Will Kenyan Macadamia Farmers Benefit as the In-shell Market Opens?

Although there is optimism over the temporary opening of the in-shell market for Kenyan macadamias, it is uncertain if macadamia farmers will be the main beneficiaries. The ban on in-shell exports was put in place in 2009 to support the local processing industry and was finally lifted in April 2023. Authorities hope that this will increase farmgate prices by opening new markets for the world's fourth-largest macadamia producer, particularly exports to China.

Since the ban was implemented, farmers have reported being taken advantage of by the country's processors and losing access to international markets. Many farmers have turned to illegal exports through a well-established network of smugglers, receiving better prices for in-shell macadamias than the price offered by domestic processors. The competition between smugglers and processors benefited farmers, who were offered prices of KES 180-200/kg (USD 1.71-1.90/kg) throughout 2018-2020.

However, events in recent years led to a less profitable market for illegal exports, and farmgate prices plummeted. Global supply and demand dynamics exacerbated the situation, and at the start of the 2023 harvest, farmgate prices were as low as KES 20/kg (USD 0.15/kg). This prompted the Kenyan government to lift the export ban and promise higher prices. Farmgate prices have since risen to KES 65/kg (USD 0.48/kg). However, several obstacles must be overcome for the opening of the in-shell export market to benefit farmgate prices. Ironically, these obstacles led to the demise of the smuggling network and lower farmgate prices in the first place.

Covid-19 and its aftermath: Covid-19 lockdowns and tighter border controls made the illegal trade of macadamias more difficult. This was not only applicable to Kenya and China but also Tanzania, a popular transit country for in-shell macadamias from Kenya. More recently, due to the high cost of living globally, the demand for expensive snacks like nuts has decreased. Thus, even with the opening of the in-shell market, Kenyan exporters will need to make significant efforts to promote their products.

China's own macadamia production: In the last 5 years, China's macadamia production increased tenfold to around 45,000 mt (in-shell) in 2022, making it the third-largest producer globally. Both Kenyan and Chinese macadamias are of lower quality, meaning that Kenyan exports to China will have to compete directly with domestic production. South Africa and Australia meet the demand for higher-quality nuts. Thus, Chinese demand for Kenyan macadamias may not be significant. However, Kenyan in-shell macadamias offered in China were often lower-quality nuts, as farmers harvested nuts far before their maturity to smuggle them out of the country at the right time. This became so prevalent that the harvest of macadamia nuts between November 30th and February 15th was banned by Kenyan authorities.

Many industry players: According to The Centre for the Promotion of Imports from developing countries (CBI), Kenya has over 200,000 smallholder macadamia farmers, with some owning only a few trees. Some of these farmers have formed cooperatives to improve bargaining power, but organizing new marketing chains in the middle of the harvest season would be a significant challenge. For the illegal export network, this was an advantage, as many farmers meant many options and low traceability. However, the lack of established supply chains for in-shell exports means that farmers are likely to sell their produce to the same middlemen as in the past.

Official in-shell exports in 2022: The moratorium on in-shell nut exports allows for official exports pending approval by the Cabinet Secretary. This was seldom used until 2022, when through these official channels, unprecedented volumes of in-shell nuts were exported, with the US importing 5,878 mt and China importing 1,081 mt, a 20-fold increase from normal levels. However, despite these legal exports, farmgate prices continued to decline. This was due to farmers being too far down in the supply chain to benefit from the exports.

Going forward, in order for farmers to see real benefits, the supply chain will need to be shortened and farmers will need access to reliable supply chains specifically for in-shell markets. Additionally, traceability will need to be improved, which wasn't applicable for unofficial exports.

The 2023 crop is estimated to be between 42,000-44,000 mt, but will fall short of projections of 60,000 mt made two years earlier. This is in part due to harsh economic conditions and lower investment in orchard management over the last two years. The macadamia industry is expected to continue growing over the long term but could slow down if farmgate prices do not increase significantly.

*Officially reported exports through Kenya National Bureau of Statistics. Mirror data for 2022.

Source: Kenya Nuts and Oil Crop Directorate, International Nut and Dried Fruit Council, Macadamias South Africa NPC, Kenya National Bureau of Statistics, ITC Trade Map