Riddle of low cost of maize, high flour prices

Wholesale prices of maize have remained largely the same since January yet millers have increased the price by 20 per cent over that period.

Data from the National Cereals and Produce Board (NCPB) shows that the national average wholesale price for a 90kg bag of maize was Sh2,441 at the end of January. Consumers, on the other hand, were buying the same at a retail price of Sh2,880.

This means that for every one kilo, traders were making a Sh5 margin on average to sell at Sh32 per kilo. Six months later, the same bag was fetching Sh2,445 on wholesale, a marginal increase of Sh4.

But on the retail side, the prices have risen a lot more sharply in the six months to June, with the bag selling at Sh3,150 on average or Sh35 for every kilo.

This translates to an increase of Sh270 per bag for retailers compared to the Sh4 increase on wholesale. Since millers buy the maize on wholesale, the cost has not risen significantly.

A 2kg packet of maize flour has shot up by 25 per cent in that period - from between the Sh90-Sh95 sold in January to March to between the Sh110-Sh115 at the moment depending on the brand. This means that for every packet of maize, middlemen are sharing about Sh45.

Millers had blamed the rise in prices on a shortage of maize and other factors of production, among them transport and storage. Maize prices are the single biggest driver of costs.

OIL PRICES

Transport costs have been at their lowest in years given the drop in oil prices. Inflation has also been on a downward trend, hitting a low of 5 per cent in May.

"There was a complaint that the price is rising and I think they (millers) have to explain why it is going up because I have sold only 170,000 bags out of the one million we released," NCPB Managing Director Newton Terer said.

As millers make a killing, farmers continue to make losses as they are forced to sell at a near flat rate all year round. If farmers reject these prices, millers engineer a shortage to cause the Government to allow them to import from neighbouring and cheaper countries, thereby forcing local farmers to push their prices down.

The Economic Survey 2016 shows that the value of marketed maize shrunk by 11.4 per cent from Sh9.6 billion in 2014 to Sh8.5 billion last year, mainly due to lower prices paid to farmers.

Data from NCPB shows that at the beginning of the year, the cheapest maize was found in Butere where a 90kg bag was sold at Sh2,000.

But wholesalers were making the highest sales in Makueni and Emali in January when a similar bag of maize hit the Sh3,000 mark.

Despite the increase in the price of maize flour, the national average of wholesale maize has remained almost unchanged, rising marginally by just Sh4 for the 90kg bag.

Agriculture Cabinet Secretary Willy Bett has accused millers for increasing maize flour prices arbitrarily despite the country having sufficient maize stocks.