Business Daily (Nairobi)
George Omondi
9 July 2009
Fresh queries have emerged over the possible role that large-scale millers could be playing in keeping maize flour prices high.
A study on the effects of high food prices on Kenyans, commissioned by German NGO Heinrich Boll Stiftung, blames the high cost of maize flour on millers and the large scale farmers who own storage and milling facilities.
"The local milling industry is a close-knit society where information is not readily available but our study shows that they have earned the highest profit margin from the current maize shortage," said Mr Booker Ochieng, a researcher with Sower Solutions Kenya, who conducted the study.
The study conducted before and after the 2008 harvesting season says that while everyone along the value chain has been benefiting from higher prices, the level of profit earned increases with the player's position in the market chain.
For farmers, the study says, it is those with larger farms and huge capital investments who are benefiting from the current maize shortage.
Equipped with trading licences, storage and milling capacities, such farmers are believed to have withheld their harvests from the National Cereals and Produce Board (NCPB) for speculative purposes and are now releasing them in small bits as grain or flour, whichever is deemed most profitable.
There has been a raging debate in the country as to who is responsible for maintaining the high costs of flour even after the government moved to waive duty on maize imports nine months ago.
Many have blamed high prices that now range between Sh84 and Sh90 for every 2 kilograms packet of flour -- almost double the pre-election level of Sh55 -- on the oligopolistic tendencies of the milling fraternity.
Although NCPB register indicates that the industry which has a milling capacity of 7,385 tonnes per day has about 103 players, just a few large scale firms control the pricing of flour.
Mombasa Maize Millers has the largest capacity of 985 tonnes per day (13.34 per cent), followed by Unga Group with a capacity of 630 tonnes (8.53 per cent) and Eldoret Grains' 435 tonnes ( 5.9 per cent).
Data from the milling industry indicates that private sector players, including millers and traders, have imported approximately three million bags of maize since last November when the government waived duty on imports.
But the millers who say imported maize costs Sh2, 400 in Mombasa and Sh2, 550 in Nairobi, say those who accuse them of making huge profits still base their calculations on the Sh1,750, price at which NCPB's commercial wing used to sell maize a few months ago.
"About 82 per cent of the cost of maize flour is determined by the actual cost of maize grain and therefore, until international grain prices drop, or until the local harvest is at hand, it is unlikely that the prices will fall further," argues Mr Diamond Lalji of the Cereals Millers Association.
Ex-factory priceGoing by this assertion, it means millers are producing their flour at an ex-factory price of Sh69, at least Sh15 per packet disappears along the distribution channels.
Dr Francis Karin, a senior research assistant at Tegemeo Institute however thinks farmers are responsible for the higher flour prices in the country by demanding unrealistic producer prices for crop.
While arguing that an efficient farmer should be able to produce a 90 kilo sack at between Sh1,300 and Sh1,400, local farmers have succeeded in blackmailing politicians to push up producer prices.
"It beats logic that duty free maize imported all the way from South Africa gets to Eldoret at Sh2, 600 after absorbing all costs while farmers in Eldoret are demanding Sh2,800 per bag," said Dr Karin
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