Agronomists reel from double trouble of high taxes, multiple licences

Agriculture is the backbone of Kenya’s economy, contributing over 20 per cent of the Gross Domestic Product (GDP) and employing more than 40 per cent of the population.

Against this backdrop, Elijah Ihumba realised that investing in enterprises along the agricultural value chain would guarantee him a huge market and potentially high returns.

He started Lwandeti Farmers, an agrovet business selling a wide range of agricultural inputs, including seeds, agrochemicals, farm equipment and machinery, as well as veterinary and animal health products.

Soon, Ihumba discovered that running an agrovet business in Lugari Sub-County, Kakamega County, is not a walk in the park.

“It comes with many levies and taxes. There is the complexity of making multiple payments across different platforms to both national and county governments, as well as various government agencies,” he said. More than five years later, his profits remain minimal. When costs such as storage and transport are factored in, his take-home falls below 10 per cent.

He said the only way he has managed to stay afloat is by passing part of the cost burden to farmers, an approach he admits ultimately hurts them.

Ihumba was sharing his frustrations during the recent African Fertiliser and Agribusiness Partnership (AFAP) Public-Private Dialogue (PPD) Meeting on Creating an Enabling Environment for Hub-Agrodealer Development in Kenya.

The event was organised by AFAP in collaboration with the Tegemeo Agricultural Policy Research Institute, with support from the Gates Foundation.

It brought together industry players, regulators, development partners, private sector actors, and policymakers to discuss the business, market, technical, and policy challenges facing hub agro-dealers.

A survey conducted by AFAP reveals that agro-dealers in Kenya face heavy regulatory exploitation. Beyond national licensing requirements, each of the 47 counties imposes its own taxes and licence fees, making business expansion financially unsustainable.

Agrodealers report paying fees to agencies such as the Kenya Plant Health Inspectorate Service (KEPHIS), Pest Control Products Board (PCPB), National Environment Management Authority (NEMA) for environmental assessments, and the Kenya Veterinary Board.

In addition to general business permits, they must also pay for distribution licences, storage permits, signage, vehicle branding, parking, trade licences, fire safety, and public health inspections, often paying separately for shops and stores under the same business.

Cumulatively, this amounts to nearly 15 different payment points. Agrodealers lament that despite complying with these requirements, there is little evidence of corresponding services.

Yet agro-dealers play multiple critical roles beyond supplying fertiliser. They handle transportation, storage, and credit facilitation, and often provide agronomic advice to farmers.

Alice Wamae, an Embu-based agro-dealer, said beyond numerous levies and taxes, the government is also competing directly with agro-dealers through subsidised fertiliser programmes, where fertiliser is sold at heavily reduced prices.

In addition, both national and county governments distribute free seeds to farmers.

“Fertiliser and seed sales are the backbone of our business. Losing them to the government means we are essentially out of business. In fact, many agro-dealers have already closed down because the business is no longer sustainable,” she said.

Alice owns three shops, one in Embu town and two others in Mbeere South and Mbeere North sub-counties. She also serves as treasurer of the Kenya National Agro-Dealers Association and secretary of the Embu Agro-Dealers Association.

She explained that agro-dealership is largely seasonal, with peak sales occurring during the rainy seasons. It is therefore crucial for dealers to stock and sell as much seed and fertiliser as possible to sustain their operations.

Dr Lilian Kirimi, a senior research fellow and research coordinator at the Tegemeo Institute of Agricultural Policy and Development, Egerton University, said the challenge goes beyond high fees.

“It’s the sheer complexity, duplication and inefficiency of the system that is choking agrodealers, especially small-scale operators in rural areas,” she says.

She continues, “It’s not just about the money, though the fees are high, but about paying multiple times, in different places, for essentially the same licence.”

She noted some agrodealers pay more than ten licences annually, with fees as high as Sh35,000. For a small business, that is devastating.

Dr Kirimi said, “When systems are simpler and more transparent, compliance improves. People are more willing to pay when they see fairness and value.”

She further explained that expansion becomes even more difficult because each county has its own licensing regime.

An agrodealer operating in Kakamega, Kisumu, and Tharaka-Nithi counties, for instance, must obtain separate licences in each county, with varying systems, making operations costly and inefficient.

Dr Maria Wanzala, CEO of AFAP, emphasised the need to digitise and harmonise the licensing process.

“A one-stop digital system where agrodealers can pay all required fees at once would be a game-changer,” she says.

“The system could automatically allocate payments to the relevant authorities, agri-input licences, business permits, and even café licences through a single M-Pesa transaction,” she added.

Wanzala warned that the current licensing framework is not only inconvenient but also harmful. Rising costs are passed on to farmers, directly threatening food security. While acknowledging the importance of government support programmes such as fertiliser subsidies, she cautions that these initiatives must be structured in ways that support, not sideline, the private sector.

“We must avoid crowding out private investment. Including agro-dealers as redemption points in subsidy programmes ensures the system works for everyone,” she says.

AFAP is now working with stakeholders to prioritise reforms, including the development of a harmonised digital licensing platform.

Kassim Owino established the Migori Farmers Centre in 2018 after recognising the county’s strong agricultural potential.

Despite Migori’s significant contribution to maize and bean production, farmers were struggling to access inputs due to the absence of a major agrovet outlet in the town.

“Farmers were experiencing delays because they depended on supplies from Kisii or Kisumu. I started the business to shorten the supply chain by working directly with manufacturers and bringing inputs closer to farmers,” he said.

However, excessive licensing and levies have stalled the business’s growth.

“An agrodealer today must deal with too many regulatory and payment points, each requiring licences or permits. These challenges are crippling our businesses,” Owino says.

He added that many requirements are poorly communicated, with business owners often learning about them only when enforcement officers arrive.

Owino also cited the Value Added Tax (VAT) on vegetable seeds, which makes Kenya less competitive compared to neighbouring countries such as Uganda and Tanzania, where such VAT does not apply.

“For someone like me running an outlet and two stores, the costs are extremely high because every shop requires its own permits,” he said.

Wilfred Thembo, senior policy manager at AFAP, said agrodealers in Kenya must obtain licences from both national and county governments, as well as multiple agencies, an unsustainable burden.

“Margins on agri-inputs are already razor-thin, often below 10 per cent. When you add excessive licensing costs, there’s nothing left,” he says.

He adds, “We are seeing agrodealers close shop, not due to market failure, but because of regulatory fatigue.”

He explained that the licensing burden inflates prices and distorts markets, forcing farmers to absorb higher costs.

In border regions, some farmers cross into Uganda or Tanzania to purchase cheaper, and sometimes counterfeit, inputs, posing risks to both the economy and agricultural integrity.

Thembo highlights Uganda as a regional example of streamlined licensing and minimal government interference in input distribution. Agrodealers say they fully support the government’s goal of achieving food and nutrition security, particularly for smallholder farmers.

However, they argue that involving agro-dealers, who already serve farmers on the ground, would reduce costs, improve access, eliminate inefficiencies and enhance programme effectiveness.

They are calling for simplified and consolidated licensing through a one-stop system or a single annual permit, reduced duplication between county and national levies, a review of VAT on vegetable seeds, and the inclusion of agro-dealers in subsidised input distribution.

Stakeholders vow to strengthen agri-input supply chains across Africa to ensure farmers have access to the right inputs at the right time.