Factors Behind Food Supply Shortages In Kenya: An Analysis

Production and Demand of Maize in Kenya

Question:

Discuss About The Factors Behind Food Supply Shortages Kenya?

The article Maize shortage: How did we get here? Written by Ken Macharia in June 24^th 2017 in Kenya is going to tell us about the shortage of maize that has currently become a political issue. The article clearly notes that this issue is not a new one as it has been experienced in Kenya from time to time. Kenya is running into a food crisis as the staple food is becoming less affordable owing to the high prices of flour (Peralta 2017). Kenya produces maize but not enough to meet the annual demand and thus is forced to import the deficit from the neighboring countries such as Uganda and Tanzania (Macharia 2017). There are several reasons that are behind the current alarming shortage of maize in Kenya; this article’s marketing concern will be on the most critical factors that have been agreed by many to be responsible.

The paper shall analyze how such a food shortage will or have impacted the food prices and how this has or will consequently impact the social welfare. This will be explained by the gains and losses on consumer and producer surpluses theory. This paper will thus be important to the Kenyan government and other governments that are undergoing a similar issue of food shortage. It will establish the problems, and draw conclusions that will be accompanied by various recommendations on the best way forward. The elasticity theory will help to explain why there still exist a shortage of supply for maize even when prices are very high. It will consider the previous actions taken by the government and how successful the policies have been. One of the policy is the waiving of import duty on maize and the elimination of VAT on bread and maize flour (Chinagoabroad.com 2017). The article also determines when and how this shortage is going to come to an end. The laws of demand and supply will help determine the equilibrium level.

Demand is what consumers need, whereas supply is what the producers provide. Kenya does not produce sufficient bags of maize to meet its annual demand; it produces 36 million bags whereas its annual demand is 42 million bags, the 6 million bag deficit is sourced from Uganda and Tanzania.

At initial equilibrium level x, the quantity level is Q* and price level is P*. Since the shortage is caused by other factors other than price, the supply curve is forced to shift leftward from S0 to S1; the shift is represented by the arrow; the supply level fell from Q* to Q1. Demand and supply law dictates that any factor other than price causes the demand or supply curve to shift. A new equilibrium level e is created at the new supply level. The shortage in supply causes the price level to rise from P* to P1. This fall in the supply of maize explains the rising price of flour in Kenya.

Causes of Maize Shortage in Kenya

Producer surplus is the benefit the producers enjoy from selling at a price higher than what they are willing to sell. The consumer surplus is the benefit the consumers enjoy from buying at a price lower than what they are willing to pay.

Importation is important for the Kenyan government to supply for the excess demand. Without importation the supply for maize is lower and thus the bags are sold at a high price P1. The equilibrium level where supply of maize equates the demand is at point x where 42 bags of maize are demanded and supplied at a price P*. The equilibrium quantity is met by importation (supply with importation); the price charged per bag is lower and thus a maximization of social welfare. At a high price P1, the consumer surplus is lower (area aP1b); since the equilibrium level is at x, the lower consumer surplus is associated by a deadweight loss on consumers equal to area bcx. The producer surplus without importation is the area below P1b but above the supply curve without importation; it is associated by a deadweight on producers equal to are cxd. At the equilibrium point x, both the consumers’ and producers’ surplus are higher since the deadweight loss is absent. The deadweight loss is a representation of efficiency loss. The equilibrium consumer surplus is ap*x and producer surplus is are below P*x but above supply curve with importation.

One of the most probable cause of the shortage is the preexisted drought that led to a reduction in the average harvesting by the farmers (Obulutsa and Miriri 2017). The economy received little rainfall during the previous year and the rainfall season was distorted. Since most of the Kenyan farmers depend on rainfall for their crops, there was no way they could have escaped the drought. Further, TheBigIssue (2017) also noted that farmers hoarded their produce since the market prices were low. Farmers have been receiving low prices for their products for years even after the input price have gone up (Mulenga 2017). The second cause is attributed to the government’s failure to oversee the upcoming maize shortfall on the basis of the reduced average production during the previous harvesting; there was already in place a warning for the upcoming shortage.

The instability in South Sudan is also another factor behind the interrupted maize supply. The instability caused a huge rise in the maize price in South Sudan compared to what the National Cereal Produce Board (NCPB) offered. This made it more attractive to sell maize bags in this region to get a share of the increased profit. Some investors from Uganda and Kenya exported maize to this region. The price offered in South Sudan was 5000 whereas NCPB offered 3000. This increased the shortage as some of the 36 million bags produced in Kenya were exported to South Sudan and the 3 million bags sourced from Uganda became unavailable since a better marketing was obtained. The 2.5 to 3 million bags sourced from Tanzania was also not available since there was a change of policy from selling maize to maize floor in Tanzania.

Impact of Maize Shortage on Social Welfare

The article by Macharia (2017) makes an important notion that the shortage could have been avoided by raising the NCPB maize price by 600 to 3600. This would have made it more attractive to many producers to sell to the NCPB. The action implemented was too little and wrongly implemented. Jonathan Nzuma noted that the subsidy policy was expensive and only a short term measure; it was not appropriate and would not benefit the consumers (Peralta 2017). The action taken was for the government to pump 6 billion on maize subsidy program which lowered the maize floor from ksh 182 to 90 (Oforo 2017). There was also an allowance for the importation of duty-free maize to curb the shortage (TheBigIssue 2017).

Elasticity is a determinant of how demand or supply responds to the price changes. There was a huge rise in the price of maize rose to the highest level ever experienced in this economy. Maize floor is a staple food and thus has an inelastic demand to price changes; this means that almost the same quantity is consumed no matter how high the price is. A 2kg tin of maize retailed at a price of Ksh 150 in areas where there is increased maize production and Ksh 180 where maize is inadequate; this translated to a 90 kg bag selling at Ksh 6750.  Even after the subsidy, price offered by the retailers was above Ksh 90 because supply was still inadequate and the retailers were able to ration the product (Andae 2017). Other than the maize flour price going up and becoming unaffordable, the wheat flour price has also gone up and is also becoming unaffordable. This is because the demand for wheat flour has gone up owing to its increased consumption as a substitute for maize floor (Andae 2017). Generally, there was an increase in the CPI and inflation rate with the biggest change lying on food and alcoholic beverages (Kenya National Bureau of Statistics 2017). The high price benefited consumers since the inelastic demand maintained almost the same level of demand. The harvesting of maize by Western and South Rift farmers in September is the only action that will stabilize the situation.

Conclusion

The maize production subsidy offered by the government was not the best solution to curbing the maize shortage. The subsidy was part of the campaign strategy employed by the government leaders on their personal boost for their campaign; it was only meant to appease consumers. This subsidy was beneficial only to the millers. The farmers had no benefit from this subsidy. What the government should have done, it should have used these 6 billion funds to buy the maize from the farmers at a higher price; this would have been more beneficial to the Kenyan farmers and would have translated to an improvement in the economy’s growth. The government should ensure that farmers get better prices for their produce so as to boost their productivity; this makes it impractical for the imposition of floor prices on maize. The government could have overseen the upcoming maize shortage and implement good policies towards the same. A research on the best policies could have taken place on the policy makers side and leave subsidy as the last option.

The warning provided by the experts on an upcoming maize shortage should have been taken seriously and could have provided the policy makers with enough time to decide on the best policies. It could have seen the dangers of allowing maize exportation to South Sudan and implement strict restriction before the situation worsens. Since the subsidy program was not the best policy, it is not expected to be sustained in the long run and thus the government should seek an alternative action. The land management practices could be a long term solution to increasing farmers’ productivity as recommended by the World Bank.

References

Andae, Gerald. 2017. “Expensive Maize Pushes Up Price Of Wheat Flour”. Business Daily. https://www.businessdailyafrica.com/markets/news/Expensive-maize-pushes-up-price-of-wheat-flour/3815534-3940468-4cvuxrz/index.html. [Accessed 28 Sep. 2017].

Andae, Gerald. 2017. “Kenya: Retailers Sell Subsidized Maize Flour at Sh119, New Data Shows”. Allafrica.Com. https://allafrica.com/stories/201707040263.html. [Accessed 27 Sep. 2017].

Chinagoabroad.com. 2017. “Asoko Sector Brief – Kenya Maize Production Q2 2017”. Chinagoabroad.Com. https://www.chinagoabroad.com/en/article/asoko-sector-brief-kenya-maize-production-q2-2017. [Accessed 27 Sep. 2017].

Fews.net. 2017. “East Africa: Kenya, Tanzania, Uganda, Ethiopia, Somalia, South Sudan, Rwanda, and Burundi Regional Maize Supply and Market Outlook”. FEWS NET. https://www.fews.net/sites/default/files/documents/reports/East%20Africa_Market%20Supply%20Oulook_20170914_FINAL.pdf. [Accessed 28 Sep. 2017].

Kenya National Bureau of Statistics. 2017. “CPI and Rates of Inflation for August 2017”. Kenya National Bureau of Statistics. https://www.knbs.or.ke/download/cpi-rates-inflation-august-2017/. [Accessed 27 Sep. 2017].

Macharia, Ken. 2017. “Maize Shortage: How Did We Get Here?” Capital Business. https://www.capitalfm.co.ke/business/2017/06/maize-shortage-how-did-we-get-here/. [Accessed 27 Sep. 2017].

Mulenga, Davis. 2017. “‘Government Will Not Set Floor Price for Maize’ – Minister”. African Farming. https://www.africanfarming.com/government-floor-price-maize/. [Accessed 28 Sep. 2017].

Oforo, Valentine. 2017. “Traders Make Huge Profits On Subsidized Maize Flour (Kenya)”. Asoko Insight. https://asokoinsight.com/news/traders-make-huge-profits-on-subsidised-maize-flour-kenya. [Accessed 27 Sep. 2017].

Peralta, Eyder. 2017. “Price Of Corn, A Kenyan Staple, civil-engineering“. NPR.Org. https://www.npr.org/2017/06/04/531444392/price-of-corn-a-kenyan-staple-soars. [Accessed 27 Sep. 2017].

TheBigIssue. 2017. “KRA Opens Window for Duty-Free Maize Imports”. THE BIG ISSUE. https://www.thebigissue.co.ke/index.php/2017/05/07/kra-opens-window-duty-free-maize-imports/.

World Bank. 2017. “Kenya Project Boosts Maize Production and Climate Change Benefits”. World Bank. https://www.worldbank.org/en/news/feature/2017/07/18/kenya-project-boosts-maize-production-and-climate-change-benefits. [Accessed 28 Sep. 2017].