The cost of rice and milk in retails outlets is set to rise in the wake of President Uhuru Kenyatta’s order for processors to increase raw input prices to boost farmers’ earnings.
Rice millers and milk processors now say they will transfer the additional input costs to consumers in what is bound to put pressure on inflation in an economy where food is the main driver of the cost of living measure.
Mr Kenyatta last month directed rice farmers to be paid 57 percent more for their paddy and for the State-owned dairy processor, the New KCC, to increase raw milk prices from a low of Sh25 a litre to Sh36.
The cost of unprocessed rice has increased from Sh52 a kilo to Sh85, a change that millers say will increase retail prices to Sh170 a kilo from the current Sh120. “When the cost of paddy goes up, obviously it will lead to higher consumer prices as the traders will want to make their margins too,” said Innocent Ariemba, a scheme manager at Mwea. According to him, a trader will now have to spend Sh125 on paddy to get a kilo of rice, bringing the cost of processed grain to Sh170 after factoring in other costs as well as profit margins.
New KCC managing director Nixon Sigey said the processor was currently reviewing its cost structure, forecasting a rise in retail milk prices. “We are reviewing the status of supplies at the moment with the prices expected to change, though not immediately,” said Mr Sigey.
A 500ml packet of milk is currently retailing at Sh50 for the long life brand and Sh35 for the fresh variety, having come down from Sh60 and Sh55 previously.
Mr Kenyatta’s order will boost farmers’ returns but come as a huge financial burden on consumers who will have to spend more for the commodities.
Food inflation rose to a 27-month high of 9.3 percent in December, according the Central Bank of Kenya (CBK).
Food and non-alcoholic beverages carry a 36.04 percent weight in the basket of goods that is used to measure inflation, making them a key driver of the cost of living measure.
Rice consumption has been growing by 10 percent yearly and now stands at 500,000 tonnes, official data indicates.
The President’s directive on milk and rice prices was part of a multi-billion shilling stimulus package to jump-start the economy and pacify his political base after the amount of cash in Kenyans’ pockets dropped to a four-year low. The stimulus package will mainly seek to widen the market and offer better producer prices for tea, coffee, milk, rice and potato farmers, sub-sectors that are critical in putting money in peoples’ pockets that is needed to boost other sectors via improved purchasing power.
The record low cash in circulation comes in a period when the economy has faced a cash crunch that has been reflected in job cuts, stagnant wages for employees and a slowdown in businesses and output.
Kenya’s economy grew by 5.1 percent year-on-year in the third quarter of 2019, compared with 6.4 percent in the same period in 2018.