KMT Research

The Burden of Produce Cess and Other Market Charges in Kenya

Over the years, food markets have been affected by a number of challenges. To understand the cost structure of distribution of agricultural commodities, the Kenya Markets Trust commissioned this study covering 12 Counties in Kenya and five agricultural products (maize, vegetables, milk, fish and livestock).

What is Produce Cess?

Produce cess is a form of levy charged on domestic agricultural trade. Revenue raised from cess is meant for improvement of production and distribution of the taxed commodities.

Why Study About Cess?

The overall purpose of this study was to generate evidence and information on the nature of cess and other charges, how it is levied across counties and how it influences the cost of production and distribution in the agricultural sector in Kenya.

This information would be used to gauge the significance of produce cess and other charges and propose recommendations on how it can be structured to ensure its revenue generation objectives do not undermine the competitiveness of the agriculture sector.

In Kenya, no serious empirical study has been done on the impact of produce cess on agriculture sector thus the need to undertake this research. Such empirical evidence is critical for informing policy discussions and debates on produce cess.

Key Finding From the Study

Disparities

Wide disparities in the way counties charge produce cess on same agricultural commodities.

Revenue

Cess is not a significant contributor of county revenue for most counties

Households

Cess costs are highest on commodities likely consumed by low income households.

Costs

Cess significantly affects the cost of production and marketing.

Market Charges

Percent annual distribution costs of different commodities

Although produce cess, market levies, brokers’ fees and informal levies constitute lower proportions of the total distribution cost of the agricultural products, their effects would not be any different from those of transport cost.

Unlike transport cost, market levies and cess may be open to abuse and evasion, which may make collection expensive. High brokers’ fees and informal levies, on the other hand, could drive traders out of the market.

Sukuma Wiki. Onions and Tomatoes: The Pocket Drainers

Since vegetables are among the most consumed farm produce, cess and other market levies will be burdensome to consumers.

Worse still, these products are sourced from farms far away from market destinations meaning they are likely to attract higher transportation costs.

Cost Of Putting Food On The Table

Transport is the highest cost of distribution and marketing in all products except fish.

Scenario 1:

Ugali, Sukuma wiki, Fish, Onions, Tomatoes

Scenario 2:

Ugali, Sukuma wiki, Beef, Onions, Tomatoes

Scenario 3:

Ugali, Sukuma wiki, Milk, Onions, Tomatoes

Scenario 4:

Ugali and sukuma wiki only (poor man’s meal)

Multiple Market Levies, A Burden To Maize Farmers

Maize being staple food for Kenya, any slight change in cost of production harms consumers, who bear the additional tax burden.

From the study, cess, transportation and parking fee (for those selling in Nairobi and Mombasa) are some of the most burdensome charges, impacting maize trade in Trans Nzoia.

For example a maize trader sourcing maize from West Pokot where he pays cess on leaving the area. On reaching Kitale, the trader dries the maize and re-bags it. Again the trader pays cess on leaving Kitale for Nairobi or Mombasa market to sell to millers who deduct further cess. This transaction constitutes three levels of cess levying.

Transportation of maize is complicated by the fact that a truck could take three or more days before offloading at the mills. Thus, the transporter charges waiting fee in addition to high parking fees charged by the counties of Nairobi and Mombasa.

Is Cess Reduction Achievable for Counties?

The study shows that counties rely heavily on the national government

They cannot sustain their operation if the only source of revenue was from their own revenue.

Notably though, Nairobi and Mombasa relied substantially on locally generated revenues, accounting for about 55% and 47% respectively, of total annual revenues, supported mainly by their established industrial and service sectors.

Analysis of some of the counties’ local revenue streams, for FY 2015/16, revealed that agricultural Produce Cess contribution to local revenue streams varied widely across counties, ranging between 2 – 23%, for the sampled counties.

A review of County Finance Acts show wide disparities in the way counties charge produce cess on same agricultural commodities across various counties. For instance in Mombasa, onions cess is charged per ton of truck carrying onions rather than per unit (net or bag) as applies in other counties.

County Revenue Sources

County Revenue From National Govt.70%
70%

On average 70% of County revenue is from the National government except for Nairobi and Mombasa that are supported mainly by their established industrial and service sectors.

The study concludes that lowering or abolishing some market levies can increase value addition and not price addition. This will be beneficial for the sector and the economy as a whole.

A review of the county revenue sources, for the 2015/16 Financial Year, revealed that, across most counties, national government allocation remained the major sources of revenue, accounting for over 60% of counties’ total annual revenues

  • National Government
  • Local Revenues
  • Others (E.G. Grants)

Produce cess as a proportion of the local revenue streams

Produce cess and market levies are not the most important revenue sources for most counties so they can be reduced without a significant reduction in revenue.

  • Agriculture Produce Cess
  • Market Fees
  • Property Rates
  • Others Sources

Reflections

Harmonize Cess

Harmonize county cess across counties

Cess Rates

Counties could benefit by revising cess rates downwards

Increase Efficiency

Automation of cess collection could increase efficiency

Transport Infrastructure

County and national governments to jointly coordinate on transport infrastructure

Cess Funds

Enforce the creation of dedicated cess funds

The Burden of Produce Cess and Other Market Charges in Kenya

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