Let Them Eat Maize?

Last year, Kenya experienced the worst food crisis in her history, more than 10 million facing the prospect of starvation. In a letter to the IMF in May 2009, Finance Minister Uhuru Kenyatta and central bank Governor Njuguna Ndungu blamed it all on three “shocks” namely the post-election violence in early 2008 which impacted negatively on key sectors of our economy such as tourism, manufacturing, transport and agriculture, resulting in a year-on-year decline in real GDP of 1 percent in the first quarter of 2008; record high fuel and fertilizer prices; and the failure of the short rains in October-November 2008, resulting in a sharp decline in domestic food supplies, particularly, maize. They of course left out the one factor which is perhaps the most significant of all.

For while it is true that Kenya is prone to drought, it is equally true that famines are rarely caused by a deficit of rain. In his book Beyond the Miracle of the Market: The Political Economy of Agrarian Development in Kenya, Robert Bates shows that Kenya suffered 16 major droughts between 1889 and 1984 which averages out at one every 6 years. He also notes that relatively few of these resulted in famine. According to Mr. Bates, of all the factors that turn a drought into a famine, only one is under human control: public policy and political institutions. Nobel-prize winning economist Amartya Sen put it more bluntly in his book Development as Freedom: “…no famine has taken place in the history of the world in a functioning democracy – be it economically rich (as in Western Europe or North America) or relatively poor (as in post independence India, or Botswana or Zimbabwe.” And, after the events of 2008, Kenya was hardly a paragon of democracy.

The writing was on the wall as early as 2007 when the short rains failed. By February 2008, the country only had a stock of about 20 million bags of maize, enough to last till September. It was clear to government technocrats that maize needed to be imported by August to bridge the shortfall till the critical North Rift crop was harvested in late 2008. So they recommended to the political leadership the same solution that had been successfully implemented in 2004 when the country faced a similar crisis: a duty waiver to allow the private sector to import the needed grain.

However, for reasons that would perhaps become clear in the light of ensuing events, the politicians, at the very first meeting of the Grand Coalition Cabinet, opted for a novel and utterly untested approach. Under the Subsidized Maize Scheme, they would have the National Cereals and Produce Board, a parastatal company, import the maize and sell it, at subsidized cost, to millers who would then pass the savings on to the consuming public. This despite the fact that no national registry of millers existed, the NCPB having been stripped of this function in 2006, and that there was no way of ensuring that millers didn’t pocket the subsidy themselves. Carried out in two phases, it would involve the sale of grain from the country’s Strategic Grain Reserve as well as importation to top up stocks.

What followed was a 6 month free for all as everyone from elected officials to professionals within the civil service scrambled for a piece of the action. Former Permanent Secretary for Governance and Ethics, John Githongo describes it as “cannibalistic corruption,” as the very people entrusted with safeguarding the lives of 10 million starving Kenyans literally snatched the food from their mouths. And by the time they were done, not only was there no subsidized maize, but the price of the commodity had doubled pushing it even further out of reach.
The consequences were devastating. By January 2009, fully a quarter of the population was starving and, according to the International Rescue Committee (IRC), over a fifth of children under age five were malnourished. That month, the government declared a National Disaster, reversed course and waived duty on imported maize, the course originally recommended by its technocrats.

As food prices rose, so did public pressure for an accounting. A forensic audit of the scheme by PriceWaterhouse Coopers revealed the extent of the rot and more importantly, linked it back to the original decision. Companies in which government officials, including Cabinet Ministers, had interests were either allocated maize despite not being millers, or received lucrative contracts related to the industry. MPs admitted to buying maize from the NCPB as well as writing letters requesting for allocations to individuals known to them, according to Githongo a clear violation of the Public Officer Ethics Act. An insurance company in which the Minister for Agriculture held shares was awarded a tender to supply gunny bags. In fact, almost a third of the subsidized maize allocated from the country’s strategic grain reserve was sold to “traders” posing as millers, who then passed it on to the real millers, in return for “facilitation payments.”

Additionally, maize was imported at more than double the price paid to local farmers, raising queries about the manner it was sourced. A parliamentary committee report recommended investigations of “the personal assistant to Prime Minister, the Prime Minister’s family, the son and associates” with regard to the importation of maize. The total cost of the scam to Kenya’s starving taxpayers is expected to exceed Kshs. 2 billion. Despite all this, an investigation by the Kenya Anti-Corruption Commission was unable to find any evidence of wrongdoing

Makes one wonder: Did the Cabinet plan it all from the very beginning? This is what PwC calls the “big picture question –whether the whole exercise was from the outset designed to fail and to provide a means for considerable financial exploitation at the expense of the state.” Though the auditors are reluctant to give a definitive answer, it is hard not to reach that conclusion given the history of corrupt deals. According to Githongo, it would hardly be the first time scoundrels have created a crisis and then sought to benefit from it. He points to the power rationing scheme of 1999 which he attributes to the emptying of hydroelectric dams supposedly to clear out siltation. The consequent loss of generating capacity (since the dams take time to refill, especially when the rains fail) led to crippling power cuts necessitating the introduction of expensive private power suppliers, many with connections to the very people who precipitated the crisis.

The fact is the maize scheme was abused from its inception. It was adopted against the grain of expert advice, and provided numerous opportunities for rewarding dishonesty and theft. Most damningly, it appears that none of its political instigators will pay a price for it. What are the odds of such a deviously fortuitous set of circumstances occurring by chance?

The Ugly Canadian

Few issues have generated as much heat in recent African affairs as China’s foray onto the continent. Much has been made of the dragon’s insatiable hunger for the continent’s mineral wealth. The breadth of Chinese involvement has focused minds in the West and provoked much media hyperbole. However, at the same time, the Middle Kingdom’s great rival from North America has been active as well, though her activities seem not to attract as much attention. No, I’m not talking about the USA. Rather the other North American superpower – Canada.

Yes. Canada. Soft, unassuming Canada dominates mining and mineral exploration on the continent. According to the Ministry of Natural Resources Canada (NRC), only South Africa has more mining assets and investments. And while the Rainbow Nation’s interest is concentrated , is just ahead of Canada in the African mining industry. But with South Africa’s gold pot is to be found largely within its borders, by 2007, Canadian companies were active in 35 African countries and Africa represented 17% of the total $85.9 billion in cumulative Canadian mining assets. This year, the total value of Canadian mining assets in Africa is expected to surpass $21 billion compared to just $233 million in 1989.

The Canadian government has actively supported this expansion. Since the 1990s, under the influence of industry associations, the Canadian state has implemented a comprehensive strategy to support the expansion of investments and activities abroad. Fiscal measures designed to attract mining interests include tax deductions for expenditure incurred abroad and exemptions for profits repatriated to Canada. According to its 2007 annual report, Export Development Canada, the government’s export credit agency, has supported projects totalling $22 billion worth of exports and investments in Canadian companies in the extractive sector.
Endowed with both minerals and a long mining tradition, Canadians are not exactly lacking in expertise. As of 2001, the sector accounted for 4% of Canada’s Gross Domestic Product (GDP), with $64 billion in exports and $30 billion in capital expenditure, while employing a total of 400,000 people. The year before, in 2000, there were at least 2,200 Canadian companies related to the mining industry.

So why do they want our minerals? Could it be to power their manufacturing sector? With a modest 2% growth, Canada had been the exception to the trend of manufacturing job loss among developed countries over the last quarter century. But now they are playing catch-up. Between 2004 and 2008, as Canada’s mining investment in Africa has exploded, their manufacturing sector imploded, shedding over 300,000 jobs. Its share of total employment fell by close to one-third and when the U.S. Bureau of Labor Statistics released a comparison of average annual growth rates in manufacturing output over the 2000-2007 period in 16 different industrialized countries, Canada was right at the bottom with real output declining at an average rate of 0.3% per year. So, it is not like they have a voracious appetite for raw materials.

How about energy? Perhaps they need some of our oil and natural gas? Not a chance. Canada is a net exporter of oil, natural gas, coal, and electricity. In 2006, she produced 19.3 quadrillion British Thermal Units (Btu) of total energy, the fifth-largest amount in the world. Not only is she the largest producer of hydroelectricity in the world, she also ranks 3rd and 7th in global gas and oil production respectively. Even as Canadian companies are busy signing oil exploration and extraction contracts here, back home oil tycoons have invested more than CAD$30 billion in Alberta’s oil sands and estimates are for that investment to mushroom to CAD$125 billion in the next decade. So no, they don’t need our oil.

Why are they here then? The reasons is actually quite simple. For one, minerals are relatively easy to find in Africa. The continent hosts 30% of planet’s mineral reserves including 40% of Gold, 60% of cobalt, 90% of the worlds PGMs (Platinum Group of Metals) and proven oil reserves of over 117 billion barrels as at the end of 2007. In Canada, the easy-to-find stuff has already been found. Companies are now developing low-grade projects with marginal economics and investors have reached a stage where they assume that mines will not be delivered on time and on budget. A good example is British Columbia’s Galore Creek Project, a partnership between two Canadian mining entites, NovaGold and Teck Cominco, to develop what was supposed to be “one of the world’s largest undeveloped copper-gold deposits, with quality, long-life reserves and excellent geologic potential.” It was halted after costs more than doubled and the estimated long-term copper price raised questions about its economic feasibility. Interestingly, according to Mineweb , an internet-based international mining publication, Teck Cominco President and CEO Don Lindsay speculated that the mine might become more attractive if “problems develop with copper projects in the Congo.”

In some places in Africa, meanwhile, a company like First Quantum Minerals Ltd. can get its Lonshi mine up and running less than a year after a discovery is made and there are highly prospective regions like the Central African copperbelt that have had no serious exploration for decades, or ever. "You're looking at virgin ground that's almost untouched. It's finally being explored properly," says Jean Luc Roy, CEO of the copperbelt exploration company El Nino Ventures Inc. Robert Lavalliere, vice-president of investor relations at Anvil Mining Ltd., the leading copper producer in the DRC with three major projects, notes the productive potential of open pit mines there is “three, four, five times" that of the rest of the world. However, I hasten to add, this is not universally true of the continent. The experience of Tiomin Resources Inc. in Kenya will suffice to illustrate this.

That said, it is abundantly clear that Canadians are not here just for the minerals. They’re here for the money. And with sky high global prices for raw materials, you can bet there’s lots of it to be made. According to CorpWatch.org, 60 percent of all the world’s mining companies are based in Canada, generating $50 billion a year for Canadians. In fact, talk of a scramble for African minerals pitting the West and China is somewhat misleading. Much of it , no matter who mines it, eventually finds its way, via the global markets, to the booming economies of Asia. The scramble is for cash since the Chinese probably figure it would be cheaper (and safer) to mine the products themselves rather than wait for middle-men to deliver it.

As everyone (except the African people, of course) fights for his piece of the pie, moral standards are being thrown to the wind. Around the world, Canadians are generally regarded as a pleasant, soft spoken people. But being home to nearly two-thirds of the world’s mining and exploration companies, it is inevitable that there will be some rotten apples. Each year, a significant number of these are accused of environmental and human rights abuses, often in developing countries where the government is weak or corrupt. Their behaviour is so bad that in some places, according to the Toronto Star, the word "Canada" is so reviled that travelling Canadians mask their citizenship by wearing, of all things, American flags on their caps and backpacks. The Canadian government has struggled for a decade with how to hold mining firms accountable for their actions overseas. So far its attempts have proved inadequate.

It has disregarded repeated calls for an independent investigation into the 1996 Bulyanhulu gold mine incident. In 2001, eyewitness accounts, family testimony, photos and police videotape uncovered by the Lawyer's Environmental Action Team (LEAT) of Tanzania corroborated long-standing allegations that employees of the Canadian owned Kahama Mining Corporation, LTD (KMCL) in conjunction with the Tanzanian police, buried over fifty artisanal miners by bulldozing over the entrances to the shafts in which they worked at the Bulyanhulu gold mine in 1996.

In 2002 it ignored a United Nations report called on it to investigate the actions of seven Canadian companies accused of illegally exploiting resources from the Democratic Republic of the Congo. Two years later, 73 people were killed by the Congolese military, which used vehicles, supplies, pilots and drivers from a Canadian-Australian mining company to transport them to the site of the massacre. According to MiningWatch’s Jamie Kneen, Anvil Mining had been forced to shut down production at their Dikulushi Mine when a so-called “rebellion” took place in a nearby village; a rebellion of “10 to 12” villagers that had nothing to do with mining. Congolese Armed Forces (FARDC), of the DRC government, provided with trucks and logistics by Anvil, proceeded to seize the town and then went door-to-door “raping and pillaging.”

As recent revelations from Uganda demonstrate, these companies are not above signing secret agreements or dumping toxic waste into rivers as they did in Tanzania. Denis Tougas, director of the L'Entraide missionnaire (L'EMI) in Montréal, notes that “it’s a safe bet that Canada’s image as a moderate country and disinterested development partner in Africa is now thoroughly outdated.”

Why SA Creams Kenya

With a dairy cattle population estimated at nearly 7million, the largest such herd in Africa and more than the rest of the countries in East and Southern Africa combined, Kenya is the third-largest milk producer in Africa, behind Sudan and Egypt. The dairy industry is the single largest agricultural sub-sector, larger even than tea; it contributes some 14% of agricultural GDP and 3.5% of total GDP. And Kenyans love milk; they consume more of it than almost anyone else in the developing world. In terms of milk consumption per unit of average income, Kenya ranks only behind Mauritania and Mongolia globally among developing countries. On average, each Kenyan drinks, according to the International Livestock Research Institute (ILRI), about 145 litres of milk a year, triple his Ugandan counterpart and four times the average for Sub-Saharan Africa. A 1999 survey found that urban households spent an average of 18 percent of their income on dairy products, second only to their expenditure on cereals such as maize.

As milk is a bulky and perishable product, across the world the dairy sector tends to be highly localised, and dairy products are mostly consumed in the country or region where they are produced. If intra-EU trade is excluded, only 7 percent of the milk produced is traded internationally. However, Kenya manages to export substantial quantities of milk and milk products to the East African region and Asia. In 2007, the main dairy export destination was the Middle East, which received some 14 million litres, more than double the figure for 2006.

So it may come as a surprise to learn that though Kenya produces nearly 1.5 times more milk than its major competitor in the region, South Africa, it still earns 5 times less from that production. In 2006, according to the EA Report On Manufacturers & Commercial News, Kenya earned Kshs 64 billion from 3.5 billion litres of milk compared with SA's Kshs 220 billion from 2.6 billion litres which translates to revenue per litre of just Kshs 29 for Kenya and a whopping Kshs 96 for SA. With a dairy herd six times as small, the average SA dairy farmer produces ten times as much milk as his Kenyan counterpart.

Why?

Marketing of milk in Kenya is done through the formal and informal sectors. The formal sector in Kenya comprises of the following licensed milk dealers; 27 milk processors, 64 mini dairies, 78 cottage industries, 1138 milk bars and 757 primary milk producers. The numbers may sound impressive but they are deceptive. While the amount of milk marketed through the formal sector has been increasing over the last few years, only 70% of the country’s total milk production makes it to market and most of that is sold raw, through informal channels. Milk processors only collect 14% of the total production in any given year and only 1% of this converted into value-added, long-life products like cheese and butter, margarine, condensed milk, and powdered milk. Almost all dairy product consumption is in the form of liquid milk. The sad fact is, while they may be among the greatest consumers of dairy products in the developing world, Kenyans still fall woefully short of the 200 litres recommended by the Food and Agricultural Organization (FAO). By comparison, 90% of South African production is traded in formal markets and only 3% informally. The country converts 40% of all its milk into yoghurt, cheese and curdled milk.

Thus in SA payment for fresh milk is based on volume and quality of milk since processors need milk containing higher fat and protein percentages to reduce the production cost of dairy products. Globally, the market for higher value-added milk ingredients was estimated to be $ 19 billion in 2008. However, in Kenya, as noted in a 2008 report for the East Africa Dairy Development Program prepared by TechnoServe Kenya, milk purchases are currently driven only by volume and not quality. Processors are not willing to pay the premium for quality, discouraging investment in value added quality milk production and handling, and investment in cold chain technology needed to preserve the quality of milk.

Consequently, we have the strange paradox of milk being poured down the drain in a glut while at the same time imported dairy products are stocked in supermarkets. Though the Kenya Dairy Board asserts that dairy imports have gone down over time as the country becomes increasingly more self- sufficient in milk and milk products, it still admits that over Kshs. 400 million worth of “specialized milk products” are still imported mainly from New Zealand and the E.U.

A 2003 study by Andrew Karanja, a Research Fellow at Tegemeo Institute, Egerton University, showed that while the country could produce milk competitively, this advantage was lost due to inefficiencies in milk collection, marketing and processing. The study also indicated that though large-scale farms are the most competitive in milk production, in Kenya the industry is dominated by 600,000 small-scale producers located mainly in the Rift Valley, Central and Eastern provinces. They account for 80% of production and some 70% of marketed milk. By comparison, South Africa's market is dominated by only 4 000 large-scale milk producers.

Of course, small-scale dairy does have its compensations. While the South Africa industry employs about 60,000 farm workers and indirectly creates another 40,000 jobs, Kenya’s dairy sector supports 1 million households and generates 365,000 salaried jobs as well as over half million jobs in service sectors.

Other woes afflicting the dairy sector include a limited processing capacity which has not substantially increased in 2 decades; and a reliance on rain-fed agriculture which leaves the industry vulnerable to chronic cycles of underproduction in drought and overproduction when the rain comes, compounded by farmers’ lack of capital and knowledge.

In 2008, none of the farmers interviewed by TechnoServe knew their cost of production, or what increase in production resulted from adding an additional kilogram of food, or from altering the food regime. Because the benefits of additional feed or animal care are rarely examined in the context of increasing yields, most cows produce well below their potential. Additionally, even though dairy is an important source of income, for many producers keeping cattle is a cultural function which happens to meet domestic consumption needs while providing some cash flow. It is not seen as a business where the aim is to maximize income and minimize costs. As opposed to the trend towards intensification of milk production in developed countries, production growth in Kenya, as in most developing countries, is to a large part due to increasing numbers of milk animals (and dairy farms) and not productivity gains. The result is broke farmers, often dependent on open grazing to feed their animals and susceptible to the effects of seasonal weather patterns.

Add regulatory incompetence to this emphasis on quantity over quality and one gets the basic ingredients for the current milk crisis. The overseers’ reaction to the crisis is very illuminating in this regard. As the spectre of corruption is never far away from such tragedies, the Minister for Cooperatives Development, Joseph Nyaga, is fingering the NKCC management alleging “sabotage and deliberate incompetence.” He also cites the illicit dumping of subsidized milk powder from the EU. He is promising a crackdown on smugglers and the sacking of the entire NKCC team, including the chief engineer for the procurement of a Sh73 million milk-processing machine which has only been working for six hours a day.

The Kenya Dairy Board, finally waking up to its duties, is insisting that milk processors are obligated to absorb all the current production while in the same breath admitting that their capacity is overstretched. It is abundantly clear that this is not going to happen. New KCC (NKCC) and Brookside Dairies, which together account for 80% of the total processing volumes are already turning away farmers, and the situation is expected to worsen with the onset of the long rains.

But there is a more fundamental problem for the Ministry and the KDB. If, as the Export Processing Zones Authority asserts, the total inbuilt processing capacity is 2.5 million litres a day, why are milk processors struggling to cope with a surge of just over half of that? To blame the entire crisis on a single machine, on milk powder whose consumption is a tiny fraction local production, or on overstretched dairies reluctance to absorb more milk simply smacks of scape-goating. The truth is the crisis is largely as a result of long-term inefficiencies and weaknesses in the sector. It was entirely foreseeable, and therefore preventable, or at the very least, its worst effects could have been prevented. To find the real culprits, the Minister, like his minions at the KDB and NKCC, just has to take a long hard look in the mirror.