Relief as Uhuru orders mi*lers to cut flour prices
The State finally capped the price of a 2kg packet of maize flour at Sh100 yesterday after five days of intense talks with millers, making it the fifth stimulus package since Covid-19 started in March 2020.
Millers had been pushing for assurances that they would be compensated before they could agree to support the subsidy programme which is expected to run for about a month. The administration that comes to power after next month’s election will decide whether to continue with the programme or not.
The deal announced by President Uhuru Kenyatta at State House, Nairobi, will come as a relief to consumers after the cost of the flour used to cook Kenya’s staple food, ugali, increased to a high of Sh230 for a 2kg packet.
The sharp increase was seen as a potential political tool during the ongoing election campaigns.
Now, the Treasury-backed subsidy will be operated through an escrow account to be managed by the Central Bank of Kenya (CBK) and the Ministry of Agriculture, who have been mandated to ensure timely compensation to millers.
Five-year high
President Uhuru yesterday said: “Today, we announce a fiscal measure focused on food subsidy as our fifth stimulus programme. My administration has been engaging for the last few days with all milling companies… Maize flour shall retail across the entire territory of the Republic of Kenya at the price of Sh100, down from Sh205 for a 2kg packet, until otherwise directed.”
The new price will offer relief to households who have been reeling under the high cost of living that hit a five-year high of 7.9 per cent at the end of June, surpassing the Treasury’s target of 7.5 per cent.
It is, however, unclear how much the State will set aside for the subsidy to compensate millers.
Meanwhile, retailers have raised concerns about their old stocks after the government pushed for an immediate reduction of prices.
Yesterday’s move marked the second time the government was invoking the Price Control (Essential Goods) Act of 2011 after the first cap of Sh90 per 2kg of 2017, which was also an election year.
The Act allows the State to set maximum prices of gazetted essential commodities after consultation with relevant industry players.
Cyclical increases
Breaching the price cap attracts hefty penalties. As part of the deal with millers, the railway development levy and import declaration fees for all imported maize were suspended for a month. Millers had identified them as part of the factors contributing to high cost of production.
Rising prices of maize flour and other basic commodities have become a political headache for President Uhuru Kenyatta, and a campaign tool for leading presidential candidates seeking to succeed him.
President Uhuru blamed unethical practices perpetuated by political elite and millers for triggering the cyclical increases in flour prices during election years.
“If it is not a coincidence that every election attracts high prices of unga, then we must question the coincidence,” he said during a live address from State House, Nairobi.
In 2013, which was an election year, the price of a 2kg packet of flour shot up from Sh70 to Sh130. A similar trend occurred in 2017 — also an election year —when prices hit Sh189 a packet. Until yesterday, packet was retailing at above Sh200, the highest in Kenya’s history.
The maize subsidy will now add to the previous State efforts, including tax waivers, aimed at taming the rising cost of flour. The Ministry of Agriculture last month provided a 90-day duty-free importation of maize as the country awaits harvesting season.
However, the interventions took longer than expected to yield relief in pricing, shining a spotlight on supply chain inefficiencies that have allowed some players to destabilise the market through unfair practices.
Small scale
Competition Authority of Kenya (CAK) had disclosed earlier that it was investigating some millers to establish whether flour prices were market-driven or deliberately inflated.
“As part of the screening, we assess the raw material costs, including those that are internationally sourced, and local supply and demand patterns. Any distortions to effective competition are thereafter flagged for investigation,” said Gideon Mokaya, the manager in charge of the Enforcement and Compliance Unit at CAK.
Sources had earlier disclosed to People Daily that big grain millers and handlers had been colluding to control grain importation and subsequently fixing flour prices.
The trend left small-scale millers, who mainly process low-end packeted flour, unable to access maize, forcing them to scale down operations thus exacerbating the recent uptick in prices despite the importation waiver.
Some of the big players — who operate under the umbrella body Cereal Millers Association (CMA) — further maintained market differentiation where they came up with premium flour brands which retail at higher prices targeting high-end consumers, leaving fewer options for the low-income households who are the majority of the consumers.
CMA comprises seven international grain traders and about 40 of Kenya’s largest millers.
Flour prices were amplified by the maize shortage in the country and the reactionary imposition of taxes by neighbouring countries having surplus produce. This has dealt a blow to big millers who have cut their production to below market consumption levels while struggling to preserve their limited stock, according to industry experts.
A 90-kilogramme bag of maize now goes for Sh6,500, pointing to the impact of the worsening shortage.
Kenya relies on maize surplus from Uganda and Tanzania, but the two countries have now shifted to the South Sudan market, where their exports fetch higher returns.
