Where is the Sh8b meant to make maize affordable by the poor?

As the maize subsidy programme comes to an end, focus now shifts to the dealmakers who may have illegally pocketed slightly over Sh8 billion from the unga crisis.

Financial Standard’s analysis of a recently released report by the national statistician shows that the Government might have paid importers at least Sh27 billion for 7.5 million bags that they imported from Mexico in the first phase of the subsidy programme which ended on September 30, 2017.

This means that the subsidy programme in the first phase cost taxpayers at least Sh9.7 billion after the Government paid importers Sh3,600 for each bag of maize and sold the same to millers at Sh2,300. This is Sh3.2 billion more than the Sh6.5 billion allocated to the programme on May 2017.

Moreover, not less than 2.5 million bags, over and above the five million bags shortfall the Ministry of Agriculture said was to be covered through duty-free import of white maize from Mexico, might have been sneaked into the country. Or taxpayers might have lost at least Sh3.1 billion that would have gone into critical development projects.

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This comes at a time when the maize flour subsidy programme has come to an end with the price of a two-kilogramme packet in some supermarkets adjusted upwards to Sh130 from a controlled price of Sh90.

In what is likely to re-ignite the controversy surrounding the subsidy programme, which came into place following an outcry over runaway price of maize flour, profiteers might have taken advantage of a crisis to fleece Kenyans of billions of shilling. 

Data in the latest Quarterly Balance of Payments by the Kenya National Bureau of Statistics (KNBS), shows that raw maize valued at Sh27.6 billion was imported into the country between April 2017 and September 2017, as the Government moved to ease the pain of consumers after a steep rise in the price of unga.

However, after going through critical government documents and revisiting a number of official pronouncements, the Financial Standard estimates that in the period under review, white and yellow maize valued at not more than Sh19.6 billion was supposed to enter the country through the duty-free window.  

Under the duty-free regime set in motion on April 13, 2017, private individuals and agencies were allowed to import into the country five million bags of non-GMO white maize, while 22 animal feed manufacturers were licensed to import 450,000 tonnes of yellow maize valued at Sh10 billion.

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KRA Data

Although the data given by the Kenya Revenue Authority (KRA) does not differentiate between white and yellow maize, we estimate that not more than Sh3.6 billion worth of yellow of maize would have been imported during this period.

This means that under the duty-free regime the country should have imported by end of September 2017, yellow maize valued at Sh3.6 billion and white maize valued at Sh16 billion (or five million bags), bringing the total value of imported maize to Sh19.6 billion in the third quarter of 2017. 

But data from KNBS shows that maize valued at Sh27.6 billion came into the country, to reflect Sh8 billion more than what was supposed to be imported. So where did maize worth Sh8 billion come from? Who paid for it, and who pocketed the money?

Dr Timothy Njagi, a research fellow at policy think Tegemeo Institute of Agricultural Policy and Development, said they had since done some estimates which showed that the Government might have imported about 6 million bags of maize by October 2017. “Because the Government said it has been releasing a million bags to farmers every month so by October we could impoort six million bags,” explained Njagi.

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This means by September, the country could have imported five million bags going by Njagi’s estimates.

According to Government estimates, a 90-kg bag of white maize from Mexico landed cost stand at Sh3,200, with the Government paying importers about Sh3,600 for every bag or an extra Sh400. The Government would then sell to local millers under the subsidy programme at Sh2,300, subsidizing them by Sh1,300.

The millers were then expected to distribute a two-kilogramme flour packet to stores for sale at Sh90, and a kilogramme at Sh47.   

It all started on March 30, 2017 when National Treasury Cabinet Secretary Henry Rotich, in his budget statement in Parliament promised to waive import duty on white maize. This was to help bring down the price of flour which had by then averaged Sh155 for a two-kilogramme packet from Sh121 earlier the same month.

“Mr. Speaker, considering  the  hardship  and  the  suffering  associated  with  the  recently  declared national disaster as a result of the widespread drought in the country, white maize will be imported on a tax free basis for a period of four moths,” said Rotich in his budget speech for 2017/18.   

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On April 13, Mr Rotich in a gazette notice allowed “any person” to import white-maize duty-free until July 31, 2017. He also licensed 22 animal feed manufacturers to import 450,000 tonnes of yellow maize by August 31.

Importation of yellow maize was supposed to reduce the pressure on white maize.

However, the Government realised that allowing business people out to maximise profits to import the maize without controlling the price of the end-product would not have the desired results.

Subsidy programme

So, three weeks later on May 5, an Inter-ministerial Committee was formed. In its first meeting, the committee came up with the maize flour subsidy programme that “targeted all the available local and imported maize stocks,” according to the Agriculture ministry in a report to a parliamentary committee.  

An official at the East African Grain Council (EAGC) told Financial Standard that even before shippers could bring into the country duty-free white maize, the Government had replaced it with the subsidy programme.

“Now, the Government was the sole buyer and sole supplier of maize in the country,” said the source.

Uganda and Tanzania - who Kenya runs to for duty-free maize when things get thick - had also been hit by a drought. They were not selling their depleted stock of maize. Tanzania even criminalised export of the cereal.

So Mexico, Zambia, South Africa, Malawi and Ethiopia were identified as potential sources of white maize were. A shortfall of five million bags was projected until the next local harvest.

“Through monthly county field reports as well as field assessment by national government, a shortfall of five million bags of maize was projected for importation by May 2017. The importation would be required up to end of August 2017 when early harvest crop is expected, especially from parts of Nyanza, Western and South Rift Regions,” said the Ministry of Agriculture in a report to Parliament.

For the first consignment of imported white maize, about 29,900 tonnes of maize, or 332,222 bags owned by Pembe Flour Mills Ltd, Kitui Flour Mills Ltd and Hydery (P) Ltd, the Government paid Sh1. 2 billion. It subsidised millers by Sh431.9 million after selling to them maize at Sh2,300 per bag.

The ship, MV IVS Pinehurst, which carried the cargo is said to belong to Holbud , a firm based in the UK and run by Hasnain Roshanali Merali.

As at June 30, 2017 official records show that four different ships would have brought into the country 144,900 tonnes of white maize from Mexico, or 1.6 million bags. All the consignments, the Ministry of Agriculture believed, were brought by Merali’s Holbund.

The maize was valued at Sh5.1 billion, with the Government paying Sh5.8 billion for them before selling to millers at a subsidised cost of Sh3.7 billion.

With records showing that the country imported about 7.5 million bags by September 30, it would take five similar ships docking at the port of Mombasa every month from July to September to attain the 5.9 million bags deficit.

Although we could not establish exactly how much went into the importation of yellow maize, on September 3, media reports quoted the Ukrainian government, the only country that was to supply Kenya with yellow maize, saying it had by then exported corn worth $17.5 million (by then about Sh1.8 billion) to Kenya.

“This is 111,500 tonnes,” a local daily quoted the Ukranian ministry.  

While it was possible to import 450,000 tonnes of yellow maize in six months, it was highly unlikely that such quantity had entered the country by September 30, 2017.

In fact in August, officials at the Agriculture ministry were quoted decrying the poor importation of yellow maize.

Cabinet Secretary Willy Bett even went ahead to say that traders were shunning importation of yellow maize as it is not as lucrative as importation of white-maize.  

Moreover, the Government might have overestimated the demand for yellow maize that would go into the manufacture of animal feeds.

According to KNBS’ food balance, for four years since 2012, only about 80,000 tonnes of maize, or less than two per cent of total stock of maize produced and imported into the country annually, went into production of animal feeds.

Thus, 111,500 tonnes of yellow maize that had already been imported was a lot; 450,000 tonnes was just an over-kill.  

But even if between September3 and September 30 Ukraine had exported to Kenya corn worth Sh3.6 billion, there was still a huge difference of imported maize valued at Sh24 billion.  

So, who brought into the country the extra Sh8 billion worth of maize? And did the maize really come from outside?

Efforts to reach both Treasury and Ministry of Agriculture to respond to these questions did not bear fruit.

Both Mr Bett and his Principal Secretary did not respond to our text messages. Principal Secretary to National Treasury Kamau Thugge also did not respond to our text messages, even after calling him three times.  

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maize subsidy schemeFood shortageungamaize flour pricesCorruptionUgaliunga crisis