Cost-Benefit Analysis of Implementing a Centralized National Agricultural Research System Policy in Kenya

ASTI/IFPRI-FARA Conference Cost-Benefit Analysis of Restructuring NARS in Kenya Chris Ackello-Ogutu and John Mburu Department of Agricultural Economics, University of Nairobi

Background
Moving the national economy forward – Vision 2030 pillars
Without mineral and other natural resources such as oil, agriculture is the foundation for achieving Kenya’s Vision 2030 – GoK policy reforms especially since 2004 signify a renewed commitment to the sector
Main challenges and opportunities to agricultural growth – the need to do things differently
Technological innovation and commercialization as the main drivers of agricultural transformation – role of NARS

Structure of the current NARS
NARIs coordinated and regulated under the Agriculture Act (Cap 316) and the Science and Technology Act (Cap 250); KARI is the main one but others focus on forestry (KEFRI), fisheries (KEMFRI), coffee (CRF), tea (TRF) and sugar (KESREF), etc
System-wide problems: budgetary allocation and utilization; staff training and retention; resource mobilization and use of physical infrastructure
Efficiency issues: technology generation; impact on crop and livestock productivity; pressure to cover more research fields; coordination of outreach programs; small sizes limit mounting multi-disciplinary teams to tackle problems thro commodity value chains

The proposed structure-KARO
Key organs of Kenya Agricultural Research Organization (KARO) will be: Council (policy making body); Secretariat (executive arm) will have 8 operational units supporting 6 new semi-autonomous institutes organized along commodities and value chain lines (food crops, livestock, forestry, fisheries, horticulture and industrial crops)
Advantages of KARO: more effective collaboration with universities, private research institutes and CGIAR; lower transactions costs; a uniform mission and vision; attract more funds from government, private sector and donors; is expected to be more vibrant and responsive to policy issues and agric sector problems

Objectives
Assess costs and benefits of the organizational reform of the existing National Agricultural Research System (NARS) and compare them with those of the proposed NARS
Assess economic feasibility/viability of implementing the proposed NARS as an alternative to the existing NARS in Kenya

Methodology
Net benefit values (NBV) are calculated for ‘with’ and ‘without’ the proposed NARS scenarios and the net present value (NPV) of the difference in the two, referred to as the Incremental Net Benefit (INB), calculated
INB = NBV (with policy) – NBV (without policy)
Positive NPV for INB means the roposed NARS policy is economically feasible as alternative to the existing struucture
Internal rate of return (IRR) is also generated
Sensitivity analysis for selected assumptions

Assumptions for the CBA
A discounting period of 30 years
A discount rate of 9.7% per annum
Both investment and recurrent costs for KARO; but recurrent costs of the existing NARS cease after the first two years of implementation of the new NARS policy
KARO will be 100% more efficient in producing benefits of research and in service delivery than the current NARS – economies of scale and improved collaboration with universities
GDP will pick up in 2010 and maintain a steady growth to attain an average growth rate of 10% per annum during the period 2030- 2040
Non-diminishing global funds for agriculture, generally and for agricultural research in particular – to facilitate resource mobilization (KARI example)
Economic stability for the entire period of analysis

Costs (Ksh million) of KARO and proposed semi-autonomous Institutes Organizations Period (actual years) 2011 2012 2013 2014 2015 ...……… 2040 KARO Secretariat 1,064 536 275 274 310 .........… 1,619 Water Resource Management Institute 785 527 600 684 780 …… .…. 5,568 KIRDI 105 121 140 163 188 ……… .. 1,972 ASAL Research Institute 665 574 654 746 850 … .……. 6,068 Industrial Crops Institute 828 944 1,076 1,226 1,398 ……… .. 9,978 Horticulture Institute 453 516 589 671 765 ……… .. 5,461 Marine & Fisheries Institute 424 477 537 604 679 ……… .. 3,955 Forestry Institute 687 756 833 918 1011 ……… .. 4,317 Livestock Institute 591 673 767 875 997 ……… . 7,119 Food Crops Institute 866 987 1,125 1,282 1,462 ……… .. 10,435 Public and Private Universities 2,716 3,096 3,529 4,023 4,587 ……… .. 32,740 Private Research Organizations 295 309 325 341 358 ……… . 862 Total costs 8,202 7,949 8,542 9,502 10,619 ……… .. 61,980 Total Costs – million US$ 113.9 114.3 125.6 141.9 160.8 ……… .. 90,246

Costs (Ksh million) of current research institutes Organization 2011 2012 2013 2014 2015 2016 -------- 2040 KARI 4,091 4,663 5,316 6,060 6,909 7,876 -------- 56,220 KEFRI 895 986 1,086 1,196 1,318 1,452 6,198 KMFRI 554 623 701 788 886 997 -------- 5,808 KIRDI 70 81 94 108 125 145 -------- 1,315 KESREF 308 338 372 409 449 493 -------- 2,028 TRF 177 205 239 278 323 376 -------- 3,640 CRF 292 320 350 384 420 460 -------- 1,795 Universities 1,810 2,064 2,353 2,682 3,058 3,486 -------- 21,827 Private organizations 97 102 107 113 118 124 -------- 259 Total costs 8,294 9,383 10,618 12,019 13,608 15,410 -------- 99,090 Total costs million US$ 99.7 112.7 127.6 144.4 163.5 185.2 -------- 1,190.6

Benefits (Ksh million) of the proposed NARS system
Research productivity due to increased efficiency
Currently technology generation and adoption in Kenya are mainly attributed to operations of KARI and collaboration with CGIAR – returns are about 0.2% of GDP
KARO is likely to double the current research returns to 0.4% of the GDP by the year 2021
The returns are about Ksh 5.6 billion in the third year of KARO’s existence
Increased funding
KARI used as the point of reference
Ksh 2.7 billion likely to be generated by the year 2013 (increases by 12% every year)
Sharing of facilities: KARO to save about Ksh 240 million by 2013, the time it becomes fully operational

Benefits (Ksh million) of the current NARS system
Research productivity
Assuming a rate of return of 47% to agricultural productivity monetary benefits are 0.2% of GDP annually
This is about Ksh 4.447 billion in 2011
Magnitude of benefits depends on growth of GDP– assumed to be an average of 6% over the investment period (grows to 10% by 2030 and maintained at this level thereafter)

Is the proposed NARS Policy economically viable? Year 2011 2012 2013 2014 2015 2016 --- 2040 Net benefits of ‘with policy scenario’ -9,476 -9,516 -1,849 -2,009 -2,205 2,368 ---- 33,683 Net benefits of ‘without policy scenario’ -3,847 -4,647 -5,512 -6,606 -7,822 -9,190 ---- -47,304 Incremental net benefit -5,629 -4,870 3,663 4,598 5,617 6,822 ---- 80,988 Decision Criteria NPV = 142,584 (US$ 1,713 million); IRR = 47.4 percent

Conclusions
Implications for capital flows into agriculture: - impetus for government funding under CAADP
KARO will be more credit worthy
Increased efficiency arising from integration of NARIs with universities
But rolling out KARO is likely to face initial challenges: funds disbursement delays, logistics, vested interests and political commitment

Cost-Benefit Analysis of Implementing a Centralized National Agricultural Research System Policy in Kenya

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Cost-Benefit Analysis of Implementing a Centralized National Agricultural Research System Policy in Kenya Presentation Transcript