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Maize price crisis shows Kenya is a bandit economy

Tuesday May 9 2017



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In Kenya, big money is made whenever the country is in the middle of major food shortages. For instance, when the country was hit by crippling food shortages in 2008, all you needed to make millions was to obtain a letter from a Cabinet minister or top civil servant directing the National Cereals and Produce Board to sell to you a huge quantity of maize that you promptly sold in the open market at huge margins.

When shortages worsened, the government introduced subsidised maize meal for the urban poor in the belief that would cushion them from high prices. It did not work. The subsidy programme merely presented corrupt networks with an opportunity to manipulate the system and to make supernormal profits by selling maize meal meant for the urban poor. In the grain business in Kenya, the well-connected millers and traders are the lords of poverty.

Big money is also made from distribution of relief food. Indeed, transporting relief food to far-flung areas has always been the domain of well-connected transporters. Haven’t we just recently experienced the cartel-like behaviour by millers? Just the other day, the government removed duty on maize imports in the belief that this would influence consumer prices reductions. It has not worked. We ended up creating parallel markets. First, a market for maize imported on a duty-free basis. Second is a market for maize that came in after full duty was paid and thirdly, maize from strategic maize reserves the cereals board has been asked to release into the market place at subsidised rates ostensibly to stabilise prices.


When you create multiple price regimes, you allow opportunities for payoffs, transfer pricing and arbitrage. As things stand, we have ended up allowing millers and traders to dictate terms. With millers now in a position where they have control over the maize purchased in the open market and subsidised maize they are in control of both the supply and demand sides. If you were a miller, why waste time milling subsidised maize? You would delay releasing subsidised flour to the market as long as you want as you continue to enjoy supernormal prices.

On Tuesday, I read a story in the Business Daily quoting the business lobby Cereals Millers Association saying that maize flour prices were not likely to come down until July. Grain imports are dominated by a clique of politically well-connected merchants who thrive by playing the top leadership in this country against one another so as to deflect attention from the harmful things they do to the consumer. Does it surprise that nobody in the government is prepared to take them on and criticise them for driving consumer prices even after the government open the window for cheap imports?


Agriculture Cabinet Secretary Willy Bet promised us many weeks ago that maize flour prices would come down. It is not in the interest of the incumbent policymakers to fight with the millers. As a policymaker and with the General Election looming, there is a great deal of political capital to be made from aligning yourself with the powerful millers. Protracted food shortages serve the incumbent elites because they provide and open opportunity to buy loyalty and to fix opponents. You can favour your supporters, while starving your opponents of relief food. If I were the one making decisions, I would immediately send the Office of the Commissioner of Monopolies to investigate and table evidence on the restrictive practices by millers and commodity traders.


The commissioner should also investigate concentration of economic power in this sector. In the long run, we must overhaul the whole grain marketing system so that we can dismantle the networks and the parasitic classes that are always waiting in the wings to make supernormal profits from food shortages. Our food supply chains are primitive and exploitative to the consumer.

Today, Kenya is said to have one of highest consumer prices of sugar in the world. Why has this not translated into better prices for farmers and a booming sugar industry? Have you tried to compare the gaps between the producer prices of milk and what consumers pay in supermarkets? Or between what the livestock trader pays for a bull and the prevailing beef prices?

Former Chief Justice Willy Mutunga was right when he described Kenya as a bandit economy. Consumer prices in this economy have no bearing on cost. If the government is worried about food riots, let it design better methods of delivering subsidies and safety nets for the poor.