Agriculture and Food Processing in Kenya World Bank Launch Event
October 2015
Contents
Kenya’s agro-processing sector: Status and Opportunities
Current strengths
Challenges to overcome
Recommendations to improve this sector
1
Agro-processing in Kenya is a USD 3.25 Bn market, 40% of which is manufacturing value-add 2013 industry revenue, Kenya
Raw consumption (USD 9.5 bn) Domestic production (USD3 13.1 bn)
40% of total value of processed goods is manufacturing value-add
Raw export (USD 2.5 bn) Processing inputs (USD 1.1 bn)
Processing value add (USD1 1.3 bn) Imports (USD 2.0 bn)
Processing inputs (USD 0.9 bn)
Processed agroproducts market Domestic market (USD 2.75 bn)
Export market (USD 0.5 bn)
Raw consumption (USD 1.1 bn)
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
2
Agro-processing accounts for 3.2 % of GVA, 2.4% of employment, and 8.5% of exports in Kenya Related sectors
Others
GVA % of GVA, 2013 100% =
37
Livestock
Focus
Agriculture
Employment % of employment, 2013 Bn USD
2
100% =
Animal processing
Crop processing
Exports and imports % of trade, 2013 20
M empl.
6
100% =
18
Bn USD
48.5 0.1 61.7 68.2
80.9 88.7
5.7
43.0 6.0 2.5
30.1
22.6 13.8 3.2%
3.0 0.2
2.3 0.5
2.0 0.4
GDP
Formal employment
Total employment1
2.4%
8.5%
0.5 8.0 Exports
6.0 4.9
0.2 0.1
Imports
1 Informal employment estimated for processing activities based on manufacturing sector informal employment share SOURCE: Kenya SourceBureau of Statistics, COMTRADE 2013
3
Share of processing is low in all product groups – fruits and vegetables currently dominate processed exports
Un-processed Processed
Sub-sector contribution, 2013, ‘000 tonnes Product category
Agricultural production1
Ind. crops
Coffee, tea
Highvalue crops
Fruits & vegetables
Ind. crops
Sugar cane
Meat
1 2012 data
243
363 419 3
56
50
13,310 13,722
72
412 0 5,823 5,823
590
Livestock Dairy and eggs
Raw vs. processing2 Trade balance
-318
561
-1
30
-1 4,456
-2
5,064 608
-5
2 Data estimated from trade data and industry interviews
Source: FAO STAT 2012, COMTRADE
4
Agro-related products account for more than half of Kenya’s exports Exports of goods $million USD, 2013 Vegetable products
2,630 (45%)
Petroleum
962 (17%)
Foodstuffs
441 (8%)
Textiles
426 (7%)
Chemicals and allied industries
340 (6%)
Metals
229 (4%)
Machinery/electrical
181 (3%)
Plastics/rubbers
105 (2%)
Raw hides, skins, leather & fur
104 (2%)
Wood and wood products
99 (2%)
Animal and animal products
78 (1%)
Transportation
73 (1%)
Miscellaneous
64 (1%)
Footwear/headgear
32 (1%)
Stone/glass
29 (1%)
Source: Comtrade, Kenya Bureau of Statistics
Combined agro-related products account for 53% of exports
5
However, there is untapped potential: only 16% of Kenya’s agricultural exports are processed, lower than in peer countries Processed (%)
Agro-exports per capita USD per capita, 2013 32
8
53
86
16
22
Unprocessed
Processed
25
34
1
24 18 6
32 21 11
21 0 21
240 213 158
163 197
75 83
77
108 15
93
16 Ivory Coast
Ghana
South Africa
Indonesia
67
56 11
37 29 8
Kenya
Nigeria
Tanzania Uganda Ethiopia
Processing agricultural goods yields a ~70% increase in value on average Source: Comtrade, 2013
6
Pineapples and beans are the only high-value crops that are currently processed and exported
Already developed exports Potential for processed exports
Production and trade for top products, 2013 Raw
Mn USD Product category
Agricultural production
Potatoes
1,243
Beans Vegetables
Sweet potatoes Tomatoes Avocados
532 316 237
Low
693 490
Exports
Processed world trade
1 1
8,359 217 54
N/A
0 0
Low
0 0
940
6,367 38
0
Low
6 0
0
0 0
0
218
Low
Pineapples
162
High
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
0
0 0 0
Cassava
Key takeaways:
0
N/A
Fruits
SOURCE: Source SOURCE: FAO STAT 2012, COMTRADE 2013
Processed
High
N/A
50
Bananas Mangoes
Processing share
0 100
1,914
7
There is significant local opportunity to tap into the $3.8 billion agroimports market in East Africa > $500m
Ukraine: wheat
$ 250-500m $ 100-250m
India: rice Key takeways:
▪ Kenya imports ~$1.3
Indonesia: palm oil Malaysia: palm oil
Top 5 import partners: Australia: USD millions wheat ▪ Indonesia 518 ▪ India 406 ▪ Malaysia 240 ▪ Ukraine 144 ▪ Australia 123 Source: Comtrade
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
8
8
Kenya can increase its 4% share of the $111 billion US import market Percentage of total agro-processed exports to the USA by country, 2010 Morocco Tunisia Côte d’Ivoire
US agro-processed imports (2014)
Mauritius
USD 111 billion
Madagascar Nigeria
Sugar and tropical products
Kenya Namibia
Horticultural products
Burkina Faso
Livestock products
Egypt
Cotton, tobacco, and seeds
Ghana
Oilseeds and oilseed products
Botswana
Grains and feeds
Uganda
Zimbabwe 0% Source: UN Comtrade
5%
10%
15%
20%
25% 9
Contents
Kenya’s agro-processing sector
Current strengths: Kenya’s comparative advantage
Challenges to overcome
Recommendations to improve this sector
10
Kenya compares well to its neighbors in trade access and strategic environment, but will have to improve on some key cost factors Kenya
Cost criteria
Uganda
Ethiopia
India
Tanzania
Bangladesh
China
Strategy criteria
More favorable
More favorable
Labor quality
Labor costs
Financing Labor tax costs Market access Kenya’s cost position
Property/ energy costs
Kenya’s strategic position
Regulatory environment
Political stability Logistics costs
Corporate tax costs
Ease of doing business Quality of life
11
Kenya possesses the advantage of a major East African port, but will face competition from peers who are expanding capacity ESTIMATES CONTAINERS ONLY
Country Djibouti
Kenya2
Current throughput TEU1 ‘000
Planned capacity by 2020 TEU1 ‘000 ~1,200
~600
~1,600
~900
▪ Throughput demand is expected to increase significantly by 2020
▪ Massive port Tanzania
Mozambique South Africa (Eastern)3
Total
~20,500
~500
~300
~1,200
infrastructure planned – might outpace expected demand growth
▪ Competitiveness of corridors will decide on utilization of ports
~2,300
~9,000
~4,600
~33,500
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 Source: Press, World cargo news, Containerization intl., Southern Africa Trade Hub, Safiri, Transnet, Bus-ex, USAID, Worldbank, DP Investor presentation
12
Contents
Kenya’s agro-processing sector
Current strengths
Challenges to overcome
Recommendations to improve this sector
13
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 14
Poor quality of roads is a constraint for packaged product processing as packages are often damaged Only 10% of Kenya’s road network is classified as “good” Length of road network (km thousands) 10%
34%
% Share of total
56% 161
Key takeways
▪ Bad road network in Kenya leads to
– Slow and costly
91
transportation
– Damaging of product packaging (especially for palm oil)
▪ Transportation across
54
country borders is therefore complicated
16
Good
Fair
Source: Kenya Roads Board, Industry interviews
Poor
Total
15
Contents
Kenya’s agro-processing sector
Current strengths
Challenges to overcome
Recommendations to improve this sector
16
We have identified key initiatives to drive processing of domestically grown agricultural products Agricultural focus Solution space
Agro-processing focus
Initiatives 1 Kenyan tea brand for exports
Agricultural production
Agroprocessing
Value chain integration
Infrastructure development
2 Increased Kenyan coffee production
Domestic market focus
Export market focus
3 Potato processing for export $80M $500M 3
8
1
2 4
$100M
$200M
$50M
4 Processing of high-value horticulture e.g. mangos, passion fruit1 5 Substitution of sugar imports through productivity improvement in sugar mills
7
6 $80M
$70M 5
$180M
6 Meat processing for growing domestic market and export market (long-term)
7 Dairy processing for growing and informal domestic market and export market (long term) 8 Develop cold chain infrastructure
1 Based on potentials identified by large private sector players in horticulture 17
We propose 4 strategic thrusts as the initial priority for the agro-processing sector
PRELIMINARY
Potential (conservative estimate) Description
▪ 1
Agropolis
Big bets
▪ ▪
2
Mombasa food hub
▪ ▪
Transact 3 ional
Integrated value chain projects
Supporting
Kenyan branding
4
SOURCE: Source
▪
▪
GDP M USD
Employment Investment Employees M USD
1-3 flagship projects to revitalize and modernize the agro-industrial sector Focus value chains: mangoes, passion fruit, beans, peas, cassava, potatoes
400-600
50-60,000
550-600
Agro-processing and logistics center at Mombasa port serving as a regional hub Importing, processing and packaging of palm oil, wheat, rice, etc.
400-600
20-30,000
250-300
3-5 agro-processing projects, led by integrated players Focus areas: – Revival of sugar industry – Dairy hubs: cold chain corridor – Industrialized meat hub
100-300
2-10,000
20-150
100-200
5-10,000
50-60
Establishment of a Kenya tea brand as a branding flagship project
18
Key questions for discussion
▪ ▪ ▪
Do you agree with the solution space and recommendations?
▪
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?
What could be Kenya’s niche in the global agricultural market? How can businesses better take advantage of trade agreements like AGOA?
19