The Government in Kenya issued a blanket ban on the export of raw nuts in 2009 to allow local processors to gather enough materials for job creation in this labour intensive sector.
However, both the county and national governments have consistently failed to put in place all the necessary measures to support the macadamia sub-sector, which is rapidly emerging as an alternative cash crop to the declining coffee and tea sectors in the Mt. Kenya region. The crop has gained traction to non-traditional growing areas such as the Rift Valley and Western regions.
Although the macadamia nuts sub-sector has grown on its own since the ban was put in place, fears are now emerging that the country is likely to lose its grip on this niche market to new entrants due to the low quality of the nuts we have been producing.
In 2009, when Kenya banned the export of raw nuts, it had a firm grip on this niche market. There were only four other nut producing countries in the world – Australia, South Africa, Kenya and Hawaii in the United States, with Kenya supplying about 20 per cent of the total global demand.
Between 90 and 95 per cent of Kenya’s macadamia is produced for export. Key export destinations for Kenyan macadamia are the US, the European Union, Japan, China, Hong Kong and Canada. This year, demand for Kenya’s macadamia globally declined by 40 per cent, according to the processors’ estimates, partly due to the COVID-19 pandemic.
New entrants who threaten Kenya’s global market include China, Guatemala, Malawi, Vietnam, Colombia, New Zealand, Mozambique, Brazil, Paraguay and Swaziland. In total, 15 countries in the world have joined the producing club in the last decade.
With funding and support of the Chinese government, the International Macadamia Research and Development Center, established in Lincang, China, now holds more market potential for macadamias than any other country on the planet, recording an 11-fold increase in macadamia consumption between 2012 and 2018.
A global macadamia nut symposium held in China two years ago, which was poised to be held in Kenya next year but cancelled due to the COVID-19 pandemic, noted that as the global macadamia industry continues to grow, the need to deliver exceptional quality nuts will be more critical than ever.
The Nut Processors Association of Kenya (NutPAK)’s Chief Executive Officer, Mr Charles Muigai, said that this is where the biggest challenge for Kenya’s market competitiveness in the global arena lies because farmers are not faithful to producing quality nuts due to the low support the sector receives from the government and other actors.
With funding and support of the Chinese government, the International Macadamia Research and Development Center, established in Lincang, China, now holds more market potential for macadamias than any other country on the planet, recording an 11-fold increase in macadamia consumption between 2012 and 2018.
Value Chain Analysis for Macadamia Nuts from Kenya 2020, a report of the Netherlands’ Centre for the Promotion of Imports from Developing Countries, cited climate change, the impact of pests and diseases, poor good agricultural practices (GAP), lack of access to inputs, use of unsuitable or old macadamia varieties and immature harvesting as Kenya’s main undoing.
At a critical point of transition, following the ban, there was no functioning formal association of macadamia farmers. In 2009, the Ministry of Agriculture (MOA) initiated the creation of Macadamia Growers Association of Kenya (MGAK), which has remained without an office or a budget.
The macadamia sector, unlike tea and coffee, has evolved without any regulation or policy support from the government. The only main intervention was in 2009, when a ban was effected and again in 2018 when the ban was anchored in legislation.
History of macadamia farming in Kenya
The production of macadamia nuts in Kenya traces its history from 1944 when a European settler called Bob Harries introduced the crop from Australia in his estate near Thika town for ornamental and household consumption purposes.
He would, two decades later, found Bob Harries Ltd. to invest in the widespread expansion of the crop by introducing two key macadamia types – M. Integrifolia and M. Tetraphylla – and other hybrids from Hawaii and California.
In 1968, he grafted his own seedling nurseries to create a source for non-African estate owners and African smallholder farmers in Central Kenya’s coffee growing zones, namely, Embu, Meru, Kirinyaga and Thika.
He also initiated a campaign to have the government commercialise the crop. A feasibility study carried out in 1974 by the Food and Agricultural Organisation (FAO) that gave a nod to the viability of the sector convinced the government to support macadamia processing and marketing.
The government facilitated the creation of a joint venture between Japanese investors led by Yoshiyuki Sato and a Kenyan, Pius Ngugi, in setting up the Kenya Nuts Company (KNC), which today still runs the factory in Thika.
Sato had founded and run a textile factory in Nairobi since 1960 while Ngugi, a large-scale macadamia and coffee farmer from Thika, was in search of a market for his nuts.
The company would build a modern processing plant and establish its own macadamia plantations at an initial nuclear farm of about 400ha. It also set up a nursery for the propagation of adapted and grafted seedlings to supply out-growers.
By 1975, the company was processing nuts from its own estate as well as from other out-growers. It enjoyed a monopoly purchase right for in-shell nuts, sourcing 90 per cent of these from 140 smallholder coffee cooperative societies, as well as 47 additional buying centres.
Farmers delivered the harvest to cooperatives and collection centres and got a receipt with a pre-agreed price per kilogram. KNC would then collect the nuts when enough quantity has been bunched, and transfer the payments to the cooperative banks, where farmers collected cash by producing their receipts. Cooperative would earn a 10 per cent commission.
Japan continued to support the macadamia sector for over twenty years, culminating in the construction of the National Horticultural Research Centre where agronomists focused more on grafted seedling varieties. KNC multiplied these in their nurseries and by the time the Japanese left in 1997, it had distributed over 1.5 million seedlings.
Like the cashew sector, the macadamia sector was also affected by the liberalisation of economy. Being part of the private sector, KNC could not be privatised, which salvaged it from the decay that followed the cashew sector.
However, liberalisation accelerated domestic competition. In 1994, Peter Munga, the Equity Bank founder, opened a macadamia processing factory called Farm Nut Co. in Maragua, Muranga district. He had made some foray into buying coffee from farmers and realised that they were also selling macadamia at low prices. He decided to venture into marketing and processing the nuts.
Unlike his well-established rival, his firm lacked logistical infrastructure and links to cooperatives. The idea of brokers, who had played a marginal role by only collecting macadamia from distant locations, came in handy. With the entry of Farm Nut, the role of middlemen became predominant.
Like the cashew sector, the macadamia sector was also affected by the liberalisation of economy. Being part of the private sector, KNC could not be privatised, which salvaged it from the decay that followed the cashew sector.
Essentially, brokers would go directly to the farmers, offer better and direct prices than the cooperatives had done. Consequently, this significantly reduced farmers’ transaction costs of bringing nuts to collection centres as well as collecting their payments from banks.
Also, reduced volumes from the cooperatives increased processors’ transactional costs. It became more convenient for them to deal with the middlemen, and by the early 2000s, the cooperatives’ role in the macadamia supply chain diminished.
In the early 1990s and when the macadamia prices passed Sh30 mark per kilo in 1997, farmers in Central Kenya became more interested in macadamia farming due also to a fall in coffee prices. Production multiplied five-fold within six years only, crossing the 10,000 tonnes threshold in 1998.
The Chinese connection
A dramatic shift in the industry would come in the early 2000s when China became a mass consumer of the nuts. The emergence of a growing middle class in China with an appetite for in-shell nuts and container ships increasingly docking in Mombasa, demanding to return with loaded cargo, tempted Chinese traders to venture into the export of raw macadamia nuts from the country.
The first Chinese in-shell exporter was a Mr Yang who contracted brokers in Embu in 2004. They transversed the region with loudspeakers mounted on their vans offering Sh40 (US$ 0.48) – twice what processors had offered. They would a year later spread tentacles to Meru, where they remained for close to five years.
Local processors would buy nuts mainly from Kiambu, Muranga, Kirinyaga, and Nyeri, where Kikuyu processors had established processing units and created networks with local communities who they hired for factory jobs. This helped to lock the Chinese out of these regions.
Estimates by the USDA Foreign Agricultural Service indicated that nearly 60 per cent of macadamia had been exported in-shell in 2008, implying that exporters had been able to purchase most of the crop from Embu and Meru. This posed a huge threat, bringing processors together to push the government to ban the export of raw nuts that finally came on 16th June 2009.
With the exit of the Chinese, and the creation of a processors’ and farmers’ associations, there was hope that the industry would get organised and get the necessary support.
Far from it. Both the farmers and processors would soon be left to their own devices, competing among each other to fight the Chinese who were still smuggling nuts out of Kenya. However, the competition and the need to create more volume saw processors heighten production five-fold in the last decade to reach close to 50,000 metric tonnes last year. They also grew in number from 5 to over 30, a move that saw farmers get an unprecedented Sh200 a kilo despite complains emerging that the quality did not justify this price.
This year, the sluggish global demand has driven processors away from the field, leaving behind brokers who are buying the nuts for as low as Sh50 a kilo. Joshua Muriira, the Chairman of the Meru Macadamia Farmers Association, said that the absence of processors is deliberate since they have conspired to offer Sh85 a kilo and it has nothing to do with the COVID 19.
The idea of an export ban has failed to fade away in Meru and Embu, where people still believe that were the Chinese buyers still available, things would be different. They started protesting from the onset when the prices dropped from a high of Sh100 a kilo to between Sh40 and Sh60 after the Chinese exit.
The processors blamed the poor prices on brokers and the resultant high share of immature nuts. A narrative was also pushed that if they started selling the nuts to processors directly – rather than via brokers – good prices would return.
After the first ban in 2009, the Chinese would a year later successfully lobby the new agriculture minister, Sally Kosgei, to lift the ban on raw nut exports for three months on 28 May 2010. The official rationale for the lifting the ban was “to facilitate the mop-up of the excess raw nuts with farmers”.
On 15 December 2010, when Kosgei yet again decided to lift the ban (Gazette notice No. 16229) for a period of over six months until 30 June 2011, quoting the same rationale, this time, NutPAK successfully challenged this in the High Court on 21 December 2010.
It was only in 2016 that the MP for Maragua, a region not known to produce macadamia in plenty, introduced a motion against the ban in Parliament, arguing it was hurting farmers. The house’s agriculture committee rejected the petition on the grounds that it was not in the interests of the industry.
There was evidence of continued presence of the Chinese in Kenya, even after the ban. On February 2017, seven Chinese macadamia buyers were arrested in Meru for allegedly doing business in the country without the required licences and documents. Embu and Meru farmers protested against their arrest in March 2017.
On one occasion, during the gubernatorial party primaries for the 2017 election, the gubernatorial candidate for Embu, Senator Lenny Kivuti, used the opportunity and joined the protests in Mutunduri in Embu North sub-county, accusing his opponent and current governor, Martin Wambora, of colluding with the domestic processor, Privam Nuts, and saying it was wrong for the police to “harass the foreigners because the latter were offering a better price to the farmers”.
On February 2017, seven Chinese macadamia buyers were arrested in Meru for allegedly doing business in the country without the required licences and documents. Embu and Meru farmers protested against their arrest in March 2017.
There were protests against the ban throughout 2018. In late January 2018, prior to the legal opening of the harvesting season on 20 February, the government, through the Nuts and Oil Crop Directorate, again arrested and deported eleven Chinese macadamia buyers in Meru who were buying at the stellar price of Sh170, and whose arrest was by opposed by several Meru MPs, farmers and brokers.
Areas of intervention
The main opportunity for yield improvement, according to the Centre for the Promotion of Imports from Developing countries report, lies with supporting extension service providers, such as the Kenya Agriculture and Livestock Organisation (KALRO) and the Agriculture and Food Authority (AFA), to increase farmers’ capacities and to multiply and disseminate high-yielding macadamia seedlings that are suited to the different macadamia growing regions of Kenya.
There are two main areas of intervention for quality improvement. The first involves supporting processors who wish to obtain loans to buy crops in advance, thereby addressing farmers’ need for quick cash. The second is the implementation of region-relevant harvesting moratoria.
Upstream traceability of Kenyan macadamia is severely challenged by the large number of smallholder farmers and independent buying agents. Small plantations typify Kenya’s production system as opposed to other producers like China, South Africa and Australia, which have large plantation farming. Around 200,000 small farms in Kenya currently produce an estimated 42,500 tonnes of in-shell nuts.
Adopting traceability systems, some of which are part of mobile cash applications, could help in addressing this problem.
There are two main areas of intervention for quality improvement. The first involves supporting processors who wish to obtain loans to buy crops in advance, thereby addressing farmers’ need for quick cash. The second is the implementation of region-relevant harvesting moratoria.
Moreover, support should go to the creation of a registry of farmers, including data such as landholding size and age, number of macadamia trees and macadamia varieties and traders. This registry should be governed and accessed by members of the sector’s associations and AFA.
Communication and dialogue among macadamia stakeholders is lacking. Often, conflicting interests among actors lead to rivalry.
To address this, sector associations should establish, adopt and enforce codes of conduct to regulate the practices of sector players. Dialogue and transparency should be the ruling principles of this code of conduct. Moreover, all actors should discuss a multi-stakeholder strategy to address the challenges facing the macadamia sector.
Although some processors have links to European markets, the notion prevails among EU buyers that Kenyan macadamia nuts are of inferior quality. Moreover, processors regard the EU market regulations as more stringent than those of the US.
To address poor EU market access, the creation and marketing of a Kenyan macadamia brand should be explored.
