Category Archives: Agriculture

Toxic Business: Banned in the European Union, poisoning Kenya

Agriculture is one of Kenya’s key income earners contributing 24% of GDP and employing 75% of the population either directly or indirectly. As a result, the demand for pesticides is high and increasing with the need to increase agricultural production to keep up with population increase. Imported chemical pesticides in the market account for 87% and has more than doubled in four years from 6,400 tonnes to 15,600 tonnes in 2018, yet there are few safeguards to control application.

Every year fresh produce from Kenya is rejected by the European market when it is found to have harmful levels of chemical residue. When returned it finds its way to local fresh produce markets and consumed by unsuspecting Kenyans. The result is a huge healthcare burden on households as more people, especially children, fall ill.

A report by Kenya Plant Health Inspectorate Service (KEPHIS) showed that 46% of the fresh vegetables sold in Kenyan fresh produce markets have high levels of pesticides with harmful active ingredients, with Kale (94%) having the highest level of pesticides and herbicides that are harmful to human and animal health.

A small-scale farmer Joseph, who has adequate training in the handling of pesticides, prepares to spray his crops by mixing the chemical with water in a backpack sprayer pump, using his bare hands and no protective mask or clothing, he gives the pump a firm shake to mix the ingredients in it and then proceeds to splash water on the exterior of the sprayer pack to rinse off the chemical overspill with his hands. The small quarter acre, gently-sloping vegetable garden surrounds his family’s house, which further exposes his family to harmful chemicals. He is not aware of the danger of handling these pesticides, only focusing on their efficacy in pest control.

At the local roadside Market, Daniel Maingi of Kenya Food Rights Alliance purchases green capsicum and spinach to take for testing at the University of Nairobi’s Pharmacology & Toxicology Laboratory at the Department of Public Health, where Professor Mbaria confirms harmful levels of chemicals containing toxic active ingredients on the sample vegetables.

The “Pesticides In Kenya: Why our health, environment and food security is at stake” report by Route To Food Initiative (RTFI), makes a distinction between the toxicity of the active ingredient and the toxicity of the chemical product. In the European market, the manufacturer of a chemical product first registers the active ingredient, which is then tested and must be identified by name on the product label.

Of the “247 active ingredients registered in Kenya, 150 are approved in Europe, 11 are not listed in the European Database and 78 have been withdrawn from the European market or are heavily restricted in use due to potential chronic health effects, environmental persistence, and high toxicity to wildlife.”

In a case of double morality standards, these chemicals are available to Kenyan farmers threatening the health of both citizens and the environment by contaminating the soil and water. Most of these pesticides take years to degrade and therefore persist in the environment for many years and many are acutely toxic causing severe long-term toxic effects, disrupting the human endocrine system, harming wildlife and other non-target organisms that are crucial to the ecology.

The Pesticide Control Products Board (PCPB) set up by the Government of Kenya under the Pest Control Products Act of 1982 regulates the importation, manufacture, distribution and exportation of pest control products. PCPB has registered 247 active ingredients in 699 horticultural chemical products, with more products registered than active ingredients as one active ingredient can be by several companies. Of these, a quarter are banned in Europe and they include big brand names such as Syngenta, Bayer and BASF.

In Kenya, chemical companies host robust carnival-like events where smallholder farmers are bussed in from across the country and paid a stipend to attend. Throughout the festival, no mention is made to farmers about safe handling or protective clothing when mixing the chemicals for application on the crops. The farmers appear to completely trust the chemical companies to have their best interests at heart and do not ask any questions. At these marketing events, several chemicals are presented as solving multiple problems and are touted as the best in the market.

Glyphosate-based agrichemicals have received an enormous pushback globally for its carcinogenic properties. However, there are other harmful ingredients that should attract much more attention in use in Kenya, but banned in the European Union. Carcinogenic active ingredients include Chlorothalonil, Clodinafop, Oxyfluorfen and Pymetrozine. Mutagenic active ingredients include Cabendazim, Dichlorrvos and Trichlorfon. Endocrine disruptor pesticide active ingredients include Acephate, Carbofuran, Deltamethrin, Omethoate and Thiacloprid. Active ingredients that hamper development and are harmful to reproductive health include Abamectin, Carbendazim, Carbofuran, Gamma-cyhalothrin, Oxydemeton-methyla and Thiacloprid. Neurotoxic active ingredients include Abamectin, Acephate, Dichlorvos, Glufosinate-ammonium, Omethoate, Permethrin and Thiacloprid.

Before the advent of chemical herbicides, farmers would weed their farms by hand and using hand hoes, this has been increasingly replaced by pesticides even for the smallholder farms under five acres. Mono-cropping or monoculture where one crop is planted year in year out, depleting the soil of nutrients and necessitating the increased use of fertilizers to improve yields with each subsequent year, also encourages the spread of crop pests which require chemicals to treat. Another area that receives little focus is post-harvest storage pesticides. If fertilizers are subsidized, why not include hermetic storage technology (HST) storage bags that provide moisture and insect controls, without pesticides, in this policy?

If we continue to consume chemicals, consciously or subconsciously through the food we eat, the water we drink and the air we breathe, then the next generation we produce will be of a lesser quality than ourselves, as will subsequent generations.

A guest post by Velma Kiome 

10 Points from AfDB 2019 in Malabo

The African Development Bank (AfDB) Group held their 2019 series of annual meetings from 11 to 14 June in Malabo, Equatorial Guinea with the theme of “Regional Integration”

Highlights of the meetings:

1. Fast growth is not Enough: A key theme of the week was that the stellar growth levels in Africa (over 4%) were still not enough to create enough jobs and produce sufficient food on the continent.

2. High 5’s:  Regional Integration is one of the development priority themes (‘ High 5s’) that the Bank had adopted at its 2016 meetings in Lusaka, Zambia alongside (to) “Light up and power Africa”, “Feed Africa”, “Industrialise Africa”, and “Improve the quality of life of the people of Africa.”

3. It is Capital Raising time for the Bank and is organs. There are advanced talks towards a 7th general capital increase, the first since 2010, for the African Development Bank, which will be concluded in September.

A few months ago, Canada provided temporary callable capital of up to $1.1 billion to stabilize the AAA rating of the Bank.

There are also ongoing negotiations for a 15th replenishment of the African Development Fund.

4. Visa Index: The Bank’s Africa Visa Openness Index ranks how accessible African countries are to visitors from within the continent in terms of requiring travel visas and tracks developments by different countries to improve the ease of travel for fellow African citizens.

5. Low intra-Africa trade:  Ahead of the African Continental Free Trade Area (AfCFTA) which comes into force in July 2019, the potential economic benefits of full implementation were highlighted, with the greatest beneficiaries of the increased trade likely to be countries in the Central Africa region.

Africa has 54 countries; Alone they are not very competitive, but together, under the Continental Free Trade Agreement, they are a market of $3.4 trillion

 

Also see the regional economic outlook reports by the Bank.

6. Debt levels in Africa: There was some discussion about the levels and types of debt across Africa and their potential burden versus the growth and infrastructure needs of individual countries. Also the Bank affirmed its support to help countries negotiate better financing terms, get better deals for extractive resources, minimize currency risks, and to enable them to mobilize their own resources domestically.

7. Asia-models for Africa: At the AfDBAM2019, Korea and India showcased their partnerships with the Bank including on agricultural transformation, enhancing food security and scaling financing across Africa.

8. Different forms of development finance by the Bank: 

  • Toward Financial Inclusion

  • Integration of Africa

  • The Environment

  • Food Security

  • Disaster Relief

  • Clean Energy

  • They also have plans for an affirmative action finance facility for women in Africa (AFAWA).

9. Transformational Infrastructure Projects funded by the bank include ports, highways, bridges and border-crossing stations across different countries.

10. Malabo Image: Host nation, Equatorial Guinea, used the forum to shed an image about the country that is full of old stereotypes to one of economic diversification, transformation and infrastructure. President Obiang attended the opening of the AfDBAM2019 which were chaired by the country’s Minister of Finance, Cesar Abogo, who is just 39 years old.

(a) Parallel events during AfDBAM2019: 

  • Africa Investment Forum last year which at its inaugural AIF forum in 2018 in Johannesburg secured  $38 billion of investments for 40 projects across Africa.

  • African Banker Awards

(b) Next meeting: Following these first-ever meetings to take place in Central Africa, the next annual meetings of the bank will be in a year’s time in Abidjan, Côte d’Ivoire – the bank’s headquarter city, where they the election of the Bank President will be the main agenda item.

Flowers by the Lake: Karuturi and the Bankers

Kenya is known as one of the giants of the giants of the fresh flower world, producing roses, lilies and other carnations that are freighted around the world to be used as gifts, tokens of affection, and to spruce up weddings, offices and restaurants.

A large share of these flowers come from farms around Lake Naivasha, a tiny lake in the Rift Valley of Kenya about 90 kilometers Northwest of Nairobi.  Many of the farms are on Moi South Lake Road, which is also where most of the picturesque Naivasha tourist lodges are also located. The road is a bumpy, potholed road, one which seems illogical given the investments on each side of the road, that run into tens of millions of dollars of lodges interspersed with flower farms, that neighbour each other for almost ten kilometers. In between are small ramshackle town structures that are a common peri-urban feature across the country housing bars, chemists, mobile money agents and other shops. There are also schools named after flower companies and you may spot hundreds of school children playing football or lounging at break time as other kids walk towards their homes, along the road which has sparse traffic of flower company buses and land cruisers and minivans ferrying tourists to different lodges, with familiar names like Simba, Enashipai, Sopa, Pinkman, Crayfish and Crescent. There are also signs for land for sale, usually on the left side of the road, away from the prime lake shore and some with unfinished building structures, outcomes of a dream sold years ago of Naivasha as a place to buy a holiday home.

Then there appears a large group of greenhouses, on the right side of the road, the preferred side. But unlike other farms you have passed, you can see past the ever-present Naivasha thorn bushes and security fences, that the greenhouses plastic walls and roofs are torn, flapping in the wind.. Inside the compound looks overgrown, and devoid of busy activity at other flower farms.

This is Karuturi, a farm that has spawned a long-running case in the Kenya courts. It is not the longest, not by far.  If you spend time in Kenya’s courts you will discover there are cases, commercial and civil, that stretch as far back as ten, twenty, and even thirty years.

The case, Civil Suit No. 78 of 2014 of Surya Holdings, Rhea Holdings and Karuturi Limited, against CFC Stanbic Bank collectively known Karuturi case is a unique one. One that has roped in banks in Kenya and India, landowners, flower pickers, workers unions, schools, two receiver managers, audit firms, suppliers and government agencies.

 A summary of the case events:
  • December 2012: Stanbic advances facilities to Karuturi; with the main loan to be repaid over five years. The facilities are secured by guarantees from directors of Karuturi as well as Rhea Holdings and Surya Holdings, related companies which are the registered owners of the land parcels the farm was situated on, The first repayment was made in January 2013 but then none was made for the next three months in succession.
  • January 2014: Stanbic obtained an advisory opinion which showed that the Karuturi farm was insolvent, its financial accounts were questionable for 2012 and it appeared the directors of Karuturi had abandoned the farm. They advised that putting the farm under receivership was the only way to stop further degradation of the assets. as the farm had stopped sales and production of flowers at Naivasha in August 2013.
  • February 2014: Stanbic places Karuturi in receivership and appoints Kieran Day and Ian Small as Receivers and Managers.
  • February 2014: Receivers advised the bank to move to dispose of the farm as soon as possible and to preserve assets by continue trading.
  • March 2014: Karuturi sues to challenge the appointment of receivers and stop the sale of the charged properties.
  • June 2014: Court rules that the appointment of receiver managers was proper. It also restrains the receivers from selling the charged properties (Rhea’s LR 10854/60 and Surya’s LR’s 12248/20, 12248/21, 12248/38, 25261 and 25262)
  • Karuturi was reported to have been relocating to Ethiopia in March 2014  in what was seen to signal a loss for Kenya as a preferred flower growing powerhouse.
  • October 2014: The Receivers create a company called Twiga BV to facilitate the sale of Karuturi flowers to the Netherlands and to receive revenue in order to pay expenses, staff and suppliers of the business. This came after Karuturi BV had been declared insolvent.
  • October 2015: One of the Receiver Managers is relocating from Kenya and the firm resigns. The bank appoints Muniu Thoithi and Kuria Muchiri of PWC as the new receiver-managers. Twiga was transferred to the new receivers at the end of 2015.
  • March 2016: In a hearing of a case filed to wind up Karuturi, and with lawyers for Polythene Industries, Agility, Ivaco, Inter Label, ICICI and Stanbic, the lawyers for Karuturi side with the winding up clause and allowed this process to proceed.
  • October 2016: A High Court judge finds that Karuturi had admitted (in March 2016) that they owed the bank $4M and Kshs 2.7 million before the receivership and that Surya and Rhea had provided securities to secure this debt. The court also directs that an independent forensic audit be done on business and operational transactions during the receivership period and look at items such as the expenses paid by the bank, repayments by Karuturi to the bank, balances outstanding, exports and production, payments to workers, tax payments, status of assets bought or sold during the receivership inventories, and compare the performance of the company between 2007-2012 to the receivership period.
  • November 2016: The suit parties settle on Deloitte to do the audit.
  • August 2017: Karuturi applies to the court seeking to pay $3.8M and Kshs 2.7 million within sixty days and have the bank release the land titles of Surya and Rhea.
  • October 2017: The audit report to the court reveals that, in addition to the debt owed before the receivership of $6.2M, another $9.4M had been spent during the receivership. The audit showed that 403 million good quality roses had been harvested (between February 2014 and May 2016), 2% of which could not be accounted for. Altogether in 2015 and 2016 Twiga received $23.6 million and paid $23.5 million for vendor expenses and administrative functions. Also, the assets of the company were intact, contrary to a Karuturi claim that the receiver managers had run down the assets of the company and it dismissed many of the accusations of Karuturi including that on transfer pricing and found that the receivers had not engaged in misconduct. The audit also found that the last known date of production at the farm was early in May 2016 and that the farm was descending into disrepair as costs continued to be incurred in preserving it.
  • October 2017: ICICI Bank of India wins a separate demand for $40 million from Karuturi.
  • January 2018: Courts rule that the receivership was proper and that Karuturi directors should pay the pre-receivership debt of $4M and Kshs 2.7 million, with interest, within 60 days. Also that, within 90 days, they are to pay $6.3M owed to creditors during the receivership and $6.7M advanced by the bank during the receivership period up to December 2016 and another $0.97M of receivership expenses incurred the following year to July 2017.
  • March 2018: Reports that an American company, Phoenix Group, has invested an undisclosed sum, said to be $2 billion, in Karuturi Global to help it pay its debts and revive its Kenya operations.

  • May 2018: The Receiver Manager of Karuturi (in liquidation) puts the movable assets of the company on sale. These include 1,400 steel greenhouses, vehicles, refrigeration and irrigation equipment. The land they occupy at Moi South Rd, Lake Naivasha is not part of the transaction.
  • Later in the month, Karuturi appealed against the court judgment and sought to terminate the receivership and also stop the sale of assets.

  • September 2018: The case is due for hearing this month. In the meantime, Kenya has enacted new company laws and insolvency laws. The main difference is that whereas before a receiver manager would act in the interest of the bank, they are now mandated to act on behalf of the bank and all creditors of the company.

Asoko reviews Flower Farms (Floriculture) in Kenya

Asoko Insight has published an interesting review of flower farms and the floriculture industry in Kenya showing trends for the region and new markets for what has been a steady export for the country. It is Interesting that the Netherlands is considered the world’s largest producer of flowers with a 45% of the export value, followed by Colombia 17% and Ecuador 10%. Kenya has 9% of the global flower market, far ahead of Uganda and South Africa in Africa.

  • Export-oriented: Kenya flower exports earned $813 million (Kshs 81 billion) in 2017 according to Kenya’s Horticultural Crops Directorate and these are growing at 11% per year. Kenya’s 2018 economic survey has these cut flowers, 160,000 tones of them representing 71% of horticultural earnings; much larger than vegetables and fruits at Kshs 24 and 9 billion, respectively. Most flowers are grown for export, while domestic demand is but a small fraction that comprises purchase of low grade products. 
  • Producers: There are 236 companies actively growing flowers, 24 are large, and these include Oserian Development, James Finlay, Carzan, Primarosa, Vegpro Group, AAA Growers, Mount Elgon Orchards, Flamingo, PJ Dave, Kariki, and Timaflor. Producers need certification to break into export markets and sell at premiums. Large farms market their flowers to sister companies and contract smaller farms who also have the option of using international wholesalers.
  • Netherlands: FloraHolland is the largest flower auction in the world and has historically Europe has been the main destination of Kenya’s horticultural trading, but the report  mentions that some large Kenyan producers are bypassing the Dutch auction system, directly supplying bouquets and loose flowers to large Western retailers such as Walmart and Tesco who focus on delivery, reliability, and traceability, not just price. Primarosa was recently in the news pushing for the Kenya floriculture industry to set up its own flower auction.
  • Ethiopia: The report also compares the floriculture industry of Kenya and Ethiopia which has been in the news due to the long-running Karuturi versus Stanbic bank case which has highlighted that some flower farms are shifting their floriculture interests and investments to Ethiopia where there are less labour (union) and tax issues in production. Kenya’s flower exports in 2016 were $690 million compared to $190 million for Ethiopia. That said, it has not been smooth sailing for Karuturi in Ethiopia so far.  

Read more in the Asoko report (PDF) on Kenya’s floriculture industry.

Kenya Income Tax Cuts, Increases, and Other changes 2018

The Kenya government, through the National Treasury, is proposing some long overdue changes to the country’s income tax laws, which are contained in a draft bill that will be submitted to Parliament.

The bill has new clauses that affect transfer pricing, new extractive (oil & gas) industries, phase out of turnover tax, and an apparent tax cuts. It comes after other recent changes to the tax code. Kenya also has an ongoing waiver and amnesty program for income tax and assets held outside Kenya to be declared and repatriated to the Kenya Revenue Authority (KRA)  by June 30.

Leading accounting and audit firms such as KPMG, PWC, and Deloitte have looked deep into the clauses, and these are some of their findings: 

KPMG:

  • Companies are to produce and maintain transfer pricing documentation and policies in place for the year of income.
  • The withholding tax threshold of Kshs 24,000 had been deleted.
  • Payments to non-resident petroleum contractors will be 20% (up rom the current 12.5%)
  • Developers who build over 400 houses to pay taxes of 15% on gains.
  • Micro-finance institutions (MFI’s) interest will be exempt from withholding tax.
  • Sports clubs & associations will get taxed on entrance fees and subscriptions.
  • Farms, warehouses or doing consultancy work for more than 91 days in a year are now considered permanent establishments. KPMG comment – This will require non-resident persons doing business in Kenya to re-think their operational models.
  • A listed company will pay 25% taxes for five years if 40% of its shares are floated.  KPMG  comment – this will reduce the impact of taxation as an incentive to list.

Deloitte:

  • Income tax rate of 35% on more than Kshs 750,000 (~$7,500) per month
  • Non-residents’ who receive their pensions in Kenya will pay a tax of 10% on transfers (up from 5%) 
  • A higher corporate tax of 35% for large companies with taxable income over Kshs 500 million (~$5 million).
  • Real-estate capital gains tax of 20% (up from the current 5%). Deloitte comment – Though the increment is quite steep, it enhances equity considering that CGT is regarded as a tax on wealth.
  • Equality: Each person in a marriage is now required to file their own tax returns: no more cases of wives having their incomes filed under husband’s income tax returns.  
  • Mining & Oil: Losses can be carried forward for a maximum of 14 years (There is no current cap)
  • EPZ holiday removed: Now EPZ’s will pay 10% tax for the first 10 years, and 15% for the next ten years (other companies pay 30% corporate tax).
  • SACCO’s: Cooperative societies to pay a withholding tax on dividends and bonuses of 10% (up from the current 5%) 
  • Subsidiaries in Kenya to pay 10% tax on dividends remitted to the parent companies.
  • E-commerce: The Treasury Cabinet Secretary will be allowed to introduce taxes on digital platforms.
  • Capital allowances reduced: The 150% allowance for investments outside cities has been removed, those for filming equipment reduced from 100% to 50%, and educational institutions from 50% to 10%.
  • Small businesses, that are licensed by counties, will pay a presumptive tax of 15% of the business permit fee. Deloitte comment – (this) replace the turnover tax, currently at the rate of 3% of a person’s turnover (KRA has faced challenges collecting) ..  will require collaboration with the county governments. 

PWC

  • All medical insurance paid by employers for employees is now tax-exempt (even for expatriate staff) and age limits for children covered goes up from 21 to 24 years.
  • withholding tax of 5% will be levied on payments to foreign insurance companies. PWC comment – this is aimed at promoting local insurance companies.
  • Income tax exemptions that have been dropped include income of the Export-Import Bank of the USA (relates to Kenya Airways?). Also on the income of stockbrokers from trading in listed shares. PWC comment – this may have a negative impact on the growth of the capital markets in Kenya;
  • 20% withholding tax on payment to non-Kenyan companies for horticultural exports. 
  • 20% withholding tax on payment of air-tickets to non-resident agents. PWC comment – may lead to increase in airline ticket prices in Kenya which may affect competitiveness of local airlines.

They also looked at other recent tax adjustments which PWC notes will mainly alleviate the government from paying VAT refunds.

  • Milk, maize, bread, bottled water, will all cost more after moving from “0%” VAT to “exempt” VAT as importers will pass on non-recoverable VAT to consumers.
  • Same for LPG gas, some medicines and agricultural pest control inputs.
  • Making housing affordable. PWC comment – the Government is also proposing a stamp duty exemption for the purchase of a house by a first time home owner under an affordable housing scheme
  • Betting/Gambling: For winnings, a 20% tax will be deducted at source i.e the betting company) on any prizes (this is up from the current 5%)

Other Clauses in the Income Tax bill

  • Parent companies are to file country-by-country reports with KRA within 12 months of year-end.
  • No capital gains tax is due on land if it is compulsorily acquired by the government.
  • No capital gains on listed securities.  
  • While there is a new 35% tax for the rich, the income tax bill appears to lower taxes for the low-income.  e.g. someone earning Kshs 40,000 (~$400) per month, who pays 5,932 in tax per month now after personal relief, will have a lower tax burden.  Income tax bands are expanded in the 10% range (now up to 13,000 from the previous 10,000) and there is also a higher relief of Kshs 1,408 versus the current 1,162) and the resulting net tax for the person will now be Kshs 5,009 for the month – a 15% income tax cut?.  
  • Tax rate of 15% for five years for local vehicle assemblers. This can be extended by another 5 years if the company achieves 50% local content value in the vehicles.  
  • Taxes waived on the income of disabled persons, amateur sports associations, and NGO’s (relief, poverty, religion, distress) whose regional headquarters are located in Kenya.  

Finally, other stakeholders are invited to review the proposed changes to the 103-page income tax bill and submit comments via email to ITReview2017_at_treasury.go.ke by May 24.