Tax, drought set to raise price of milk in New Year

A woman buys milk at a Nyeri supermarket. A 500ml packet of milk sells at between Sh45 and Sh47 in retail outlets. FILE 

By GERALD ANDAE, gandae@ke.nationmedia.com

In Summary

• Powder milk, which stabilises market during dry seasons, could be in short supply.

Milk prices are expected to rise in the New Year following the removal of Value Added Tax concessions on
animal feeds and reduced production with the onset of the dry season.

The removal meant that from September feeds would be charged VAT at the standard rate of 16 per cent, a cost borne by farmers and passed on to consumers.

“The likelihood of milk prices going up next year is imminent. We anticipate a shortage resulting from low supplies, high cost of production and the onset of the dry season expected from January,” Milk Processors Association chairman Kipkirui Langat said.

 

Stakeholders warn that milk production could reduce further as more farmers increase less nutritious solutions such as grass in the feeding regime as commercial feeds become expensive.

The Association of Kenya Feed Manufacturers (AKEFEMA) has indicated that sales of commercial feeds have dropped significantly since the introduction of the VAT.



Dr Langat said both producer and consumer prices would be affected by the increase.

READ: Processors warn milk shortage to persist under new VAT

Major processors are now offering farmers Sh40 per litre of raw milk while a 500ml packet of milk is selling at between Sh45 and Sh47 at retail outlets.

Powder milk, which stabilises the market in dry seasons, could also be in short supply.

“None of the processors will be entering the dry season with stocks of powder milk as we did not receive enough volumes to convert into dry milk,” said Dr Langat who is also the New Kenya Co-operative Creameries (New KCC) managing director.

Normally, dry milk is reconstituted to supplement the volumes coming in from farms, hence maintaining low prices for the consumers. New KCC ordinarily keeps 1,000 tonnes of dry milk in its stores.

VAT on animal feeds took a toll on milk production with the Dairy Producers Association (DPA) putting the cost of producing a litre of milk at Sh35 now, up from Sh26 before the enactment of the VAT Act.

“We expect milk production to drop even further as a result of high cost of production,” DPA chairman Peter Lelei said.

A 70 kilogramme bag of the standard dairy meal which was selling at Sh1,900 is currently retailing at Sh2,300 since the new law took effect.

DPA secretary-general Jeremy Ashworth said animal feeds should be returned to the zero rated VAT schedule instead of being exempt to save the industry.

“Companies selling goods previously zero-rated would offset input VAT against that output, therefore not including it as cost to customers,” said Dr Ashworth.