Why US went for private firms in maize deals

The US Government opted to let commercial entities deal with American maize exports after the National Cereals and Produce Board proved too costly for the job, Ambassador Michael Ranneberger said.

The United States, which is rolling out an $83 million (Sh6.6 billion) credit guarantee programme involving Kenya private companies and banks, says the parastatal was asking for a “ridiculous” $62 million (Sh5 billion) in handling fees which they decided was highly unreasonable.

Under the credit programme that is also operational in other countries, Kenyan companies are guaranteed local bank loans to buy maize from US firms. The NCPB fees would have inflated the retail price of the the white maize already loaded with several other costs.

According to the ambassador, Treasury concurred with the US contention after the latter had spent several weeks trying to work out an agreement with the cereals board. This occasioned delays in the imports even as the maize situation - exacerbated by prolonged drought - deteriorated.

“We kept trying because we thought going through NCPB was the easiest thing to do,” Mr Ranneberger said in an interview with Sunday Nation. “We decided not to work with the NCPB. Finance minister Uhuru Kenyatta rejected that as well; he did the right thing.”

Mr Kenyatta is reported to have relayed the message that the Cabinet sub-committee on food had also rejected the NCPB’s fee demand.

Distribution network

The controversial parastatal has the largest national distribution network--the only reason why any bulk supplier would choose them.

Efforts to get a comment from NCPB managing director Gideon Misoi were fruitless as he did not answer his mobile phone or respond to text messages.

The credit programme for the white maize exports is not yet set to start though. The American official said his government has to certify lending banks for credit guarantees, a process to be concluded in “the next few weeks”. He believes the maize would still be needed, the delay notwithstanding.

In an unrelated private transaction by commodity trader Louis Dreyfus, a ship carrying 30,000 tonnes (another 60,000 is on the way) recently arrived in Mombasa carrying US maize, prompting the much-publicised tour of the port by Mr Ranneberger.

He said the visit was just meant to draw attention to the fact that the ship was carrying American maize and to call the attention of Kenyans to the failure to secure a deal with NCPB on the credit guarantee programme for more food.

Beyond commercial deals, the US says it has been the largest donor of food and other emergency aid to Kenya in the recent past. Most of its intervention here as elsewhere has been through the World Food Programme, which the diplomat termed the largest and most efficient organisation in food distribution.

Since 2004, the United States has provided over $420 million of food and emergency aid to Kenya.

Purely commercial

However, during the current food shortage said to afflict over a third of the country’s citizens, it has opted to facilitate exports by private companies that are now set to trade with their local counterparts under the $83 million credit guarantees.

The ambassador was quick in agreeing that this does not constitute food aid - for which President Kibaki recently made a global appeal.

Mr Ranneberger conceded that it is a purely commercial arrangement but pointed out that the Kenyan market needs the grain: “It is a perfect marriage of the two (business and food availability)… it is a win-win situation for both countries,” he said.

At any rate, he added, his government is of the view that the markets should be left to sort out the food situation for efficiency in agribusiness.

Admittedly, food aid - including much-reviled yellow maize - has in the past wreaked as much damage in the local commodities market as the good it has done. During the Moi era, food shortages were addressed through huge imports of food by charitable organisations that provided a major disincentive for farmers by depressing market prices.

Since President Kibaki took office the situation had stabilised considerably with farmers meeting much of the domestic requirement. That was until 2008 when the effects of the 2007 post-election violence, which saw the destruction of stored grain, displaced farmers and rendered consumers penniless. became clear.

As the maize situation grew tight, those charged with making it available opted to indulge in massive scandals that reduced available stocks and pushed up prices while making overnight millionaires of a few corrupt individuals.

Although their white maize is coming later than scheduled, the Americans do not share the fear that it could distort the grain market as in the past. The ambassador, while acknowledging local efforts to produce sufficient food next season, said the US maize would arrive well ahead of the harvest.

And in any event the Kenya Government is building a strategic reserve: “At this point, Kenya needs all the maize it can get to feed people and secondly to establish a strategic reserve. I don’t think it will have the effect of depressing the market,” the envoy said.

Long-term solution

Mr Ranneberger said US intervention is not restricted to supplying maize to the market. Through USAid and Land ‘O Lakes, they have been involved in the search for long-term solutions to food problems in Kenya in sectors like maize, dairy, horticulture and livestock.

By the time of going to press, the rains were yet to materialise in most parts of the country, raising the spectre of more foreign intervention in the market.