Posted on November, 2, 2018 at 09:35 am
By KEN GICHINGA
Every good student of economics will have come across the idea of the invisible hand by Adam Smith. Essentially, he puts forward the notion that if everyone acted in their own self interest, then the market forces of supply and demand would lead to an optimal allocation of resources.
If Smith lived in Kenya today, he would have no problem if the country’s fertile farmlands were converted into real estate. According to his theory, a new crop of farmers would simply arise in a different part of the country to continue with the noble work of food production.
However, recent events in the maize sector seem to be challenging this idea. For one, maize production is not keeping up with the population size. Kenya produces about 56 million bags annually; for a population of nearly 50 million people, that averages to slightly over one bag per Kenyan per year. Is this enough for a youthful growing economy?
Secondly, there is the risk of discontentment within the farming fraternity, not least because of delayed payments which hamper their ability to pay their children’s school fees.
And lastly, the economic argument that if these angry farmers switched to other sectors of the economy then the free market will simply introduce a new group of farmers has proved false. If anything, what really ends up happening is a steep rise in importation — Kenya moved from importing 1.6 million bags in 2016 to 14.7 million bags in 2017.
Fortunately the solution to this problem is within reach. To begin with, we need to recognise that agriculture is unique from every other sector of the economy and cannot be purely subjected to market forces of supply and demand.
It is tied to national security and preservation of the human species. What would happen if one of the key import markets Kenya relies on for maize one day becomes hostile? A real crisis would ensue.
Once agriculture is recognised as a matter of security and not a mere creature of free market, the problem of supplying poor farm inputs will be considered an act of sabotage and will attract heavy penalties. And rightly so because poor-quality farm produce threatens both the health and stability of a country.
The ability of a country to standardise quality across the entire food value chain is a necessary condition for having a vibrant and productive agricultural sector.
Once the problem of quality is resolved, demand for Kenyan produce will dramatically increase both domestically and internationally. And naturally financial capital will flow to agriculture, solving the perennial problem of low access to credit which has hampered the sector’s development.
Expansion of farm operations will lead to job creation, drastically reducing unemployment. Considering that the average age of a farmer is 60, a youthful labour force will ensure continuity in all areas of food production.
Champions of unbridled global free trade will naturally resist any form of government intervention in agriculture. However, even an economy such as the United States — the bastion of capitalism and free trade — has a very comprehensive subsidy programme to support its farmers, equalling $25 billion in cash annually to farmers and owners of farmland.
Kenya should not shy away from emulating such policies for its farmers, who are essentially the principle producers in the economy.
The benefits of a vibrant agricultural sector accrue to other sectors, notably manufacturing which draws heavily from the raw materials produced on farms. Furthermore, high food quality and quantity leads to higher nutritional levels and lower disease prevalence, resulting in lower healthcare costs.
A higher quality of life will attract Foreign Direct Investment and sectors such as real estate will roar back to life. Infrastructure will also benefit from investment and harvests will make it to the market on time.
And finally, there will be the softer issues of heritage and culture when farms are handed down from one generation to another, providing a rich avenue for knowledge transfer.
The writer is Chief economist, MentoriaEconomics
Source: The Star