Required Report - public distribution

**Date:** 1/31/2006

**GAIN Report Number:** KE6001

KE6001

**Kenya**

**Tree Nuts**

**Kenya Tree Nut Update Report**

**2006**

**Approved by:**

![](media/image1.wmf)Kevin N Smith

U.S Embassy

**Prepared by:**

Mary Onsongo

**Report Highlights:**

Although production has shown an upward trend in the last decade a
slight decline is forecast for 2006 due to weather related reasons. In
2005, quality concerns led to a decline of exports of Kenyan Macadamia
to the U.S. High tariffs have eliminated export opportunities for U.S.
almonds in Kenya

Includes PSD Changes: Yes

Includes Trade Matrix: No

Annual Report

Nairobi \[KE1\]

\[KE\]

TABLE OF CONTENTS

[Production 3](#production)

[Production 3](#production-1)

[Table 1: Area, Tree and Nut Production (Wet in Shell Basis)
3](#table-1-area-tree-and-nut-production-wet-in-shell-basis)

[Consumption 3](#consumption)

[Macadamia yield and Area 3](#macadamia-yield-and-area)

[Macadamia Price and Quality 4](#macadamia-price-and-quality)

[Consumption, Marketing and Trade 4](#consumption-marketing-and-trade)

[Domestic and international Market
4](#domestic-and-international-market)

[Cashew nut production 6](#cashew-nut-production)

[Production Constraints 6](#production-constraints)

[Cashew Nut Marketing and Processing
6](#cashew-nut-marketing-and-processing)

[Policy 6](#policy)

# Production

Post estimates macadamia production at 11,000 tons and cashew nut
production 8,000 tons nut in shell (NIS) for MY 2005. The change from
post previous production estimates is due to informal trade data not
captured previously. Although production has shown an upward trend for
the last decade the drought experienced in 2005 may impact negatively on
the volumes for 2006.

Macadamia production is typically a small scale enterprise characterized
by individual farmers owning 5 -- 200 trees of various ages, under a
wide range of husbandry standards. The farmers intercrop with coffee,
fruit (avocado and banana) and food crops (corn, potatoes and beans).
Production challenges include pests and disease damages (i.e. stink bug,
nut borer, and anthracnose), drop of young fruits in the lower zones due
to moisture stress, inadequate training of extension staff and farmers
on crop husbandry practices.

## Production 

## 

## Table 1: Area, Tree and Nut Production (Wet in Shell Basis)

  ---------------- ----------- ----------------- ---------- ----------------- ------------ ----------------- ---------
  **Country**      **Kenya**                                                                                 

  **Macadamia**    **Inshell                                                  (HA)(1000                      
                   Basis**                                                    TREES)(MT)                     

                   2004        Revised           2005       Estimate          2006         Forecast          UOM

                   USDA        Post              USDA       Post              USDA         Post              
                   Official    Estimate\[New\]   Official   Estimate\[New\]   Official     Estimate\[New\]   
                   \[Old\]                       \[Old\]                      \[Old\]                        

  **Market Year                03/2005                      03/2006                        03/2007           MM/YYYY
  Begin**                                                                                                    

  Area Planted     8300        8300              0          8400              0            8500              (HA)

  Area Harvested   7000        7000              0          6000              0            6500              (HA)

  Bearing Trees    1600        1600              0          1200              0            1500              (1000
                                                                                                             TREES)

  Non-Bearing      300         300               0          1500              0            1500              (1000
  Trees                                                                                                      TREES)

  Total Trees      1900        1900              0          2700              0            3000              (1000
                                                                                                             TREES)

  Beginning Stocks 837         1052              946        609               0            4710              (MT)

  Production       7300        10500             0          11000             0            10000             (MT)

  Imports          0           0                 0          0                 0            0                 (MT)

  TOTAL SUPPLY     8137        11552             946        11609             0            14710             (MT)

  Exports          6814        10628             0          6373              0            8947              (MT)

  Domestic         377         315               0          526               0            526               (MT)
  Consumption                                                                                                

  Ending Stocks    946         609               0          4710              0            5237              (MT)

  TOTAL            8137        11552             0          11609             0            14710             (MT)
  DISTRIBUTION                                                                                               
  ---------------- ----------- ----------------- ---------- ----------------- ------------ ----------------- ---------

# 

# Consumption

## Macadamia yield and Area

Grafted macadamia trees bear fruit after about three years. With the
high prevailing prices there is renewed farmer interest, leading to
increased inputs for higher yields. The average yield from a mature tree
is estimated at 10 -- 20 kg/year (Most of the trees are very old and
neglected). Medium to large-scale estates (pure stand) that have adopted
good agronomic practices have reported yields up to 80 kg/year. Nuts are
harvested from end of November to March with the peak being January and
February.

Given that most of the farms are intercropped, area and yield are
estimates. Post estimates a minimal increase in area, due to
non-availability of planting material and limited area for expansion.
Currently processing companies and a few established nurseries supply
grafted seedlings. New interest from coffee farmers has increased demand
for planting material.

## 

# Macadamia Price and Quality

Competition from processors (both new and old) and traders continue to
strengthen the price of nuts (between Ksh 60-150 per kg). Due to
prevailing high prices, farmers are harvesting immature nuts (shaking
the trees) and delivering them to processing companies with very high
moisture content (over 20 %). Most of the small processing companies
have no drying equipment; consequently the nuts are developing moulds,
impacting negatively on quality. There is no structured marketing and
anybody can sell or buy nuts and the terms of payment is cash on
delivery. Theft of nuts for quick cash is on the increase. There are
also reported cases of stolen money from nut proceeds at the cottage
industry.

# Consumption, Marketing and Trade 

Kenya tree nut processors collect, crack, shell the nuts and pack for
both domestic and international markets. A small amount of both are
value added and packed in small bags as snack foods and consumed
locally. The fresh or salted kernels are used for deserts, snacks,
confectionaries, ice cream and chocolate making. The macadamia oil is
used for salad dressing, cooking, cosmetics or soap manufacturing. The
cake is used for livestock feed, the hard shells are used as fuel and
the wood produces timber.

  ---------------------- ---------- ------------ ------------ ------------
  **Kenya Supply and                                          
  Distribution of                                             
  Macadamia Kernels                                           
  (MT)**                                                      

  Year                   2003       2004         2005         2006

  Production (in shell)  6,500      10,500       11,000       10,000

  Conversion rate %      19         20           19           20

  Beginning stocks       126        200          116          895

  Production Kernels     1,352      1,995        2,090        1,900

  Total Kernels          1,478      2,195        2,206        2,795

  Exports                1,288      2,019        1,211        1,700

  Dom.Consumption        50         60           100          100

  Ending Stocks          140        116          895          995

  Total Distribution     1,478      2,195        2,206        2,795
  ---------------------- ---------- ------------ ------------ ------------

## Domestic and international Market

Domestic consumption is estimated at between 50 - 100 tons of kernel.
Kenya Nut Company (KNC) has branded their domestic products *Nutfields*
and Kenya Farm Nut *Equatorial Nut Processors*. They roast and sell in
supermarkets, hotels and other retail outlets. Nut consumption is
considered a luxury, mainly consumed by the higher income earners. KNC
international products are branded 'Out of Africa'. KNC supplies
airlines (Kenya Airways and British Airways), a move that might impact
exports. Nut processing companies are aggressively marketing their
products in the U.S. and other emerging markets to increase and maintain
demand amidst growing competition. New entrants into the market like Mt.
Kenya Nuts and Agricultural Commodities are intensifying demand for nuts
leading to increased prices.

+-----------+---------------+-------+----+-------+-----+-------+----+
| Kenya     |               |       |    |       |     |       |    |
| Tree Nuts |               |       |    |       |     |       |    |
| imports   |               |       |    |       |     |       |    |
| and       |               |       |    |       |     |       |    |
| exports   |               |       |    |       |     |       |    |
| (         |               |       |    |       |     |       |    |
| Quantity: |               |       |    |       |     |       |    |
| MT,       |               |       |    |       |     |       |    |
| Value:    |               |       |    |       |     |       |    |
| 1000      |               |       |    |       |     |       |    |
| US\$)     |               |       |    |       |     |       |    |
+-----------+---------------+-------+----+-------+-----+-------+----+
|           | ** **         | **Ja  |    | **Ja  |     | **Ja  |    |
|           |               | n-Dec |    | n-Dec |     | n-Dec |    |
|           |               | 20    |    | 2     |     | 2     |    |
|           |               | 03 ** |    | 004** |     | 005** |    |
+-----------+---------------+-------+----+-------+-----+-------+----+
| #####     | **Products**  | **    | *  | **    | **V | **    | *  |
| # Imports |               | Quant | *V | Quant | alu | Quant | *V |
|           |               | ity** | al | ity** | e** | ity** | al |
|           |               |       | ue |       |     |       | ue |
|           |               |       | ** |       |     |       | ** |
+-----------+---------------+-------+----+-------+-----+-------+----+
| 0802120   | AL            | 28.5  | 1  | 14.3  | 71  | 0     | 0  |
|           | MDS,FR/DRD/SH |       | 09 |       |     |       |    |
+-----------+---------------+-------+----+-------+-----+-------+----+
| 2008194   | AL            | 1.1   | 9  | 14.3  | 0   | 0     | 0  |
|           | MONDS,PRE/PRS |       |    |       |     |       |    |
+-----------+---------------+-------+----+-------+-----+-------+----+
| TOTAL     |               | 29.6  | 1  | 28.6  | 71  | 0     | 0  |
|           |               |       | 18 |       |     |       |    |
+-----------+---------------+-------+----+-------+-----+-------+----+
| #####     |               |       |    |       |     |       |    |
| # Exports |               |       |    |       |     |       |    |
+-----------+---------------+-------+----+-------+-----+-------+----+
| 0         | MACADAMIA     | 558.6 | 5  | 1,    | 11, | 491.1 | 6  |
| 802909810 | NUT,SH        |       | ,3 | 136.1 | 807 |       | ,3 |
|           |               |       | 74 |       |     |       | 95 |
+-----------+---------------+-------+----+-------+-----+-------+----+
| 2         | MACADAMIA     | 13.5  | 1  | 112.1 | 1,  | 89.9  | 1  |
| 008199010 | NUTS          |       | 26 |       | 313 |       | ,1 |
|           |               |       |    |       |     |       | 06 |
+-----------+---------------+-------+----+-------+-----+-------+----+
| 0         | MCDMIA        | 13.5  | 1  | 57.2  | 435 | 0     | 0  |
| 802908010 | NUT,NT/SH     |       | 21 |       |     |       |    |
+-----------+---------------+-------+----+-------+-----+-------+----+
| 0         | CASHEW        | 139   | 4  | 294.7 | 1,  | 238.6 | 1  |
| 801320000 | NUT,SHL       |       | 91 |       | 339 |       | ,2 |
|           |               |       |    |       |     |       | 04 |
+-----------+---------------+-------+----+-------+-----+-------+----+
| 0         | CASHEW        | 0     | 0  | 1.9   | 23  | 0     | 0  |
| 801310000 | NUT,N/S       |       |    |       |     |       |    |
+-----------+---------------+-------+----+-------+-----+-------+----+
| TOTAL     |               | 724.6 | 6  | 1,602 | 14, | 820   | 8  |
|           |               |       | ,1 |       | 917 |       | ,7 |
|           |               |       | 12 |       |     |       | 05 |
+-----------+---------------+-------+----+-------+-----+-------+----+
| ###### Gr | ** **         | **    | *  | **1,  | *   | **    | *  |
| and Total |               | 754** | *6 | 631** | *14 | 820** | *8 |
|           |               |       | ,2 |       | ,98 |       | ,7 |
|           |               |       | 30 |       | 8** |       | 05 |
|           |               |       | ** |       |     |       | ** |
+-----------+---------------+-------+----+-------+-----+-------+----+
| Source:   |               |       |    |       |     |       |    |
| D         |               |       |    |       |     |       |    |
| epartment |               |       |    |       |     |       |    |
| of        |               |       |    |       |     |       |    |
| Commerce, |               |       |    |       |     |       |    |
| U.S.      |               |       |    |       |     |       |    |
| Census    |               |       |    |       |     |       |    |
| Bureau,   |               |       |    |       |     |       |    |
| Foreign   |               |       |    |       |     |       |    |
| Trade     |               |       |    |       |     |       |    |
| S         |               |       |    |       |     |       |    |
| tatistics |               |       |    |       |     |       |    |
+-----------+---------------+-------+----+-------+-----+-------+----+

Periodically Kenya imports almonds from the U.S. Kenya's domestic demand
for nuts is prohibited by lack of awareness on the nutritional
importance, lack of purchasing power or in some instances prohibitive
prices and high tariffs on imported nuts. However, demand for nuts from
a growing market for healthy foods and a proliferation of new products
by an expanding bakery and confectionary industry is likely to push
domestic consumption upwards.

+------------+-----------------------+---------------------------------+
|            | EAC Common External   |                                 |
|            | Tariff (CET) 2005     |                                 |
+------------+-----------------------+---------------------------------+
| HS CODE    | Description           | Rates (%)                       |
+------------+-----------------------+---------------------------------+
| 0802.11    | Almonds in shell      | 10                              |
+------------+-----------------------+---------------------------------+
| 0802.12    | Almonds shelled       | 25                              |
+------------+-----------------------+---------------------------------+
| 0802.21    | Hazelnuts in shell    | 10                              |
+------------+-----------------------+---------------------------------+
| 0802.22    | Hazelnuts shelled     | 25                              |
+------------+-----------------------+---------------------------------+
| 0802.31    | Walnuts in shell      | 25                              |
+------------+-----------------------+---------------------------------+
| 0802.32    | Walnuts shelled       | 25                              |
+------------+-----------------------+---------------------------------+
| 0802.40    | Chestnuts             | 25                              |
+------------+-----------------------+---------------------------------+
| 0802.50    | Pistachios            | 25                              |
+------------+-----------------------+---------------------------------+
| #######    |                       |                                 |
| # Source:  |                       |                                 |
| East Afric |                       |                                 |
| a Communit |                       |                                 |
| y (CET) Ta |                       |                                 |
| riff Book  |                       |                                 |
+------------+-----------------------+---------------------------------+

Effective January 1, 2005 the East African Community (Kenya, Uganda and
Tanzania) established a Common External Tariff (tariffs on goods
imported from markets outside the block), which has resulted in a
harmonization of import tariffs for all three countries. However, import
tariff rates for some key agricultural products have increased
considerably. Under the new regime the tariff for shelled almonds was
raised from 5 % to 25 %.

+----------------+----------+----------+----------+------------------+
| ####### Kenya  |          |          |          |                  |
| Exports of Mac |          |          |          |                  |
| adamia Kernels |          |          |          |                  |
+----------------+----------+----------+----------+------------------+
| **             | **2003** | **2004** | **2005** | **Expected       |
| Year/country** |          |          |          | 2006**           |
+----------------+----------+----------+----------+------------------+
| USA            | 587      | 1,305    | 581      | 800              |
+----------------+----------+----------+----------+------------------+
| Japan          | 366      | 448      | 350      | 500              |
+----------------+----------+----------+----------+------------------+
| Europe         | 146      | 195      | 180      | 250              |
+----------------+----------+----------+----------+------------------+
| Canada         | 135      | 13       | 50       | 70               |
+----------------+----------+----------+----------+------------------+
| Australia      | 54       | 58       | 50       | 80               |
+----------------+----------+----------+----------+------------------+
| Total          | 1,288    | 2,019    | 1,211    | 1,700            |
+----------------+----------+----------+----------+------------------+

2005 macadamia exports to the U.S. were cut in half. The decrease in
volume is attributed to decline in quality performance (harvesting of
immature nuts and purchase of nuts with high moisture content).

# Cashew nut production

Cashew nuts are mainly grown in Kwale, Kilifi, Malindi, Lamu and Mombasa
Districts and to a lesser extent Tana River and Taita Taveta districts.
Total area under production has declined from 38,000 hectares in the
late 1980's to 29,950 hectares (2003, Ministry of Agriculture estimate).
The decline is attributed to low prices, poor management of the orchards
and other market constraints. However, prices have increased from a low
of ksh 17 to a high of ksh 70. The improved price coupled with increased
demand from the processing companies has led to orchard rehabilitation
and increased area. Industry analysts estimate production at 8,000 mt

# Production Constraints

The main constraints include lack of drought resistant, high yielding
and early maturing varieties; along with the presence of powdery mildew
disease, red ants and anthracnose in orchards.

# Cashew Nut Marketing and Processing

Marketing and processing of the cashew nut crop was in the hands of a
few cooperative societies until 1975 when a government run processing
plant with 15,000 tons per year capacity was built at Kilifi. The
factory was privatized in 1993 but was placed under receivership in 1997
and finally closed in 1998. It has since been reopened under new
management (Millennium Management Limited). Currently the marketing of
cashew nuts is liberalized and traders involved in marketing include,
exporters of raw nuts mostly to India; processors namely KNC, Millennium
Management Limited, Wondernut Limited, Bixa Kenya Limited and small
scale processors (cottage operations). They sell locally and also export
processed nuts to the U.S. and other destinations. Informed sources
estimate demand at 50,000 tons, which is creating incentive for
increased production.

# Policy

In the recent past, cost of crop production has risen considerably due
to the rising cost of inputs (fertilizers, pesticides, seeds etc).
Interest rates though coming down, are still beyond the reach of many
farmers and commercial banks require securities that most farmers do not
have. The above limits smallscale farmers' ability to expand production.

Tree nut producers, processors and traders are fragmented with
individuals developing their own strategies. Structuring the production
and marketing system may be necessary to accelerate industry growth.
Formation of a growers/marketing association to structure the industry
may be necessary to avoid theft, purchasing of nuts with high moisture
content and harvesting of immature nuts. Collaboration between key GOK
ministries and other stakeholders is necessary as a way forward for the
industry.