MOI UNIVERSITY

SCHOOOL OF AGRICULTURE AND NATURAL RESOURCES

AGRICULTURALECONOMICS AND RESOURCE MANAGEMENT
BSC. AGRICULTURAL ECONOMICS AND RESOURCE MANAGEMENT
BSC. AGRIBUSINESS MANAGEMENT

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ARE423/ABE423:AGRICULTURAL POLICY AND
LAW 2023/2024

PROF. PHILIP M. NYANGWESO

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 National Food and Agricultural Policies
• Production resources, problems and policies

• Various food and Agricultural policies

– Production policy
– Agricultural trade policy
– Pricing policy
– Post harvest food supply policy
– Marketing policy

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 Production resources, problems and policies
• Land resources
– Policy issues emanate from size, quality, distribution,
tenure and use of land

– Land size influences output, management technique and

technology to apply

– Small Land Sizes

• Uneconomic to employ many production factors
• Result in low or no output
• Management techniques used inflexible
• Technology also fixed
• Does not augur well with national food self-sufficiency and export
objective
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 Production resources, problems and policies
• Land resources
– Medium sized Land
• More room for flexibility
• It is subjective, but an improvement on what happens on small
scale land
• Argument is that this should be the optimal size

– Large Size Land

• All land requirement available to try out all management
techniques and technologies.
• However, optimal resource size should be used.
• Long-run average curve is the umbrella of all short run average
curves
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 Production resources, problems and policies
• Land resources: Optimal land size

SAC1
AC
SAC5 LAC
SAC2 Q*- Optimal size will result
in increase in efficiency
SAC4

SAC3 SAC –Short run average

cost curve
LAC-Long run average
cost curve

0 Q* Q Output

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 Production resources, problems and policies
• Land Distribution
– Land is immovable/fixed
• Rift valley and North Eastern provinces sacrifice quality for
quantity
• Western and central provinces sacrifice quantity for quality i.e.
produces intensively on small areas.

• Land tenure- system of land ownership

– Can be private or communal

– Differ within and between countries in terms of use, patterns and

rights

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 Production resources, problems and policies
• Land Distribution: Communal land ownership

• Common in Africa societies

• Has a lot of institutional arrangement for its use.

• Clan elder holds land in trust for community and decides its use

• Only use rights are accorded members for a defined period, but no
right to sell, bequeath or give to children

• Belief is that some member die, migrate while others are born
requiring redistribution after some time

• No security of tenure, while redistribution period is undefined.

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 Production resources, problems and policies
• Land Distribution: Private Ownership

• Can be through inheritance or purchase

• Title deed/certificate issued

• Individual has full use and sale rights

• Allows for flexibility, entrepreneurship and improved

efficiency due to security of tenure

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 Production resources, problems and policies
• Land inheritance system
– Patrilinear (father – son)

– Land use is men-based since women do not own land

– Women are efficient managers and use land through sons’

or husband’s use rights

– Questions is why don’t women have full land ownership

and use rights

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 Production resources, problems and policies
• Land reform policy
– Land should be redistributed to increase access to land

– Land quality improvement through afforestation and re-forestation

programmes

– Land adjudication, demarcation and title deed issuance

– Productive members should be given land or made accessible to land

– Women should be accorded full inheritance, ownership and buying

rights of land

– Essence is to shift production function to the left and supply function

to the right leading to a drop in price, improved welfare in society and
better production in the economy. 11
 Production resources, problems and policies
• Land reform policy
S0

X(2) Price
Output S1

P0
X(1)

P1
D0

Resource Q0 Q1 Quantity

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 Production resources, problems and policies
• Capital
– Policy issues have to do with availability, size, distribution
and cost of capital

– Policy instruments aimed at increasing supply of capital

are AFC, Coop banks and KCB

– Capital availability

• Agricultural production is time and place specific and must have

capital at the right time e.g. seed, fertilizer, cash, and chemicals
• Hence, the government formed KGGCU and Kenya seed Co.
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Production resources, problems and policies
• Size of Capital
• AFC, Coop Bank, and KCB have limited capital portfolio.

• Hence farmers who produce collateral or able to service loans get

them

• Loans may be given in kind or management expertise to enable

loan repayment (e.g BAT)

• Loans given in kind enable farmers who are enthusiastic to

produce

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Production resources, problems and policies
• Capital Distribution

• High income farmers more accessible to capital

• Politicians also more accessible to capital

• Hence capital migration to export oriented foreign exchange

earner and import substituting production

– Capital cost
• Depends on supply and demand
• Affect farmers incentive to produce
• Capital has an inverse relationship with interest rate r. 15
Production resources, problems and policies
– Capital cost
• Depends on supply and demand
• Affect farmers incentive to produce
• Capital has an inverse relationship with interest rate r.

Interest rate

r0

r1

I(r)

I0 I1 Investment

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 Production resources, problems and policies
– Labor

– Policy issues addressed include availability, size, quality,

wages and seasonality

– High correlation between the issues

– Labor availability
• Labor is a function of wage (w), Nh = f(w)
• Family labor a function of family size, time and school calendar,
(Nf = f (S,Z)

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 Production resources, problems and policies
• Labor
– Non- substitutable labor leads to availability problem and
vice versa
S1
D

W/P S0
P1
P0

N1 N0 N

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 Production resources, problems and policies
• Wage
– Higher wage leads to higher labor supply

– Workers want attractive wages hence labor unions

formed to maintain higher wages to improve production.

– Higher wages lead to higher consumer surplus resulting

in increased production and therefore overall increase in
welfare

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 Production resources, problems and policies
Inverse relationship between inflation and unemployment give
the Philip curve.

Philipo’s curve
Price level
(Inflation)

Unemployment

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 Production resources, problems and policies
• Seasonality of labor
• Labor supply characterized by peaks and troughs

• Low demand for labor in slack periods and high demand for
labor in peak periods

• In slack period labor migrate to off–farm income

generation.

• Information gap between supplier and buyer of labor can

lead to unemployment.
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 Production resources, problems and policies
• Seasonality of labor
• In slack period idle labor consume savings leading to
decline in financial stock in banks resulting in decline in
investment, output and GNP
• slack period does not sustain consumer income to maintain consumption.

• Agro forestry recommended to avoid labor seasonality

leading to continuous income due to continuous
employment.

• Agro-based cottage industry, another policy measure,

which makes people continuously employed checking
against seasonality and resulting in sustainability. 22
 Production resources, problems and policies
• Water resources
• Policy issues address water availability, quantity, quality, distribution,
intensity and irrigation in dry lands.

• Water availability
– Most problems arise from water shortages
– Drought leads to water shortage, which shifts the supply curve to
the left.
D0
S1
P S0
P1
P0 D0

Q1 Q0 Q
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 Production resources, problems and policies
• Water resources
• Can destabilize import policy i.e import Q0 – Q1

• High water supply leads to bumper harvest shifting supply to the

right (SS1) leading to a drop in price which is good for consumers
• Export Q1 – Qo to stabilize prices hence incentive to production
• Water availability uncertainty can be insured.

D0 S0
P
P0
S1
P1

D0

Q0 Q1 Q
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Production resources, problems and policies
– Water Quality
• Related to food production and quality

• Maintain high nutrition standards of food and free from

poisonous chemicals and pathogens.

• Go with food processing, packaging and services which must

meet standards for export and domestic market e.g. KBS

• Standards should be high enough to avoid injuring consumers

who are production factors of a nation.

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Production resources, problems and policies
– Water intensity

– Low intensity cannot penetrate the ground and raise

the water table.

– High water intensity leads to runoff, erosion and

limited soil penetration to be able to increase the water
table

– Must be optimum to reach the plant roots zone

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Production resources, problems and policies
– Water distribution
• Temporal and spatial

• Bimodal rainfall regime in Kenya (APR – June – Aug-LR), (Sept –

Nov-SR).

• Gives farmers early warning when long rains and short rains
season will come and hence which crops to grow per season.

• Rainfall distribution
– Goes with temperature
– Result in diversification of agricultural system hedging against crop
failure and resulting in better foreign exchange earnings if crops are
exportable. 27
Production resources, problems and policies
– Irrigation
• Major policy to keep production up

• Creation of irrigation projects from river dams, surface

wells, shallow dams and water harvesting e.g. Turkwell
HEP.

• Create water body such that seasonality, intensity, and

distribution are under control.

• Planned, consistent supply approach.

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Production resources, problems and policies
– Irrigation
• Takes care of food self-sufficiency and stabilize prices
i.e. supply kept constant

• Shallow wells supply water for domestic use and

watering crops

• Water harvesting from catchments areas and roofs

using gutters used for domestic and kitchen gardening

• Help in projection of production plan

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 Production resources, problems and policies
– Energy
• Key energy forms include wood, electrical, solar and liquid gas.

• Various uses which include heating, cooking, lighting and

machine powering.

• Some are amenable to rural, urban and industrial uses.

• Solar, liquid, and electricity are urban oriented and play a very
vital role in secondary production e.g. processing, storage and
packaging

• Run machines and meet health standards and quality

requirements
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 Production resources, problems and policies
• Energy: Fuel wood
– Over 95% of rural folk use wood for heating and cooking

– Wood is cheap, therefore, used on small scale processes, but not

extensive industrially.

– Liquid energy source borderline between urban and rural areas.

– Electricity
– Used for improving form and increasing shelf life of products.
– High shelf life and form lead to better prices resulting in higher income
and therefore high GNP.
– Industries geared to export promotion and import substitution lead to
meeting of National objectives.
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 Production resources, problems and policies
• Technology
– Policy should address availability, accessibility,
adaptability and their impact on.
• Small scale and large-scale agriculture.

– Technology availability
• Determine when, what and how much to grow.

– Accessibility of technology.
• Depend on whether farmer is small scale, large scale or low
income/high income
• In terms of location, acquisition, cost, information flow or 32
extension
 Production resources, problems and policies
• Technology
– Technology adaptability
• Should be adapted to local conditions to be meaningful.

• Should be adaptable to capture

– Interest of all scales of production.
– All levels of development
– Different forms of resource endowments
– All levels of complexity

• Jua Kali should be able to modify technology to suit local

conditions

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 Various Agricultural policies
• Production policy
• Broad objective is food self-sufficiency.

• Scenario leading to formulation of food policy: -

– Declining trend in per capita food availability from domestic source and
increase in smallholder production and cultivation.

– Attributed to: - (1) Poor weather conditions (1980/81,1984/85, and 1992/93),

(2) shift from traditional to exotic crops (sorghum→wheat +rice) due to
shift in demand and (3) increase in production cost.

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 Various Agricultural policies
• Production policy
• Creating enabling socioeconomic and political environment
through incentives to farmers to enable them produce.

• Investing in rural research and extension to service agriculture.

• Adoption of policies that support private sector involvement in

production, marketing, processing and distribution.

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 Various Agricultural policies
• Production policy strategies

– Increase area under cultivation.

– Increase use of certified seed and high yielding varieties.

– Intensive and extensive use of fertilizers.

– Non-diversification of land under export-crops.

– Protection of forests against destruction for ecological reasons.

– Intensive dairy feeding, Improved transport and better processing

capacity which require private sector participation.
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 Various Agricultural policies
• Dairy policy
– Previously, intended to support small farm sector.

– Also aimed at provision of infrastructure and services such as

Artificial insemination (AI), veterinary, Dips.

– Gave bonus incentive in various forms

– Consequently, 1980’s were characterized by increased producer

profits.

– Increased dairy production also witnessed in dry season.

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 Various Agricultural policies
• Dairy policy
– Dairy board controlled marketing and pricing even though the
implementing agent was KCC (before it collapsed).

– Dairy price was decontrolled due to liberalization and many market

participants allowed into the market.

– However, dairy board monitors quality of dairy products due to

their proneness to contamination.

– Input prices in dairy industry continued to increase while output

prices remained the same resulting in:-
• Dropping of output due to reduced zero grazing
• Produce level in formal markets fell due to delayed payment 38
 Various Agricultural policies
• Dairy policy
– Emergence of informal market resulted in shortage of dairy
products in dairy markets.

– Liberalization resulted in:-

• Increased supply of milk since prices became better

• Increased supply of dairy products

• Efficiency and equity trade outs were recognized

• Gains in liberalization channeled to disadvantage people.

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 Various Agricultural policies
• Agricultural trade policy
– Growth of agricultural trade should surpass growth of
agricultural production since opening up of markets
results in increased production, which consequently
leads to high capital accumulation.

– Economic efficiency (High output + attractive prices) acts as an incentive

to farmers to increase production.
– Important component of bilateral and international cooperation

– In local markets trade embargo leads to surplus and

deficits areas, which are accompanied by low and high
prices respectively.
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 Various Agricultural policies
• Agricultural trade policy
– Government intervention necessary in some cases to stabilize
prices in local markets.

– Price stabilization done locally by storage through cooperatives

and marketing boards.

• Some countries collude (cartels) in international markets to

stabilize prices e.g. OPEC.

• Trade policy should be flexible to allow imports from countries

with comparative advantage for producing a particular
commodity leading to establishment of bilateral or international
cooperation. 41
 Various Agricultural policies
• Pricing policy
– Majors in price stabilization.

– Essences is to ensure that price is stable to act as an

incentive to production.

– For consumer price, price stabilized as an incentive to

increase consumption, which will have multiplier effect in
the economy.

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 Various Agricultural policies
• Pricing policy
– Price stabilization done for the following reasons:-

• Incentive to production and consumption.

• Some years are characterized by deficits/surpluses

(fluctuations).

– To avoid swings and fluctuations in supply.

– Swings and fluctuations in supply go with prices and thus may affect
export market.

• Pricing policy has to check fluctuation in supply

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 Various Agricultural policies
• Pricing policy
– Assuming Kenya is a liberalized economy, excess demand in local
economy (market), BC is met by importation from international
market given by DL (-ve) BC= DL.
– When Supply > Demand (Excess SS GH = JK) excess supply has to be exported
until market clearing point (equil).
– Prior to liberalization the government did pricing and marketing board decided
what it was going to buy due to its capacity limitations.
D S
ES
P2 G H
Pe J K
P1 I
D E`
C
L
B
ED
O Qe Imports Exports
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 Various Agricultural policies
• Post harvest food supply policy
• Reduction in post harvest losses through better storage and
processing.

• Minimizing post harvest losses will increase food supply (Rationale).

• Develop an indigenous technology in storage and processing since

importing technology without modification may not be wise.

• Increased private sector participation since it is more efficient.

• Better weather monitoring result in lower post harvest losses.

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 Various Agricultural policies
• Marketing policy
– Prior to liberalization marketing board dominated market.

– Monopoly power were created and concentrated in services like

processing, storage and transportation.

– Marketing boards/schemes formed through parliamentary acts to

perform the following functions

– Regulate domestic market

– Import and export control.
– Promote demand
– Support research and extension 46
 Various Agricultural policies
• Effects of control
– Creation of very large and inefficient public sector.

– Limited private sector involvement and therefore limited

entrepreneurship.

– Low un-attractive prices for agricultural products.

– Deficit financing of inefficient public marketing agencies

• Gains from liberalization

– Improved private sector participation in marketing
– More competitive and attractive prices for agricultural commodities
being incentive to both producers and consumers
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 Various Agricultural policies
• Gains from liberalization
– Government role reduced to maintaining floor price and
storage of strategic reserves.

– Monopoly in a number of areas such as meat, dairy,

cereals reduced/removed to enhance competition.

– Improved marketing information system through

extension system , ICT, radio, and T.V

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