Kenya searches for alternative wheat source to meet high demand on back of Russia-Ukraine conflict

KENYA – Wheat production in Kenya is forecasted to rise by 20% in the Marketing Year (MY) 2022/2023 to 300,000 MT due to better weather conditions.

Yields are anticipated to improve but will remain below historical levels due to high fertilizer prices. While high fertilizer prices will impact wheat production, the effect is likely to be less severe for wheat farmers than corn farmers, highlighted USDA in a GAIN report.

Kenyan wheat farmers have greater access to financial resources which will help them absorb higher fertilizer costs as most of them tend to operate on a larger scale and be more commercially oriented than maize farmers, which on average tend towards small holdings.

Additionally, due to Kenya’s Wheat Purchase Program, millers must contract to buy all locally produced wheat before importing the grain at discounted tariffs, assuring wheat farmers a secure market.

Local demand of the grain for food, seed, and industrial use is forecasted to recover to near pre-COVID-19 levels at 2.25 MMT as Kenya’s hotel and food service sectors reopen as COVID-19 restrictions ease.

In particular, Kenya’s confectionery and baking sectors are expected to stimulate demand due to the full reopening of education facilities, restaurants, and other institutions.

Additionally, the growth of e-commerce among consumers will lead to more consumption of consumer-oriented wheat products such as pizza at the expense of traditional corn-based meals.

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Wheat demand growth may face headwinds if prices remain high due to supply disruptions associated with the conflict in Ukraine, causing some consumers to switch to alternative crops.

In 2021, local wheat prices averaged roughly of US$375 per ton, partly due to the revised floor price of Ksh 3700 (US$363) per 90kg bag for grade one wheat, that was agreed in mid-2021 between the GoK, the Cereal Millers Association (CMA), and the Cereal Growers Association (CGA). The floor price is expected to remain in force in MY 2022/23.

On the flip side, traders in Kenya are currently reporting spikes in wheat prices up to US$580 per ton following Russia’s invasion of Ukraine.

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The Black Sea region is a key supplier for Kenya, typically accounting for 40 to 50 percent of total imports.

The magnitude and duration of these price increases will depend on the length of the conflict. If it prolongs, Kenya will likely have to turn to alternative suppliers.

Under Kenya’s Wheat Purchase Program, wheat imported into the country from non-EAC countries by registered millers is subject to a discounted 10 percent ad-valorem tariff, instead of the steep EAC common external tariff of 35 percent ad-valorem.

Other than Russia, Kenya also sources wheat from Australia, Argentina, Canada, and Poland.

Meanwhile, with demand being higher than local production, Kenya will turn to imports to supplement supply and wheat imports in 2022/23 are set to remain steady at 2.1 MMT.

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