Low grain prices renew hope of food security

The mixed outcome from the short planting season has caused huge price variations in the region’s grain market, opening a new window for the Kenyan government to restock its sagging granaries at competitive prices.

Kenya, Rwanda and Uganda have all recorded bumper harvests from the 2009 short-rains crop, pulling down market prices.

Statistics indicate that the cost of a 90 kilogramme sack of maize ranges from Sh1,050 in Kampala, Sh1,330 in Kigali, and Sh2,100 in Nairobi.

In Tanzania, crop destruction by heavy rains early this year, has strangled maize supply in the market, leading to a price rallies from Sh2,530 to Sh2,804 per sack from late last year.

“Barring logistical costs, it hoped that traders in the region will move to take advantage of this increased supply to trade within the region,” says grain market analysts at the Regional Agricultural Trade Intelligence Network.

Price drops

Grain market analysts however maintain that farmers are not gaining from current price variations because they still have to rely on middlemen to off-load their produce.

A relatively high market price in Kenya is attributed to the fact that farmers had in the last long season taken advantage of poor harvests to successfully negotiate for a higher producer price of Sh2,300 with the National Cereals and Produce Board.

“Prices of maize started to decline at the end of last year with the arrival of the 2009 short rains season of bumper production, but this still remain well above average levels,” The Food and Agricultural Organisation (FAO) says in its latest country brief.

Ordinarily, these existing price differentials would be expected to catalyse trade as tariff barriers on the movement of grain across the borders of EAC countries were eliminated five years ago when the region started implementing its custom union protocol.

In Kenya, where the short season harvests normally account for 15 per cent of the annual national cereal consumption, government statistics estimates that a bumper maize harvest of 540,000 tonnes (six million - 90 kilogramme sacks) has been realised from harvests concluded last month.

FAO attributes this increase by 20 per cent over the normal short season’s maize production levels of 450,000 tonnes (five million sacks) to enhanced rainfall that continued in February and early March in most areas of the country, often reversing the negative effects of the November dry spell.

In general, the super-normal short rains have pushed up the aggregate cereal production for 2009/10 to about 2.8 million tonnes, nine per cent more than the 2008 level but still 15 per cent less than the average for the last five years.

As a result, the country’s cereal import requirement for the period running up to June has dropped to 2.6 million tonnes, slightly less than in 2008/09 when domestic production was severely affected by drought.

The short season’s harvests have also reduced the number of food insecure Kenyans to 1.6 million— a 58 per cent drop from the 3.8 million people who required food assistance after the long season’s harvests.

Analysts however reckon that stringent quality standards, official red tape and information asymmetry has prevented the region’s farmers from taking advantage of the huge price differentials to trade beyond their immediate localities.

“Grain is the most traded and most regulated commodity in this region. The result is that we have created a distorted market where grain sells cheaply on one side of the border as the other side experiences acute shortage,” argues Mr Mainza Mugoya, a programmes officer at the East African Farmers Federation.

To import maize from Uganda where prices are lowest at the moment, for instance, a trader must wait at the border for a phyto-sanitary certificate, a document that comes all the way from Nairobi where the Kenya Plant Health Inspectorate Service (Kephis) offices are located.

Border points

“Things become worse at border points during the rainy season because the grains can stay in the open for close to three days before clearance,” Mr Joseph Achar, a Kenyan clearing agent at the Busia border told Business Daily in an earlier interview.

To eliminate the current information asymmetry in the region’s cereal markets, grain market players are working on the final details of launching a regional commodities exchange.

The Kenya Food Security Technical Working Group (KFSSG) warns in its latest assessment report that supply for cereals will remain tight in the run up to July when the current harvests are exhausted.

KFSSG’s report is in harmony with the thinking at Kenya’s finance ministry which declined to extend the duty free maize importation programme saying a lot of grains would be expected in the region after the short season’s harvest.

If the non-tariff barriers are removed on grain movement in the region, Kenya has a chance of bridging her production shortfall with imports obtained through formal and informal channels from Uganda and Tanzania.

However, just like Kenya, Tanzania banned cereal exports through her formal channels in 2008 leaving only Uganda’s short season’s harvests to be traded freely in the region.

Except for sorghum and millet that are largely produced in Tanzania, the other commodities are attracting higher prices in Tanzanian markets of Arusha, Dar-es-Salaam, Iringa, Mbeya and Songea.

If the Kenyan Government fails to utilise the existing price differentials to fill the national granaries, the country will be forced to apply for another duty exemption from EAC secretariat in order to import maize from other low cost destinations such as South Africa, Zambia and Malawi.

In South Africa, for instance, maize prices have fallen to levels as low as Sh1,080 per sack but existing barrier to trade with Kenya still pushes retail price of maize imported from the country to Sh2,500 per sack in Nairobi.

Unlike Malawi and Zambia which as Comesa Union members export maize to Kenya at only 25 per cent duty, South Africa’s maize attracts a 50 per cent tariff beside port handling charges.

Local millers say imports from SA can only make business sense if the government either subsidises it or completely removes the import duty.

“Once we exhaust available stock, we will be forced to adjust the cost of flour in proportional to changes in maize import prices,” Ms Paloma Fernandes, the Cereal Millers Association’s Executive Officer said.

The Government has shown resistance to campaigns to subsidise or extend duty free maize import programme.

According to World Bank’s 2010 outlook report, Kenya lost a total of Sh23.4 billion in the last fiscal year both in taxes and in flour subsidies.