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Socio-economics Outlook of the Dairy Industry in Kenya



Kenya’s gross domestic product (GDP) is projected to decelerate substantially in 2020 due to the negative impact of the COVID-19 (coronavirus) pandemic. Economic growth projection remains highly uncertain and the outcome will hinge on how the pandemic plays out internationally and within Kenya, along with policy actions taken to mitigate the situation. The latest World Bank Kenya Economic Update (KEU) predicts growth of 1.5 percent in 2020 in the baseline scenario, with a potential downside scenario of a contraction to 1.0 percent, if COVID-19 related disruptions in economic activity last longer. This is from the earlier projection of the GDP growth of 5.7% before the pandemic emerged.

The dairy industry in Kenya and the region just like in many other sectors has suffered because of the pandemic. Currently there are no figures regarding production trends as the first case in Kenya was reported 60 days ago but a number of challenges are being felt by the producers and stakeholders in the industry. Some of the challenges being felt across the dairy value chain are:


i. Poor market prices (though there has been an incentive from the Kenyan government to boost prices from March 2020). Milk prices are usually dictated by milk processors.

ii. Loss of markets for smallholder producers who supply hotels, learning institutions, market dairies which have been affected by lockdowns and closures.

iii. Disruption in regional supply chains: feed raw materials emanating from imposed regional border restrictions leading to high feed prices.

iv. Highly fragmented dairy value chains leading to higher overhead costs because most people (including dairy farmers) are now focusing on mitigating against Covid 19

v. Lower investments in the sector as people are concentrating on other priorities because of their decreased normal incomes as a result of effects of the pandemic.

vi. Lockdowns and curfews which have impacted on lifestyles and consumer behavior hurting food production systems including the dairy sub sector.

Outlook

The dairy sector is very vibrant in Kenya and the East African region. It employs millions of men and women. Kenya is the highest per capita consumer of milk in Africa.

The future outlook of the industry will depend on how the pandemic will behave in the short and medium term both locally, regionally and globally.

It will also depend on the crucial government interventions and restrictions which have been guided by how the pandemic is behaving on a daily basis among other factors.

This regards to the number of new infections, the disease spatial/geographic spread, the number of recoveries and deaths.

These interventions have seen the infections, recoveries and deaths being lower than what was predicted by medical experts earlier on.

The government has continued to make interventions to cushion the populace amid the pandemic so as ease the effects especially to the low income and vulnerable population and also businesses.

These includes income tax relief to both lower and higher income earners, social protection and cash transfers, reduction of base corporate income tax, reduction of turnover tax rate on small businesses and Value Added Tax (VAT). These are in addition to various health guidelines being put in place by the Ministry of Health and other state and non-state agencies periodically.

Some of these interventions which have specifically been directed to the dairy industry include:

i. Introduction of new regulations meant to cushion the dairy farmers whose fortunes have been on a decline in recent years.

ii. Introduction of a 10 per cent import levy on dairy products to protect the industry from unfair competition.

iii. Publishing of stringent dairy industry regulations to stop dumping of dairy industry in the country

iv. Revised regulations which will bar processors from in Kenya in setting and adjusting farm gate prices at will whether there is shortage or glut.

v. Introduction of the dairy draft regulations which is currently under discussion with the stakeholders.

These interventions are geared to protecting the dairy produce actors and make the industry more vibrant and also increasing of the incomes even to the dairy smallholder who account for over 80 per cent of the milk producers.

Other interventions which in my opinion can be looked into; is the introduction of the Post Covid 19 Economic Stimulus Package (PC19-ESP) specifically directed to the agricultural sector as the biggest contributor to the regional country’s GDPs. This should come in form of financial grants, low interest loans, subsidized inputs, lower taxation in the industry so us to stimulate production for both local and export market.

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