Kenya’s consumer market has once again produced its biggest puzzle with the rise to more than Sh100 in the price of a two-kilogramme packet of maize flour even as farmers struggle to find buyers for their low-priced produce at the farm gates.
Maize flour prices have been rising since February even as a heavy market glut pushed down farm-gate prices to lows of about Sh2,000 for a 90 kilogramme bag of maize.
Millers said the price escalation is mainly linked to massive hoarding of maize by the middlemen who buy the produce from farmers and supply the factories.
The hoarding of maize is linked to a recent restriction of imports from neighbouring countries such as Tanzania that has created speculation of a looming supply shortage, prompting traders to hold back their stocks.
“Market speculation has imposed heavy hoarding upon the market, resulting in an artificial supply shortage that has pushed up prices by 27 per cent since last year,” said Nick Hutchinson, the chairman of the Cereal Millers Association (CMA).
Millers said the high cost of raw materials has pushed up the ex-factory price of flour from the range of Sh84 to Sh87 in February to a high of between Sh95 and Sh100 this month, a 13 per cent increase.
“Maize prices at the factory gates have increased from an average of Sh2,200 in February to Sh3,000 currently, prompting an increase in the price of flour,” Mr Hutchinson said.
A 2kg packet of Soko maize flour is now retailing at Sh104 from Sh86 in November, Pembe at Sh105 from Sh92 while Jogoo is selling at Sh97 from Sh86 in the major retail shops.
Agriculture principal secretary Sicily Kariuki dismissed the claims by the millers that there is a supply shortage in the maize market.
Mrs Kariuki attributed the rise in maize flour prices at a time when the country is awash with newly harvested produce to dishonesty among millers.
“There is no justification whatsoever for the prices of maize flour to go up at this point in time. Millers have not asked us to release stocks held in the National Cereals and Produce Board (NCPB) stores to smoothen out the pricing,” Ms Kariuki said.
The PS said the State was under obligation to act in the event of a severe shortage in the supply of the staple food by releasing the NCPB stocks held as Strategic Grain Reserves (SGR).
Ms Kariuki said it was too early for retail prices to start rising and urged the millers to revert to a reasonable pricing regime.
Farmers have since January been queuing at the NCPB depots to sell maize to the grain handler at a low price of Sh2,200 per 90kg bag.
Mr Hutchinson said only the release of cheap maize held as SGR would ensure consumers enjoy low retail prices.
The NCPB has close to four million bags of maize, having purchased two million bags this year besides the two million bags it held from the previous year’s crop.
The Consumer Federation of Kenya (CFK) dismissed the millers’ explanation of the latest price increment as mere propaganda aimed at advancing their commercial interests at the expense of ordinary consumers.
Stephen Mutoro, the CFK secretary-general, accused the top three millers of forming a cartel that is controlling maize flour prices and urged market regulators to confront them.
“We cannot accept this anti-competitive behaviour and monopolistic tendencies that allow a few millers to control the flour market,” said Mr Mutoro, adding that the price surge is even more unjustifiable given the significant drop in energy prices that came with the injection into the national grid of cheap geothermal power beginning September last year.
Mr Hutchison, however, argued that the millers had only registered a Sh0.5 per energy cost reduction for every 2kg packet of maize flour which is too minimal to impact on retail prices.
Kenya is a maize-deficit country that relies on imports to supplement local produce to meet the annual demand of 48 million bags. The country currently produces a total of 40 million bags of maize annually.
Maize flour prices have a big effect on overhead inflation and being the staple food accounts for a significant share of household budgets.
Inflation last month rose above the government target for the year, pushed by rising prices of key food items, according to the Kenya National Bureau of Statistics (KNBS).
Inflation rose for the second month in a row in March to 6.31 per cent from 5.61 per cent the previous month, bucking a five-month decline that ended in February.
In December, suspended Agriculture secretary Felix Koskei asked the Competition Authority of Kenya to commence investigations into claims of price fixing by top millers as flour prices continued to defy falling energy and maize prices.
Mr Koskei said the millers had failed to match their prices with declining production costs even after holding talks with top ministry officials. The minister said the talks aimed at keeping the price of maize flour stable at Sh75 per 2kg packet.
The CS wanted the competition watchdog to find out why the market dynamics of supply and demand had failed to work in the maize milling industry.
The government, through the NCPB, plans to establish two maize milling plants in Nairobi and Moi’s Bridge in Trans Nzoia County to compete with private millers and stabilise costs.
The Agriculture ministry said the milling plants would be ready to start operations by end of year.
The plan was to establish one milling plant near the farms for easy access to inputs and the other close to the largest consumer market, Nairobi, for easy access by the retailers.
The ministry argues that the two plants should help reduce the number of players in the supply chain and ultimately cut the cost of maize flour. Selected retailers, especially top supermarkets, will be tapped to sell the government-made flour at a recommended price.
Millers have in the past accused retailers of not passing on the low ex-factory prices to consumers, pointing out that they do not have control over the matter.
The State is also banking on the warehouse receipting system (WRS) to create stability in the grain markets. It is expected that warehouse receipting would enable the NCPB to keep the grain and sell it later to millers at a reasonable price, eliminating the cartels.
Kenya has no legal framework for WRS as the draft Bill (that was created in 2005) approved by the Cabinet last year is still with the Attorney-General.