Retail price of a half a litre packet of milk is set to cross the Sh50 mark on reduced supplies to processors, the sector regulator has warned.
Kenya Dairy Board (KDB) managing director Machira Gichohi said production of raw milk has dropped in the past three months, signalling a rise in farm gate prices on the expected scramble for the commodity among the top processors.
The drop is linked to low production during the cold weather, which saw processors intake drop to 46 million litres from 54 million litres in January.
“Processors have registered a decline in milk volumes in a move that will see consumer prices increase by up to 10 per cent,” said Mr Gichohi.
This is expected to pile pressure on household budgets faced with rising electricity and fuel prices that saw inflation rise to 7.67 per cent in July — the highest level since October.
This is slightly above the central bank’s preferred range of 2.5-7.5 per cent. The rise in inflation has been blamed on an increase in food prices, which accounts for just over a third of the basket of goods used to measure inflation.
Currently, the price of half litre milk in pouch packaging retails at between Sh43 and Sh48 with the long life milk trading at Sh50.
The expected rise in farm gate prices will mark a reversal to the downward fall in the cost of the commodity that started in January.
KDB quotes the average farm gate prices at Sh32 a litre, down from the Sh40 the processors were paying at the end of last year. The cut was the product of the rise in milk production.
New KCC managing director Kipkirui Langat said the falling production could signal a rise in retail milk prices. “If the demand will be high against the supply, obviously the price of both the consumer and farm gate will go up,” said Dr Langat.
The processors led by Brookside have in recent years upped demand for milk following multi-million shilling expansion plans.
Their installed capacity stands at 3.5 million litres a day compared to 2.9 million in five years, sparking a prices war among the processors when milk production drops. The sector accounts for about four per cent of GDP.