Did State give cartels billions of shillings on silver platter?

The Government’s knee jerk reaction to lift duty on importation of basic food items including maize, sugar and milk in an election year may have handed cartels billions of shillings on silver platter.

Kenya’s trade-off to stem the food crisis has elicited suspicion, as some of the beneficiaries are tightly woven with politicians seeking campaign financing.

With the government in the driver’s seat, determining who gets to pick importers and with Brookside dairy, directly associated with President Uhuru Kenyatta’s family businesses, the concerns have been magnified.

Rough estimates show that importers of white maize could have made up to Sh2 billion on four shipments of white maize made public in Parliament and Sh630 million from two shipments of yellow maize. With deals on the pipeline to import 450,000 tonnes of yellow maize, private firms will be able to make gross return of Sh3.825 billion before expenses.

Comesa

In sugar sector, Kenya has opened its borders to Common Market for Eastern and Southern Africa (Comesa) and non comesa sugar although the Agriculture and Food Authority (AFA) said it will only allow 100 tonne import form Comesa leaving another 100 tonne for non comesa countries.

Kenya produces 600,000 tonnes of sugar annually against a demand of 870,00 tonnes. This deficit is usually filled by controlled importation from Comesa countries. However, drought in Africa has created a huge shortfall.

AFA has licensed 162 companies to import sugar who were only allowed importation of a maximum 2,000 tonnes per importer. At March’s Sh75,000 per tonne of sugar, the 100,000 tonnes of sugar may fetch an estimated gross return of Sh7 billion when sold at the prevailing market prices of Sh146,000 a tonne in Kenya.

Non-Comesa sugar which may come from as far as Brazil are able to even make even more colossal profits since a tonne  retails at Sh36,290 in Brazil.

When Financial Standard sought the exact figures in terms of the duty Kenyans have had to forego, the value of imports that have docked and the applications to import, the Kenya Revenue Authority declined to give a response citing a gag order from the National Treasury. “The subsidy programme was organised by the National Treasury and the customs have been instructed not to give the data,” KRA said on phone.

The uncoordinated effort that put the cart before the horse left government without the ability to control the intervention or effectively channel it to address the biting food shortage.

When prices refused to respond to the controls set up by the government, the State was forced to form a 13-member inter-ministerial taskforce to design a framework to coordinate the subsidy programme on maize as well as monitor supplies of sugar and powder milk months after actually giving the subsidy.

Naushad Merali

On maize, the State made okayed importers to bring in maize without indicating how they would vet or even dish out quotas to the applicants. A UK firm Holbud, associated with business tycoon Naushad Merali was allowed to import maize worth Sh7.3 billion before the duty-free window ends in July.

Five huge cargo vessels, including IVS Pinehurst, Ionic Smyrni, Akdeniz M, Interlink Priority and Guardianship are believed to be operated by Holbud.

Agriculture Cabinet Secretary Willy Bett told Parliament that Holbud will have imported slightly over two million bags of maize for both human consumption and animal feeds, mostly from Mexico and Ukraine. Then the distribution to millers was also taken through a closed door meeting with select millers, who negotiated price cuts.

United Grain Millers Association, an umbrella body of the small millers, had complained that the government allocated them only 100,000 bags compared to their rivals’ 400,000, despite them controlling a larger market share across the country.

This locked out disgruntled small millers and left the supply of Unga in Kenya in the hands of a few group that the government is now accusing of hoarding the subsidised maize.

The Ministry of Agriculture had to order millers to provide it with audit returns including the distributors they supplied to, maize allocated, quantity issued to-date, volumes of flour milled and names of the distribution outlets.

In milk sector, the Kenya Dairy Board seems clueless on the number of tonnes of milk imported into the country and the price quote. “The importation of milk powder was left to the private sector and we do not know the price per tonne but each firm applied for a percentage,” Managing Director Kenya Dairy Board Margaret Kibogy said on Thursday.

When Financial Standard inquired about how much of the 9,000 tonnes of powdered milk to be imported to stabilise demand between the two major players controlling the formal sector, Ms Kibogy declined to give a response.

In France where Danone, the partners with President Kenyatta’s family firm Brookside is domiciled, powder milk was trading at Sh200,000 per tonne.

Brookside said they had not yet made applications although the firms Marketing Director Oliver Mary earlier indicated the firm was in talks with a number of suppliers to import the milk.

“We are currently working out our needs, based on our processing capacity, before we submit our proposals to the State,” John Gethi, Brookside’s director of milk procurement, said in response to queries by Financial Standard.

Brookside has the largest raw milk intake capacity in the country, at 1.5 million litres per day at peak.

Gethi said the overall cost of purchase of the powder, including transportation, would be determined by market forces at the time of landing.