Commodities

Fresh milk prices fall by Sh10 on duty-free powder imports, more supplies

milk

Milk at a supermarket in Kisumu on May 9, 2017. Dairy processors have reduced the price of milk by Sh10 per half-litre packet. FILE PHOTO | NMG

Dairy processors have reduced the price of milk by Sh10 per half-litre packet.

The drop in cost follows a slight increase in supply and the importation of duty-free milk powder.

Brookside Dairy and New Kenya Co-operative Creameries announced the fresh milk consumer prices cuts starting Tuesday.

“The forces driving market correction have commenced, with a major change being the improved supplies from farmers. We will continue to observe the motions in the market and react accordingly.

"Eventually, the markets are expected to reach an equilibrium level,” said John Gethi, Brookside Dairy director of milk procurement.

New KCC’s managing director Nixon Sigey said the decision was informed by the rise in raw milk supply by 20 per cent, with the onset of rains.

“For the last six-months, the raw milk supply dropped by 50 per cent due to drought. This situation necessitated increment in the milk producer prices from Sh33 to Sh43 -- pushing the consumer prices up,” he noted.

Mr Sigey said they have reduced the prices of 500ml-fresh milk and other long-life products by Sh10.

“We expect the products in retail trade to drop with immediate effect while the supermarket retail chains will take on average three days to adjust them,” he added.

Sharpest rise

The cost of fresh milk increased drastically from an average of Sh45 in January to Sh70 in May, marking the sharpest rise in prices recorded in recent history.

Mr Sigey said the decision by the government to allow importation of milk powder also assisted to stabilise consumer prices.

“The move has helped to ease the burden on consumers, a situation that could have been worse. As long-term measure, the government need to put more resources to the Strategic Food Reserves to stabilise the situation and will enable processors to meet demand,” he said.

A fortnight ago, Treasury Secretary Henry Rotich removed duty on powdered milk to allow importation of 9,000 tonnes of product to ease the shortage and tame further rises in price.

The change in prices of the essential household commodity is now expected to help ease the rising inflation.

Low volumes

The high prices were precipitated by low dairy volumes, having dropped by more than 50 per cent in the last three months.

Statistics from the Kenya Dairy Board, the industry regulator, indicate the volume of milk collected by processors fell by 36 per cent, from 56.44 million litres in October 2016 to 36.11 million litres in February this year.

Most farmers practice free-range grazing and depend on rains for pasture, meaning the recent drought hit them hard.

Mr Sigey on Monday assured contracted dairy farmers that the firm "is doing enough to ensure that they continue to enjoy competitive prices going forward."

“Low productivity at farm level remains the main challenge in the dairy sector.

"This is the time to pick lessons from the drought, and New KCC have introduced robust extension services to train farmers to take advantage of the rains to grow enough fodder and silage to cushion against dry spell,” he added.