A farmer holds a macadamia nuts harvest.
The government in October introduced a minimum macadamia price of Sh100 per kilogramme, even as it sought powers to set prices of essential products.
The State has been regulating the purchase price of tea and wheat from farmers, as well as electricity and fuel, with macadamia extending the list of major commodities with controlled prices to five.
The list could soon grow longer after the Cabinet last week approved the bulk procurement of cooking gas, bitumen, and heavy fuel oil. Under bulk procurement, a bidder is given the tender to import the commodity for a given period, usually a month, and sell it to other dealers at the same price.
“The Cabinet meeting also approved the procurement of liquefied petroleum gas, heavy fuel oil, and bitumen through a centrally coordinated bulk procurement system,” said a dispatch from the Cabinet.
The Price Control (Essential Goods) (Amendment) Bill, 2024 was also introduced in Parliament this year to give the government powers to regulate essential food products.
The Bill seeks to grant power to the Cabinet secretary for the National Treasury to fix minimum and maximum retail and wholesale prices for maize, maize flour, wheat, wheat flour, rice, cooking oil, sugar, and certain pharmaceutical drugs.
It also wants to create a price control unit within the ministry to enforce and analyse pricing trends to ensure compliance and provide incentives to farmers, manufacturers, and retailers involved in production and distribution of essential goods.
Price controls
The government has argued that price controls help consumers by limiting the exploitation of sellers. It also argues that the price floors and limits help farmers fetch better prices for their produce.
However, outcom of these price controls has been mixed, raising questions over their effectiveness.
Price controls can be effective in sectors dominated by a few players such as electricity where Kenya Power is a monopoly to protect the interests of consumers. The Energy and Petroleum Regulatory Authority (Epra) sets electricity prices every three years.
To set the tariff, they take into consideration many factors, including Kenya Power’s revenue requirements, power purchase costs, system losses among others to arrive at a final price that works for all energy sector stakeholders and consumers.
The government also introduced price controls on fuel in 2010 as prices hit historic highs leading to public furore. It was seen by Mwai Kibaki’s administration at the time that oil dealers were exploiting Kenyans through unreasonably high prices.
Commentators differ on whether the regulation of fuel prices has succeeded or not. Oil dealers, however, contend that the fuel price ceiling has limited innovation and investment in the petroleum sector, which they argue has had negative consequences for consumers.
Perhaps the most glaring failure of price regulation is in the tea sector where former President Uhuru Kenyatta introduced a minimum price of $2.43 per kilogramme in July 2021 for tea sold through the Kenya Tea Development Agency (KTDA).
The former leader believed that the price floor guaranteed higher returns for tea farmers.
However, tea buyers at the Mombasa auction shunned lower quality teas, leading to piles of unsold tea which ravaged farmers.
Unintended consequences
In March this year, Investments Promotion Principal Secretary Abubakar Hassan acknowledged that the minimum price had brought “unintended consequences”.
“In terms of the stock, which is yet to be sold, it is because of the pricing control that was introduced to solve a problem, but it looks like it has brought unintended consequences,” said the PS.
The minimum tea price was lifted in August, which was celebrated by tea dealers and farmers. The move has already increased sales at the auction, according to the East African Tea Trade Association (EATTA).
The Kenya Association of Manufacturers (KAM) has warned that reintroduction of price controls would stifle competition, particularly among small and medium-sized enterprises (SMEs), which are likely to struggle to sustain operations under stringent price controls.
“The high cost of living continues to have a toll on Kenyans. Hence, there is a need to reduce the cost of essential products. However, this can be realized effectively by addressing the underlying issues that drive up the price of essential products,” said KAM CEO Tobias Alando.
He added that with price ceilings in place, manufacturers will have less incentive to innovate or improve product quality, as they might not adjust prices to reflect enhanced value.
