Galloping inflation and surging food prices call for urgent interventions

Inflation is at a 27-month high and the most recent round of fuel price increases will spur the upward surge. A recent Infotrak poll shows that rising prices and costs of living are among the dominant concerns of Kenyans. Prominent are the galloping food prices as well as the fuel hikes.

Kenya’s food options are hardening fast. Realistic – and in some cases tough – decisions must be made and implemented as soon as possible.

Realistic because we have to face the fact squarely that we have inadequate stocks and supplies of our staple foods such as maize to last us for long – and certainly not until November and December when we should hopefully reap the next maize harvest.

Indeed, it is reported that the strategic food reserve at the National Cereals and Produce Board (NCPB) has virtually been exhausted. In theory, one of NCPB’s key roles is to buy maize in times of surplus and release it as the supply side of the market gets tighter.

In summary, there is little or no buffer stock for NCPB to release. For this to happen so soon after the last harvest and several months to the next main harvest shows Kenya will need to import maize soon.

We import most of our wheat needs and a significant amount of our rice and beans anyway, so we are a net food importer and need to be sensitive to that reality in the tightening global food environment.

A follow-on to this is to have an import window that is wide and inviting enough.

Tough judgement calls

There are some other tough judgement calls to be made because, in a domestic and world scenario where food prices are rising, decisions will have to be made on how much of this increase is passed onto the consumer and how much is subsidised.

The former has a high social and political price, which could cause an upset and even unrest.

The latter has a very high cost to a government exchequer, which is already heavily borrowed and leveraged both in the short term and long term.

We have seen this with fuel prices, where the government tried to shield the consumer but in turn exhausted its money from the Fuel Development Fund and indeed the government exchequer. The government is still subsidising a portion, even though some of the increases have been passed on.

Domestic food prices were already hardening as it became clear our crop was going to be inadequate and informal imports and top-ups from neighbouring Uganda and Tanzania became more constrained.

Kenya is only self-sufficient in maize production in a season when there is adequate rainfall and other factors such as enough affordable fertiliser are in place.

The situation is being made worse by the day as the fallout from the Russian invasion of Ukraine continues. This area is a major world supplier of grains and fertiliser to the world, Kenya included.

Kenya’s domestic shortfalls and international shortfalls have led to price escalation.

Indeed, it is estimated that maize imports, even if duty free, will land in Mombasa at a significantly higher price than the current domestic prices.

Given the tightening domestic supply side, the spectre of higher priced maize entering the market is likely to push up domestic wholesale and retail prices. And it will not be limited to maize. Since a number of other basic foods such as wheat are also rising in price, the all-round and knock-on effect are enormous.

This brings us to how the government is currently handling this matter, especially in the run-up to an election. There is a report that the government has opened a window to maize imports but big and troubling questions hang over it.

The big questions that arise and must be urgently addressed are around whether we have given conditions, timelines and the relevant duty waiver for importers to fill the gap.

As things stand, they will not because the recently published Gazette Notice states non-GMO, which restricts us to Zambia, Malawi, Tanzania and Uganda. However, there are little or no surpluses from this area. In short, the government has given an import specification that is impossible to comply with, so what we are likely to see is wholesale and retail prices escalating as the supply side tightens.

Price of tomatoes

We must remember time is of the essence, and not because of maize shortfalls per se. The global price of foods is high and rising and this means people downscale their food habits. When this happens, it puts upward price pressure on other foods and particularly starches. A good example is the price of potatoes.

As if that is not enough, the high cost of fertiliser is almost certainly going to put restraints on the supply chain. If the price is higher, one tends to buy and use less, which in turn affects the crop volume.

Again the government has intervened by offering a subsidsed price through NCPB. The problem with this is that supplies are limited. Some argue that what is offered is too little too late.

All in all, Kenya’s food scenario is hardening fast and must be addressed urgently, especially given shipping and distribution time lags.

The writer is a public policy and economic analyst: [email protected]