Agriculture sector business response COVID-19

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About a week ago, KEPSA released an initial report on the “Business Perspectives on Impact of Corona virus on the Economy”. Although, the spread of the disease at that time was largely in China, Middle East, Europe and the United States of America, pointers already indicated a general negative effect on Kenyan economy in all sectors. This was because of general economic slowdown due to restricted travel among other measures imposed by affected countries which happen to be Kenya’s important trading partners.

While the global footprint of the spread of the virus has been changing rapidly and now reaching over 148 countries including Kenya which has so far recorded three (3) confirmed cases, previous fears expressed by businesses have been confirmed with clearly rapidly changing situations and statistics. The presidential directives in H.E the Presidents’ address to the Nation on Sunday, February 15, 2020 outlining nine (9) protocols affirms the seriousness of the matter and necessity to take drastic measures to curb the spread of COVID-19. This in equal measure, expressly pose even more difficult times to the economy in both the short and long term and hence the need to carefully balance between health and economy.

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Agriculture sector situational update

Over the past few days, the agriculture sector has reported several serious negative effects. These can be observed on the fresh produce market. The floriculture and fresh produce markets for example, have recorded very low sales. This is expected to worsen each day as the measures imposed remain in force.

I. Export Crunch: The floriculture and fresh produce markets have over the last few days shrunk significantly. With the lockdown in Europe and suspension of transit flights to the USA, most firms recorded only one eight (1/8) of produce being shipped abroad amid low orders. Reports from flower auctions in Europe on March 14, 2020 indicated that only 50% of products at the auction were sold. The remaining 50% were destroyed for lack of orders/purchases. With each country taking different measures every day, cancellation of orders without proper feedback/communication is bound to continue with far reaching effects on overall fresh produce export trade. Orders of fresh fruits and vegetables to South and South East Asia have completely stopped.

II. Labor: Whereas, the president’s directive of working from home is welcome, the floriculture sector is a daily activity racing against time for quality at maturity of produce. Any delays in harvesting or any other farm operation results in heavy losses, however cost of labor vis-à- vis the sales will not be a sustainable cost for the business to absorb. If the orders continue to go down, the question is how big the consequence on employment be?

III. Disruption of Supply Chains: Seeds, fertilizers, animal health products and agrochemicals are mainly imported from China and Europe. Indeed, 60% of agrochemicals usually originate in China. With the lock down in China and in Europe (maybe UK in the coming days), more challenges relating to scarcity and lead times of these commodities will be experienced. Coupled with the PVoC requirements and possible 14-day quarantine of ships docking at the port indications are that shortage of certified seed and massive delays in farm operations in the coming cropping season (March- June long rains) will be experienced. Temptation to use fake seed will be high hence eroding gains already made in the sector. A ripple effect in low production of food and other commodities will be experienced having negative impact on food security.
IV. Price Increase: The logistical issues explained (II) above, have already added to the cost of inputs with an average of 10-15% price increase. This in effect will result in high cost of production of food and other agricultural commodities, thereby negatively affecting competitiveness of traded commodities and increasing the cost of food items hence negating aspirations of BIG 4 Agenda.

V. Foreign Exchange: With the growing number of cancellations of orders every day in the fresh produce industry, the lower the export value and hence foreign income.

VI. Investor confidence: Several players in the floriculture and fresh produce industry are foreign investors. With declining market share and difficult operating environment, there is a high chance for relocation post- COVID-19 leading to loss of employment and national income.

VII. Farmers’ Health: The average age of farmers is about 60years. Data from other countries that have done extensive testing suggest that COVID-19 has a much higher level of severity on those in their 60s and older, meaning that preventive and protective measures for farmer communities who are producers of some fresh produce, livestock and food crops need to be scaled up.

Recommendations in the short run and long run

Private Sector Contribution in Short run

As more cases of COVID-19 emerge in the region with Tanzania, Rwanda and Somalia being the latest in the region, there is increasing uncertainty about how far and deep the effects will go globally, regionally and within Kenya. Government efforts already taken to combat the eminent health crisis is laudable and are being supported by the private sector in several ways; –

I. Compliance with the president’s directive to provide safe working environment for all employees including creating awareness, hand washing/sanitization and avoidance crowding in the workplace,
II. Maintaining all workers even with increasing loss of cash due to shrinking business especially for the fresh produce firms,
III. Making efforts to look for alternative markets, maintaining existing ones as much as possible to ensure that exports are maintained hence income streams.

Government Support Required in the Short run
In view of the overwhelming situation and the impact on agricultural businesses, the following urgent recommendations that require policy and legal support from government are proposed:

 Quick Fixes:

I. Outstanding VAT refunds should be fast-tracked to enhance liquidity of agricultural firms (exporters, millers & producers). This has been pending for a long time.
II. Immediately release all pending bills to cereal millers which has been pending for 2 years
III. Presidential directive protocol number 2 of March 14, 2020 to EXEMPT foreign pilots for freights and provide for a quarantine mechanism at the ports of entry. This will
allow freighters to continue.
IV. In addition, clear messaging from government about working from home should include agriculture sector (perishables) as essential so that employees do not expect some kind of “holiday”. This sub-sector requires 24hrs of working to get it moving.
V. Continuous flow of tracks to and from airport uninterrupted to facilitate fresh produce exports
VI. Speed up customs clearance; shorten quarantine and review times; and open green
channel for agricultural products and food imports in key ports

 Trade facilitation:

I. Ease inter-county trade by suspending cess payments for six months
II. Suspend IDF and RDL on all raw materials and staples for six months
III. Suspend SGR movement of cargo from port to ICD to allow direct movement of goods to reduce logistics costs
IV. Enhance speedy clearance of cargo
V. Direct embassies abroad to support in market information for current and alternative markets and provide real-time market information of key trading partners
VI. Suspend PVoC & VAT requirement for live plants seeds, animal health products,
fertilizers and agro-chemicals for six months
VII. KEPHIS, KAA and KEBS to facilitate staff presence/work to capacity at ports of entry for 24hrs, while providing them with safety gear

Taxation

I. Zero rate staples products to enhance food security and allow VAT claims to be set off against other taxes e.g. PAYE, WHT and CT
II. Allow food processing companies to claim VAT to reduce food prices
III. Reduce VAT and CT and waive CT for small businesses
IV. Remove KEPHIS port fees and reduce bureaucracy
V. Outstanding VAT refunds should be fast-tracked to enhance liquidity of agricultural firms. This has been pending for a long time
VI. Give tax breaks for companies not able to operate normally
VII. Removal of distribution licences and fees + advertising fees on trucks which companies pay for all 47 counties
VIII. Reduction of PAYE in the flower industry
IX. Support to private sector employee management approaches e.g. lay-offs and unpaid leave should the situation worsen

 Regulations:

I. Suspend all ongoing regulatory investigations to offer businesses breathing space to operate unless investigations are of a nature which can cause direct and immediate public harm. These include but not limited to KEBS, KEPHIS, KRA and County governments
II. Assist with renewal of permits from regulatory bodies with minimum requirements until such a time that site visits/training sessions are allowed. These includes HCCP trainings for renewal of KEBS permits
III. Relaxation of Pharmacy and Poisons Board laws so importing medicines/test kits is easier and cheaper
IV. Withhold approval of current pending legislative Bills in the sector until the effects of COVID- 19 are assessed and considered e.g. Horticulture Crops regulation 2019
among others

 Interest Rates:

I. Reduction of borrowing rates for sectors/ businesses not able to operate normally
II. Moratorium on commercial loans – repayment terms lengthened

 Food Security:

I. Relaxation of aflatoxin requirements from 10 to 20ppb. Rationale being to ensure that food supply from the region is supplemented due to low stocks in the country. We are currently rejecting 50-75% of trucks due to high level of aflatoxin
II. Remove 10% duty on wheat imports to cushion both consumers and businesses who use wheat flour for processing. All c60s should be by passed at this time to minimize
contact, costs and delays at port.

 Miscellaneous cost reduction strategies:

I. Reduction of price of fuel to reduce costs and drive economy
II. Cheaper power rates at off-peak

Government Support Required in the Long run
I. Expedite the conclusion of EPA with the EU and concretize Kenya- UK trade agreements
II. Set-up an agriculture and food security recovery fund alongside a recovery strategy
III. Lobby at EAC to zero rate farm inputs in the long run to promote sector recovery
IV. Policy reforms on manufacturing, imports, exports and value addition to diversify markets and de-risk the sector.

Livestock sub sector recommendations

Livestock sub-sector plays a critical role where it directly contributes to food and nutrition security and employs over 50% of workforce in agriculture sector. The demand for animal food sources with population growth is expected to increase rapidly in this decade.

So far, there is no scientific evidence linking COVID- 19 virus to livestock like ME RS-COV and SARS- COV – viruses identified with animals and infecting humans. There is need however, to take precaution as it is highly probable that it is zoonotic. Livestock industry stakeholders recommend the following actions:

• Regular inspection of slaughterhouses, butchers, and supermarkets and sensitizing on good hygienic practices
• A testing strategy on those in contact with animal products
• Enhance surveillance at border points on all imported animal products
• Carrying out livestock vaccination and regular surveillance on border points and entry
• Waive taxes on animal feed ingredients, fertilizers and farm inputs (zero rating)
• Relax loan recovery from farmers
• Create awareness of producers especially pastoralists on how to prevent COVID-19

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