National Treasury Cabinet Secretary Henry Rotich. FILE
What you need to know:
Kenya Dairy Processors Association says sales have dropped by up to 25pc since the VAT law took effect.
The new tax led to an increase of Sh10 for a half-litre packet of milk to Sh55, compared to unprocessed milk which sells at half the price.
The increase in price has seen processors turn to packaging of long-life milk to cut losses due to the sharp drop in sales volumes.
Milk processors have petitioned Treasury secretary Henry Rotich to reverse value added tax (VAT) imposed on the product at the beginning of this month, claiming it had led to a sharp drop in sales.
Through their umbrella body, the Kenya Dairy Processors Association (KDPA), the firms say imposition of the 16 per cent VAT on processed milk had given hawkers of the raw product an upper hand which they are using to quote lower prices.
The new tax led to an increase of Sh10 for a half-litre packet of milk to Sh55, compared to unprocessed milk which sells at half the price.
“Due to the price increase, most families are consuming less milk. We have invested heavily in the dairy sector, the VAT Act 2013 unfortunately cripples all efforts towards growth of the dairy industry,” says the processors in a joint petition signed by the association’s chairman Kipkirui Lang’at.
“We request you to kindly but urgently revert the previous zero-rated status of processed milk.”
The increase in price has seen processors turn to packaging of long-life milk to cut losses due to the sharp drop in sales volumes. Brands such as the ultra-heat-treated (UHT) milk are only produced when there is surplus supply.
The industry has had a short supply since August as the cold season affected production.
“Processors have registered 20 to 25 per cent drop on sales,” said Mr Lang’at, who is also the managing director of New Kenya Co-operative Creameries (New KCC).
He said New KCC’s sales have dropped by 18 per cent since the new law took effect. The drop in consumption could hit farmers’ earnings as the processors cut their orders.
“We have had so many returns since last week and we are forced to incur extra cost in converting what we had already processed and packaged into long-life brands,” said Mr Lang’at.
The processors anticipate the volumes of milk to go up in the coming few weeks with the onset of short rains in most parts of the country, posing a possible milk glut.
“We are at a period where milk production is low and we expect it to rise in the next few weeks. Sadly, the processors are not able to collect and process the volumes due to decline on sales, and the situation will just get worse with the increase in volumes.”
Buzeki Dairies, the manufacturers of the Molo Milk brand, says they are processing half of the milk received from farmers into UHT.
“Of the 100,000 litres that we are receiving in a day, 50 per cent goes into long-life milk as we try to avoid losses that might result from processing the milk with shorter shelf-life,” said Zedekiah Bundotich, the managing director for the firm.
The processors drew parallels from developed economies, where governments subsidise dairy farmers to promote supply of milk which has numerous health benefits.
