NAIROBI, 4 September 2012 (IRIN) - Reintroducing VAT on farm inputs, many of which are already priced beyond the reach of most Kenyan small-scale farmers, could undermine agricultural production and threaten food security, experts and farmers say.
Fertilizers, insecticides, pesticides and farm machinery have been zero-rated for the past five years, but would once again be taxed at 16 percent if the Value Added Tax Bill is passed in its current form.
"The government should support us by ensuring farm inputs are affordable so that we can be able to feed ourselves and other Kenyans," Titus Buto, a small-scale farmer and member of the Cereal Growers Association, told IRIN. "But if they want to tax what farmers use in the farms, people will go hungry. What we produce now is not enough and we should look at producing more."
While fertilizer is available at government stores at the subsidized price of 2,500 Kenya shillings (US$30) per 50kg bag, the vast majority of farmers only have access to private retail outlets where the cost is almost double.
In mid-2012, an estimated 1.3 million farmers lacked even maize seeds [ http://www.irinnews.org/Report/95452/KENYA-Maize-farmers-have-rain-but-lack-seeds ] to plant due to drought and high cost.
Taxing inputs again could further reduce demand. Most farmers have little or no access to credit.
"More and more farmers will not buy them, and our crop yields will continue to be poor. The Kenyan small-scale farmer produces to eat because the yields we get are too little to sell to buy even a simple water pump," Buto said.
"Levying taxes on what many struggle to afford means what they produce will shrink further," Wesley Koech, a food security analyst and lecturer at the University of Nairobi, told IRIN.
"When they can't afford to produce food, that scarcity translates into exorbitant food prices," Koech said. "An affordable cost of production means farmers know they will accrue what they use, and [it] helps them to produce more, which means food will be affordable to the poor as well."
An estimated 3.7 million people are food insecure in Kenya, according to the United Nations.
Ninety percent of the food consumed in Kenya is produced by smallholder farmers, according to the Ministry of Agriculture.
Although the agriculture sector generates around 45 percent of government revenue and accounts for a quarter of GDP, it receives less than two percent of expenditure. Kenya is a signatory to the 2003 Maputo Declaration [ http://www.fao.org/docrep/meeting/007/J1604e.htm#3 ] which calls for a 10 percent allocation.
"Agriculture is the backbone of the Kenyan economy, yet investments in it are insignificant. We must invest in agriculture to help pull people out of poverty," James Samo, a production specialist at the Ministry of Agriculture, told IRIN.
A 2008 World Bank report [ http://siteresources.worldbank.org/INTWDR2008/Resources/WDR_00_book.pdf ] urged sub-Saharan African countries to "enhance growth by improving smallholder competitiveness in medium and higher potential areas, where returns on investment are highest, while simultaneously ensuring livelihoods and food security of subsistence farmers."
The head of the Food and Agriculture Organization (FAO), Jacques Diouf, said in a recent policymaker's handbook [ http://www.fao.org/docrep/014/i2215e/i2215e00.pdf ] that "sustainable intensification of smallholder crop production is one of FAO's strategic objectives."
Affordable agricultural production requires a paradigm shift, experts told IRIN. Subsidies and affordable prices for inputs would help farmers increase production, and improving access to markets would offer subsistence farmers an incentive to grow more.
"Apart from addressing the production side in the agricultural sector, there is a need to address the marketing side. creating outlets for high production that, in turn, increases the incentive to produce more. This could specifically be increasing producers' prices and markets to clear up any excess produce and increase incentives to grow more," Rodney Lunduka, sustainable markets specialist at International Institute for Environment and Development, told IRIN.
For Enoch Mwani, an agricultural economist at the University of Nairobi, farmers will have to lose their tax break at some point.
"Removing taxes is good for the short term, but it is not sustainable. Farmers must learn to be innovative to increase production. The government must begin to promote locally-available farm inputs like farm-made manure to help increase production," he told IRIN.
"The government must ensure [that] the quality of inputs that are available to farmers will spur production. Zero-rating sub-standard inputs will account for nothing," he added, alluding to the widespread presence of poor quality seeds and fertilizer. [ http://www.kilimo.go.ke/index.php?option=com_content&view=article&id=332:european-union-to-fund-the-training-of-agro-dealers-across-the-country&catid=149:news&Itemid=46 ]
Mwani further argues that as the country looks to increase infrastructural investment, it will need to widen the tax base.
"The current battle to stop these taxes might succeed, but you can bet it won't be for long. The government will need money to invest in infrastructure to ensure farmers can access the markets for what they produce," he said.