adjustment period for local producers that, if not carefully managed, would result in the failure of Kenyan businesses and a loss of employment.

**At the level of the domestic industry, some work needs to be done to establish why there has not been more investment to improve productivity in the sugar industry.** It could be that the delay in privatizing the industry together with uncertainty surrounding the impact of open trade with COMESA is stalling investment in the sector, but there may be other reasons. Chisanga et al (2014) argue that a variety of factors including excessive government involvement, barriers to domestic investment, and problematic vertical relations with the cane sector, among others, are affecting sugar production in Kenya.  Recent reports of sugar millers operating well below capacity support the idea that there may be some problems upstream in the cane-growing sector, or in the structure of the relationship between the two sectors<sup>56</sup> . Certainly completing the progress towards open trade with COMESA should help to resolve uncertainties in the investment climate, as well as discipline domestic sugar prices. However, further work will be needed to examine other obstructions to competitiveness.

# **3. The Maize Sector**

**Maize is the most important staple crop in Kenya, particularly for the poor.** Average annual household consumption at the time of the last household survey (KIHBS of 2004/5) was approximately 105kg per adult equivalent<sup>57</sup> , estimated at roughly 38 percent of gross caloric intake<sup>58</sup> .  Average annual household expenditure on maize totaled KSH 1,863 (USD25) per adult equivalent<sup>59</sup> , which is roughly 10 percent of the rural poverty line. The same level of consumption in current prices would cost approximately KSH 3,913 (USD46) per adult equivalent on average<sup>60</sup> . Per capita consumption of maize has declined very slightly over the past decade, reflecting the gradual rise of alternative staples in Kenyan diets, but there is still no other staple with a consumption share that approaches that of maize<sup>61</sup> .

> 56 Given that sugar prices are so high, it seems strange that there can be a simultaneous long-term shortage of cane. Typically we would expect the prices for cane to rise, and further market entry by farmers to increase production of cane.  The fact that cane shortages persist suggests there is a serious problem in the value chain between the cane growing and sugar milling sectors.

> 57 Estimation accounts for population weighting and removing outliers in the same method as described for sugar. FAOSTAT figures for national supply are slightly lower than these estimates, coming in at 83kg per capita in 2005.  However, other academic sources (for example. Jayne et al, 2005) cite figures circa 98kg, suggesting that the FAO estimate is on the low end.

> 58 The average for 2005/2006 was 38 percent, very close to the average for the 2000’s of 37 percent.  Caloric contribution of maize has been on slow decline from the 1990’s, when it averaged 41 percent.  These statistics were estimated using FAOSTAT data.

> 59 The expenditure is that reported in the survey, including both the amount purchased and the value of that consumed from own production or stores.  Converted to USD terms using the average exchange rate of 73.35 KSH/USD from July 2005 – June 2006

> 60 The change in prices is estimated as the price change in sifted flour between the year from July 2005 to June 2006 and the most recent price available at the time (October 2012).  We use the change in sifted flour to be conservative, as it was slightly lower than that for dry maize.  The exchange rate used is the average of October 2012, 85.16KSH/USD.

> 61 FAO estimates have fallen since the time of the survey, as cited above, to 77kg in 2009.  Estimates of percentage caloric intake have also fallen as noted above.  Consumption of other staples, notably wheat, has risen over the same period.

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