Why commodity prices are unlikely to decline soon

A customer samples packets of sugar in Mama watoto supermarket in Kakamega Town on March 23, 2023. [Mumo Munuve, Standard]

Damaris Wamuyu, a single mother of six, has earned a living doing laundry in the sprawling Githogoro slums in Kiambu County for over seven years.

And even though her earnings were meagre, she was always able to provide her children with two or three meals a day. Not anymore.

Like her, many fellow poverty-stricken slum dwellers in Githogoro - which neighbours the posh Runda Estate, where thousands of workers go to offer menial roles for the super rich - are feeling the pinch of the high cost of food and other commodities, which have skyrocketed globally.

Ms Wamuyu, the sole breadwinner in her family, said in an interview with the Financial Standard that she is unable to afford their upkeep.

“I am unable to buy basic essentials like maize flour and cooking oil because their price has gone up beyond my reach,” she said, capturing the feeling across many Kenyan households that have been pushed into a tight corner by ever-rising costs of goods.

No longer able to bear the cost pressure, Wamuyu has resorted to giving her family one meal a day.

The woes of the casual labourer and her young family are all increasingly too familiar to Kenyan households around the country as they struggle to put food on the table in the face of unprecedented high food prices.

Maize harvest

The families and government have been hoping these woes will ease in two months on the back of an expected bumper maize harvest in the country’s maize basket of North Rift and Western. 

However, these food insecurity challenges are likely to stay, as highlighted by projections and analysis by various experts that Financial Standard talked to.

Experts paint a gloomy picture of the food situation, at least in the medium term.

For starters, the latest upheaval in the global food market over the worsening war between Russia and Ukraine is likely to add to the ranks of poor and hungry people in Kenya, and those monitoring conditions are worried about the future despite the local bumper harvests of grain.

Russia attacked Ukraine’s main inland port across the Danube River from Romania on Wednesday last week, sending global food prices higher as it ramped up its use of force to prevent Ukraine from exporting grain.

The drone attacks destroyed buildings in the port of Izmail and halted ships as they prepared to arrive there to load with Ukrainian grain in defiance of a de-facto blockade Russia reimposed in mid-July.

Ukrainian Deputy Prime Minister Oleksandr Kubrakov was quoted saying the Russian attacks damaged almost 40,000 tonnes of grain which had been destined for countries in Africa as well as China and Israel.

“Moscow is waging a battle for a global catastrophe,” President Volodymyr Zelenskiy was quoted saying by Reuters in his nightly video address.

“In their madness, they need world food markets to collapse, they need a price crisis, they need disruptions in supplies.”

Ukraine and Russia are two of the world’s top grain exporters including to Kenya.

Russia has attacked Ukraine’s agricultural and port infrastructure for more than two weeks after refusing to extend the Black Sea agreement, which had lifted its war-time blockade of Ukrainian ports last year.

The United Nations has consequently warned of a potential food crisis in the world’s poorest countries due to Russia’s decision to abandon the deal, brokered by the UN and Turkey.

The disruption of grain exports and subsequent rise in global food prices mean more pain for vulnerable Kenyans already struggling with hunger, local experts say.

“The food situation will remain to be very tough in the foreseeable future,” says Timothy Njagi, a food security expert. 

Dr Njagi says the worsened global food situation is likely to be compounded by non-implementation of local solutions to boost the country’s food security.

The new government recently admitted gaps in its flagship subsidised fertiliser programme that was meant to catalyse agricultural food production.

Njagi, a veteran development economist with 15 years of experience in the fields of development planning, policy implementation and research, goes on to pass a harsh indictment on government policies, saying successive governments have failed to embrace and institute the right policies to support local food security.

Njagi, who holds a PhD in Development Economics and Master’s Degree in International Development from the National Graduate Institute for Policy Studies, Japan, has researched on farm productivity, technology adoption, irrigation, governance, resilience and impact evaluation, irrigation, credit, governance, land issues, and resilience, where he has a number of publications.

“The government needs to do more by investing in agriculture,” he argues, citing boosting greater agricultural productivity of smallholder farmers through knowledge systems such as better seed varieties, effective fertiliser access programmes, extension services and new farming methods.

Smart subsidies

He also calls for “smart subsidies,” which would encourage smallholder farmers to shift to high-yield crop varieties without saddling the state with long-term costs. He argues that this can energise food production and markets.

His comments are echoed by an earlier report of the United Nations Development Programme, which states that the chronic food insecurity in sub-Saharan Africa including Kenya mainly stems from decades of poor governance.

“Boosting productivity requires more fertilisers and seeds, stronger research and development, and a more coordinated and responsive extension system staffed by experts versed in the behaviours and habitats of local farming communities,” the report said.

Speaking on Sunday during an interview with Inooro TV, President William Ruto acknowledged the raging food insecurity challenges over the Russia-Ukraine fallout, saying the government wants to invest more in boosting productivity to secure local food security in the long term.

The President cited improving knowledge systems for farmers including provision of agricultural extension officers to boost yields for agricultural produce and enhancing the supply of the low-cost fertiliser.

“We are also increasing the collection centres for farmers to collect the subsidised fertiliser so as to enhance its supply and remove the hurdles we have witnessed,” he said, on his government’s flagship fertiliser project to boost food security.

Ruto last week said Kenya is on course to meet national demand for maize, and could even have a surplus.

He said from the long rains alone, the country is expected to harvest 44 million bags, compared to last year’s 32 million bags.

The president noted that in 2017, Kenya produced 39.6 million bags of maize. In 2018, production rose to 44.6 million bags but later slumped to 39.7 million bags in 2019.

In 2021, 40.2 million bags were produced and 43 million bags last year.

“As a result of effectively administered strategic interventions, we are definitely on course to meet the national demand. The total amount spent so far on the fertiliser subsidy programme is a small fraction of the annual cost of consumption subsidies, and yet its impact is nothing short of tremendous,” said Ruto at State House Nairobi on Wednesday.

He said importation of food and expenditure on subsidies, including duty waivers, were depleting the country’s foreign exchange and exerting budgetary pressure without attacking the fundamental productivity problem.

The Kenya Shilling has also weakened against the dollar by a substantial margin since the beginning of the year, making imports more expensive.

The shilling has fallen from 121 against the dollar in January this year to about Sh142 currently.

The local currency is unlikely to get any respite as the US central bank continued on its interest rate raising on July 26, increasing its benchmark lending rate to the highest in 22 years.

This makes its borrowing instruments more attractive to investors, sucking dollars out of Kenya and other emerging economies.

“It is certainly possible that we would raise the funds rate again at the September meeting if the data warranted,” said US Federal Reserve Chairman Jerome Powell.

Kenya’s central bank also raised its key lending rate to 10.5 per cent at a Monetary Policy Committee meeting in June, citing continued inflationary pressure. 

Prices of some items such as sugar and maize flour have remained high despite government efforts to speed up imports.

The situation could persist for a while.