Heavy influx of cheap flour from Tanzania and the Treasury’s failure to pay some Sh2.3 billion it owes local millers have crippled the purchase of wheat from local farmers, industry insiders said.
The government is yet to clear the debt accruing from the maize subsidy programme that ended last December.
Failure to buy grains from the local market has hit hard Narok farmers, who have started harvesting their crop without a ready market for it.
Farmers said the resulting market condition has pulled down prices, leaving the cost of a 90 kilo bag of wheat at Sh2,200 from Sh3,200 last year.
Chief administrative secretary in the Ministry of Agriculture Andrew Tuimur said the government was on course to clearing the debt it owes millers.
“We are aware of the Sh2 billion debt and are working with the Treasury to clear it,” said Dr Tuimur. The subsidy programme that began in May last year allowed millers to import maize, mill and package for selling to the government for onward distribution to citizens.
The Treasury was then required to pay the millers the difference between local market price of the flour and the import cost.
But the milling industry is also beset by increasing importation of cheap Tanzanian wheat flour that is retailing at Sh80 less than locally milled flour per bale.
“Cheap flour is entering the market in ever increasing quantities, leaving us uncompetitive. This price difference has seen bakers and consumers opt for cheap imported flour as opposed to locally made products,” said Nick Hutchinson, the vice-chairman of Cereal Millers Association.
The millers argue that Tanzania, just like Kenya, imports most of its wheat duty-free but Kenyan millers are required to clear the produce from local farmers before they are allowed to import.
“Kenyan millers pay Sh700 more per bag over import parity for local wheat. Assuming there is an annual production average of 2.5 million bags, millers will pay a premium of close to Sh1.75 billion to local farmers. This alone translates to Sh9 more per kg of flour, rendering us unable to compete,'' said Mr Hutchinson.
Mr Hutchison said it was time Kenya restored duty on finished wheat products from Tanzania, pointing to yet another looming round of protracted trade war with Dar es Salaam. Anthony Kioko, the chief executive of Cereal Growers Association of Kenya, said urgent government intervention was required to save farmers from the impending losses.
Kenyan officials recently announced the end of the long-running trade dispute with Tanzania following a bilateral meeting between representatives of the two governments in Dar es Salaam.
Tanzania has been Kenya’s second-largest export market after Uganda, having consumed a wide range of products including palm oil, soap, medicine, cooking fat, iron sheets, confectionery and margarine.
Kenya’s exports to Tanzania dropped 34 per cent in the first five months of the year to Sh4.35 billion, revealing the negative impact of the long-running trade standoff.