By Anynett Ford

A sweeping overhaul of Kenya’s VAT regime, effective July 1 under the 2025 Finance Act, will hit nearly every major farm input, raising production costs and squeezing smallholder incomes.

Fertilisers, currently subsidised to around Sh2,500 per 50 kg bag (versus a market price of up to Sh5,000)  , have long been zero-rated for VAT, allowing suppliers to reclaim the VAT they pay during production and distribution. They have now been reclassified as VAT-exempt, preventing producers from reclaiming their own VAT payments.

With global urea and phosphate prices still about 50 per cent above pre-pandemic levels, farmers will now face further price rises as producers pas on their VAT costs, potentially eroding the value of government subsidies and increasing the cost of fertilisers by 20–30 per cent.

Pesticides, the second-most widely used input after fertilisers, used by over 95 per cent of farmers,will also become VAT-exempt, prompting similar price jumps almost immediately.

Animal feed faces perhaps the steepest hit. Raw materials, especially maize and soya, account for more than 80 per cent of feed costs. In the last six months, maize prices have risen by 15 percent, driving up feed prices . The VAT change is set to push up feed prices a further 10 to 15 per, further pressuring farmers, with feed accounting for up to 90 percent of small-scale poultry costs and over 50 per cent for dairy.

The transport of sugarcane will also attract VAT from July 1, adding significantly to farm-to-mill costs. 

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Over four-fifths of Kenya’s farmers report that input and transport costs are the main driver of their selling prices, meaning the changes will rapidly translate into surging food inflation.

The food inflation rate in Kenya had already increased by over 50 per cent on 2024 levels, topping an annualised 6 per cent in the first four months of the year as erratic rains and surging pest losses generated shortages of maize, sukuma wiki and other foods.

An excise duty hike on fuels will also increase farmers’ costs for irrigation, machinery operation, and haulage, affecting all areas of farming from  fieldwork to market delivery, further driving up all food prices.

Smallholders, relying on tight profit margins and limited credit, may be forced to cut input use or reduce production in the face of the new government-initiated price rises, which can be mobbed with a series of pest control bans that have been increasing crop losses.

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