Top millers under probe over high pricing of maize flour
A worker at the Maize Milling Company in Eldoret carries maize flour from their store for distribution. The price of a 2-kg packet of maize has risen to Sh100 from Sh72 at the beginning of the year. Photo/JARED NYATAYA
Three big cereals millers are under investigation for possible involvement in unfair trading practices that have pushed the price of maize meal beyond the reach of many households.
The millers with close to 70 per cent of the market share are being investigated for cartel-like activities in the crucial cereals market where the government has been trying to keep a tight lid on prices to avoid political upheaval.
The government has backed up its actions with the commencement on Monday of investigations into alleged abuse of market dominance by key millers.
“We have opened investigations to look into any unwarranted practices in the industry,” Mr Wang’ombe Kariuki, the monopolies commissioner told the Business Daily in an interview.
“We have a time frame that I cannot disclose at this time because the investigations may need follow-ups as events unfold but we are on the ground running”.
Though Kenya has more 100 millers, the competition watchdog has its sights on Mombasa Millers, Pembe Millers and Premier Group for possible involvement in anti-competitive market practices that may be hurting millions of consumers in the form of overpriced goods.
The three control about 67 per cent of Kenya’s grains market and are said to have a larger stake in grains imports and distributorship — giving them a firm foothold of the supply chain.
The government believes that Kenyans are paying about Sh10 more on the 2 kilogramme packet of maize and wheat flour because of price fixing arising from the heavy presence of the three players in the supply chain.
The companies have significant presence in importation, milling, wholesale and transportation of cereals in Kenya.
The Monopolies and Prices Commission – the agency that is charged with promoting fair competition launched the investigations amid widespread consumer discontent following the steep increase in prices of bread, flour and fuel —prompting the government to remove import duty on wheat and maize imports.
The price of a 2-kilogramme packet of maize has risen to Sh100 from Sh72 at the start of the beginning of the year while wheat flour is now priced at Sh130 from Sh115 in January – helping push inflation to 12.05 in April from 4.5 per cent in December.
Listed Unga Group is also a major player in the grains business, but its dominance has been on the wane in recent years as the three millers took charge of the market through takeover of rivals.
“We are not big because we have stopped pursuing volumes, and this has allowed Mombasa millers to assume the market leadership,” said Nick Huthinson, the group managing director of Unga Group.
Mombasa Maize Millers is, for instance, said to have acquired Kabansora Mills, Milly Mills, Supa Flo mills, Bayusuf Grain Millers, Grain Milling Corporation and Swan Millers giving it a firm grip on the supply chain.
The miller is said to have a 33 per cent stake of the mainstream market that excludes the mini posho mills and controls one of the biggest maize meal distributorships.
Pembe Group, another giant miller, owns two major players, Pembe/Bajaber (also known as Kitui Flour Mills) and Pembe Group while Premier controls Atta and Premier Flour Mills.
The firms have 18 per cent and 16 per cent of the market respectively.
Treasury officials say these acquisitions have given the millers control of the entire supply chain that covers importation, transportation, milling, distribution and trading in the grains.
The official says domination of the market by the trio has allowed them room to share market information on pricing, adding that the alleged price fixing of products and raw materials prices is denying suppliers and consumer’s favourable pricing.
It has also been alleged that the operators have locked in the majority of Kenya’s millers—about 105 of them controlling 33 per cent of the market-- dealers using contracts that make it difficult for new operators to enter the market or for the existing ones to gain market share.
If Treasury establishes that the millers have abused their market dominance, it can compel them to divest from certain sections of the businesses -- meaning that the top millers may be compelled to quit one or two business units in the supply chain, especially the wholesale and distributorships of maize and wheat meal.
On Wednesday, the Cereal Millers Association (CMA)—the lobby for the millers—said there is no room for price collusion in the market due to intense competition among the more than 100 millers.
“This is a volume game and nobody can control the market as the millers set prices individually to gain market share,” said Diamond Lalji, the chairman of the CMA.
Mainstream
“This idea of a cartel does not hold because the millers are making decisions on the own.
The lobby said Unga was the market leader with 5.3 per cent of the market with Mombasa Millers coming in second with 4.9 per cent, but Treasury officials say they are keen on the mainstream packed flour market.
Legal experts said that the monopoly commissions’ lack of clout to punish firms found guilty of price manipulation and the lighter sentences often imposed for breach of regulations are not likely to deter the culprits.
Kenya’s Restrictive Practices Act provides for a range of penalties including a maximum fine of Sh200, 000 or a jail term of up to three years for offending companies, a light sentence for companies whose annual turnovers are in excess of a billion shillings.
