FOOD INDUSTRY IN KENYA

November 2013

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Prepared byJ. K. MungutiMinistry of Industrialization & Enterprise Development

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• Introduction• Importance of the sector• Current Status• Challenges and opportunities• Proposed Interventions

Order of PresentationOrder of Presentation

Introduction

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ObjectivesThe two major social-economic challenges facing the country are poverty and unemployment. The food sector can provide both jobs and wealth by leveraging our success in the agriculture sector.

The objectives of this presentation are:oIdentify the major challenges facing the sectoroIdentify the areas (both cross-cutting and sub-sector specific) the public and private sector can intervene to grow the sectoroIdentify areas of collaboration between government, development partners and private sector

IntroductionIntroduction

Food Processing covers: foods, beverages and tobacco Includes:Dairy, Vegetable oil, Grain Milling, Baking and Confectionery, Fruits and vegetables, Beverages, Meat and Fish, Honey, nuts, mushroom, etc.

The food sector constitutes about a third of the manufacturing sector. The sector adds value to agricultural produce and therefore its success depends on efficient agriculture sector.

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Importance of the sectorImportance of the sectori. Employment – The manufacturing sector employed 266,400 people in

2009 out of which 89,319 jobs (or 33.5%) were in the foods processing sector.

ii. Contribution to the Economy –The Manufacturing sector contributes about 10% of the GDP. The food sector contributed about a third (33.4%) of the total manufacturing production in 2009.

iii. Exports- in 2011, Kenya total exports were valued at Ksh 482,944 million. The food and beverage sector exports were valued at Sh 197,888 million (or 41%). The exports are mainly tea, horticulture, coffee, Tobacco and fish products.

iv. Imports- In 2011, a total of Ksh 1,315,671million was spend on imports out of which ksh 106,539 million was for imports of foods and beverages ( of this amount Ksh 59,133million or 55.5% was utilized to import animal/vegetable fats and oils).The food processing sector can therefore be a key driver of the economic growth. Growth in the sector can have a direct and significant impact on the whole economy. Furthermore it is possible to increase export volumes through diversification from the traditional exports ie tea, horticulture, coffee and tobacco. 5

Current Status

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Dairy processing

Milk In-take by processors

Both FAO and the official statistics place the milk production for 2007 at approximately 3.5 billion liters. In 2007, only 423 million liters were processed (or about 12%). It is estimated that another 10.5% of milk produced is consumed by calves, 34.5% On-farm and 55% is marketed, including both formal and informal market channels

Year Volume (in Million litres )

1 2008 398.5

2 2009 406.5

3 2010 515.7

4 2011 549.0

There were 78 registered manufacturers of dairy products in 2010.

Only about 12% of the milk is processed.

Current Status

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Dairy processing: Challenges and opportunitiesChallenges•Low milk production due to lack of investment•Processors face challenge of low capacity utilization due to competition with “fluid cash-based informal milk market”•High feed costs •Insufficient investment in chilling plants and transport (challenge of cost vs utilization)Opportunities Investments in animal feeds, AI and other extension services, chilling facilities, transportation of milk, Niche products, etc

Current Status

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Meat ProcessingLivestock Population

 Exotic Cattle  Indigenous Cattle  Sheep  Goats  Camels

 KENYA   3,355,407   14,112,367   17,129,606   27,740,153   2,971,111

NAIROBI        25,536          29,010          34,717          46,837               20

CENTRAL      800,227        325,678        664,237        531,209             231

COAST        74,119        885,846        467,439     1,570,728        51,045

EASTERN      373,307     1,886,854     1,890,898     4,729,057      248,634

NORTH EASTERN        80,422     2,694,786     4,264,155     7,886,586   1,700,893

NYANZA      221,670     1,527,000        495,055        961,269               59

RIFT VALLEY   1,560,222     5,919,585     9,079,380   11,750,521      968,192

WESTERN      219,904        843,608        233,725        263,946          2,037

KNBS 2009

• Over 60% of all livestock is found in the Arid and Semi Arid Lands (ASAL).• Livestock employs about 90 percent of the local population in ASAL areas.• The livestock sub-sector accounts for about 10% of the entire GDP• Livestock accounts for about 42% of the agricultural GDP contribution.

Current Status

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Meat Processing : Challenges and Opportunities

Challenges•Animal diseases•Frequent drought•Timely availability of market information•High standards of importing countries•Low investment in value addition

Opportunities• Investment in value addition

ie meat processing plants• Collaboration with county

governments to set up abattoirs

• Investment in niche products eg wild meat

Meat processing factory

Current Status

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Fruit Production

Source: HCDA

2010 2011 2012

Quantity(Ton)

ValueKshs(Million)

Quantity(Ton)

ValueKshs(Million)

Quantity(Ton)

Value (KshsMillion)

share byvalue

VEGETABLES 4,600,000 85,736 4,642,522 95,564 6,084,341 104,920 48%

FLOWERS 133,736 44,964 123,270 41,608 878,067 39,685 18%

FRUITS 2,768,435 50,578 2,848,028 60,645 5,236,365 61,524 28%

NUTS 123,221 3,796 147,583 5,876 226,785 6,900 3%

MAPS 2,673 44 15,034 429 152,430 4,940 2%

TOTAL 7,628,065 185,118 7,776,437 204,122 12,577,988 217,969 100%

Fruits are a significant part of horticulture in terms of production. The value is not however proportionate to the quantity produced due to low value addition. Flowers on the other hand are very low in quantities but high in value. The potential in fruits processing remains unexploited.

Current StatusFruit ProductionThe total domestic value in the horticulture sector in 2012 amounted to Ksh.217 Billion

Fruits contributed Kshs. 61.5 billion accounting for 22% of the domestic value of horticultural produce in 2012.

The area under fruit was 167,000 Ha with a production of 5.2 million tons.

The main fruit categories grown in Kenya are the tropical and temperate fruits. The major fruit grown in order of importance are; banana (37.6%), mangoes (19.6%), pineapples (12.1%), avocado (9.8%), paw paw (5.4%), oranges (4.6%), water melon (4.2%) and passion fruit (3.7%).

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Current StatusChallenges - Local sourcing of major raw materials (fruit pulp) due to

lack of organized production of fruit leading to unreliable supply of sufficient quantity of required quality of raw materials.

- Lack of facilities for post harvest preservation (cold storage, etc).

- Insufficient investment in processing facilities (especially primary processing like pulping facilities)

Opportunities Investment in storage facilities, Sub-contracting in primary

processing, collaboration with counties to set up fruit processing facilities

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Current Status

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Value addition in Fruits

Value addition include packaging

Price: Ksh 50/kg

Price: Ksh 150/Kg

Current Status

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Summary of the main Issues in Food Processing:

•Inadequate supply of quality raw materials

•Low value addition,

•Low investment in post harvest storage and primary processing

•Market access challenges (both local and export)

Low value addition: only about 50% of fruits reach the market, and only 1% is processed. There is a tendency along the value chain for “Adding Price Without Adding Value !”

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SECTOR ISSUE INTERVENTION REQUIRED 1 Unreliable availability of raw materials:

Seasonality of raw materials due to reliance of rains and to lack of storage. Investment is storage and primary processing of raw materials required.

2 Inadequate informationOn appropriate technology, value adding processes, potential markets, availability and quality of local raw materials, etc

The Ministry is in the process of creating a One-Stop-Shop for all information required by investors.

3 Access to affordable credit for financing new machinery and updating technology

Engage the financial institutions to set up suitable schemes.

4 Market access – for export of foods. NTBs on food movement to external markets very high. (example of export of tea, avocado to SA)

Bilateral and multi-lateral negotiation with individual countries and RECs (SADC, COMESA, EU). Utilize our participation in negotiations.

5 VAT Act 2013 esp. VAT remission, milk and infant foods, animal feeds, vegetable seeds,

- Ensure VAT refunds work, Engage National Treasury to expand the VAT exempt list to include Infant foods, Animal feeds, vegetable seeds.

6 Increased cost of doing business due to devolution – un-procedural imposition of fees and charges by county governments. Counties have introduced cess charges for products moving between counties, refusal to accept permits issued by other counties, etc

- Cess be charged at point of production and at point of sell- Legislation required to guide types of levies and procedure of

introducing them as well as public participation in legislative process

7 EAC Issues- Full CET by on goods that have benefited from duty remission in Kenya while Kenya does not charge 100% CET for similar goods made from zero rated raw materials -Harmonization of standards – this needs to be fast-tracked, mutual recognition of standards required-NTBs on Kenyan beef exported to Uganda-Zero rating of duty for imported raw material (for juices, confectionery) and reduction to 10% for industrial sugar

- MoIED to spearhead high level bilateral meetings with Uganda and Tanzania to discuss negative effect of implementation of Article 25 to the Kenyan industries.

- The Ministry will follow this through the EAC Secretariat and KEBS

- Verification of beef products from Kenya was done in August 2012; Kenya was to review Legal Notice 169 touching on BSE.

- The MoIED to follow-up this with National Treasury

Challenges and opportunitiesChallenges and opportunities

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Challenges and opportunitiesChallenges and opportunities

Drivers of Growth

i. Rise in disposable incomes – increasing middle class

ii. Changing Lifestyles and Aspirations – tastes and preferences

iii. Increasing penetration of organised retail and branded food products – supermarkets spread

iv. Increasing demand for ready foods by working population

v. Increasing spending on health foods

vi. Competitive advantages in tea coffee, horticulture

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Challenges and opportunitiesChallenges and opportunities

Transform agriculture from a “Low input-Low output” rain-fed subsistence farming system to a “High input – High output” mechanized system to address shortage of raw materials

Increase Value Addition not “price addition” with the aim of customer satisfaction

Invest in storage ( including cold storage) and Logistics to ensure food products reach the market as well as processors

Be Internationally Competitive

What needs to be done

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Proposed InterventionsCross-cutting interventions•Packaging improvement•Quality related interventions- standardization, traceability, ISO certification•Cold storage and logistic related interventions•Market access related interventions•Subcontracting arrangements•Market information availability

Sector specific Interventions•Promotion of investments in specific subsectors•Collaboration with county governments •Collaboration with development partners •Interventions to address subsector specific issues

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The End

Fresh food meets technology …to create value!