Robert Shaw: Cushion consumers from high food crop and fuel prices

THE RUNNING OF KENYA HAS been on auto-drift for a number of months now. The run-up to the elections and the post-election mayhem have sapped much of the energy, attention and direction needed for Government to operate effectively.

During this time, a cyclone of escalating prices of food products, fuel and fertiliser has been ravaging country after country, and particularly hurting the many people around the world who live close to the poverty line or on the wrong side of it.

In fact, for virtually all governments of developing countries in particular, it has become the most dominant nightmare and challenge. This is especially so as more and more of their citizens take to the streets and protest. We also need to remember we are only in the early stages of this compounding crisis.

In turn, when Kenya’s new government gets down to real work, it is going to have a baptism by fire and a very short honeymoon.

THIS CRISIS AND HOW TO HANDLE IT is going to be one of its first litmus tests. It is being made more urgent by the fact that we have done little so far to face up to these hard facts and figures and to look at ways of alleviating them short-term and addressing them long-term.

There are two things we must concentrate on. One is to alleviate or soften the brunt of the rising prices. The other is to quickly identify and secure supplies of the food imports we will need in the foreseeable future.

On the former, there are some options in terms of reducing or doing away with import duties on certain products.

For example, wheat still attracts an import duty of 30 per cent and maize 50 per cent if it comes from outside Comesa. Bearing in mind food prices worldwide have risen so much, the current tariffs only end up making these food products much more expensive than domestically produced food.

For example, the landed cost of imported maize is in the region of sh3,000 per 90-kilo bag, which is double the current domestic price. Many farm inputs ranging from tractor equipment to diesel also attract a variety of import duties.

It, therefore, makes sense to review them all and reduce or abolish them as quickly as possible.

The same applies to taxes on fuel. Reducing them would certainly dampen the rising cost of transport but the Treasury would have to forego considerable revenue income.

Two other options being called for are price controls and subsidies. The former is very difficult to implement successfully without distorting the market and creating shortages.

If the prices of these products are rising worldwide, it is difficult to buck that trend. Subsidies have the converse effect to reducing taxes in that the Government must find considerable amounts of money for such an exercise.

Further to that, Government subsidy schemes run the risk of being inefficient and hence wasteful. A good example of that is the disproportionate cost to the taxpayer of the National Cereals and Produce Board over the years vis-à-vis the actual benefits to the consumer at large.

It is tempting for governments to promise subsidies and rush into such schemes without working out the full modalities especially in terms of implementing them and paying for them.

Bearing in mind the pressures this new government will be under on this front, it might opt for this, but more as a knee-jerk reaction than to something that is fully thought through.

The Government, in conjunction with the private sector, must proactively help secure supplies of foodstuffs where the country has major structural deficits. Wheat and rice are the obvious two.

BUT IT IS NOW LIKELY THAT WE could have a shortfall between domestic supply and demand of around a third of our staple product, maize. In a situation where an increasing number of countries are restricting exports of the staple foods they produce, where world food stocks and reserves are perilously low, and where countries are snapping up what supplies they can often through bilateral arrangements, this task is going to be a very hard one for the new government.

At the same time, we need to accelerate medium- and long-term plans to vastly improve productivity so that we can reduce, and eventually eliminate, our structural deficits of food crops.

Whichever way one looks at it, much higher food prices are here to stay and the Government is going to have its work cut out in just fire-fighting the situation and securing adequate imports.

Mr Shaw is a Nairobi businessman

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