Business Daily (Nairobi)
Allan Odhiambo
13 June 2011
The cost of living is expected to reduce slightly by end of the month on the effects of cheaper petrol and improved supply of maize, the staple from which many household rations are derived.
The price of maize is expected to drop slightly in about a fortnight when the first consignment of stocks shipped-in under the new duty-free scheme announced last week by Treasury enters the market. Oil marketers are also projecting lower local pump prices during the June fuel price review due to lower global crude costs, possibly easing pressure on inflation. The government has also granted tax concessions on prices of key petroleum products.
Finance minister Uhuru Kenyatta last Wednesday said registered maize millers would be given a six-month window to ship-in supplies duty free, down from 50 per cent, to help shore up supplies on the backdrop of poor production forecasts locally.
Agriculture permanent secretary Romano Kiome said there were sufficient stocks of maize in markets such as Malawi that could help improve supplies domestically through the duty-free scheme.
“We should land the first consignments of duty-free maize within two or three weeks. These supplies could ease pressure on prices locally,” he said.
“Further more, millers still have good volumes of stocks in their stores.”
In his Budget speech, Mr Kenyatta also announced that excise duty on kerosene, which is predominantly used for cooking and lighting by poor households, had been removed altogether while duty on diesel would be retained at 20 per cent as set in April. Kenya’s year-on-year inflation rate rose for a seventh straight month in May, driven by rising food and fuel costs.
Statistics by the Kenya National Bureau of Statistics showed that the consumer price index climbed by 1.01 per cent last month, pushing the year-on-year inflation rate to 12.95 per cent from 12.05 per cent a month earlier.
Transport costs rose 2.38 per cent month-on-month while food and non-alcoholic beverages prices increased by 1.27 per cent in May from a month earlier. These sharp climbs could ease slightly in the short-term on cheaper supplies of petroleum and maize.
Poor rains and shortages of planting seed are expected to affect maize output this year. This bleak forecast has seen prices of maize climb in the past few months, leaving most households feeling the pinch of higher cost of living.
A 90kg bag of maize currently sells at an average Sh4,500 compared to about Sh3,000 in April and the effects on the expenditure of households are being felt. At the turn of the year, maize was costing Sh1,800 per bag.
Data just released by the UN’s Food and Agriculture Organisation (FAO) shows that maize prices in Kenya rose by an average 20 per cent between March and April alone on the effects of the grim production forecasts.
“A higher increase of 33 per cent was recorded in Kisumu, a deficit area in the west of the country near the Uganda border,” the agency said. The trend started in February as a result of the drought, which reduced 2010/11 secondary crop. Uncertain prospects for the current long rains crop has sustained the increase in prices.
“Insufficient rains in parts of the country, seed shortages and high fuel prices may result in reductions in the area sown this season,” FAO said.
Maize prices in April rose by 39 per cent compared to 11 per cent in the same period last year, but they were still below the record levels of two years ago. The pressure of maize prices in Kenya has been worsened by a move by Tanzania to ban all food exports, citing poor production prospects.
Maize trade in the region is mainly driven by informal cross-border imports and exports–meaning that the decision by Tanzania to block its borders will affect the flow of the commodity.
According to the food situation update by the Ministry of Agriculture, there were about 17 million bags of maize in the country by the end of April.
Less than 10 million bags were eligible for the primary market because they are held by farmers. Prices of petroleum are also expected to reduce substantially by end month, driven by both the tax move by Mr Kenyatta and lower global prices of crude that coincided with the purchase of supplies expected to enter the domestic market.
The move to scrap excise duty on kerosene is expected to shave off about Sh5 per litre of the product–handing some relief to the mainly poor consumers that depend on it.
Oil marketer KenolKobil said last week it expected pump prices to drop during Wednesday’s fuel price review due to lower global crude costs.It estimated that prices would fall by Sh 2.30 this month, owing to a drop of 5.88 per cent for crude oil bought in May compared with April prices.
The Energy Regulatory Commission is due to announce its monthly price review on Wednesday.
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