Food Prices: What Should Kenya Do?

Published on 13th June 2011

In the recent past, Kenyan civil society has been demonstrating over rising food prices and the escalating costs of living. Rising food prices in the international markets is hurting Kenyan consumers more than in any other Sub-Saharan African country. On average, the cumulative impact of a 10% increase in international food prices on domestic food prices is 3%. But the effect ranges from a full 10%  in Kenya. The situation has not been made any better by the rising oil prices whose knock-on effects have depreciated the local currency, multiplying costs for a country that is a net food importer.Demands have been made that the government reduces prices on food and fuel.

It is not disputed that commodity prices are determined by three factors namely: demand; supply and cost of production.Together, these variables determine selling price of a product. 

In addressing the three determinants of price, we would do well to first identify the main foods that are consumed in Kenya. According to Dr. John Omiti, a senior analyst and head of division (Agriculture) at a government think tank - KIPPRA, "we rely on import of cereals which are widely consumed internationally which makes their pricing sensitive to any supply shocks, meaning the local consumer would compete with a consumer from anywhere else in the world."  

Maize is the main staple food, accounting for 80% of the total cereals produced (rice, wheat, millet and, sorghum). The poor harvest of the 2010/11 second season (harvested last March) and the unfavourable prospects for the 2011 long-rains season in some agricultural areas have pushed maize prices up in all main markets of the country.

The Food and Agriculture Organisation (FAO) estimated Kenya’s maize production in the 2009/10 year at 200,000 tonnes, which is about half of the consumption demand. Farmers are holding 10.9 million bags and traders 2.4 million. Millers have 519,530 bags while the National Cereals and Produce Board (NCPB) holds 3.1 million bags, way below the strategic reserve target of eight million bags.

The high price of maize is progressively diminishing access to food for the poorer sections of the population. The supply of maize in the country is 30 million bags a year while its demand is 33 million bags. Sugar consumption stands at 660,000 tons a year while production is 400,000 tons a year, yet the demand for sugar is expected to grow at 9% per year. Annual deficits for wheat stand at 3 million bags.

While the Kenyan population is rising thus the rise of number of food consumers in the market, the country has not witnessed any significant increase in the number of food producers and this is evidenced by the deficits that we have in food production. The country has thus been forced to import food whose price is influenced by external factors.

There is need for the country to among other factors adopt modern technologies. Use of fickle technology is one of the factors that have hindered the Kenyan agricultural industry. This is illustrated in the sugar sector where growth of poor cane varieties, for example, variety Co 945 which occupies the largest cane surface with 30,220 hectares representing 25% of the total area; variety N14 that occupies 28,262 hectares (23%) followed by Co 421 with 12% is done. This is opposed to variety MNI grown in Malawi which yields more with higher tones of sucrose per hectare. Brazil uses mechanized harvesting in the sugar industry while Kenya's is still manual.

Kenya is more of a consuming country rather than a producing country and that is reason why we are witnessing ever raising food prices. The civil society and policy makers should first consider the factors that determine price and come up with long-term solutions to mitigate the crisis. Demonstrating for lower food prices will not solve the issue.

One can not expect a producer to incur Kshs.15 to produce a unit of a commodity and sell the same at Kshs.14 or less as this will defeat the logic of business. The role of the government is to ensure that there is a conducive atmosphere for production and that consumers are not exploited. So how do we expect the government to lower the food prices when our demand for the same is higher than the supply? 

Again, it can not be disputed that factors of production are capital, labour and energy. In Kenya, fuel is the main source of energy. We  import oil from the Middle East. Instability in the Middle East will affect the production of petroleum and consequently its prices. We have to search for alternative sources of energy that would lower our production costs.

Kenya has the potential of being an exporter of white corn, according to a survey by USDA Foreign Agricultural Service. Instead of just producing enough (about 9 million metric tons per annum) white corn for human consumption in East African community, EAC corn growers could on the same surface land produce almost 20 metric tons exportable-surplus enough to feed 325 million people.

In the past Malawi faced serious food crisis, however, she embarked on a bold initiative to improve access to inputs and technologies through the Agricultural Input Subsidy Programme (AISP). The programme is hailed for having moved the country from a deficit producer of staple crops, especially maize, to a surplus producer. In addition, the programme has increased the food security status of the farming households and the economic growth of the country as it has been able to allow the participation of all agricultural stakeholders. Therefore Kenya should emulate Malawi and have substantive programmes that will address the food crisis in the long-term rater than the short term.

Demonstrations and demands for lower prices are only but fire fighting tools; we have no option but to come up with long term solutions in ensuring that we have the right equipment, skills, facilities, capital and all other facilities towards sustainable food production which will consequently facilitate an increase in the number of producers, and lower productions costs hence the reduced prices that we are yearning for. It is during these hardships that we need creativity, support, innovations and inventions to develop.

By Wilson Balongo
MBA, BCom(Hons), AFM(IHRM)
Lecturer, Business Management.


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