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UNCLAS SECTION 01 OF 07 NAIROBI 001122 
 
SIPDIS 
 
STATE FOR EEB/TPP/ABT/ATP JANET SPECK AND EEB/IFD/OMA 
STATE ALSO FOR AF/E AND AF/EPS 
STATE PLEASE PASS USTR BILL JACKSON AND USAID/EA 
TREASURY FOR VIRGINIA BRANDON 
COMMERCE FOR BECKY ERKUL AND USITC RALPH WATKINS 
STATE PLEASE PASS DEPARTMENT OF LABOR FOR BOB SHEPARD, SUDHA HALEY, 
AND MICHAEL MURPHY 
AGRICULTURE FOR USDA/FAS/OFSO FRANK LEE, USDA/FAS/OCBD PATRICIA 
SHEIKH, USDA/FAS/OCRA CHUCK ALEXANDER, AND USDA/FAA RON VERDONK 
LONDON, PARIS, ROME FOR AFRICA WATCHERS 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: EAGR ECON EAGR EFIN ELAB PGOV KE
SUBJECT: RESPONSE: IMPACT OF RISING FOOD AND AGRICULTURAL COMMODITY 
PRICES - KENYA 
 
REFS: (A) STATE 39410  (B) FAS NAIROBI GAIN REPORT KE8012 
      (C) NAIROBI 1100 (D) NAIROBI 1044 (E) NAIROBI 0970 
      (F) NAIROBI 0521 (G) NAIROBI 0681 (H) NAIROBI 0405 
      (I) NAIROBI 0358 (J) NAIROBI 0353 (K) NAIROBI 0352 
      (L) NAIROBI 0336 (M) NAIROBI 0192 
 
NAIROBI 00001122  001.4 OF 007 
 
 
SENSITIVE BUT UNCLASSIFIED.  PLEASE PROTECT ACCORDINGLY.  FOR 
INTERNAL USG DISTRIBUTION ONLY. 
 
¶1.  (U) This message responds to ref A request for Mission Kenya's 
analysis on how rising food and agricultural commodity prices are 
affecting Kenyan society.  As instructed, it also lists post's 
recent cables on this matter. 
 
------------------------------ 
CONTEXT OF KENYA'S FOOD CRISIS 
------------------------------ 
 
¶2.  (U) Kenya's agricultural sector enjoyed robust 7% growth in 2007 
and 6.1% growth in 2006, with leading export sectors, notably 
horticulture, earning millions of dollars in foreign exchange. 
However, as described in previous post reporting (refs B-M), two 
months of ethnically-charged political violence, following a hotly 
disputed December 27, 2007 presidential election, disrupted 
transportation links and farm and business operations in Kenya. 
Worst hit was the country's bread basket in the upper Rift Valley, 
where thousands of predominantly Kikuyu farmers and dairymen had 
their properties ransacked before being expelled.  A January 21-24 
assessment conducted by the World Food Program (WFP), Food and 
Agriculture Organization (FAO), and Ministry of Agriculture 
concluded that as many as 52,500 farm families in the Rift Valley 
were displaced.  In Western Province 40% of farmers were displaced. 
According to a Ministry of Agriculture preliminary report, 98,000 
farmers and their families were thrown off their land.  The Kenya 
National Federation of Agricultural Producers (KENFAP), an umbrella 
organization for 1.4 million farmers, estimates that 80% of Kenya's 
1.5 million farmers were affected by the violence in some way.  As a 
consequence, Kenya will require increased food imports and food 
assistance at a time when global food prices are rising and its 
foreign exchange earnings are falling due to a major drop-off in 
tourists. According to the Kenya Tourist Board, there were 
approximately 134,000 tourist arrivals in 1Q 2008, a figure far less 
than half the projected 315,000.  Earnings are expected to dip 23% 
in 2008 to $811 million. 
 
---------------------------------- 
Staple Shortages Imminent in Kenya 
---------------------------------- 
 
¶3.  (U) Because of the displacements and disruptions in the 
agricultural sector, KENFAP agricultural analysts worry that Kenya 
may suffer a food shortage in late 2008/early 2009.  They predict a 
significant shortfall in this year's corn harvest.  In their 
estimation, government stockpiles of maize held by the National 
Cereals and Produce Board (NCPB) and an expected 2007-2008 harvest 
of three million tons are only sufficient to meet domestic demand 
for the next seven months.  Agriculture Minister William Ruto 
assured the public on April 23 that food stocks of 3.8 million bags 
of cornmeal would suffice through August 2008.  (Normally around 5 
million tons, NCPB stocks fell to 2.07 million tons by April 1, 
depleted by provisions given to Kenya's 350,000 displaced persons.) 
 
NAIROBI 00001122  002.2 OF 007 
 
 
However, because of the instability, many farmers in the upper Rift 
Valley were unable to work their fields ahead of this year's "late 
rains."  Ministry of Agriculture Permanent Secretary Dr. Romano 
Kiome said April 23 that less than 50% of the arable land in the 
north Rift Valley had been prepared for planting.  Some 100,000 
hectares might not be tilled this planting season.  General 
insecurity is making farmers leery of working their fields or 
letting their harvested corn dry out.  Upwards to one million bags 
(90,000 tons) of corn are believed to be left on fields, 
inaccessible to farmers, buyers, and millers.  Another 300,000 tons 
of corn ready for harvesting went unpicked.  According to the Rift 
Valley Province Director of Agriculture Leonard Ochieng Nambuya, 
some 1.9 million bags of maize were destroyed just in his province. 
One unconfirmed estimate claims 2.3 million bags were destroyed 
during the post-election chaos. 
 
¶4.  (U) Kenya Cereal Growers Association CEO David Nyameino warns 
that a food shortage is imminent, thus Kenya will likely have to 
import substantially more corn and wheat in 2009 to satisfy demand. 
According to the Eastern Africa Grain Council, Kenya already imports 
of 60% of its wheat requirement, 75% of its rice requirement, and, 
depending on the size of its corn crop, as much four million bags of 
cornmeal.  Nyameino announced in late March 2008 that Kenya will 
likely mill 21 or 22 million 90-kilo bags of maize this year, down 
sharply from a typical 34 to 36 million bags, against an average 
yearly consumption of 32 million bags.  (In 2007, Kenya harvested 34 
million bags.)  Prices are rapidly reflecting the shortfall in 
supply.  In December 2007, a bag sold for KSh1,000 ($16.15); by late 
March that same bag was going for KSh1,400 ($22.60).  As the 
country's staple food, maize is a telling barometer for food 
security and affordability.  Before the crisis, a two-kilogram bag 
of milled maize flour cost KSh50 ($0.80).  In Nairobi, it now goes 
for KSh80 - nearly $1.30; in Kisumu and other western cities it 
costs KSh120 or $1.95. Most analysts concur with Nyameino that Kenya 
will become a net importer of corn meal in 2009, forecasting that 
corn production will dip between 20%-30% in 2008-2009. 
 
¶5.  (U) Representatives of the Regional Agricultural Trade and 
Intelligence Network (RATIN) also predict Kenya will become a net 
importer of maize in 2009.  RATIN forecasts a 50% decline in 
agricultural production.  The network doubts that NCPB stocks will 
sustain the nation until the next harvest.  Even then, production 
will be down considering the dismal purchase of corn seeds by 
farmers in Kenya's corn belt.  Given this scenario, maize is fast 
becoming expensive.  The most recent FAO survey shows that prices of 
cereals such as maize have been increasing mainly due to inadequate 
rains and the displacement of farmers in key growing areas of Kenya 
during the recent violence.  The survey reported that the price of a 
ton of maize maintained a relatively stable price between $199 and 
$202 within the period of May to September 2007 but began to rise 
gradually between October-December to an average of $211.  There was 
a further rise to $219 a ton in January. 
 
¶6.  (U) The wheat harvest is also expected to experience a big 
downturn.  Key grain-producing districts, namely Uasin Gishu 
Trans-Nzoia, and Lugari, will witness a serious decline in crop 
production.  The Agriculture and Rural Development Group (ARDG) 
predicts grain production in 2008 will fall as much as 40% below 
average.  An estimated 207,000 tons of grain in the fertile Rift 
Valley were destroyed during the violence.  Kenya requires about 
three million tons of grain per year.  Production is expected to 
 
NAIROBI 00001122  003.2 OF 007 
 
 
fall short by about 930,000 tons.  Kenya's total wheat requirement 
for milling into flour is around 900,000 tons per year, but Kenya 
farmers produce only 300,000 tons.  About two-thirds of Kenya's 
wheat requirement is imported.  Thus the increase in the price of 
wheat is having a significant negative impact on price.  Making 
matters worse there is a 60% duty on imported wheat flour and a 35% 
duty on wheat grain.  The tax charged per ton of flour is $178. 
 
--------------- 
Fears of Famine 
--------------- 
 
¶7.  (SBU) Analysts with USAID's Famine Early Warning System 
Information Network (FEWS NET) and the Government of Kenya's Arid 
Lands Resource Management Project (ALRMP) during a February 12 Kenya 
Food Security Meeting reported a "bleak food security situation 
throughout the country," especially in the Maasai rangelands.  Only 
the eastern pastoralists' area is in good shape.  Conversely, there 
is evidence of high malnutrition in the northwest pastoralists' 
area.  In what was their most worrisome appraisal, the analysts 
estimate that less than 10% of the land in Kenya's grain basket, the 
Rift Valley, has been prepared for planting.  By now, 60% of the 
land would have normally been tilled.  With respect to conditions in 
northern and northeastern Kenya, they blame severe water shortages 
for rapid loss of pasture.  In the coastal and southeastern 
lowlands, they calculate that 60% of the maize crop has been lost 
with food insecurity exacerbated by rising food and commodities 
prices. 
 
¶8.  (SBU) In mid-February, KENFAP declared that Kenya's food 
security is set to worsen.  Fifty-seven members from various 
agricultural sub-sectors from the country's eight provinces warned 
in an advertisement that food prices are soaring because of the 
political impasse.  Expressing their concerns according to regions, 
the agricultural reps said Nairobi is experiencing spiraling milk, 
maize flour and vegetable prices, which have increased 50% to 100%. 
Those from Western Province complained about the displacement of 
about 40% of farmers from their farms and the burning of food in 
stores.  Nyanza Province's major problem, they said, remains blocked 
roads and destroyed bridges, leaving it cut off from the rest of the 
country.  In Rift Valley Province, farmers are faced with high costs 
in production inputs.  Coast Province is dealing with hotel closures 
and the lack of horticultural produce due to supply interruptions. 
Eastern and Northeastern Provinces are confronted with decreasing 
food stocks; there are fears that the two provinces might not 
receive enough rainfall, threatening the fragile food security which 
characterizes both.  Livestock marketing has been hampered by 
insecurity and high transportation costs. 
 
¶9.  (SBU) In contrast to the dire RATIN report, an April 17 "Kenya 
Food Security Update" by FEWS NET, ALRMP, and the World Food Program 
(WFP) concluded that there would likely be only a 15% reduction in 
2008-2009 maize production because of the unrest and below average 
rainfall in some areas of Kenya.  A December 2007 "short rains" 
assessment revealed that some areas of the country received less 
than 75% of normal rainfall, thereby placing at risk an estimated 
840,000 pastoralists in the arid and semi-arid lands of northern 
Kenya.  In its April 14, 2008 revised emergency appeal for Kenya, 
the UN warned that if food assistance is not rendered to these needy 
people, severe malnutrition, particularly among children under five 
years of age and among pregnant and lactating mothers, could occur. 
 
NAIROBI 00001122  004.2 OF 007 
 
 
 
------------------ 
Costly Cultivation 
------------------ 
 
¶10.  (U) In the wake of the political upheaval, Kenyan staple crop 
farmers are struggling to purchase higher priced fertilizers, 
herbicides, insecticides, and diesel fuel.  The cost of land 
preparation by tractors has skyrocketed 95% from $53/hectare to 
$103/hectare.  A 50-kg bag of di-ammonium phosphate fertilizer has 
more than doubled in price from KSh1,650 ($26.50) to KSh3,800 
($61.30).  In some locales, it now goes for KSh4,000 ($64.50). 
According to an early April 2008 FAO review, the average cost of 
grain production per hectare has risen by 49% since January from 
$196 to $293.  The Kenya Cereals Growers Association estimates that 
the high cost of farm inputs will result in reduced grain production 
of between 30% and 40% in 2008.  (Note: Kenya imports between 
450,000 to 500,000 tons of fertilizer every year.  Kenya's 
fertilizer bill in 2008 is expected to hit KSh12 billion/$193.6 
million, significantly more than its usual KSh8 billion/$129 million 
annual tab.  End Note.) 
 
¶11.  (SBU) Dairy farmers, too, have suffered.  Last winter, Kenya's 
dairy industry appeared on the verge of becoming a significant 
foreign exchange earner, with prospects of lucrative sales of 
powdered milk and other dairy products to South Africa, Egypt, the 
Arab Gulf states, and Malaysia in the offing.  In 2007 Kenya 
exported 13.9 million liters of milk, mostly to neighboring Uganda 
and Tanzania.  Now, officials from Land O'Lakes, Brookside Dairy, 
Spin Knit Dairy, New Kenya Cooperative Creameries (KCC), and other 
milk producers bemoan the loss of Rift Valley dairy farms and 
creameries, destroyed by looters. 
 
¶12.  (SBU) As a result of the mayhem and theft of dairy cows, milk 
production is down over 20%, according to the Kenya Dairy Board 
(KDB).  Two major milk processors have closed.  Unable to get their 
raw milk processed, farmers have had to dump milk.  The Minister of 
Livestock Development Mohammed Kuti reported in mid-April that Kenya 
dairymen lost an estimated 140,000 high quality dairy cattle and 
suffered additional damages approaching KSh1.1 billion ($17.75 
million).  The industry lost an estimated KSh1 billion (over $16 
million) just in January 2008, when production fell from 36.4 
million liters in December 2007 to 28.4 million liters.  KCC 
Chairman Matu Wamae reports his company faces a deficit of over 
200,000 liters per day and is unable to meet both local and 
international demand. 
 
¶13.  (SBU) KCC director Kipkorir Menjo acknowledged February 13 that 
low milk deliveries "threaten the future of external markets for our 
products."  According to the KDB, annual production in 2007 was 3.74 
billion liters, up 4.2% from 2006.  Because of the violence, the 
daily milk intake in the formal sector shrank from 1.2 million 
liters in December 2007 to 850,000 liters in January 2008, a drop of 
over 29%.  (Note: There are an estimated one million smallholder 
dairy farmers in Kenya.  The dairy cattle industry with an estimated 
cattle population of 3.5 million head accounted for about 4% GDP in 
¶2007.  End Note.) 
 
¶14.  (SBU) Kenya Dairy Board Chairman Reuben Cheshire commented to 
the press in early February that the violence had even interfered 
with breeding programs and access to animal feeds, which could 
 
NAIROBI 00001122  005.2 OF 007 
 
 
result in a long-term decline of milk production.  He said 
protracted violence would jeopardize the livelihoods of Kenya's 
almost one million dairy farmers.  Even with the reconciliation 
deal, a Land O'Lakes representative foresees a long-term reduction 
in milk production because of the number of dairy cattle stolen or 
slaughtered and disruptions in the provision of artificial 
insemination services.  Worst hit dairymen will likely default on 
their loans since they are unable to deliver milk.  Some may elect 
to start slaughtering their cattle to raise money. 
 
------------------------------- 
Additional Agricultural Agonies 
------------------------------- 
 
¶15.  (U) Adding to Kenya's agricultural woes are setbacks in rice 
production and meat exports.  In mid-April the UN Office of 
Humanitarian Affairs (OCHA) reported that a fungus known as "Rice 
Blast" had destroyed 5,600 hectares of rice in Central province - 
equivalent to 20% of annual output.  As a result, Kenya will have to 
increase its rice imports at a time when producing countries are 
restricting exports.  According to an OCHA spokesperson, "This risks 
worsening Kenya's food insecurity and makes import of additional 
quantities even more expensive.  It is a fresh blow for this 
country."  Before the chaos, a 2-kg bag of rice sold for KSh245 or 
$4; it now costs KSh325 or $5.25. 
 
¶16.  (U) More bad news came on April 21 when Livestock Minister Kuti 
announced that the EU had cancelled Kenya's annual meat quota of 
4,000 metric tons following confirmed reports that PPR (peste des 
petits ruminants) had infested and killed thousands of goats and 
sheep.  In Samburu District alone, 50,000 sheep and goats succumbed 
to PPR.     Dr. Kuti said nearly three million sheep and goats were 
at risk if proper vaccination is not done.  In a statement the 
press, the chairman of the Kenya Veterinary Association, Dr. 
Christopher Wanga, said "if nothing is done soon, the losses will be 
enormous."  He called for disease control measures to be undertaken 
in 80% of the country.  In late April, Kenya Veterinary Department 
disease control deputy director Dr. Bernard Mugenyo acknowledged to 
stave off PPR his department would need to vaccinate about 7.3 
million animals at a cost of KSh800 million ($13 million). 
 
End Context. 
 
-------------------- 
(U) SURVEY RESPONSES 
-------------------- 
 
¶A. DEMAND: In the wake of the January-February violence, consumption 
patterns have definitely been affected, but we expect middle and 
upper class Kenyans (who can afford to do so) to continue purchasing 
favorite staples like corn meal and corn oil.  However, with nearly 
50% of the Kenyan population living on less than $1 per day, most 
Kenyans will find it increasingly difficult to put food on the 
table.  Kenya will need food assistance to feed large numbers of 
people in its arid and semi-arid northern and northeastern regions. 
Our OFDA/DART team expects that the country's 350,000 IDPs will be 
dependent on food assistance for some time.  Kenya may hence become 
more receptive to biotechnological ways of boosting crop yields and 
improving food security. 
 
¶B. SUPPLY: As explained above, the post-election turmoil impinged 
 
NAIROBI 00001122  006.2 OF 007 
 
 
significantly on this year's growing season.  Agriculture Minister 
William Ruto admitted April 23 that the political unrest had more to 
do with food price hikes and shortages than escalating fuel costs. 
The government's stockpile of emergency maize reserves will suffice 
for 2008.  Thereafter, to feed its people, Kenya will be compelled 
to import corn and a greater amount of wheat. There is no likelihood 
that Kenya will use food crops for non-food purposes, such as 
bio-fuels; but jatropa cultivation in arid areas has been proposed 
for bio-fuel production. 
 
¶C. ECONOMIC IMPACT: Kenyan consumers are now confronted with higher 
prices for virtually everything off the farm.  In March 2008, prices 
for food, which is weighted at 50% of household expenses, were 
almost 30% higher than in March 2007 (YOY).  Kenya's consumer price 
index (CPI) jumped 8.8% in January 2008, with seasonally adjusted 
average annual inflation up to 10.5%.  Annual inflation hit 19.1% in 
February and then set another record (21.8%) in March.  Kenya's CPI 
rose 14.5% since the end of December, amounting to the biggest 
quarterly jump since the severe drought of 2006.  In the Lake 
Victoria city of Kisumu, where the worst looting and destruction 
took place, prices for eggs, potatoes, onions, and other staple 
foods have doubled or even tripled since the election. Sugar, which 
retailed for KSh65 a kilo at the beginning of the year, went up to 
KSh90 before stabilizing at KSh80. 
 
¶D. POLITICAL IMPACT: Kenyans appear to be so preoccupied with simply 
making ends meet while pleading that their political leaders resolve 
their differences, they do not have the time or energy to protest 
rising commodity prices.  (In the 1990s, Kenyans endured rapid 
inflation in food prices without rioting, and they remain peaceful 
this time, too.)  Farmer associations have appealed to the new 
Minister of Agriculture William Ruto to do something about the cost 
of farm inputs.  In response, Ruto announced in mid-April that the 
government would subsidize the cost of fertilizers.  In an effort to 
jawbone down prices, Ruto also declared that it was unconscionable 
for fertilizer producers to charge raise charges over 100% more for 
a 50-kg bag of fertilizer. 
 
The Cereal Growers Association and the Cerel Millers Association 
have asked the Finance Ministry to waive the duty on wheat as part 
of an effort to reduce bread prices, which since January 2008 have 
increased 13% largely in reaction to the dramatic increase in the 
cost of imported standard milling wheat from $234 per ton in January 
2007 to $430 in January 2008.  At the 12th annual meeting of the 
Cereal Growers Association, growers said they could live with a $50 
per ton duty.  CGA Chairman Hugo Wood told the press this duty would 
suffice to protect Kenyan wheat farmers.  To date, efforts to zero 
rate the high duties on corn (50%), wheat (35%), and rice (75%) have 
been futile. 
 
¶E. ENVIRONMENTAL IMPACT: Hungry Kenyans, among them IDPS, have not 
hesitated to defy authority and illegally chop timber for firewood 
and charcoal, cultivate crops, and herd cattle on public lands. 
Displaced persons and impoverished internal migrants have foraged on 
protected forest reserves in the Mau Forest and on Mt. Elgon.  Over 
the past year, there have been serious clashes between landless 
peasants and the authorities (Kenya Armed Forces, Forest Service, 
and Kenya Wildlife Service). 
 
¶F. GOVERNMENT POLICY RESPONSE:  The government is providing food to 
350,000 IDPs and nearly 2 million Kenyans in the country's arid and 
 
NAIROBI 00001122  007.2 OF 007 
 
 
semi-arid regions.  By April 24, the GOK and World Food Program 
(WFP) had distributed 8,566 metric tons of food through the Kenya 
Red Cross Society.  Of this amount, USAID provided 4,834 metric 
tons.  The Kenyan government vows to subsidize the price of 
fertilizer, specifically calcium ammonium nitrate (CAN), to ensure 
that crop yields to do not decline.  The government has earmarked 
KSh1.5 billion ($24.2 million) to purchase fertilizer in bulk to 
ensure its availability.  It has also obtained grants totaling 
KSh4.6 billion ($74.2 million) from the World Bank and the 
International Fund for Agriculture Development (IFAD) to help 
rebuild the dairy sector. 
 
Agriculture Ministry Ruto announced April 23 that he would form an 
inter-ministerial task force to review the food situation and come 
up with mitigation strategies before the NCPB stocks are exhausted. 
On April 23 Ruto appealed to the USG for 1.5 million bags (or 
135,000 metric tons) of white corn to supplement Kenya's national 
grain reserves through August 2008.  (Note: To date, in order to 
avoid any GMO controversy, the USG has provided only cornmeal.  End 
Note.)  In addition, Ruto said he would press the Kenya Seed Company 
to reduce the cost of seeds by 30% to 40% as a way of easing the 
cost of farm inputs. 
 
According to the Tegemo Institute, a branch of Kenya's Egerton 
University engaged in agricultural economic research, the government 
is working on plans to harmonize tariffs on staple foods in line 
with those of other East African Community members.  For instance, 
Kenya's current import duty on wheat is 35% compared to 10% for 
Uganda and Tanzania.  If realized, this reduction would make it 
easier for importers to bring in wheat and other commodities to meet 
local demand. 
 
The government also plans to make certified seeds more accessible by 
putting more emphasis on affordability rather than profitability. 
Thus, the Kenya Seed Company will no longer operate as a commercial 
enterprise but as a service deliverer, according to Agriculture 
Minister Ruto.  To date the government has distributed 1,200 metric 
tons of seed and 100 metric tons of fertilizer in advance of the 
long rains season. 
 
Through Kenya's development plan entitled "Vision 2030," the 
government plans to invest more in agriculture - especially large- 
and medium-scale irrigation projects in the Tana and Athi River 
basins.  In the short term, though, there are immediate plans to 
resettle IDPs, most of whom are farmers so they can get back to 
their farms and take advantage of the August short rains to improve 
food production.  To ease their transition back into farm life, the 
government will provide farmer IDPs with free fertilizer and seeds. 
 
¶G. POST PROGRAMS AND POLICY PROPOSALS: FAS has repeatedly approached 
the government recommending that it lower and eventually abolish its 
tariffs on imported grains as a way to reduce bread prices 
dramatically.  USAID/KENYA and USAID/OFDA has joined with WFP in 
providing food assistance to needy Kenyans.  To date, as the largest 
donor to WFP Kenya, USAID's Office of Food for Peace has provided 
4,834 metric tons of cornmeal to Kenyans adversely affected by the 
post-election turmoil. 
 
Ranneberger