Millers say doors open to regulator probe as they fight to shed cartel tag

Cereal Millers Association (CMA) has over the years fought the cartel tag that most consumers have pinned on the industry.

That fight has more recently escalated with the Competition Authority of Kenya’s announcement that it had opened investigations into alleged price fixing with a view to taking action against the culprits.

The authority acted at a time when the price of a two kilogramme packet of maize flour had risen to above Sh100 from Sh85 in November last year.

The Business Daily talked to Nick Hutchinson, the chairman of CMA on the many challenges of milling and how the association has responded to them.

Are Kenyan millers a cartel?”

This is a tag that has haunted us for a very long time but I want to state that we are not in any way involved in price- fixing. Our prices are purely market driven.

When maize supply is abundant, the price of flour drops. But when there is scarcity of the raw material, as has been the case in the recent past, then you should expect prices to move up.

The Competition Authority of Kenya recently announced that it is looking into your pricing practices. Are you ready for the investigations?

We have nothing to hide and we are ready to co-operate with the authority, including sharing our records.

Some 500,000 bags of maize were released from the Strategic Grain Reserve (SGR) at a lower price to check high cost of flour. Millers have purchased a paltry 10,000 bags so far. Why is this the case and yet you have been complaining of scarcity?

Our members checked the grain at SGR but unfortunately most of it did not conform to the standards set for milling. The maize has been stored for a very long time making the quality to deteriorate.

Where are you getting the stocks that you are milling at the moment?

The bulk of what we are milling comes from Tanzania and Uganda. Local stocks are also supplementing what we get from these two countries.

When should consumers expect the price of flour to come down?

Millers are not the ones to say when the cost of flour will drop. This has to be determined by market forces.

The cost of energy has also dropped. Why is the decline not benefiting consumers?

Raw material forms the major cost segment that we incur. Maize comprises 80 per cent of our expenses. Energy amounts to three per cent.

The recent drop in cost of energy has only cut Sh0.5 per two kilogramme packet of flour, not significant to cause a meaningful decline on retail prices of the staple.

Should the government be involved in setting grain prices as has been the case with petroleum, considering price fluctuations?

The availability/supply of petroleum is very easy to predict, but the grains market is very different and the lack of accurate data on demand/supply makes it very difficult to manage.

It is therefore not appropriate for government to control prices. The reason the price of flour is always high is because supply and demand forces are not allowed to play freely.

How are the maize prices arrived at?

Reduced harvest results in higher prices while heavy harvest comes with lower prices. As we are looking at a regional supply chain now, if there are better prices in Kenya, maize from Tanzanian and Ugandan will move in the country in plenty.

Similarly, better prices in South Sudan will mean that Kenyan and Ugandan maize will move to South Sudan.

Uncertainty of harvest or amount of grain held in storage and whether or not imports will or won’t be required results in an environment conducive to speculation – which invariably leads to higher maize prices.

NCPB intervention on price sets a price benchmark – excess grain availability will see prices trade somewhat below NCPB price while limited grain availability will see prices trade above the NCPB price. 

Does the country need to import more maize?

Not for the foreseeable future. Since Kenya is no longer self-sufficient in maize production, it relies on imports from Tanzania and Uganda to make-up the deficit.

But if there is a catastrophic crop failure in Kenya or East Africa (caused by drought), Kenya will have limited access to imports because most maize outside the East African Region is genetically modified (GMO) and what is non-GMO will be priced at a significant premium.

From the Budget reading, Treasury secretary Henry Rotich retained the 10 per cent duty on wheat. What is your opinion on this?

The duty will always be passed to consumers who will continue paying more for wheat products. We want to meet with the government and agree that they let millers mop up all local crop from our farmers at a premium price, then we be allowed to import the produce duty free.

This move will save consumers a great deal in terms of the cost of bread and other products.

CMA has been synonymous with commenting on maize prices. What is the association’s policy on other grains?

On rice, 80 per cent of the consumption is imported hence dictated by international prices. Whatever is locally produced is also sold at import parity prices.

Since wheat was liberalised, it is now governed by market forces through competition amongst 15 wheat millers in the country.

What is the mandate of the CMA in milling industry?

CMA was formed as a self-regulating association with the objective of dealing with policy issues in the grains industry in Kenya, as well as to provide a voice through which millers could engage with the government.

The association has been involved in the push for a liberalised grains market.

What is the relationship between the millers and the government?

CMA has a good working relationship with the government. We give the state an insight into the grain market both locally and regionally, through constant sharing of industry trends and statistics.