Only one winner in sight as local maize prices inch upwards

By Kenneth Kwama

The price of Kenya’s staple food is set to go up drastically after hoarders who mopped maize off the market move to make a kill.

This could translate into higher maize flour prices at supermarkets and other outlets.

 What begun as a simple precautionary measure by farmers has now sent maize prices soaring to record highs.

The hikes will contribute to an increase in overall food prices, a situation compounded by lower crop yields in major maize-producing areas.

They include North Rift and parts of Western due to delayed planting in the 2012 season and effects of a virus that scorched the crop.

Poll fears

The middlemen, bought their stock at between Sh1900-Sh2400 from farmers who were in a rush to sell their stocks before the elections for fear of post-poll chaos. They had begun selling the same stock at between Sh3000-Sh3500 by last week.

While the brokers are gearing for a windfall, there are concerns that the poor, particularly in urban areas who have limited alternatives to maize, may suffer as a result. There are fears that price hikes could spark protests similar to those witnessed two years ago in what has come to be known as the “Unga” revolution”.

The Executive Director of the Eastern Africa Grain Council (EAGC) Gerald Masila told Business Beat that the price of maize currently being released from a warehouse it certified at Moi’s Bridge in Uasin Gishu has shot to over Sh3300 per 90 kilo bag from the receipting price of about Sh2300.

 “The warehouse serves farmers from the country’s major maize producing areas in Eldoret and Kitale. For the first time, the price of 90 kilo bag of maize is at par with that of wheat, which I think is good for those who are retrieving their maize now for sale because they are fetching prices above that at the world market,” says Masila.

According to the United States Department of Agriculture market news source, by close of business last Friday, a tonne of maize was retailing at $268.50 (Sh22,800) at the world commodity market, which is about 60 per cent cheaper compared to the average Sh36,600 for similar quantity in Kenya.

Fears over a potential rush by farmers to dispose off their stock for fear of potential losses in case of post-poll chaos were first documented in a report by the Foreign Agricultural Services                                                                                                        , at the US embassy in Nairobi. “Most farmers are rushing to sell the grain ahead of the March 4, 2013 national elections to minimise risk in case of disruptions during the election. They are delivering the corn even in cases where they are not receiving payments, but only a National Cereals and Produce Board (NCPB) IOU,” warned the Corn Update Report, which was issued on January 14.

According to the report the Government’s intervention in the corn market late last year sparked a climb in maize prices.

 The Government, through NCPB set the producer price at Sh3,000 per 90 kilo bag ($388 per tonne) from November 19, 2012 up from Sh2,800 ($362 per tonne) in October 2012 for political reasons.

It warned that the NCPB price was high relative to what market prices should be without government intervention.

Although the corn prices quoted at the world market is that of yellow maize, the cost of the white staple sparked by the hoarding menace in Kenya is still believed to be far too above world producer prices.

Hoarding menace

A survey of key markets in Nairobi, Mombasa, Kisumu and Eldoret revealed that the commodity is cheapest in Eldoret (Sh3150) and was most expensive in Kisumu (Sh3300) by close of business last Friday.

Masila could not however tell whether those withdrawing their maize from the warehouse at Moi’s Bridge were farmers or brokers. Business Beat established that the trade, especially in Kenya’s main breadbasket towns of Uasin Gishu, Kitale and other parts of Rift Valley, is under the control of middlemen who outsmarted the NCPB.

Moses Maritim, a maize farmer in Kitale told Business Beat that farmers in the area had began to shun the NCPB because of the strict conditions for delivery and delays in payments. “Sometimes you can line up long lines to deliver your produce to the warehouse. It gets worse during harvesting because one can line up for even two days, but the worst part is that you are not guaranteed any payment in case you need it even for an emergency,” says Maritim.

He says most farmers find it easier to sell to middlemen because the transaction is easier with immediate cash payment.

Interviews with managers from two of the country’s biggest maize millers-Mombasa Maize Millers Ltd, which controls 41 per cent of the milling business and Pembe Millers, which commands 23 per cent market share shows that maize millers have started buying the expensive maize for processing.

Price hike

The managers would not reveal whether his company would pass on the cost to consumers, but said it makes it harder to keep prices low.

 “We fight with suppliers and people who sell us goods to constantly try to get prices down to get a better price on what we buy, so this goes against what we try to do,” said one of the managers who requested not to be named because of the sensitivity of the issue.

 “Maize prices have suddenly gone over the roof. There is a lot of volatility and tightness due to arbitrage by hoarders who are taking advantage of systemic failures to reap abnormal profits. We will still be able to provide the country with flour, but it might be difficult to keep prices at their current level,” said another manager.

The US agricultural office, which is based in Nairobi, forecasted that in 2012/2013 season, Kenya would produce three million tonnes of maize, down 100,000 tonnes from last year’s crop and above the five year average of 2.8 million tonnes.

The estimated decrease in production, which is partly responsible for the increasing maize prices, is based on several factors including delayed planting due to the late onset of Kenya’s 2012 rainy season.

The agency also cites poor availability of fertilizer and seed, higher than average precipitation in April and May 2012, and an outbreak of Maize Lethal Necrosis disease.

“In addition, in Kenya’s grain basket, the North Rift, higher than average rainfall at harvest (November and early December 2012) will likely increase post-harvest losses,” states the report.

Because of the decline in production, it estimates Kenya will increase its maize imports to at least 600,000 tonnes during the July/June marketing year 2013.

 “Tanzania, Uganda, and Zambia will supply most of the corn deficit because of Kenya’s current import ban on genetically modified products and the prevailing 50 per cent ad valorem tariff on corn outside the Comesa and the EAC member countries.”

Crop imports

Masila says fluctuations on maize prices in Kenya are due to the unpredictable policy environment. “For example, we are working hard to double our output of maize as a country without increasing the acreage under cultivation. The truth is that under current circumstances, most farmers do not get to 60 per cent of what they should yield with proper use of fertiliser and highbred seeds,” says Masila.

He says most of the land under cultivation has been exhausted and requires the use of fertiliser unfortunately farmers are not getting access to the right kind of soil enhancers due to entangled policy. 

“Right now the Government has imported fertiliser for use by small scale farmers but it is being distributed through NCPB at Sh2500 per bag. The same amount of fertiliser is being sold by the private sector at over Sh4000 to other farmers in the country. This does not make sense, especially in a liberalised market,” says Masila.