High tea and coffee prices fail to boost economy that declined to 3.6 per cent in third quarter

By Ben Kinyanjui

Modest 4.8 per cent growth in the agricultural sector in the third quarter of 2011 failed to jump-start the economy from a slow down that started in the second quarter of the year.The sugar industry is doing poorly

Tea output expanded by 6.3 per cent from 764.4 million kilogrammes in the third quarter of 2010 to 813.3 million in 2011, while coffee delivered to marketing boards grew by 39.6 per cent from 7.7 million kilogrammes in the third quarter of 2010 to 10.7 million in the same period of 2011.

The Kenya National Bureau of Statistics (KNBS) says the sector boosted by high coffee and tea prices in the international market expanded by 4.8 per cent that translates to value added increase of Sh4.1 billion.

“Prevailing high international coffee and tea prices boosted the positive outcome. Food, horticultural and industrial crops all exhibited increased production during the reference period,” said the bureau in its statistical update.

“Horticultural sub-sector recorded significant improvement mainly supported by increased production of cut-flowers.”

According to KNBS, exported cut-flowers increased by 52.5 per cent from 15,796 metric tonnes in third quarter of 2010 to 24,088 metric tonnes in the same period of 2011 while vegetable exports expanded by 12.2 per cent in the period under review.

The update says the economic slowdown that started in the second quarter of 2011 spilled to the third quarter with the economy expanding by 3.6 per cent compared to 5.7 per cent recorded in the same quarter of 2010.

It attributed the decline to a number of factors including the sharp rise in oil and food prices that constrained growth since the start of the second quarter.

“The quick rise in oil prices emanated from supply disruption associated with political unrest in a number of oil producing countries, while the increase in food prices resulted mainly from supply constraints and rise in global commodity prices,” said the update.

“As a result of these price hikes, inflation averaged at over 16 per cent during the period under review.”

Inflation has risen to 19.7 per cent in November due to the same problems that have persisted despite efforts by the Central Bank of Kenya to tighten monetary policy that has seen a surge in interest rates and a decline in demand for loans.

The bureau says most of the sectors registered slower growth during the third quarter of 2011 compared to the same quarter of 2010, indicating that the effects of the slowdown had started spreading across the economy.

Slowed growths were mainly manifested in the electricity and water, wholesale and retail trade and manufacturing sectors.

During the period, electricity and water contracted by 12.1 per cent compared to an expansion of 17.1 per cent realized during a similar quarter in 2010.

“This was principally due to increased generation of thermal electricity which is much more expensive to produce compared to hydro and geothermal generation,” it says.

Growth in the wholesale and retail trade slowed to 1.3 per cent during the review period compared to 4.7 per cent growth during a similar quarter in 2010mainly due to sluggish trade on account of reduced domestic demand arising from the inflationary pressures.

In the industrial crops sub-sector, coffee and tea registered positive growths while sugarcane production declined significantly in the period under review.

Sugarcane delivered to sugar factories declined to 950, 000 tonnes in the third quarter of 2011 compared to 1.3 million tonnes recorded over the similar period of 2010.

The contraction which corresponds to a decline of 26.8 per cent dampened the performance of the industrial crops sub-sector.

The increase in production of tea and coffee is attributable to better international prices which have been rising since 2009.

Manufacturing sector recorded a slower growth of 1.1 per cent in the third quarter of

2011 compared to 5.7 per cent growth in the same period of 2010.

The slow performance was attributable to contraction in the food processing sub-sector. The food sub-sector recorded a decline of 4.6 per cent while the rest of manufacturing activities put together registered a growth of 4.0 per cent. The poor performance in the food industries was mainly due to the significant drop in sugar production.

Sugar production declined by 38.6 per cent in the period under review to 74.2 thousand metric tonnes in 2011, from 120.8 thousand metric tonnes in 2010.