New milk prices raise cost of breakfast to a two-year high

Workers pack milk at a Brookside Dairy plant in July. The company, like its competitor, KCC, has increased the retail prices of milk, citing high electricity and packaging costs. File

Kenyan households are paying the highest price for breakfast in two years after this week’s double digits rise in the cost of milk.

Leading processors of fresh milk on Monday announced a 10 per cent increase in prices, adding weight to last month’s doubling in the price of sugar and a steep rise in the cost of energy needed to prepare breakfast – the day’s most important meal.

KCC, Brookside and Limuru effected the price changes citing acute supply shortages, and the steep rise in the cost of transportation and packaging.

A half-litre packet of KCC Fresh milk, Ilara and Fresha now sells at Sh33, adding pressure to household budgets – especially at the bottom end of the income bracket.

Similar prices were last recorded in July 2009.

“The price changes are being driven by high power charges that have risen by 25 per cent in the past three months and packaging costs which also increased by a margin of 30 per cent,” said Gladys Some, the corporate affairs manager at the Kenya Co-operative Creameries (KCC). (See related: Milk prices to rise as supply falls)

A rise in the cost of breakfast — which nutritionists say is the most important meal of the day — takes inflation-related erosion of living standards to a new level, coming only a day after Kenya Power, the electricity distributor, announced a steep rise in the cost of power.

A typical Kenyan breakfast mainly consists of tea with milk and sugar, taken with bread or traditional foods such as arrow roots, sweet potatoes and bananas.

KCC said the cost of furnace oil used to produce steam that heats up the milk rose by 30 per cent, compelling the company to effect its first price increment in three years.

Manufacturers said prices of plastic packaging materials made from petroleum products have also been on the rise in tandem with the high crude oil prices and a weakening of the shilling by 20 per cent since the beginning of the year.

Last month, bread makers increased prices by between five and seven per cent even as the price of one kilogramme of sugar rose to Sh250 from Sh70 in January.

KCC increased the price of its 500ml fresh whole milk by Sh3 from Sh30, while the price of the Gold Crown brand went up by 9 per cent from Sh32 to Sh35.

Brookside, the second largest milk processor, also increased the price of its Ilara and Tuzo brands by 9 per cent to Sh33 effective Tuesday.

KCC said its packaging costs had risen by up to 17 per cent since January and that it could no longer take in all the additional costs without hurting its operations.

Bread manufacturers have also warned of possible further price increases, citing the ongoing rise in the cost of wheat in global markets. Kenyan bakers use a mix of imported hard wheat and the home-grown soft variety to make break and the continued weakening of the shilling only adds to the cost of shipping in the imports.

“If that happens, we could increase our prices further starting next month to accommodate higher costs of raw materials,” said Shem Nyangweso, the marketing manager at Mini Bakeries and makers of the popular Superloaf brand. The price of 1.5 kg Festive bread rose by Sh5 to retail at Sh140 compared to last week’s price of Sh135 while 600grams of Elliot bread is now priced at Sh57, up from Sh54 in July.

With the food component of inflation having risen at the rate of 36 per cent last month, the latest price increases are expected to add pressure on this month’s overall inflation.

The food and non alcoholic beverages component of consumer price index was the biggest driver of inflation last month that rose by 1.73 per cent pushing headline inflation to 16.67 from 15.53 in July.

Difficulties with meeting key obligations such as breakfast have in the past impacted negatively on other sectors of the economy as households look for ways to cope with the new challenges.

“Some could even opt to pull out their investments from the stock market to meet their daily requirements,” said Fred Mueni, the director Tsavo Securities.

Small players account for about 10 per cent of the total market capitalisation and 40 per cent of the daily transactions at the Nairobi Stock Exchange.

Increased erosion of household budgets mean reduced ability to invest and save – and ultimately a slowdown in the pace of growth. (Read: High food, energy prices add impetus to inflation)

Kenya imports more than two thirds of her annual wheat consumption, making the country vulnerable to changes international wheat prices.

The prices of wheat jumped by 29 per cent in the last six months from Sh2,700 for a 90kg bag to Sh3,500 according to the Ministry of Agriculture.

Sugar manufacturers say high demand for the commodity and acute cane shortage had forced them to increase payments to farmers to attract supplies resulting in the recent surge in retail prices. (Read: Millers warn of continued surge in the price of sugar)
Economists said the recent passing of a new law to control the prices of essential commodities may result in hoarding and acute shortages that can only result in further price increases.

“We have added impetus to the problem by allowing regulation of prices of essential goods,” said Samuel Nyandemo a senior lecturer at the University of Nairobi.

Dr Nyandemo said lack of proper policies to support farming has reduced the number of people willing take agriculture as a source of livelihood leading to supply side shocks.

“You can’t cap prices of products without capping the prices of their raw materials,” said Mr Nyandemo.

He said this could reduce the role of low and middle income earners in economic growth reducing overall economic growth.

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