Wheat consumers pay the price for taxman’s war with importers

A protracted war over the rate of tax applicable on imported wheat is to blame for the ongoing turbulence in the pricing of wheat products, industry data shows.

People familiar with the ongoings in the grains industry said the price increments are the result of cartel-like behaviour that has seen millers charge premium prices for products made from wheat they imported cheaply in May using the surge in global prices as reason for the adjustments.

The millers and the Kenya Revenue Authority had disagreed over the rate of import duty applicable on imports leaving 200,000 tonnes of wheat at the port of Mombasa for six weeks, forcing the millers to work with old stocks.

To cover for the losses incurred from inability to move stocks, the millers have been increasing their trading margins, a move that has seen prices of wheat products rise sharply since mid July.

The stand-off began with the importers’ insistence on paying duty at the revised rate of 10 per cent fixed by the East African Community and announced by Finance minister Uhuru Kenyatta in his June Budget.

But the taxman resisted the move saying that the new tariffs would only be applicable upon ratification by the Arusha-based East African Legislative Assembly.

Prices of wheat products have been rising since last month’s decision by Russia, a major world producer, to ban export of the produce to shield its domestic consumers from a looming shortage caused by severe drought.

Industry data indicates that the millers are holding large quantities of wheat they imported two months ago, which they are processing and selling to consumers at higher prices citing the surge in global prices.

Kenya has a combined daily milling capacity of less than 5,000 meaning such stocks can last for more than a month without causing any supply shortages.

Millers are estimated to be holding more than 480,000 metric tonnes of wheat in Mombasa-based silos and godowns, according to documents seen by the Business Daily.

More than 80 per cent of the stock is destined for the local market with the balance earmarked for re-export to the neighbouring countries.

“The millers are holding huge quantities of wheat they bought cheaply from international and the local markets,” said Booker Owuor, an agricultural economist.

“Many of them are hoarding the grains to create an artificial shortage they have been using to justify price increases,” he said.

The Kenya Revenue Authority (KRA) has recently ordered port authorities to clear all wheat lying at the harbour following the ratification of the new tariffs by the regional assembly on August 24.

Combined capacity