How to fix Kenya’s agriculture financing crisis

The Business Daily article calls for more funding, blended finance, and stronger food systems. But the Daily Nation story provides the practical reality: maize prices have fallen from about Sh4,600 to Sh4,000 per 90kg bag following imports and increased supply, forcing farmers to sell at a loss. This is not just a pricing issue; it is a financing failure.

Agriculture cannot attract sustainable financing when output prices are unpredictable. A lender does not finance hope; a lender finances cash flow. When that cash flow can fall by over 13 percent within a few weeks, the entire financing structure collapses.

Consider the economics. A typical maize farmer producing 20 bags per acre would earn Sh92,000 at Sh4,600 per bag. At Sh4,000 per bag, revenue drops to Sh80,000 - a loss of Sh12,000 per acre. Input costs - seed, fertiliser, land preparation, labour - can easily reach Sh50,000 per acre. Suddenly, the farmer’s margin disappears. If he borrowed, repayment becomes uncertain.

Next season, the lender withdraws. Production falls. Imports rise. The cycle repeats.

This is the structural weakness in Kenya’s agricultural financing model. We speak about credit, but we do not address price risk. We talk about productivity, but we punish farmers when productivity improves. A good harvest should not lead to lower prices. Yet this happens repeatedly because the country lacks a disciplined strategic grain reserve operating with a predictable minimum price.

When farmers do not know the price floor, they rush to sell after harvest. Traders exploit oversupply. Prices fall. Months later, the country imports maize at higher prices. This is economically inefficient, fiscally costly, and discourages investment in productivity. Why should a farmer invest in better seed, soil correction, or balanced nutrition if increased output simply triggers a price collapse?

Agricultural financing becomes realistic only when three conditions exist: higher yields, predictable markets, and structured risk management. Kenya has focused heavily on subsidised inputs, but much less on price stability and market structure.

The opportunity is enormous. Kenya currently produces roughly 35 to 40 million bags of maize in an average year, against national consumption of about 48 million bags. This gap drives periodic imports.

Yet yield levels remain low. Many smallholders produce between 15 and 20 bags per acre, whereas achievable yields with proper agronomy, soil correction, balanced fertilisation, and improved seed can exceed 25 to 30 bags per acre.

If just three million acres under maize improved yields by an additional eight bags per acre, Kenya would add 24 million bags. Slightly broader productivity improvements would comfortably exceed 25 million bags, roughly 2.2 million tonnes.

That single shift would close the import gap, stabilise prices, and transform the strategic grain reserve from a reactive buyer into a stabilising institution. This is where financing becomes meaningful. When yields rise and a minimum support price exists, banks can lend against predictable margins. Input suppliers can provide structured packages.

Millers can enter forward contracts. Warehouse receipt systems can allow farmers to store and sell later. Insurance can cover weather risk. The entire value chain becomes bankable.

The role of government is not to replace the market, but to stabilise it. A credible pre-season minimum price, disciplined procurement at harvest, and predictable import policy would reduce volatility. The private sector can then build structured off-take arrangements and finance tied to production. Farmers move from subsistence to commercial decision-making.

Financing agriculture without addressing yields, pricing and market structure is like building a roof without walls. The Kenyan smallholder farmer must be transformed from a subsistence producer into a disciplined agribusiness contributor to the national economy.

An additional 25 million bags, or about 2.2 million tonnes annually, would move Kenya towards food self-sufficiency, stabilise the strategic grain reserve, reduce foreign exchange outflows, and unlock sustainable agricultural financing. Finance will then follow - not as charity, but as business.

The writer is a Kenyan businessman and an entrepreneur.