Who’s inflating prices of milk?

Milk on display at a supermarket. Photo: Titus Munala,Standard

Milk prices hit a new high this week with a half-litre pouch retailing at Sh70, raising new concerns of super profits by processors.

A top retailer says processors are earning twice as much as farmers in April when prices were lower.

Two of the biggest processing firms have blamed the price hike on short supply, a claim bitterly contested by dairy farmers.

“These companies are benefiting at the expense of farmers and consumers,” said Joshua Bungei, the chief executive of a network of farmers known as Lelbren.

High cost of milk is hurting millions of consumers, he added, and that there is no explanation to the “huge disconnect” between what farmers are paid and the eventual retail price.

Biggest producers

Lelbren is among the biggest producers of milk in Kenya with daily deliveries to processors of 20,000 litres – even though the current yield is only a quarter of that owing to drought.

In April, New Kenya Cooperative Creameries paid Bungei Sh40 per litre of milk produced by the farmers he represents. They are based in Lessos, some 30 kilometers from Kapsabet town.

While production declined sharply due to drought, he is not able to adjust the selling price which is set by the processing plants.

It is an unprecedented spike that has become the subject of discussion and a source of frustration for many, going by views expressed on social media.

In one comical posting, a disgruntled consumer suggested tea with milk should be served in tots, the same way whisky is served.

Record high

Last month when a half-litre pouch of milk was selling at Sh57, which was a record high too, the chief executive of Tuskys Supermarkets Daniel Githua tried to explain the pricing; “From the Sh57 for a 500ml packet, the farmer gets an average Sh18, the processor Sh36 and retailers get Sh3.”

His estimates are informed by the fact that Tusky’s is also a major buyer of raw milk from farmers which it sells without packaging.

But the New KCC chief executive Nixon Sigey yesterday told the Standard that Githua was wrong, and that profit margins for firm like his are “modest”.

“It is not as profitable as most people would like to believe,” Sigey said. “Farmers are currently earning record prices for their milk.”

New KCC, which produces two regular pouches selling at Sh70, is paying Sh43 per litre. Profit margins for firms like his are at 15 per cent which is “very modest”.

Sigey said fair price for milk should be Sh60 per pouch- suggesting that retailers could be inflating the price – taking advantage of supply shortage.

High prices

His main rival Brookside Diaries also attributed the high prices to market forces of supply and demand.

“Supply of raw milk fell during the first quarter of the year on depressed rainfall following the drought that hit key raw milk sheds across the country,” said John Gethi, Brookside’s director of milk procurement.

He anticipates that the current rains being witnessed in parts of the country will result in regeneration of animal feeds and subsequently milk production.

Brookside controls 44 per cent of the country’s raw milk market has 160,000 contracted farmers.

Gethi said his firm raised prices paid to farmers to Sh42. High processing costs and expensive packaging material are among reasons companies claim are behind the eventual retail prices.

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