Inflation: Its Implication on Agricultural Investments

Inflation: Its Implication on Agricultural Investments
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Inflation in Kenya is on a steady rise with prices of basic commodities sky rocketing to all-time highs. The standards of living are ever increasing with economists and ‘non-economists’ alike having different probable causes for this mind throbbing phenomenon. Staple and closely staple foods such as Processed 2kg maize flour is now retailing at an upwards of 130 Kshs with the same quantity of sugar now being purchased at an upwards of 300ksh depending on brand preferences.

Half a litre of milk is now retailing at an upwards of 65 Kshs with some brands retailing at 80 Kshs, a commodity that has seen tremendous fluctuations in production over the years. Four hundred grams of bread is now retailing at an upwards of Kshs 55. Are all these statistics important,we may ask?

According to KNBS, the rates of inflation of food and non-alcoholic beverages increased to 18.56 % from around 10.28 the previous year. This in simple terms means that, the demand of agricultural and non-alcoholic beverages increased by approximately 8 % more than the previous year, while its supply was the same percentage less.
The continent has been afflicted by more than 131 droughts between 1994 and 2003. These rates are more than any other continent despite the fact that Africa only contributes 2.5% only of global carbon emissions. East Africa accounted for 75 percent of all the droughts in Africa meaning that there is dire need for farmers to cushion themselves from losses attributed to climate change. Climate change is not a futuristic topic restricted to high minded environmental science circles. This is a global concern that is eliciting sharp responses throughout the globe including Africa. Despite all these glaring truths, is the rise in general prices of commodities environmental, economic or political?

Taxation of basic consumer goods has surely gone up, but that’s beside the fact. Policies surrounding food security and drought mitigation measures have not been thoroughly formulated and/or implemented, but that’s also besides the fact. Urbanization has increased global energy consumption and consequent increase in global carbon emissions and thus the high rising menace of climate change. All these facts are important in problem/situational analysis. What then is the way forward?

Agriculture has the largest percentage of perishable and easily taxable commodities. This is because most agricultural products are consumables and thus their elasticity when it comes to demand is very low. In the 2015/2016 budget agricultural commodities were most hit with the treasury’s plan to raise an additional 64B which is approximately(1%) of the total GDP, with increase in taxation made directly or indirectly on agricultural produce such as wheat, tobacco, fruits etc. This meant that for any rational private processing firm, the tax burden would have been most readily distributed to both the producer and the consumer, with prices of raw materials decreasing and with the prices of finished goods increasing. A lot of factors encompass this theory which we may not have the liberty or space to delve in, and as economists say ceteris paribus.

Nonperishable commodities such as maize, wheat etcetera, are the most consumed and the lowest contributors of inflation due to their long shelf lives. However they are the commodities that have the highest prices during this period. High prices in a normal functioning economy are usually caused by very high demand that the supply can’t match. Apart from the vagaries of weather caused by climate change there has been a decrease in production, or likely an increase in demand of agricultural produce over the year, which is not being sufficiently met. This has affected both the producer and consumer in equal measure because as long as there is scarcity of products in the market the development of a nation is largely inhibited. An economy thrives in abundance.
Perishable commodities are the largest contributors of inflation in Kenya due to their small shelf lives meaning that their disposable rates are higher than those of non-perishable commodities. What then must be done to hold inflation at manageable rates?

Other than the dire effect of climate change, taxation and policies influenced by the government and other sectors, there calls for serious investments in measures/policies and/or technology that will ensure consistent and continuous production of agricultural commodities. Why agriculture and not infrastructure or industry?
The agricultural industry is the largest employer in the country engaging more than 75% of our total population directly and indirectly. Being the largest contributor to the GDP, it only contributes less than 30% of the total gross domestic product. Over 75% of all agricultural output is from small-scale rain-fed farming or livestock production. This means that, production is not at optimum levels due to the low levels of investments in the agricultural sector and the high dependence on rain-fed agriculture. There is little or no investment in irrigation technology, good agricultural practices and insurance of agricultural commodities as the three most important factors of optimum agricultural production.

More than that, seasonal changes in agriculture are almost learnable even in the absence of economists and price indices. Most farmers however tend to ignore/assume the glaring realities that are brought to the limelight during the months of December, January, February, and most of March as those are the months that have the highest inflationary rates(demand pull inflation) caused by produce scarcity.

Human beings should not be subject and submissive servants to seasonal changes, unpredictable weather, economic instabilities, and poor political policies/decisions rather he should grasp all the four corners of his/her intellectual prowess and think above these ‘minute’ challenges. Wise farmer/investors will invest in the right kind of technology if they want to reap the benefits of scarcity during these periods and consequently help reduce the effects of inflation. No country has ever progressed whilst depending on rain fed agriculture and thus the opposite is not true for farmers.

There are no returns without investments. The difference between rich and poor farmers is the amount of money they have invested in their enterprises, both intellectually and technologically. Wise farmers are the ones that provide during periods of scarcity.
Investment in agriculture depends on your speed of implementation (do not waste time), ability to take action when you feel uncertain (success is determined by the amount of uncertainty that you can comfortably handle), and how much you value your time. You only reap where you have sown and sown well.

“If an expert says it can’t be done, get another expert” David Ben-Gurion (Israel’s first prime minister).

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