stagnated at 5,000 metric tons as a result of a

severe drought compounded by the impact of fluctuating producer prices to the

farmers. In addition there has been remarkable shift in the location of production

emanating from competition with food crops and alternative cash crops in the

respective production regions resulting in reduced cotton acreages.

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1.7 The Government is giving targeted support to growers inform of free seeds to

increase production.

1.8 Kenya has good opportunities for the exploitation of Cotton Industry such as the

long experience in cotton production and processing; an already operational

value chain infrastructure right from production to garments; the country is

strategically placed and connected to the rest of the world through roads, rail and

water; and the access to Regional and other markets such as EAC and

COMESA

1.9 Enactment of legislations, such as the Public Officer and Ethics act and the

Counterfeit and Sub standards act all with a view to enhance good business

practices.

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2.0 Annual production statistics and challenges

Cotton is a source of livelihood to approximately 40,000 smallholder farmers with an

average yield rate of 572kg/ha. The country has a potential of 384,500 ha for production

from rain-fed and irrigated land that can be put under cotton cultivation. Currently less

than 10% of this area is under cotton crop. The commercial varieties grown in the

country are HART 89M & KSA 81M with a production potential of approximately 68,000

tons of lint. However the he country is realizing approximately 5,000 tons of lint which is

only 7% of this potential. The peak production of cotton was in 1984 when 13,000 tons

of lint was achieved.

Table 1: Seed Cotton & Lint Production & Market Trends (2012-2016)

YEAR 2012 2013 2014 2015 2016 Area (Ha) 25,540 21,182 24,322 28,627 28,700 Seed cotton Production (MT) 13,877 12,116 13,472 15,726 15,800 Yield (MT/ha) 0.55 0.57 0.56 0.65 0.55 Seed Cotton price (USD cents) 35 42 42 42 42 Lint Price (USD cents /Kg) 130 - 142.32 142 No. of Bales(185 kg Lint) 21,450 21,831 24,274 28,340 28,468 Lint Production (Tons) 4,000 4,000 4,500 5,200 5,200

Current production averages at 572 kg/ha compared to a potential of 2500 kg/ha. Main

causes are inadequate quality cotton seed; high cost of inputs; poor management of

pests; inefficient marketing channels; cheap imports including lint and dependence on

rain fed cotton production.

2.1 Challenges

I. Lack of funds for certified seed production and distribution system to the farmers;

II. Inadequate cotton research funding and investments in cotton research facilities

leading to low adoption of modern technologies;

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III. Small scale farming in marginal areas due to lack of capacity to invest in large

scale production (average < 1 HA.);

IV. Production in semi-arid areas that have low rainfall and prone to high incidences

of pests’ infestation demanding high level use of agrochemicals. Cotton is grown

in these areas because of land pressure in the high potential areas are used for

high value crops;

V. Lack of affordable credit for farmers to assess credit for timely land preparation

and access to other inputs;

VI. Production is by resource poor farmers who are unable to invest in large scale

production hence not benefiting from economies of scale;

VII. Un predictable cotton prices in the world market in addition to competition from

farmers of countries benefiting from subsidies;

VIII. Competition from level trading ground within the trading blocs with countries that

have better climatic conditions for cotton production;

IX. Weak farmer organizations denying them lobbying power for marketing and

access to most benefits;

X. The country is still producing conventional cotton and is yet to get involved in

commercial production using GMO technology.

2.2 Government Interventions:

I. Formation of 6 farmer clusters to lobby for their interests and for economies of

scale;

II. High yielding seed importation program through Public Private Partnership (PPP)

initiated in collaboration with Kenya Plant Health and Inspectorate Services

(KEPHIS);

III. Government is encouraging contract production in Irrigation schemes for large

scale production of cotton. New schemes being targeted especially with

devolution of the agriculture production

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IV. The Fibre Crops Directorate has been established to direct, coordinate and

regulate the Industry;

V. Research program for high yielding, pest and disease control and drought

tolerant varieties with higher fibre length, strength and ginning outturn have been

developed

VI. There is progress towards introduction of Bt cotton to mitigate on poor

management of pests with a view to increase farmers returns while conserving

the environment. In Kenya pest control activities take 32% of the production cost. Experiments on use of the technology indicated 20% reduction in pest

management costs.

2.2.1 Biosafety in Kenya

The Biosafety Act was formulated and operationalized in 2009 to pave way for

introduction of transgenic technology. This was followed by development of following

Biosafety regulations:

- Contained Use Regulations, 2011

- Environmental Release Regulations, 2011

- Import, Export and Transit Regulations, 2011

- Labelling Regulations, 2012

However on 21st November 2012 the ministry of public health put a ban on importation

of genetically modified foods in Kenya. This was a big blow to the commercialization

initiative since cotton is not just a fibre but also produces oil and animal feed. In 2017 a

petition on ban of GMOs for presentation to the Cabinet and is awaiting discussion with

positive indications that the ban will be lifted.

There are two (2) limited approved GMO projects in Kenya (Environmental Release

stage): Bt Cotton and Bt Maize for National Performance Trials (NPT). Currently a

taskforce on Bt is fast tracking of National Performance Trials and Environmental

Impact Assessment through;

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- Identification of sites where NPTs will be undertaken

- Undertaking site specific Environmental Impact Assessment (EIA) on identified

sites

- Identification of seed companies for seed multiplication

- Processing for NPTs seed importation is underway

Capacity

The country has adequate capacity to implement the technology.

The country under Kenya Agriculture and Livestock Research Organization (KALRO)

has over 30 trained personnel trained in GM technology.

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3.0 Cotton Ginning

3.1 Ginning Efficiency

Profitability of a ginning factory is dependent on its efficiency to recover lint from seed

cotton (Ginning out-turn-GOT). There are 5 operational ginneries in the country with a

GOT of 34% against a potential of 40% for the two commercial varieties. Other factors

such as power consumption, capacity utilization and labour input in processing also

affect production efficiency hence the profitability of the factories. All the operational

ginneries are operating at below 30% capacity utilization due to low seed cotton supply

and high has a labour input negating modern best practices. This situation has led to

closure of ginning factories from 22 in late 1990’s to the current 5.

The practice in Kenya is that ginners’ process seed cotton into lint and cotton seed.

The lint is sold to spinning factories while the seed is sold to oil and animal feed

manufacturers. Analysis show that earnings of a ginning factory and by extension to the

farmer can be tremendously improved through minimum integration of ginning factory to

include cotton seed milling. Factories are being encouraged to integrate their

operations.

3.2 Grading and Standards

Grading is done and enforced at the farm level and during primary processing at the

ginnery. Grading at the farm is visual based on colour (Grades A and B). This system

though subjective and has challenges in enforcement during seed cotton marketing

works well. Occasionally the regulator (AFA) is called upon to arbitrate on applicable

grades.

Apart from grading there is the challenge of lack of affordable cotton based harvesting

and packaging materials as recommended by the government regulating agency.

Farmers are improvising on harvesting materials to mitigate on contamination

challenges.

3.3 Cotton Classing

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Kenya has joined globally recognized quality standards to characterize its cotton

through instrument cotton classing. A cotton classing system has been developed and

is being implemented. The system determines actual quality of lint before offering to the

markets and is also being used for confirmatory analysis of bought fibre by textile mills

and to optimize their operations and efficiencies. The facility is carrying out fibre

analysis for research purposes (breeding). It is envisaged that at full implementation

growers will benefit from enhanced price derived from benefits of characterization of lint

and its traceability to the source. As good as this system appears, some of the ginners

are yet to voluntarily present samples for analysis.

3.4 Ginning Skills

Since 1980’s there has been no deliberate training of ginning personnel and operators

and the investors in the ginning sector rely on old technicians whose skills are not

updated to the current best practices and technologies. Skill training for technicians

would be expensive because the country lacks institutions for such training and training

of this cadre would require taking participants to countries where there are ginning

schools such as India, Turkey or China. An alternative would be to establish a

curriculum and a training school in the country

3.5 Challenges in Ginning

I. Unpredictable lint prices due to variation in the world prices;

II. Low utilization capacities of the ginneries due to low cotton production leading to

high cost of ginning;

IV. High cost of production factors mainly energy;

V. High cost of credit to enable ginners to promote cotton production to provide

adequate raw materials for their ginneries, purchase modern ginneries or

rehabilitate or modernize the existing ones;

VI. Lack of a supportive regulatory framework within the trading block of the

Common Market for Eastern and Southern Africa (COMESA) to support cotton

seed oil processing.

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3.6 Intervention

As a stop gap, a market linkage mechanism through contract production along value

chain is being promoted and encouraged to coordinate sale of seed cotton. A pricing

formula of seed cotton continue being implemented.

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4.0 The Textile and Apparel manufacture

4.1 Current status

The country textile sector can be divided into two sub sectors, namely integrated mills

and apparel manufacture. The sector is varied in terms of age, size, technology and

market outlets.

The spinning and weaving firms are large scale, while the garment manufacturers range

from large to micro enterprises. The large ones use industrial machines for mass

production while the small ones use electrical or foot powered machines.

With market liberalization in the early 1990s, there has been a decline in the

performance of the cotton textile industry due to influx of cheap textile products and

garments from other countries.

There are a number of mills, however only 3 are involved in cotton processing. In 2005

the installed capacity was estimated at 115 million square meters per year. Today there

are over 30 large-scale garment manufacturers mainly producing for export markets. In

addition there are several small and micro garment/apparel manufacturers in the

country.

The textiles mills are operating under-capacity spinning to produce cotton yarns,

weaving and knitting, dyeing, and making finished fabrics. Cost of milling varies widely

depending on the quality and origin of lint cotton used for the process. Textile mills

producing yarns and fabrics for export oriented companies (Export Processing Zones,

EPZs) tend to rely on imported fabric and lint.

The local textile manufacturing has failed to grow and integrate with our Export

Processing Zones (EPZs) due to the following reasons:

I. Cheap imports for both new and second hand cotton products

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II. Un-level playing field due to high subsidies by developed countries

III. High cost of capital

Despite the low performance and closures, the sector has a high potential. Currently

75% of domestic demand is imported while spinners oriented towards sale of yarns and

fabric for domestic oriented makes use 20% local lint and 80% imported lint. Current

mills capacity require 11,000 tons of lint annually though the country would require

37,000tons of lint to meet the annual local fabric demand of over 225.0 million square

meters.

In 2015 the country textile sector exported items worth $ 380 Million in addition to

creating employment.

4.2 Challenges in the textile sector

I. Challenges posed by international protocols from unfair competition that lead to

enormous cheap imports of textile products and garments from developed

countries with subsidies leaving little room for locally produced cotton products;

II. Competition from developed countries from subsidized products;

III. Inefficient technology along the chain which is not cost effective due to lack of

competitive credit schemes to support upgrading of technology;

4.3 Intervention

The Government through Export processing Authority is establishing an incubator

programme for small scale textile manufacturers

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5.0 Marketing

5.1Current status

The market has been fully liberalized and the trading of cotton products is now wholly in

the hands of the private sector.

5.2 Challenges

I. Influx of unregulated imported subsidized, and cheap lint and textile products

flooding the local market greatly distorting the price of Kenyan lint and textile

products;

II. Inefficient market information flow and market research leading to over

reliance on traditional markets;

5.3 Intervention

With Cotton classing system in place, draft subsidiary legislations have been developed

and important quality parameters determined by stakeholders so that prices of cotton in

future will be pegged on quality in order to promote production of high quality lint and

textile products.