Central Bank pushes for food, fuel buffer stocks

By Jackson Okoth

The Central Bank of Kenya (CBK) is recommending the building of strategic food and fuel reserves to enable the country to deal with frequent increases in cost of living.

The CBK reckons that food and fuel expenditures account for over 60 per cent of items used to measure the consumer price index or inflation.

While State-owned National Cereals and Produce Board (NCPB) is the custodian for the strategic grain reserves facility, plans to convert these stores to handle strategic food reserves has stalled even as NCPB struggles to wriggle out of its past shady grain purchasing deals.

Figures indicate that food alone accounts for 40 per cent of items used to calculate monthly inflation figures, while transport and other fuel related activities account for a further 27 per cent of the consumer basket.

Price stability

“The current initiatives by the Government to undertake large-scale food crop irrigation projects will therefore support the price stability objective. The big-time solution is to have buffers to support the market. CBK can build forex reserves as one buffer on balance of payments shocks,” explained Prof Njuguna Ndung’u, the CBK Governor. The CBK, he says, has built its foreign exchange reserve to over four months import cover, enabling the shilling to remain stable against international currencies.

He made these remarks recently while addressing three-day senior business editors’ workshop in Naivasha.

Inflation rate

While overall inflation has been on a decline to 6.41 as at April 14th, 2014, this rate is still above the 5 per cent medium term target set by the CBK.

“Food prices is affected mainly by rain-dependent agriculture, while international events, which affect crude oil prices-have an impact on pump prices in Kenya,” said Prof Ndung’u.

The governor noted that although agriculture contributes 25 per cent of the country’s gross domestic income, Kenya is still food-insecure.

  “The Jubilee manifesto envisages investing in agricultural transformation and food security, including opening up at least one million acres of new land under irrigation to expand food supply, reduce prices so as to bring down the cost of living,” said Agriculture, Livestock and Fisheries Cabinet Secretary Felix Koskei recently.

The initiative, he notes, would also support agro-processing industries, spur export growth and support other sectors, such as manufacturing and tourism.

The country has one strategic reserve and it stores only maize.

The Government plans to transform the Strategic Grain Reserves (SGR) into the Strategic Food Reserves (SFR) to include other grains, feed and livestock.

SGR currently has three million 90-kilogramme bags of maize stored in NCPB depots across the country. While the Government has been planning to increase to eight million bags of maize, stored as strategic reserves, these figures have not been achieved due to poor harvests.