Greedy traders main obstacle to Budget’s cheaper ugali bid

In a free-market economy where cartels fix prices, experts warn that the Budget incentives may never trickle down to wananchi. FILE PHOTO | JARED NYATAYA | NATION 

In Summary

Why Wanjiku is yet to enjoy price cuts

• It is not the first time firms have declined to transfer tax and other benefits to consumers.
• After expansion of geothermal energy generation, hence a significant cost reduction in power bills, manufacturers stuck to high prices.
• Repeatedly, top government officials including President Uhuru Kenyatta have unsuccessfully called on firms to lower the prices of goods that enjoy tax benefits.
• The government has only succeeded in controlling the price of petrol through the monthly pricing done by the Energy Commission. Even this is often violated in far-flung areas.

Greedy grain traders and unscrupulous millers now stand between Jubilee’s cheaper ugali and bread Budget that has been praised by many experts as pro-poor.

With lack of means to monitor compliance in a free-market economy where cartels fix prices, experts warn that the incentives may never trickle down to the targeted ‘Wanjiku’.

A four-month window granted by the Budget will most likely be used by maize importers to amass stocks and thereafter sell flour at high prices, ending up as double beneficiaries.

Audit and tax advisory firm Grant Thorton Kenya director Samuel Mwaura said that while the strategy is well meaning, it remains “narrow” and hard to translate to any significant benefit to wananchi.

“First, import duty and VAT are very small components in the costing of a 2kg packet of maize flour. We will still hear of high cost of transport, labour and electricity. Also, the timelines don’t add up. It ought to have had a longer time-frame than four months and probably target a wider variety,” Mr Mwaura said.

On Thursday, Treasury Cabinet Secretary Henry Rotich granted the two commodities tax relief in his Budget speech, at a time when food inflation is threatening to stretch the cost of living beyond the reach of low-income households.

Mr Rotich said white maize would be imported tax free for four months to cushion families from hardships associated with drought, which was recently declared a national disaster.

Perhaps knowing that manufacturers might not respond to the call to lower prices, Mr Rotich warned that he would take back the offer if they did not comply.

“Manufacturers, wholesalers, and retailers will be expected to reduce the prices of these basic commodities, failure to which I will reverse the policy,” the CS amid applause in the House.

NOT THE FIRST TIME

It is not the first time firms have declined to transfer such benefits to consumers. After expansion of geothermal energy generation, hence a significant cost reduction in power bills, manufacturers stuck to high prices.

Repeatedly, top government officials including President Uhuru Kenyatta have unsuccessfully called on firms to lower the prices of goods that enjoy tax benefits.

Efforts to reach the Kenya Association of Manufacturers yesterday were unsuccessful.

Should the proposals flop, the government will suffer a double blow in popularity and tax collection, with reduced purchases of the commodity translating to lower Value Added Tax and with inflation, which stood at 9.04 in February, biting hard.

Consumer Federation Secretary General Stephen Mutoro termed the tax measures on maize flour as “good politics” that will enrich cartels but with thin chances of trickling down to consumers.

“Who will be there to monitor the reduction of prices? No one even knows the maize volumes being held currently. Dealers will give the usual excuse that they are still selling the expensive old stock. In the long run, someone will have brought in cheaper maize and become richer by selling it at the same high price. The government cannot claim to control prices of what it does not produce,” Mr Mutoro said.

At the current prices of Sh146 for the 2kg packet of maize flour, a reduction to at least Sh100 is expected after the 16 per cent VAT waiver, and the duty free import allowance.

Bread, which may soon be unaffordable to many poor families, now averages Sh50 for the 400gm loaf. This will also be expected to drop by Sh8 when the VAT exemption takes effect.

The government has only succeeded in controlling the price of petrol through the monthly pricing done by the Energy Regulatory Commission. Even this is often violated in far-flung areas.

Maize flour pricing, which has remained high owing to perennial shortages, is also largely blamed on mismanagement of stocks at the National Cereals and Produce Board (NCPB), a series of botched agricultural programmes and greedy grain cartels.

Analysts say the country’s agriculture potential is sufficient to cushion Kenyans against perennial maize shortages, with shortfalls such as the current one blamed on mismanagement, including failure by NCPB to control pests such as weevils which cause massive damage to stored grain. 

The  Auditor General’s report on the Ministry of Agriculture for 2014/2015 said one million bags of maize went to waste following NCPB’s laxity in tackling an insect attack.

“A review of quality assurance reports revealed that Celphos, the board’s preferred fumigation chemical, has failed to kill weevils and is, therefore, no longer effective. Consequently, 754,015 bags of maize valued at Sh1.8 billion that were found to have been damaged beyond the 2.5 per cent acceptable limit, are not fit for human consumption,” the auditor wrote.

In 2013, maize worth Sh6.6 billion was reported rotting in NCPB stores after infestation by pests for lack of fumigants.

Repeated price wars between millers and NCPB are also cited for stifling the country’s efforts to build enough reserves — now at less than half the target three million bags.