Why the price of maize flour is up, again

The controversy surrounding the sudden surge in maize prices has once again exposed the weaknesses of government policy on food security.

There are still many unanswered questions on why maize flour would become so costly just immediately after a subsidy is lifted.

Unlike last year when the high prices were caused by a shortage of maize, Kenya is just coming out of a harvesting season. Supermarket shelves are full and the National Cereals and Produce Board (NCPB) is still purchasing maize.

Some 6.7 million bags of maize were brought in during the six-month subsidy funded at a cost of Sh9 billion by taxpayers, and which ended two weeks ago, according to Kenya Revenue Authority (KRA) records seen by Sunday Standard.

The maize was shipped in up to two days before the subsidy ended.

NCPB, on the other hand, says it has, as at yesterday, 2.2 million bags in its reserves. A further 40,789 metric tonnes of maize has been shipped in from neighbouring countries in the last one month, according to Regional Agricultural Trade Intelligence Network (Ratin).

The big question is: With all the maize around, why is a packet of unga so expensive on the shelves?

A spot check by Sunday Standard in several supermarkets yesterday found some brands of maize flour such as Ndovu retailing at Sh153, with the cheapest brand, Jogoo, trading at Sh144.

Retailers however say their pricing is based on market forces and, in some cases, what the millers set as retail prices for their products.

“It is an issue of demand versus supply. The prices you see on the shelves are in most cases determined by what it costs us to acquire the maize flour. Like right now, the supply is fairly good but the acquisition price is high,” Wambui Mbarire, the CEO of Retail Traders Association of Kenya (Retrak), says.

Zero-rated commodity

Most supermarkets, she says, sell maize flour at a recommended seven per cent profit margin. Some companies like Unga Group, however, recommend a retail price for their products.

“Retailers are presently getting two kilos of maize flour at between Sh98 and Sh102. If you add seven per cent to this, it means the same should be retailing at about Sh115. And this is what you are likely to see on the shelves,” says Mbarire.

Unlike other manufacturers, millers are not subjected to any taxation for all the inputs they use to mill maize flour. The government, at the height of the food shortage last year, zero rated maize flour. Ideally, it means they are not charged 16 per cent value added tax for inputs such as transport, energy and packaging.

Such benefits should be passed on to the consumer. Millers Association of Kenya Chairman Nick Hutchinson declined to respond to our questions on this matter, but he was recently quoted as saying there is no maize in the market.

“There was also an agreement that at the end of the subsidy programme, millers would return any leftover subsidy maize to NCPB,” he said last week. “The allocated quota was reduced to ensure that no subsidy maize was left over at the end of the programme.” 

As expected, a fresh round of unga politics has kicked off in earnest. Each side is passing the blame to the other, leaving consumers on their own as millers and retailers keep pushing the price of maize flour up with each coming day.

The Parliamentary Accounts Committee (PAC) has demanded to know how much money was spent on the subsidy programme and the owners of the companies which imported the maize.

“They have not told us how this maize just got finished. We must know the supplier of the maize if it was really being imported. We also want to know how much of taxpayers money was used in this project,” PAC Chairman Opiyo Wandayi has said.

The government has indicated that it might be forced to introduce price controls if millers don’t bring the cost of unga down on their own.

Agriculture Cabinet Secretary Willy Bett said on Wednesday that based on the state’s calculations, a packet of maize flour should not go beyond Sh115. He said the government was buying maize for Sh3,200 per 90kg bag yet millers were getting the same for a much cheaper price

“Most millers are buying maize at around Sh2,700 so the cost of flour should never go beyond Sh115 because the amount of money we are paying as government is Sh3,200,” said Bett.

“We have stabilised the cost of maize and ensured it does not go beyond that. Even with calculated profit for the millers and retailers, the price of a 2kg packet of maize flour cannot go beyond Sh150. We will take all interventions available to us,” he said.

Since October last year, the government has been restocking its maize reserves. NCPB acts as a “central bank” of maize. It purchases the grain from farmers and stores it in its strategic reserves, which are then sold to the market on a need basis whenever there is a shortage.

As a result, when it sets a price, dealers are forced to adjust their prices. However, since December 2016, every action by the NCPB on the price of maize in the market has failed miserably.

Currently, NCPB is buying maize from farmers at Sh3,200 per bag. However, information from Ratin shows that the wholesale price of a 90 kg bag of maize in Nairobi is Sh4,320.

This is 35 per cent higher than NCPB’s current price. It is also the highest in the East African region. By comparison, the same quantity fetches Sh3,939 in Bujumbura, Sh2,874 in Dar es Salaam, Sh2,297 in Kigali and Sh1,667 in Kampala.

“We are still taking in maize and so far, we have bought 2.2 million bags at a cost of Sh5.68 billion,” said NCPB is a response to our queries. “Our role is to buy and store. It is the ministry’s role to determine if it is sufficient or not.” 

With maize fetching so much in Nairobi, traders from across the region are shipping in the grain to Kenya in droves. As of yesterday, 40,027 metric tonnes of maize had been shipped into Kenya from Uganda in the last one month. During the same period, Tanzania shipped in 762 tones.

Regional prices

Some of this maize has found its way to NCPB’s stores, frustrating Kenyan farmers in the process by forcing them to sell their produce to middlemen. And since NCPB is still in the process of building its reserves, it cannot sell. As a result, millers have been forced to purchase maize from middlemen at a higher price.

This ripple effect is passed on to consumers who have to buy maize flour at higher prices. Farmers are accusing the government of creating the current shortfall by destabilising the market last year without a properly planned exit route.

During the subsidy, the government was purchasing maize from importers at Sh3,600 per bag. It was then selling the same to millers at Sh2,300 per bag, representing a 36 per cent subsidy. Farmers say the disruption in price at that time forced them to sell most of their produce to middlemen.

“When the government was selling subsidised maize, millers were comfortable as they were getting steady supplies. Meanwhile, farmers were struggling to offload their maize because no one had them in mind,” Kipkorir Menjo, the director Kenya Farmers Association said.

“Now the only way millers can get maize is from middlemen who are selling it to them at exorbitant prices. Thus there is no way the government can force millers to push their prices down,” he said.