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If there’s no solution, brace yourselves for food riots

Tuesday November 25 2008

 

By JAINDI KISERO

I don't like commodity marketing boards. Nor do I accept the idea of giving bureaucrats the responsibility of dictating producer prices and setting quotas for the amount of maize and wheat which millers have to buy from the local market.

More than 10 years after the cereals sector was liberalised, it remains festooned in stifling controls, quotas, administratively-set producer prices, “infant industry” taxes – all those elements of the command economy of the yesteryear.

The reason we are teetering on the brink of food riots right now is bad policy. Indeed, the rate at which the price of maize meal has risen is a complete outrage.

On Tuesday, long queues started forming in front of the major stores in Nairobi, signalling that some consumers had resorted to panic-buying.

Allowing the National Cereals and Produce Board (NCPB) to engage in marketing was a recipe for corruption and market distortion.

Currently, the State-controlled monopoly buys maize at an administratively-set producer prices which are invariably much lower than the market prices for the commodity.

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If you allow the board to sell the same maize to millers through brokers, especially under conditions of crippling shortages, you have merely opened loopholes for politically well-connected operatives to seek rent.

That is why it does not surprise anyone that brokers with friends and allies in high places have been the ones reaping rent – buying from the board at subsidised prices and selling to millers at market prices.

Right now, millers are willing to pay as high as Sh2,200 for a 90-kilogramme bag of maize, compared to the NCPB’s administratively set price of Sh1,700.

I have heard some people arguing that millers share the blame for the wildly rising consumer prices of maize meal. I disagree because the milling industry is a very competitive sector. Such is the competition that none of the companies will be ready to lose its market share for short-term gains.

When you see millers increasing prices by such wide margins, the stimulus is from somewhere else. Millers have no alternative than to pass it on to the consumer.
In the present circumstances, the culprits are the rent-seeking classes and their friends in high places.

Agricultural commodity marketing in this country is full of contradictions. Just the other day, the Government granted the NCPB billions of shillings to import 270,000 tons of maize. Inexplicably, the board only brought in 150,000 tons from South Africa.

Yet the truth of the matter is that the current shortages of maize were predicted many months ago. The board is supposed to hold the country’s strategic stocks. Indeed, the Government has already indicated that it will be increasing the strategic reserve level to eight million bags.

Where is the logic in the NCPB turn around and selling maize it has purchased with public taxes to profiteers?

From the consumer’s standpoint it amounts to double taxation. Instead of playing its role of stabilising commodity prices, the board is creating distortions in the market and preventing supply and demand forces to play their role

What should the Government do? I can’t claim to have the answers. But it needs to do some persuading to explain to the public the temporary nature of the present situation.

The truth is that the harvest for the long season will be shortly entering into the market place. If the price transmission mechanism works well, it will not take long before the situation starts stabilising.

In the long run, we will need to candidly discuss why wholesale maize prices are among the highest in Eastern and Southern Africa.

Let’s look at the matter afresh and discuss whether it makes sense to maintain maize and wheat import tariffs in the context of large import price parities and huge deficits in local production.

Several years ago, we abolished both the Maize and Produce Board and National Sugar and Cereal Corporation. But real liberalisation of the sector started in 1992.

In 1999, we brought the National Cereal and Produce Board back into grain purchasing at fixed prices. Clearly, these fixed producer prices and the import tariffs have merely served to raise local consumer prices ,especially in the major urban areas like Nairobi and Mombasa, and the drought-probe areas of Eastern Kenya.

Admittedly, there is a strong case for guaranteeing good prices to maize farmers.

But we must strive to hit the optimum between this objective, and the case for moderating extreme price fluctuations for a strategically important crop such as maize.

Because of the dominant role maize holds in every basket of goods, the price of the commodity influences the general level of prices in the economy. If we don’t act quickly, we must brace ourselves for food riots.

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