Why the market remains uneasy over high food prices

Shoppers at a supermarket along Aga Khan walk in Nairobi. [Wilberforce Okwiri, Standard]

A few weeks ago, a two-kilogramme tin of Irish potatoes could cost as low as Sh80.

The same quantity was selling at Sh250 during the months when inflation was almost hitting 10 per cent.

It now averages Sh100, and there are fears that it will soon rise to Sh150.

"The suppliers have already alerted us. The potatoes are slowly disappearing from the market," Monica Gacheri, a trader in Nairobi, told The Sunday Standard.

Whether this is a price correction or reduced supply as a result of less rain, there is rising concern that food prices in the country are unusually high.

Kenya National Bureau of Statistics (KNBS) indicated inflation was at 7.9 per cent in June from 8.0 per cent in May, citing high food prices.

"The inflation was largely due to increase in prices of commodities under food and non-alcoholic beverages (10.3 per cent); and housing, water, electricity, gas and other fuels (9.4); and transport (9.4) between June 2022 and June 2023," said KNBS Director General Macdonald Obudho.

Retail Trade Association of Kenya (Retrak) Chief Executive Wambui Mbarire says the high inflation is a pre-Covid problem. It is only that the pandemic and the Russia-Ukraine conflict worsened the situation.

"The pricing structure (in this country) has been such that it is not driven by the demand and supply element," she said.

Ms Mbarire was one of the panellists at a multi-stakeholders workshop on food prices organised by Consumer International and Competition Authority of Kenya last week.

She gave an example of sugar whose price has shot up to about Sh240 per kilo.

She revealed that retailers, particularly supermarkets, were summoned by Trade Principal Secretary Alfred K'ombudo in May to explain why the price was skyrocketing.

"Data (in his possession) implied supermarkets were making 45 per cent margin. We put to him our own price on what we get from the supplier. There was no one in that room who had a price margin above five per cent," she said.

Mbarire said that even some of the products that are exported such as coffee are cheaper abroad compared to local shops, while some imported products cost less than those locally manufactured.

"There is something fundamentally wrong with our pricing. It is either there are people who are pocketing high margins or inefficiencies along the supply chain," she said.

Consumer Price Index

A pertinent question then arises: who decides the price?

For example, is a kilo of tomatoes costs Sh111.66 as KNBS stated in its Consumer Price Index and inflation figures for June 2023 or it could actually cost less?

Who decides that a kilo of beef should cost Sh380 in Ongata Rongai or Kiserian and Sh450 or Sh600 somewhere else?

And if they are the decision-makers, is the judgement a true reflection of the market forces?

Mbarire said retailers do not set prices. "Most goods come with prices manufacturers seek to enforce," she said.

Davine Minayo, a specialist in food prices working with Consumer International, said that even when inflation is labelled as a cause of increased costs, it is not shared evenly across the value chain.

This is what the organisation found with its assessment of prices of some food items such as kale, milk and rice.

Consumer International is a membership organisation with over 200 consumer groups across more than 100 countries that champion a fair and safe consumer environment.

"The gap between different prices is very big, meaning there is something happening in the value chain that we need to interrogate," Ms Minayo said.

Even so, she noted that some factors such as fuel prices and inflation are beyond the scope of the relevant authorities including the Competition Authority of Kenya (CAK), whose mandate involves checking for unfair pricing.

CAK acting Director General Adano Roba cited the Covid-19 pandemic that caused disruption in supply particularly for grain and edible oils, and global fuel prices as the reasons that could explain the current food prices.

"A multiplier effect of the commodity (fuel) can be seen in the inflation," he said.

Dr Roba described the slight inflation rate drop in June as a relief. "It is a positive but still high compared to 9.5 per cent in November 2022," he said. Food prices have increased significantly since the onset of Covid-19 in March 2020, some more than doubling.

For example, in the pre-Covid period, the price of a two-kilogramme packet of maize flour was selling at less than Sh100. Today, the cheapest goes for Sh210.

Supply chain

A 400-gramme loaf of bread was Sh50 then but now sells at Sh65, while a five-gramme sachet of Nescafe coffee that was Sh5 is now Sh7.

The price of tissue paper is among the biggest movers, selling at about Sh40 from Sh13 three years ago.

Even with less disruption in the supply chain, which was the reason behind the Consumer Price Index during the height of Covid-19, the prices of the majority of commodities have still not recorded significant drops.

However, Retrak said the market is back to pre-Covid level. "It is not a Ukraine issue. There is a deeper problem with inefficiencies," Mbarire said.

As prices in formal retail chains continue to rise, she said, more Kenyans are shifting to the informal economy where they buy food in smaller quantities "which is expensive in the long run."

Mbarire said that the informal economy always benefits when there is a shock in macroeconomics.

Kenya operates a liberalised economy where prices are not controlled by the government. However, CAK exists to address consumer-related issues and unfair competition between businesses.

In 2010, the National Assembly passed the Price Control (Essential Goods) Bill, 2009 which became law in 2011. The law allows the National Treasury Cabinet Secretary in consultation with industry players to set maximum prices for some goods.

It was meant to reduce incidents of price fixing, hoarding, and price gouging.

So far, it is only fuel, through the Energy and Petroleum Regulatory Authority whose pricing is controlled by the State.

"I think somebody needs to take basic food items and come up with the prices. "That would highlight to us what the inefficiencies are," Mbarire said.