The policy implications of the Asian Tigers’ agriculture-based economic lift-offs

Introduction

About two weeks ago, this author stated that Kenya’s most pressing economic problem is mass and rampant unemployment, and suggested that small-scale, labour-intensive agriculture was one way out of the current morass. In the week following, the author endeavoured to expound on this, leaning heavily on Dr Joe Studwell’s invaluable historical evidence to demonstrate that the booster stage of the economic lift-offs of Japan, Taiwan, Korea and China was a stage in which excess labour (unemployment) was rapidly absorbed through investments in labour-intensive, high-yield agriculture, and that this was what set the stage for these countries’ subsequent industrialisation.

Following on from that article, we discuss what the policy implications from the agricultural stage of the Asian Tigers’ economic journeys are from a Kenyan – indeed – an African perspective.

Land reform

Land redistribution in China was the result of a bloody revolutionary war. What is probably far less known is that radical land reform in non-Communist East Asia was a policy designed, implemented and driven by the United States, which enforced it in the fear that in the absence of such equity and justice, communism would gain a foothold in the region.[1] We may pause parenthetically to note that the equitable distribution of a nation’s land – indeed of the entirety of its natural resources – is neither communist, nor socialist, nor yet capitalist in character. It is simply, merely, and powerfully just.

Here in Kenya, we cannot bring the forces of global powers and ideologies to bear on our land problem. Internally however, powerful forces are at work. The aforementioned unemployment coupled with episodic famine and starvation, left unchecked, are forces that have already begun to operate in our polity in an embryonic form. In the last election, the declared winner of the Presidential election was a candidate who – by hosting county economic forums and advancing a “hustler” oriented narrative – brought economic matters to the fore. The election of a number of independent candidates at County level is further testament to the fact that the populace is starting to think differently about how it should conduct its democracy. Land reform is the most apt, the most appropriate and the most suitable release valve for this building socioeconomic pressure.

Kenya may however have to adopt a different approach to achieving equity as far as the distribution of her land is concerned. Instead of enforcing land ownership limits (which would themselves be welcome), the nation could consider imposing a land tax. Said land tax should be completely unavoidable and un-evadable, at once modest enough to gain widespread acceptance among the majority of Kenyans, and significant enough to be effective in achieving redistribution. (It is this latter quality, materiality or significance, that current land rents and land rates lack.) The land tax could take the form of say KES 1,000 (USD 8) per acre per month, or, even more fairly, 2% per annum of the market value of the land – with either form of the tax deductible from personal/income/corporation tax so as not to increase the current tax burden. A flat tax of KES 1,000 would be simpler to understand and less prone to abuse. A 2% per annum tax however, while fairer and capable of raising more revenue, might liberalise only the waistlines of those charged with confirming land market values, instead of liberating the people. The author has examined the effects of such a land tax in more depth elsewhere.

Effective land redistribution on its own, while a pre-requisite in the Asian Tigers’ experience, was not a silver bullet, and would not be a silver bullet here. The remainder of this article could well be titled: What ails Kenyan/African agriculture? The truth is that at present, agriculture in Kenya doesn’t pay well, it is hard work, and it is riddled with uncertainty. With this in mind, the author discusses other factors critical to an agricultural take-off below.

Markets

The first requirement – indeed, the primary necessity – of any business is a viable market. Farmers must have somewhere to sell their product at better than the cost of production. This is perhaps the main “uncertainty” in agriculture – where, and for how much, a farmer will sell his/her crop. In South Korea for example, despite (imperfect) land redistribution, South Korean agriculture did not “take off” as long as Syngman Rhee’s government insisted on buying produce at below the cost of production. Once this policy was reversed (after Park Chung-Hee’s military takeover), agricultural production did take off.[2]

Markets must be both domestic and foreign in character.

Domestic markets are crucial, in order to establish food security, and to boost national nutrition. Historically for example, as the Asian Tigers industrialised, they were able to feed their industrial workforce with own-grown food. Another benefit of domestic markets – often overlooked – is that the sale of farmers’ produce domestically eases pressure on the balance of payments (and therefore on the local currency’s value) by reducing the need to import food. In other words, the first and most immediate level of import substitution ought to be food, not nail-cutters (although we shouldn’t import these either).

Export markets are valuable for their capacity to increase foreign-currency earnings. This author has stated how he once saw Ecuadorian bananas atop a Ramadhan-time dinner-table in Iraq; Ecuador is 13,000 km from Iraq, while Kenya is 3,700 km from that nation. Fully two-thirds of Taiwan’s export receipts in the 1950s arose from the sale of raw and processed agricultural goods.[3] It is the function – indeed, the duty – of the Ministry of Trade, Investment and Industry, working together with the Ministry of Foreign Affairs and Diaspora, to cultivate viable export markets for Kenyan agricultural produce. Initially these would be markets for raw / fresh produce; very soon after, these would be markets for processed products.

Protecting farmers’ returns

As vitally important as it is to find markets for farmers’ produce, it is just as essential to shield farmers from parasitic entities – public or private – that salt away the bulk of farmers’ productivity, denying farmers the right to it. The history of African and Kenyan agriculture is littered with sad and tragic tales of theft from the longsuffering African farmer. In post-independence Ghana, where the state had a monopoly over the purchase of cocoa, “government payments to cocoa farmers as a percentage of total export receipts for cocoa fell from 72 in 1960 to 41 in 1965.”[4] Eventually, “over a 15-year period from 1965, cocoa production halved.”[5] Here in Kenya in the early 2000s longsuffering pyrethrum farmers learnt that ”rats” had eaten KES 2.4 billion (USD 19.2M) worth of pyrethrin – a poisonous substance. The Asian Tiger narrative is radically different. One of the most important things China did in the course of its agricultural renaissance during the 1980s was to “prevent private traders and moneylenders from cornering the profits of farming.”[6] We would do well to learn from China’s example.

Irrigation

It is vitally important for Kenya to move away from the rain-fed approach that currently characterises its agriculture. Japan receives approximately 1,718 mm of rainfall annually; Taiwan about 2,000 mm. Despite this ample precipitation, neither country is in the habit of leaving the matter of its agricultural productivity to chance. About half of Japanese farmland is irrigated paddy field used for rice production, and very nearly half of all Taiwanese farmland is irrigated. In China, irrigated croplands also account for half of the total cropland area, and produce approximately 75% of food and more than 90% of industrial crops.

Kenya’s average annual rainfall is a relatively paltry 680 mm, and that is merely an average; 80% of Kenya comprises arid and semi-arid land. Yet only a scant 3% of Kenya’s arable land is irrigated. To expose Kenyan farmers to the vagaries of climate change and the irregular and erratic rainfall patterns it brings is to sound the death knell for Kenyan agriculture ab initio. Heavy government investment in irrigation is an imperative. These investments need not be complex or expensive; simple, communally-dug water pans coupled with drip irrigation have been demonstrated to have a transformative capacity in the lives of 6,000 farmers in Yatta, of all places. The cultivation of such so-called marginal lands has the power to ease pressure on demand for precious arable land.

Extension services

All farmers need technical support. Extension services are necessary in order for farmers to receive advice on the crops suitable for growing in an area, in order to provide farmers with knowledge of the correct agronomic techniques for selected crops, for carrying out soil profiling, and for providing advice on fertiliser application, pest management, and/or disease management, among numerous other services. Government policy is also better implemented when extension officers have been deployed. The importance of the provision of extension services to farmers and of technical assistance in general is too often grievously underrated. As proof of its importance, we may point out that fairly early in its own take off, Japan had an extension worker in every village.

Low-interest credit

One of the reasons that the democratization of land is important is that it can be a key to unlocking access to credit by farmers. Low-interest credit was availed to farmers in Taiwan. However, this is an intervention that should be managed with exceeding care to prevent the re-agglomeration of farmers’ land resulting from poorly-directed credit. Creditworthiness is not primarily a function of assets, it is a function of income. The creditworthy farmer, therefore, is not the one with the most valuable land, but the one with the most viable agribusiness.

This insight gives rise to a further insight: government is probably not the entity best-placed to allocate credit. The sad history of the Agricultural Finance Corporation is instructive: as recently as February 2022 the Auditor-General’s conclusion upon review of that corporation’s accounts for the year ended 30 June 2020 was to confirm that “public resources have not been applied lawfully and in an effective way.” The reasons for this conclusion are myriad, troubling, and well worth the interested reader’s time. More germanely to this discussion, however, in her report the Auditor-General states that loans worth KES 2.1B were written off in the financial year 2017/2018 without Board approval. Apart from the governance implications of this statement, these write-offs are testament to the current incapacity of such corporations to correctly allocate credit.

There is, however, a sector that has long experience in assessing creditworthiness and allocating credit: the banking sector. In order to provide low-interest credit to farmers, therefore, Government’s role might be to fund banks and/or provide them with partial guarantees (achieving low-interest rates in this manner). These banks could then allocate the funds provided to them to viable agribusinesses in the way banks know best. The government should consider limiting banks’ ability to be profitable merely through lending to the real estate and public debt sectors, forcing banks to lend in the direction of production (the philosophical and economic underpinnings of this thinking, of course, would take a whole article).

More riskily, government might also choose to re-purpose / remodel organisations such as the AFC – or indeed even government-owned banks – to provide these low-interest loans, while ensuring the necessary probity and governance frameworks are in place, that clear performance targets are issued and that these organisations are accountable for them. It could then assess / benchmark the performance of its own institutions/banks against private banks, and vice versa.

Research and development

Early in its agricultural development, Taiwan used aid to help develop more productive crop strains. Time was when Kenyan research and development was outstanding. Vestiges of this can be seen in the coffee sector for example. Kenyan Arabica is still among the best coffee in the world; the SL varieties predominantly in use currently were developed in Kenya under the colonial government in the 1930s and 40s. More disease-resistant varieties such as Ruiru 11 (1985) and Batian (2010) were only developed much later; Batian in particular is only recently being adopted in new coffee-growing areas in the Rift Valley. The opportunity exists to continuously improve cash-crop varieties for yield, cup quality, and disease-resistance. In the maize sector, the Kenya Agricultural and Livestock Research Organization (KALRO) launched at least 8 maize varieties in 2018. All 35 maize varieties released in Kenya between 2019 and 2021, however, were from the private sector. In general, more consistent government investment in the development of crop varieties suitable for the Kenyan environment would be key to unlocking Kenya’s agricultural potential.

Inputs

Kenyan yields are infamously low. By way of example, the current average national yield of maize, our staple crop, is around 1.7 metric tons per hectare (MT / ha) against a potential of 6 MT / ha. These low yields are occasioned by low and declining soil fertility. Our soils are low in organic matter, there have been imbalances / incomplete nutrient mixes in the fertilizers we have applied, and much of our soil is acidic. 

Soils that are low in organic matter are low in soil carbon, and are poorer at holding nutrients and water. It takes time to build soil organic matter; it is a long-term undertaking involving the use of manure, planting cover crops and ploughing back crop “waste” or residue. However, the mix of nutrients that go into our fertilizers can quickly be rectified. It has been demonstrated that the introduction of potassium into previously nitrogen- and phosphate-rich fertilizer doubled potato yields. Liming of soils, in turn, has been shown to increase maize yields in Western Kenya by up to 57%. In an example of the inter-connectedness of our problems, the improvement of a piece of land’s soil through liming might not happen where a farmer is merely leasing land, because the cost is prohibitive and may not be recoverable within a single lease period. We return to our first argument: farmer-owned land would be the best site for all these interventions.

Conclusion

In 2005, Chinese Premier Hu Jintao gave a keynote policy speech in which he said China had moved beyond the first stage of economic development where “agriculture supports industry” to a new stage in which “industry gives nourishment back to agriculture and cities support villages.”[7] This two-phased economic development happened across East Asia. Now, while it is the case that labour-intensive agriculture would be the most efficient and viable approach to absorbing the energies and exertions of our unemployed millions, it is also the case that constructing a conducive ecosystem within which such substantial productivity increases can take place is an immense task. It would entail changes in the way we use our land, the development of both foreign and domestic markets, the protection of farmers’ incomes, investments in irrigation, management of credit to the sector, management of the cost and quality of inputs, and increased investment in research and extension services.

In other words, it is a task worthy of all our efforts.

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[1] See How Asia Works: Success and Failure in the World’s Most Dynamic Region (Studwell, J. 2013) for a fascinating history

[2] From How Asia Works: Success and Failure in the World’s Most Dynamic Region by Dr Joe Studwell

[3] How Asia Works: Success and Failure in the World’s Most Dynamic Region by Dr Joe Studwell

[4] From The State of Africa: A History of the Continent Since Independence by Martin Meredith

[5] From The State of Africa: A History of the Continent Since Independence by Martin Meredith

[6] From How Asia Works: Success and Failure in the World’s Most Dynamic Region by Dr Joe Studwell

[7] Michelson, Ethan, Public Goods and State-Society Relations: An Impact Study of China’s Rural Stimulus (February 25, 2011). Indiana Legal Studies Research Paper No. 217, Available at SSRN: https://ssrn.com/abstract=2169306 or http://dx.doi.org/10.2139/ssrn.2169306