The government has backtracked on a directive that was, ironically, issued by President William Ruto when he was Kenya’s agriculture minister. In 2009, Ruto banned the export of unprocessed macadamia nuts to allow local processors access to larger quantities of the raw material which in turn would create jobs in this labour-intensive sector.
In recent years, macadamia farming has gained traction in even non-traditional growing areas beyond Mt Kenya such as the Rift Valley and western regions. However, both the county and national governments have consistently failed to put in place all the measures necessary to support the macadamia sector and this has significantly affected farm gate prices today, leading to huge losses for farmers.
A number of factors have contributed to the poor farm gate prices, which the government wrongly assumes will improve once competition is introduced by bringing in more exporters of raw macadamia.
Following the export ban, both the national government and county governments in macadamia catchment areas failed to provide the policy support necessary to promote a sector where four years ago the farm gate price for a kilo of raw nuts was Ksh180 due to the increased number of processors. Fears have emerged in recent years that Kenya is losing its grip on the niche international market due to the low quality of the nuts produced, which makes the KSh180 per kilo price unsustainable.
At the time Kenya instituted the ban on exports of raw macadamia nuts in 2009, there were only three other macadamia nut-producing countries in the world—Australia, South Africa, 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. In 2020, the demand for Kenya’s macadamia globally declined by 40 per cent, a drop the processors attributed to the COVID-19 pandemic.
New entrants who now 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 macadamia producing club in the last decade.
The Chinese government established the International Macadamia Research and Development Center in Lincang in 2018 and the country’s market potential for macadamia is now the largest on the planet, recording an 11-fold increase in macadamia consumption between 2012 and 2018.
In an earlier interview, the Chief Executive Officer of the Nut Processors Association of Kenya (NutPAK), Mr Charles Muigai, said that the biggest challenge to Kenya’s market competitiveness in the global arena is the low quality of nuts produced by Kenyan farmers due to the insufficient support the sector receives from the government and other actors.
A report by the Netherlands Centre for the Promotion of Imports from Developing Countries titled Value Chain Analysis for Macadamia Nuts from Kenya 2020 cited climate change, the impact of pests and diseases, poor agricultural practices, lack of access to inputs, use of unsuitable or old macadamia varieties and immature harvesting as Kenya’s main challenges.
At a critical point of transition following the ban, there was no functioning formal association of macadamia farmers. The Ministry of Agriculture did initiate the creation of the Macadamia Growers Association of Kenya in 2009, but it remains underfunded and without offices.
Unlike the tea and coffee sectors, the macadamia sector has evolved without any regulation or policy support from the government, the only major interventions being the 2009 ban and its anchoring in law in 2018.
The production of macadamia nuts in Kenya traces its history to 1944 when a European settler named Bob Harries introduced the crop from Australia in his estate near Thika town for ornamental and household consumption purposes.
The government would years later facilitate the creation of a joint venture between Japanese investors led by Yoshiyuki Sato and a Kenyan, Pius Ngugi, to set up the Kenya Nut Company (KNC), which to this day still runs the factory in Thika.
Initially, the company built a modern processing plant and established its own macadamia plantations on about 400ha and also set up a nursery for the propagation of adapted and grafted seedlings to supply out-growers.
The production of macadamia nuts in Kenya traces its history to 1944 when a European settler named Bob Harries introduced the crop from Australia.
By 1975, the company was processing nuts from its own estate as well as from out-growers. It enjoyed a monopoly purchase right for in-shell nuts, sourcing 90 per cent of the raw nuts from 140 smallholder coffee cooperative societies, as well as from another 47 buying centres.
Like the cashew nut sector, the macadamia sector was affected by the liberalisation of the economy. Being a private company, KNC could not be privatized, which shielded it from the decay that ensued in the cashew nut sector.
However, liberalisation accelerated domestic competition. In 1994, Equity Bank founder Peter Munga opened a macadamia processing factory called Farm Nut Co. in Maragua in then Murang’a District.
With the entry of Farm Nut, the role of middlemen became predominant, due to the logistics challenges faced by the company in sourcing nuts from farmers. Brokers would buy nuts directly from the farmers, offering better prices than the cooperatives had, and immediate payment. Consequently, this significantly reduced farmers’ costs of transporting nuts to collection centres and collecting payments from banks.
Moreover, reduced volumes from the cooperatives increased processors’ transactional costs. It became more convenient for them to deal with middlemen, and by the early 2000s, the role of the cooperatives in the macadamia supply chain had diminished.
A dramatic shift in the industry came 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 the increasing number of container ships docking in Mombasa demanding cargo for the return journey, tempted Chinese traders to venture into the export of raw macadamia nuts from the country.
Local processors would buy nuts mainly from Kiambu, Murang’a, Kirinyaga, and Nyeri, where Kikuyu processors had established processing units and created networks with local communities that they hired for factory jobs. This helped to lock the Chinese out of these regions.
Estimates by the USDA Foreign Agricultural Service indicate 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 was finally instituted on 16 June 2009.
A dramatic shift in the industry came in the early 2000s when China became a mass consumer of the nuts.
With the exit of the Chinese and the creation of processors’ and farmers’ associations, there was hope that the industry would get organised and receive the necessary support.
This did not happen. Both the farmers and processors would soon be left to their own devices, competing with 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 increase production five-fold in the last decade, reaching close to 50,000 metric tonnes by 2020. They also grew in number from 5 to over 30, a move that saw farmers get an unprecedented Sh200 a kilo despite complaints that the quality did not justify the price.
In Meru and Embu the belief remained that things would be different were the Chinese buyers still available, and this may have prompted the recent lifting of the ban. The processors blamed the poor prices on brokers and the resultant high percentage of immature nuts. A narrative was also pushed that if farmers started selling the nuts to processors directly—rather than via brokers—good prices would return.
According to the report of the Centre for the Promotion of Imports from Developing countries, the main opportunity for yield improvement 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 producers like China, South Africa and Australia, which have large plantations. Around 200,000 small farms in Kenya currently produce an estimated 42,500 tons of in-shell nuts.
Upstream traceability of Kenyan macadamia is severely challenged by the large number of smallholder farmers and independent buying agents.
Moreover, support should go to the creation of a registry of farmers, including data such as landholding size, age and number of macadamia trees and macadamia varieties and traders. This registry should be governed and accessed by members of the sector’s associations and by the AFA.
Communication and dialogue among macadamia stakeholders is lacking, with conflicting interests among actors often leading to rivalry.
To address this, sector associations should establish, adopt and enforce codes of conduct to regulate 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.
