Kenya agriculture maintains growth trend

NAIROBI - Kenya's agriculture sector continued to grow in the second quarter of the financial year 2011- 2012 despite less than expected rainfall signalling possible increase in food production that may lead to drop in food prices.

Despite lower than normal rainfall, agriculture and forestry grew by 5.2 percent in the second quarter compared to 3 percent in the same quarter of 2010, said new quarterly report by the Ministry of Finance.

"The growth in this sector was supported by increase in horticulture and sugar cane deliveries," said the ministry's report.

But the report came a week after a forecast report by the Ministry of Agriculture indicated that maize production will peak to June 2012 when Kenya will have surplus unlike today when it is importing to meet consumption requirements.

According to Kenya National Bureau of Statistics, export of cut flower increased by 65.6 percent in the second quarter of 2011 compared to the same period in 2010 while exports of vegetables and fruits increased from 21.4 million metric tons to in the second quarter of 2010 to 30.6 million metric tons in the second quarter of 2011.

The Kenyan government has bet on agriculture as the solution to address rural poverty, unemployment and food security, said Permanent Secretary in the Ministry of Finance Joseph Kinyua.

He said in the current annual budget presented in June, the government allocated the sector 1 billion U.S. dollars, which exceeds the minimum budget allocation of 10 percent of the national budget, set by the Africa Union under an agreement known as Maputo Declaration.

Kinyua however said the challenge remains the little credit agriculture receives from private sector lenders, estimated to be 3 percent of all credit to the private sector.

"Many commercial banks limit lending to the agriculture due to the perceived high risks associated with the sector. Inadequate knowledge of the agricultural value chain limit banks ability to develop innovative financial products for the sector," he said when he launched an initiative to deepen the reach of financial services to the rural people in Nairobi.

A recent study commissioned by the Ministry of Finance estimates that the annual credit need of key agricultural value chains stands 1.3 billion dollars compared to the available credit of 400 million.

Most of the other sectors of the economy grew in the second quarter despite overall growth decline, a growth of 4.1 percent compared to 4.6 percent in the same period in 2010.

The Ministry of Finance attributed the overall decline in economic growth to rising inflation because of high food and oil prices, exchange rate depreciation and less than expected rainfall early in the year. Kenya is highly dependent on rain-fed agriculture to feed its people.

The report showed that hotels and restaurants sector recorded an increase in tourist arrivals by 2.9 percent for the second quarter of 2011 compared to a decline of 1.1 percent in the same period in 2010.

Construction sector grew by 5.8 percent compared to a growth of 3.6 percent in the same quarter of 2010 because of continued rise in public investments in infrastructure projects in roads, energy and water supported growth in this sector. Cement production and consumption increased by 8.7 percent from 782.9 million tons to 851.2 million tons.

Growth of the manufacturing sector however slowed to 3 percent compared to 4.9 percent attained in the same period in 2010.

The increase in manufacturing outputs including cement, galvanized sheet, soap, maize meal, wheat flour, sugar, beer and cigarettes was partly offset by a decline in outputs of motor vehicle tyres, assembled motor vehicles, processed milk, coffee and soft drinks. The slowdown was also attributable to subdued demand emanating from rise in inflation.

The Electricity and water sector declined by 4.6 percent compared to a growth of 5.8 percent in the same period 2010.

The decline in the value added in this sector was as a result of decline in production of hydro electricity because of less than adequate rainfall, necessitating the use of thermal.