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Before you vote: The truth about lowering the cost of living


Before you vote: The truth about lowering the cost of living

Food and fuel are the key factors that contribute to a high cost of living in Kenya

“….Once we attain power, in that Canaan we are talking about, within 90 days, the cost of living will go down, the cost of maize flour will go down, the cost of sugar will go down, the cost of milk will go down, the cost of rent will go down…”Nasa flagbearer Raila Odinga at the Jacaranda Grounds in Donholm, Nairobi May 28

Can the high cost of living drop in 90 days?

Food and fuel are the key factors that contribute to a high cost of living in Kenya, according to Institute of Economic Affairs CEO, Kwame Owino.

Since the start of 2017 the prices of food, fuel, transport and house rent have skyrocketed according to the Consumer Price Indices produced over the last five months.

The overall inflation rate stood at 11.70 in May 2017, the highest for the five years since May 2012, when it stood at 12.2 per cent. The Central Bank of Kenya prefers that inflation remain between a minimum of 2.5 per cent and a maximum of 7.5 per cent.

Inflation is the rate at which the prices of goods and services rise over time, resulting in money losing value. The cost of maize flour, maize grain, rice, sukuma wiki , spinach, cabbages, milk, kerosene and diesel have risen all sharply, driving up the cost of living, a review of the latest inflation data by Nation Newsplex shows.

While much focus has been on the price of maize flour and maize grain the spikes in the price of vegetables have been steeper.

The average price of sukuma wiki, for instance, increased by 63 per cent from Sh38 per kilo in May last year to Sh62 per kilo in April 2017 before dropping to Sh47 last month, according to data from the Kenya National Bureau of Statistics. 

RAIN-FED AGRICULTURE

The average price of a half-litre packet of fresh milk increased by 23 per cent from Sh53 in May 2016 to Sh64 in May this year.

Persistent drought in various parts of the country contributed to the rise in food prices. This means that if there is improved harvests after the long rains the prices of food will come down.

For instance a few weeks into the current long rains the price of milk has started declining falling by Sh10 just this week.

While government subsidies can lower costs over the short term, the long term solution to perennial food shortages can only be to implement effective policies like increasing the grain in the strategic grain reserves.

While the government announced plans to beef up strategic grain reserves stock to eight million bags up from the current three million bags, that hasn’t happened. In 2016 Kenyans consumed 29.3 million 90kg-bags of maize, which is equivalent to 2.4 million bags monthly, according to the 2017 Economic Survey.

Mr Owino says another solution is to invest in modern farming to reduce overreliance on rain-fed agriculture and improve yields. According to Food and Agriculture Organisation, Qatar’s maize yield, which was the best in the world in 2014 was nearly 36 times Kenya’s. This gap shows the advantages of irrigation over rain-fed agriculture.

GLOBAL FORCES

A USAID report from 2015 stated that Kenya could achieve self-sufficiency in maize without increasing the area under the crop, through modest yield increases and reducing postharvest loss.

With the housing, water, electricity, gas and other fuels index increasing by almost three per cent in May this year compared to the same period last year, Kenyans will continue to struggle to make ends meet despite the subsidies for maize millers, tax waivers on milk, maize grain and flour as well as tax breaks for lowest income earners.

Kenya imports most if its fuels, so the prices of the commodities are largely at the mercy of global forces, with tax being the only aspect that government can influence.

At the same time, real wages have increased at an annual rate of 2.7 per cent from 2010 to 2016. Real income refers to the income of an individual after taking into consideration the effects of inflation on purchasing power.

Mr Odinga is correct to say the cost of living is high and that the government can take measures to bring it down.  However, he offers little detail on how he intends to accomplish these price reductions within 90 days.

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