The State on Monday inked a deal with millers to cut the price of maize flour by half under a Treasury-backed subsidy that could a see retailer risk a fine of Sh1 million or a five-year jail term for selling the commodity above Sh100.
The Ministry of Agriculture said millers would be offered an undisclosed subsidy to bring down the cost of the staple from above Sh210 a packet.
Under the scheme, the government will subsidise the price of flour processed by millers for four weeks or a few days after the August 9 General Election.
Rising prices of staple maize flour and other foods have become a political headache for President Uhuru Kenyatta as he shepherds his succession.
Sources familiar with the subsidy say the State could issue a gazette notice giving legal backing for capping sifted maize flour costs, marking the second time the order will be issued under a law passed in 2011 allowing price controls on essential goods.
The order will empower the State to punish a trader selling the subsidised flour above the set maximum price.
In the run-up to the General Election in 2017, the government used the order under the Price Control (Essential Goods) Act to cap flour prices at Sh90 a packet after retail prices hit Sh143.
Documents guiding the planned subsidy indicate that the government will open an ESCROW account under the watch of the Ministry of Agriculture and the Central Bank of Kenya.
“Oversight committee shall be formed with representatives from the Ministry of Agriculture, National Treasury, Cereal Millers Association and Grain Millers Association to oversee the effective working and success of the subsidy programme,” said the ministry in a document seen by the Business Daily.
The government says funds will be placed in the ESCROW account to ensure timely payments to the millers as they release flour to the market.
An official of the Cereal Millers Association confirmed the subsidy plan but said that the prices are unlikely to come down this week because of the old stocks that are already in supply on the market.
“This is a good initiative but the price will take some days before it drops because of the expensive flour that is currently on the market,” said the official.
President Mwai Kibaki in September 2011 signed into law a Bill that allowed Kenya to return to price controls on any essential commodity after the practice was abandoned in the 1990s in favour of economic liberalisation.
The law allows the Finance minister to set maximum prices of gazetted essential commodities upon consultation with the relevant industry.
Consumer prices in Kenya have rocketed this year and inflation hit a 58-month high of 7.9 per cent in June, taking it beyond the Treasury’s preferred upper limit of 7.5 per cent.
Government critics have used the high costs of living to portray it as incompetent.
Mr Kenyatta is supporting his former political foe, Raila Odinga, after the two made peace in early 2018, effectively sidelining Deputy President William Ruto, who is also a front runner for the top seat.
A crop failure due to poor weather and a shift in the movement of Uganda maize to South Sudan have seen flour prices rocket to a record high of Sh210 for a two-kilo packet, up from Sh120 at the start of the year.
Kenya traditionally receives imports from Uganda and Tanzania, but grain trade flows have shifted to other countries.
The bulk of Ugandan maize is now heading to South Sudan, encouraged by higher prices in the country relative to Kenya where a 90-kilo bag is selling at Sh7,000 from Sh2,800 in January.
The Treasury opened import window in May to allow millers import maize outside of Africa duty-free. However, the processors said they could not ship in the commodity because of scarcity and high prices in the international market.
The sky-high inflation on the back of a jump in the price of essential items like cooking oil, food, fuel and soap is squeezing household budgets and demand for goods and services.
This has forced many households, especially those in the low-income segment, to reduce their shopping basket in an environment where firms have frozen salaries as they recover from Covid-19 economic hardships.
The rise in the cost of essential commodities has forced workers to cut back spending on non-essential items such as beer and airtime, ultimately hurting firms like East Africa Breweries Limited (EABL) and Safaricom.
Costly commodities have hit workers hard given that the average real wages, adjusted for inflation, stood at negative 3.83 percent last year compared to negative 0.59 percent in 2020.
Employers say the real wages will take longer to improve amid the recovery of the economy from Covid-19 economic hardships, which delivered layoffs, pay cuts and business closures.
