Protests greet bid to control price of goods

The government on Tuesday clashed with manufacturers over its proposal to control the prices of essential commodities.

The proposal is to give the government back the job of fixing prices of items used by majority of the people and those that greatly affect the cost of production, such as petrol and diesel.

Already, the Energy Regulatory Commission has developed a formula to determine the pricing of fuel.

Efforts to reintroduce price controls follow a public outcry over inflation, which has sometimes risen to a high of 30 per cent in the last 18 months.

There have been fears that some of the price rises are caused by inefficiencies in the market — such as price-fixing and monopolistic behaviour — rather than economic fundamentals.

Invisible hand

The latest effort to hand the job of fixing prices to Treasury bureaucrats is spearheaded by Mathira MP Ephraim Maina.

Under the plan, the government will fix the prices of petrol, diesel, kerosene, sugar, rice, cooking oil, wheat and wheat flour as well as maize and maize flour.

But manufacturers through their industry lobby described the proposal as “ill-advised, retrogressive and impractical”.

“It is time the government decided once and for all what it wants, a fully liberalised economy or a controlled type of economy because it cannot have both of them concurrently,” the Kenya Association of Manufacturers’ chairman, Mr Vimal Shah, told the Daily Nation.

Mr Shah said something similar was tried for oil in India, but it failed, and will most likely lead to unnecessary shortages of essential commodities because no business would be prepared to make losses.

“This will mean we revert to a fully-controlled economy where even the prices of inputs such as power, transport, foreign exchange, and so on, are controlled,” said Mr Shah, who is also the managing director of Bidco Oil Refineries whose key product — cooking oil — is one of the products targeted for price regulation.

“How do they plan to control inputs like power when demand is almost getting out of control?” asked Mr Rajan Shah, the director of Capwell Industries, a maize, rice, beans and pulses milling company.

The chairman of the Cereal Millers Association, Mr Diamond Lalji, echoed the Bidco MD’s sentiments.

“We appreciate there is a general concern about the rising prices of essential commodities, but this is essentially a factor of the global commodity prices,” said Mr Lalji, also the Premier Group managing director.

For a controlled economy to work, the government should be ready to control not only the entire supply chain, but also offer subsidies.

“This will entail consumers indirectly paying dearly for the goods because subsidies will force the government to burst its Budget and this will lead to higher taxation,” Mr Lalji said.

He cited a recent case where farmers declined to sell their maize to the cereals board at a set price of Sh1,950 per bag.

“Unless the state wants to start trading, no miller will import maize or wheat at a higher price and sell flour at a loss,” he said. Already wheat farmers were demanding Sh3,500 per bag, way above the price set by the cereals board.

The Price Control (Essential Goods) Bill, in which the radical proposal is contained, is sponsored by Mr Maina, the MP for Mathira, with the aim of reducing the cost of essential commodities.

Apart from the distortions it would cause in the economy, such a Bill would, at least in the short term, cut fares and transport costs, with wide effects on other prices in the economy.

Price controls could make the targeted commodities unattractive to manufacturers, thereby creating shortages. Currently, a 2kg packet of maize flour retails at about Sh95, despite a government campaign to lower the price to Sh52.

At some stage, the Ministry of Agriculture bought maize, milled it and tried to set two prices for the same product, a scheme which failed at great cost to the taxpayer.

Mr Maina says the aim of the Bill is to protect consumers from exploitation.

The Safina MP argued the proposed law is necessary because government attempts to get traders to reduce prices had failed in the past.

Market forces had also failed to set fair prices, he said.

“It has become critical to control prices (of essential prices) in order to protect Kenyans from exploitative and unscrupulous business people.”

Shortage

If enacted, he said, “the Bill will help to mitigate the effects of the food shortage with which Kenyans were grappling”, he said. If passed, the law will give powers to the Finance minister to fix maximum retail and wholesale prices for the targeted goods.

Traders who overprice the goods will be jailed for five years or fined Sh1 million or both. Consumers who buy the goods at the inflated prices will also face the same penalties.

“We must not allow our citizens to be oppressed,” the Mathira MP said.

Reported by Samuel Siringi, Njeri Rugene and Justus Ondari