End of subsidy to push maize flour above Sh110

The government has announced the end of the six-month maize import subsidy, setting the stage for a rally in flour prices to at least Sh110 a packet in the New Year.

Agriculture secretary Willy Bett said the Sh6 billion subsidy will not be extended beyond Sunday.

Millers say the cost of buying the grain is set to average Sh3,400 a 90-kg bag, forcing them to increase flour prices by at least Sh20 from the current Sh90.

This will benefit farmers who had been pushing for higher grain prices but put pressure on inflation, which fell to 4.73 per cent in November, from 5.72 per cent a month earlier, pushed by a fall in some food prices.

“There is a lot of maize now at the market and we expect millers will get enough stocks for milling, bringing to an end the subsidy programme,” said Mr Bett in an interview with the Business Daily.

The subsidy was initially to end in August but was extended twice to curb the rise in flour prices.

Millers have started buying maize from farmers and traders at Sh3,000 for the 90-kg bag, up from the subsidised price of Sh2, 300, following reduced supply of subsidised maize.

They expect the cost of maize to start rising from next week as the subsidy closes.

Kenya on May 16 announced Sh6 billion subsidy on maize imports to help lower the cost of flour, which had shot up due to drought and poor planning.

“Obviously flour cost will go above the current subsidy price. We have decided to mill maize that we are buying from farmers and traders because we do not want our mills to lie idle,” said a miller who requested anonymity for fear reprisals from the government.

The subsidy lowered the price of a 90-kg bag of maize to Sh2,300 from above Sh4,000 with taxpayers offering importers a rebate or the difference of about Sh1,700.

This has kept the cost of the two-kg packet of flour at Sh90 from a high of Sh153 in April.

The subsidised flour price was backed by a Kenya Gazette notice that criminalised the sale of the product above Sh90.

Millers will now revert to the market price of maize, which will influence by the purchase of the grain by the government to replenish the strategic food reserves.

The government is buying a bag from farmers at Sh3,200 in a Sh6.7 billion plan. Millers say the cost of getting the bag from the farmers to mills will rise to Sh3,400 when transport costs are factored in.