The cost of a two-kilogramme packet of maize flour is expected to rise by a third to Sh120 in November following the end four-month import subsidy and the government, setting the price at which it will buy the grain from farmers.
Millers say the cost of buying the grain is set to average Sh3,400 a 90-kg bag, forcing them to increase flour prices by Sh30 from the current Sh90.
“Obviously the cost will go above the current subsidy price to sell at an average Sh120 for a two-kilogramme packet. Our buying price will obviously be above what the government is buying at to attract stocks from farmers,” said a miller who requested anonymity for fear reprisals from the government.
This looks to put pressure on inflation, which fell to 7.06 per cent in September, from 8.04 per cent a month earlier, pushed by a fall in some food prices.
The staple has a big effect on the cost of living measure and food index, which has a 36.04 per cent weight in the goods used to calculate inflation.
Kenya on May 16 announced Sh6 billion subsidy on maize imports to help lower the cost of flour which had shot up due to drought and poor planning.
The subsidy lowered the price of a 90-kg bag of maize to Sh2,300 from above Sh4,000 with taxpayers offering importers a rebate or the difference of about Sh1,700.
This has kept the cost of the two-kg packet of flour at Sh90 from a high of Sh153 in April.
The record prices turned into a political headache for President Uhuru Kenyatta as he sought a second term in the nullified August elections.
Nasa leader Raila Odinga has used the high cost of living to portray Mr Kenyatta’s government as inept and uncaring.
The subsidised flour prices was backed by a Kenya Gazette notice that criminalised the sale of the product above Sh90.
The Treasury will today end the subsidy with imports brought in recent days expected to steady the flow of Sh90 flour to the end of the month.
Millers will now revert to the market price of maize, which will influence by the purchase of the grain by the government to replenish the strategic reserves.
The government will buy a bag from farmers at Sh3, 200 in a Sh6.7 billion plan. Millers say the cost of getting the bag from the farmers to mills will rise to Sh3, 400 when transport costs are factored in.
The situation might worsen if government give in to pressure from farmers pushing for a higher price well aware of the bargaining power in an electioneering period.
Farmers claim the cost of production is higher and at Sh3,200 per bag they would be making losses on their produce.
“We had many challenges this year and farmers were forced to incur extra cost in controlling Fall Armyworms. We sent a letter to the Ministry of Agriculture two weeks ago showing them the cost of production, which was as high as Sh4,000 per bag in some areas,” said Anthony Kioko, chief executive officer Cereal Growers Association.