Fears over thriving black market as food crisis bites

The chaos being witnessed in the retail sector over the worsening shortage of maize flour and sugar have created fear of the emergence of a black market for these basic but crucial commodities.

Economists have blamed the crisis on the model the government used to introduce subsidies for milk, sugar and maize flour which has created panic buying among consumers and a slump in circulation since retailers don’t have the incentive to procure and sell.

While milk does not seem to have a supply problem, the shortage of unga and sugar have led to long queues and chaotic scenes in supermarkets and, in some cases, extortion, with consumers being forced to buy a certain quantity of products in order to qualify for the subsidies.

Panic buying

A video showing consumers scrambling to get packets of unga from a supermarket trolley before it hit the shelves has been critisised as the lowest point in the current food crisis. Retailers say since the introduction of the subsidies, their suppliers have consequently gone low. “For whatever we order, especially for unga, you get like 30 per cent of your total case fill,” says Wambui Mbarire, the Chief Executive of Retail Trade Association of Kenya (Retrak)

“Because of the short orders, you have seen the chaos in outlets because there is an element of panic buying because you don’t know when you will find it on the shelves next,” she says.

Unscrupulous traders have resorted to repackaging the subsidised maize flour and sugar and reselling it in the black market.

Some supermarkets are forcing customers to purchase other products in order to be allowed to purchase the subsidised maize flour which is going for Sh90. In Embakasi’s Grab and Go supermarket, a customer is required to buy products worth Sh500 for them to be allowed to buy two packets of maize flour.

The supermarket’s management declined to talk to us but Retrak, which is the umbrella body for all retailers, has promised to take action.

The government too has resorted to what critics are terming as retail extortion.

 In Nakuru, people are being forced to produce marriage certificates or a letter from the chief to be allowed to buy subsidised maize at the National Cereals and Produce Board (NCPB). The board’s silo manager Alfred Korir says the move is meant to keep out brokers.

“Brokers are giving people money to buy maize so they can get more bags. Each family is only allowed one bag per month,” he says.

Experts say panic buying has not hit milk only because it is a perishable product. They say 80 per cent of the milk consumed in the country is unprocessed while 80 per cent of the people living in urban areas consume packaged flour.

A majority of the people living in rural areas and slums consume maize milled in local posho mills, but resort to packaged flour between harvests. “The perishability of milk is very high. If you had milk that you can keep in your house for three months you would also see that kind of thing. People want to stock unga and sugarbecause prices are low,” says Dr Tim Njagi of the Tegemeo Institute of Agriculture.

 “Because of elections, the speculation is that the subsidies are going to be lifted after the polls so there is hedging because people know the prices will go up,” he says.

Saturday, there was no sugar and maize flour for the better part of the day on most retail outlets in Nairobi, a stark difference to a month ago when the prices were high but the supply was predictable. An attendant at Tuskys Supermarket on Mombasa Road told us that the best times to get the two commodities it at 10am when they receive fresh supplies.

“One hour after that and you won’t get any unga or sugar because the customers have learnt to time our stocking cycle,” he said. While economists applaud the government for zero rating maize, milk and sugar, they say it should not have fixed prices for the three products, citing it as the main reason for the current chaos.

“Social assistance is acceptable. It is actually a good imperative but it was so poorly designed that there is no surprise it has yielded shortages,” says Kwame Owino of the Institute of Economic Affairs (IEA).

“You don’t intervene in markets directly and then try to force a valuable good which sells for Sh140 to retail at Sh90. That Sh50 difference is an incentive for somebody to think that if you can sell it for 140, you can get more money after the subsidy,” he says.

In a free market, prices function as signals to both consumers and producers of how much of a product or service must be demanded or supplied respectively. For producers, prices communicate whether it is a good time to enter or leave a certain market.

High demand, low supply When price ceilings are implemented, this price coordination mechanism is turned on its head. An artificially low price leads consumers to demand more of a good than producers are willing to supply.

When demand outstrips supply, shortages emerge. Since the introduction of the subsidies, maize millers have in three occasions raised alarm about the shortage of the grain, with the government in return insisting that the supply is enough. This has turned into one of the hot buttons in the campaigns.

While President Uhuru Kenyatta has more than once been met with chants of unga, the head of state has in most cases shifted the blame to other centres in the supply chain. “It has come to my attention that unscrupulous traders are hoarding the cheap maize flour that the government introduced last month.

Let them know that the government has powers to prosecute them,” he said in Salgaa last week. The opposition too has tried to capitalise on the issue, with NASA presidential candidate Raila Odinga blaming the state for fixing food prices in order to gain mileage.

“They intentionally caused the prices of unga and sugar to go up so that Kenyans can go hungry and then lowered them recently to get votes,” he said in Kajiado on Thursday.

The truth lies somewhere in between, but Dr Samuel Nyandemo of the University of Nairobi’s School of Economics believes producers are hoarding in order to make a kill after the removal of the subsidies.

“The producers might be hoarding upon which they anticipate to reach a time when there will be a satisfaction to raise the prices up then they will make a kill. It is even better when the consumer is buying at an exorbitant price and the commodity is available rather than fixing the prices and there is nothing to buy,” he says.

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