Abolition of Agricultural Produce Cess - Cereal Growers Association (CGA)

Cess is a tax on produce that was previously administered by Local Authorities in Kenya.

The tax applied to all farm agricultural produce, livestock and products marketed in all markets managed by Local Authorities and in transit.

The purpose of Agricultural Produce Cess (APC) was to finance infrastructure development by Local Authorities to improve the movement of goods from farms to markets.

County governments were able to continue collecting APC under the Public Finance Management Transition (PFMT) Act until September 2013 after agriculture became a devolved function. However, after the lapse of the PFMT Act, counties continued to levy APC without any legal basis.

The Cereal Growers Association (CGA) took legal action against eight county governments on the legality of APC citing:

  • Failure to have proper legal mechanisms to charge APC;
  • Use of APC collected
  • Exclusion of farmers on APC committees

The High Court’s decision was that county governments could levy APC if it was provided for under the law. County governments have in line with the court decision enacted different legislation to levy APC through either:

  • Cess Bills on agricultural produce
  • Infrastructure Maintenance Bills
  • Finance Bills

Kenya National Farmers Federation (KENAFF) had conducted research on APC whose key findings were:

  • Defunct LAs only received an estimated 25% of cess collected
  • Revenue collected was used to fund recurrent expenditure as opposed to expenditure on market access roads as intended.

CGA’s position

Producers are concerned that under county governments there have been no significant changes in the administration of APC and findings of the KENAFF report.

BMOs in the agricultural sector through AIN have found APC to be a hindrance to the Business Enabling Environment for agricultural producers.

They have cited:

  • Article 209 (5) of the constitution states that taxation shall not be levied in a way that prejudices national economic activities across county boundaries or the national mobility of goods. Cess hinders economic activities across counties as the rate charged is unpredictable and varies from county to county.
  • Maintenance of market access roads is budgeted for by Treasury and is financed through the annual county budget. Producers have expressed concern, that despite the availability of funding, most rural roads are in a deplorable state. In some cases, individual producers have to finance maintenance of roads to enable them to access markets.
  • Lastly, APC makes Kenyan export produce less competitive as every additional cost incurred in compliance with county APC requirements leads to an increase in the final cost of produce.

AIN members have agreed to jointly lobby for the abolition of APC with CGA acting as the lead BMO.

Expected Outcome

If the collection of cess is stopped, movement of produce from farm to market will be freed up by eliminating the time spent and costs incurred.

The abolition of APC will remove, possibly the most significant barriers to trade for agricultural producers across the country; incentivise agricultural producers to increase production; improve competitiveness of Kenyan agricultural produce; and remove market distortions brought about by APC such as in the potato sector where traders reverted to using 90-110 kg as APC is charged per bag to attract a lower fee.