Manufacturers, retailers trade blame on rising cost of goods

A woman sells fruits and tubers at her kiosk in Kiranja market along the Embu-Chuka Highway in Tharaka-Nithi County. [File, Standard]

With prices of basic commodities skyrocketing, shoppers are now pointing fingers at retailers and manufacturers, who in turn point fingers elsewhere - especially at external factors such as the Russia-Ukraine war.

As one side seeks an explanation and the other fights to be understood, Kenyans continue to grapple with the unusually high prices for some commodities - the highest the country has ever experienced.

The Kenya National Bureau of Statistics (KNBS), which collects prices around the country for a cost of living index - consumer price index (CPI), said that in May, a two-kilogramme of maize flour retailed at an average of Sh147.6 in the country, an increase of 23.8 per cent compared to last year.

This rise was significant for millions of Kenyans for whom ugali is a staple food.

The KNBS data on CPI also showed that a kilogramme of edible cooking oil rose by 47 per cent year-on-year, retailing at an average of Sh370.71 in major towns around the country compared to Sh252 in the same month last year.

Further, problems such as the shortage of palm oil, have meant that by the day, the price of cooking oil increases.

Reuters recently reported that prices of edible oils have hit record highs this year due to the war in Ukraine, which has disrupted the supply of sunflower oil and wheat. Indonesia is the largest producer of palm oil and Malaysia is second.

The shortage of the dollar, cited by Pwani Oil as the main reason the company is temporarily shutting its manufacturing plant, has also been attributed to rising costs of products such as cooking oil.

Raw products obtained from outside the country have been hard to come by, companies say. As this happens, prices on the shelves soar. Kenya is experiencing the highest inflation rate since February 2020.

Now, fingers are being pointed at the nearest and most visible casualty, the retailer. A spot check by the Weekend Business team showed that in some of the city’s stores, commodities were at a record high, denting budgets for people whose earnings mostly remain unchanged.

“Supermarkets are pricing most products way above the recommended prices thereby making crazy margins. We need to track the price movements from the factory to the retail shop. I wonder why the government isn’t bothered by this,” said SokoAnalyst on Twitter.

Reacting to accusations that cement manufacturers were responsible for a hike in the costs of cement earlier this year, which in turn impacted the growth of the construction industry, Narendra Raval, the Executive Chairman of Devki Group of Companies, a conglomerate that manufactures steel, aluminium and cement, shifted the blame on retailers for the high rises.

While admitting that manufacturers had increased the prices “within a reasonable range,” of 10 per cent to 12 per cent, or even lower, he said wholesalers were responsible for the punitive increase that was seeing customers protest.

Going by the rate of increase that Raval insisted manufacturers had overseen, a bag of cement that was going for Sh400 would sell between Sh440 and Sh448. But the prices had gone as high as Sh700 for a bag, and even more. He faulted wholesalers and retailers.

“They are not regulated, and cannot be controlled. That is why they are using the shortage to mint money,” he said of the wholesalers. “If they choose to reduce their prices, we will not have this problem.”

X N Iraki, an associate professor at the University of Nairobi says it is likely that retailers could take advantage of prevailing costs to make huge profits at the expense of Kenyans.

“Retailers are likely to take advantage of rising prices. If manufacturers recommend a five per cent increase, they can go up by seven per cent and blame inflation. Policing prices is not easy,” says Prof Iraki.

A question on the cost of pastries also caused an uproar on Twitter recently, with one Twitter user asking if some of the supermarkets were deliberately pricing other manufacturers’ loaves higher so the customers could pick theirs.

“Bread manufacturers say supermarkets are overpricing their bread above recommended retail prices so that they can sell their own in-house bread cheaper. Say they are already giving supermarkets margins way above what manufacturers of other products offer,” wrote SokoAnalyst.

In one of the supermarkets where Weekend Business did a spot check, we realised that the cost of a 600g loaf of bread made by the retailer itself was Sh85.

Other manufacturers’ loaves (600g) are priced at Sh90 and above. In another supermarket, the difference was even bigger for the same weight of loaf, well over Sh10 when compared to other brands.

Retail Trade Association of Kenya Chief Executive Wambui Mbarire says retailers have been trying to maintain their shelf prices, and the readjustments are pegged on the cost of goods as priced by manufacturers.

“Retailers’ margins have decreased due to their attempt to maintain prices. Our buying price from the manufacturers has risen dramatically due to what we are told are increased costs of manufacturing,” she says.

“Formal retailers must manage the shelf prices; otherwise products will not move as consumers prefer where bulk can be broken into smaller sizes.”

She however admitted that some manufacturers may have been overpricing some products. The bulk of the blame could then be shouldered by the supermarkets, which are “consumer-facing”.

But Kenya’s apex manufacturing lobby group, the Kenya Association of Manufacturers (KAM), denies manufacturers’ culpability in the rise of prices of goods.

“Manufacturers are not increasing the prices of locally manufactured products, rather, the prices are subject to prevailing costs of raw materials, transport, and logistics among other factors affecting the cost of production,” says outgoing KAM Chief Executive Phyllis Wakiaga.

International prices for some essential commodities have increased significantly due to external shocks including the effects of Covid-19, the Russian-Ukraine crisis, the petroleum crisis, and the weakening of most currencies against major global currencies like the US Dollar, says Ms Wakiaga.

“For example, before Covid-19, Crude Palm Oil prices were around $700 (Sh81,900) per tonne but rose to $1,980 (Sh231,660) per tonne in March 2022. Oil, metals, and other commodities and inputs have mostly gone the same way,” she says.

Logistical charges continue to hit a local industry that took time to recover after the devastating blow of Covid-19.

“The local industry is still recovering from the effects of the pandemic, which led to revenue losses for manufacturers. Additionally, the Russia-Ukraine war has adversely impacted exporters. Freighters have increased shipping charges by 10 per cent in response to the rising cost of fuel and logistics disruptions,” Ms Wakiaga says.

The high rate of inflation has also been cited as one of the biggest problems in the market today.

KAM says inflation is caused by the depreciation of the Kenya Shilling against major global currencies and in some instances, demand-pull, such as the petroleum shortage earlier this year.

“Whereas the cost of production has gone up, manufacturers are not increasing prices of commodities,” adds Ms Wakiaga.

Unless the prices stabilise, many Kenyans will soon not afford many commodities on retailer's shelves.

The food basket is already spiralling out of reach for many even as retailers, wholesalers and manufacturers deny culpability and point a hesitant finger at the government, and other external players.