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Millers and farmers clash over cheap wheat imports

Saturday March 17 2012
PIX

File | NATION Workers pack wheat into 90 kg bags on a farm in Eldoret following a bumper harvest last year. Farmers in South Rift are reportedly still holding thousands of bags of the product.

A wheat glut in the local market has triggered a confrontation in the grain sector with farmers demanding that the government suspend imports until millers can mop up excess supply in stores across the country.

The situation has been compounded by the failure of millers to collect a stockpile of about three million 90kg bags of wheat lying in the silos and warehouses of Grain Bulk Handlers Ltd (GBHL) in Mombasa.

The stockpile has been accumulating since last September with more imports on the high seas, GBHL said.

Millers are also said to be holding considerable stocks of wheat in their own stores.

The rush to import more wheat is linked to an anticipated closure of the import duty waiver window opened two years ago by then Finance minister Uhuru Kenyatta to encourage imports to curb food shortages.

The concession is expected to end in three months with the reading of this year’s budget. The chairman of the Rift Valley Stakeholders Forum, Mr Justus Monda, accused the government of not being sensitive to the farmers’ plight.

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“Millers are a cartel, and they control the cereals sector, a trend that is very dangerous for this country. They have been importing wheat even when there is enough supply locally, and we cannot understand why the government cannot act,” he said.

Mr Monda said farmers have been holding thousands of bags of wheat since the December 2011 harvest from the South Rift has not yet been exhausted.

“Besides, North Rift farmers completed harvesting just last month. Where will all this wheat go? Farmers are holding it because millers want to buy at less than Sh3,000 for a bag of 90 kilos which will be a loss. We want the ministry to ban imports of the commodity until millers buy our produce or even re-introduce import duty,” he said.

Last year, the ministry capped the price of wheat at more than Sh3,200 per 90 kg bag, but imports have been landing in Nairobi at less than Sh3,000 since the 25 per cent duty was removed in the 2011-2012 budget.

Mr Monda claimed that even after this glut, the next thing millers will do is create an artificial shortage so more imports are allowed.

The farmers spoke as it became known that millers are currently taking wheat from GBHL at an average daily rate of 4,000 metric tonnes.

The slow uptake of wheat is contrasted by the arrival of large quantities of wheat that are expected to peak in the next three months. 

This is due primarily to the availability of wheat at competitive prices on the world market from Argentina, Brazil, the United States, Russia, Ukraine and Canada and the end of the duty waiver on wheat imports. The duty is expected to revert to 35 per cent in June.

“There is a glut of wheat in Mombasa at present. The amount held by GBHL therefore represents almost 70 days of requirements. The quantity of wheat held is far greater than in previous years,” GBHL operations manager Michael Mwakamba said.

“There is therefore short-term congestion within the existing grain handling systems at the port caused by the action of millers as they take commercial advantage of the prevailing situation.”

But reached for comment on whether the millers are working on creating an artificial shortage to forestall the further decline in wheat flour prices, Cereal Millers Association chairman Diamond Lalji denied the existence of any such scheme.

He also disputed the figure of the quantity of wheat lying uncollected in GBHL silos and warehouses.

“The storage capacity at the grain handling unit is only 135,000 tonnes, so the figure of 270,000 is vastly exaggerated.

“Claims that millers are holding their wheat on vessels to create an artificial shortage is absolutely ridiculous as holding the wheat on the vessels would cost the millers $50,000 or Sh4 million per day in demurrage costs. It would therefore make no economic sense for anyone to hold wheat,” Mr Lalji said.

He pointed out that the price of wheat flour has been dropping because of a steady supply of the product and wondered why anyone would want to change that.

CMA chief executive officer Paloma Fernandez also spoke in defence of the millers, saying they have a quota that is set by the Treasury and that the notion that they are over-importing is misplaced.

“No miller imports amounts that are beyond their quarter,” she said.

But Mr Booker Kowuor, the chairman of the Kenya Small-Scale Cereal Growers Association, accused millers of exploiting a provision that allows them to import wheat and blend it with local wheat.

He said millers make more money when they import wheat, but even when they get subsidies for the imports this is not reflected in the retail price of wheat flour.

“Their profit margins are too high, and despite our insistence that we sit down to talk about their cost analysis structure so that we know their profit margins they have flatly refused which means the figures are astronomical,” Mr Kowuor said.

He said most farmers do not have access to markets and only those who have connections with millers are able to sell their produce.

“Farmers are complaining that they have the commodity, but millers don’t want to buy it, which does not augur well for the sector. If farmers cannot sell what they already have then they will not plant the same crop during the long rains but will seek alternatives,” he said.

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