No respite as food, energy prices rise

Kenyans are helpless against increases in food and energy prices caused by rising demand worldwide, supply disturbances and climate change.

With Kenya’s liberalized economy, the government has little leeway in effecting price controls on traders already suffering razor-thin margins. Meanwhile, the Meteorological Department has warned of diminished rains in coming months, raising the prospects of more expensive food, and starvation for the poor.

The prices of maize, wheat and rice have gone up an average of 50% in the past year, the single biggest increase since 1993. Much of the increase is a result of rising food prices globally. The mega-populations of China and India are putting great demand on the world’s food output. Economists say that the growth of the world economy means more people have more money to buy more food. According to the principles of supply and demand, prices must go up.

The Kenyan government is also to blame: last year, an extra tax on plastic bags caused an immediate Shs3 increase in the price of bread with no visible impact on plastic waste disposal. Prices of other foodstuffs packaged with plastic, such as milk, also went up.

Tribal violence in the wake of Kenya’s disputed election worsened the situation by disrupting agricultural activities, causing shortages and pushing up prices. Much of the violence was concentrated in the agriculturally productive areas of the Rift Valley, Western province, Trans Nzoia and Mount Elgon. Granaries were destroyed, farms ransacked and stores looted. One of the more famous newspaper photographs is of armed soldiers walking over heaps of smoldering potatoes.

The violence delayed planting of crops that would have been harvested later this year. In some of the worst cases, planting was never done.

As with everything else, food prices in Kenya have been affected by the worldwide increase in the price of oil due to the transportation element. Fuel is needed to get fertilizers to the farms. Fuel is needed to till the farms using tractors. At the end of the process, fuel is needed to get the produce to consumers. Farm workers, citing current inflation, also demand higher wages and thus push up food prices.

In the Rift Valley, farmers who had escaped post-election violence were unable to plant because they could not afford the costs of fuel and fertilizers. Those who could, only managed halfway before they ran out of funds.

Rising fuel costs have affected electricity rates in Kenya. In June, the Kenya Power and Lighting Company announced a 24% increase in prices. The company says the hike was caused by the use of oil-fired generators at Kipevu, Nairobi East and from Aggreko, an emergency power supplier. Come July, it was evident that the increase in electricity tariffs was in excess of 50%. Consumers made a rush for energy saving bulbs, and cut down on electric heating. Kenyan industry, already paying one of the highest electricity tariffs in the world before the increase, will lose out to Egypt, India and South Africa.

There is renewed interest in alternative energy but it will be a long time before it is commercialized. Biofuels are almost non-existent. Coal mining in Mwingi District has been frustrated by the local political elite. Solar power is still too expensive. Meanwhile, abandoned wind mills at Ngong indicate that authorities gave up on the concept long ago.

Climate change is another factor behind rising food prices. In the past decade, rains have been erratic as a growing population moves into forest areas to create farms and settlements. Periods of drought are interspersed with flooding, all of which destroy crops.

Unlike other countries in Africa, the consumer market in Kenya is completely liberalized. This perhaps explains why food riots have not been witnessed here as most consumers understand free market forces.

During last year’s electoral campaigns, the Orange Democratic Movement (ODM), promised to reduce the price of maize flour from Shs60 (US$0.89) down to Shs30 ($0.44). Since then the price of a packet of maize flour has actually risen to Shs80 ($1.17). There is simply no legal mechanism to enforce price controls.

The outlook for the future is that food and oil prices are unlikely to go down to pre-2007 levels. At best, we can only hope that prices stabilize at current rates. The possibility of a recession in the United States, Europe and Japan will reduce demand, forcing food and oil producers to stabilize prices.

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