Stop the rot in Kenya’s strategic grain reserve

Kenya’s Strategic Grain Reserve exists because the country needs to store sufficient grain for release into the market in the event that supplies fall.

For this reason, the government dedicates funds every year to ensure there is backup maize in the silos that can be released in an emergency.

It’s very difficult to argue against the need to manage the risk of abrupt changes to staple food supplies, but the solution being applied now is just awful.

So I will start with the revelation by the National Cereals and Produce Board (NCPB) that it was holding maize stocks that were up to eight years old and that up to 400,000 bags would be destroyed due to spoilage.

Among the reasons the NCPB cited was the absence of policy for release of aging grain stocks. The result is that government stores keep grain beyond acceptable durations.

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There is no greater evidence than this that the Strategic Grain Reserve is really not strategic.

Instead, it serves as a store for maize that will eventually be spoiled, and whose cost is met by taxpayers.

What NCPB currently has is probably one of the least efficient ways of managing grain reserves. NCPB, a government agency, purchases grain at a cost higher than prevailing market prices and then goes ahead to store it for ages in anticipation for release to millers when there is a supply problem.

It is imperative that we reconsider whether the public should subsidise large maize farmers with fertiliser and then buy and store their maize at public cost, only to burn a portion several years later.

The Strategic Grain Reserve is essential but it does not need a huge bureaucracy with the obligation to procure, store and maintain physical stocks of grain.

FLUID GRAIN MARKET

It is clear that the NCPB works hard at procuring grain but the results show that management and storage is a problem, owing to the fact that grain is bulky and storage and transportation logistics are not easily mastered by bureaucracies.

For this reason, I am surprised that the legislature entertains the view that the existing grain stocks should be enhanced.

There is a much better way of ensuring that a strategic resource is available to respond to supply shocks, without having to procure and store grain at all.

Data from the Ministry of Agriculture shows that the per capita maize consumption in Kenya is close to 90kg per year. This is enough to develop either a cash-based or a financial instrument-based solution.

From first principles, the grain reserve is a risk management tool and Parliament allocates it about Sh4 billion every year to assure food security and a fluid grain market in Kenya.

It is clear, then, that a simple financial instrument could be designed and maintained, to enable payment to be triggered whenever overall grain stocks in the country fall below a certain threshold. This presents at least three options, including deploying it fully as a cash reserve, an insurance product or even a mixture of the two.

But the advantage is that the entire set of infrastructure, such as silos and stores, would be privatised.  

PUBLIC CONFIDENCE

This reform would mean that every year, the legislature would allocate a sum which acts either as a premium or is kept in a cash or other reserve that could be triggered by a presidential call or authorisation to the Cabinet Secretary for Agriculture, based on pre-agreed terms.

Now, knowing the recent history of established funds, including diversion and theft, a cash reserve would not find easy acceptance but the reserve could be stored in an account in a private financial institution which would have to compete on terms sets by government.

This introduces obligatory transparency to critical government operations and raises public confidence that this is not another scheme for the personal enrichment of consultants and dishonest public sector workers.

It’s a real surprise to us at the Institute of Economic Affairs that a government which poses as “digital” and makes an effort to listen to some of the private sector has not posed this problem in the public domain for an efficient, public sector policy solution to be developed.

Kenyans keep billions of shillings circulating in virtual accounts. It’s clear that a virtual strategic food reserve is a more efficient solution than what we have now. Government must stop storing and then throwing away grain.    

Kwame Owino is the chief executive officer of the Institute of Economic Affairs (IEA-Kenya), a public policy think tank based in Nairobi. Twitter: @IEAKwame