Kenya Sets Subsidies as Food Prices Become Election Issue

(Bloomberg) -- Kenya announced steps to rein in food prices that are rising at the fastest pace in five years and providing campaign fodder for the opposition ahead of elections in August.

The government will spend as much as 6 billion shillings ($58 million) subsidizing corn prices and waiving duties on milk and sugar, Agriculture Secretary Willy Bett told reporters Tuesday in the capital, Nairobi. The measures come as the Treasury prepares a supplementary budget to deal with the surging cost of living.

The price of milled corn, a staple food known as unga in Kenya, has risen to as high as 155 shillings ($1.50) for a 2-kilogram (4.4-pound bag), from 103 shillings a year ago, after a drought in crop-growing regions cut production. That helped fuel annual food inflation of 21 percent in April, the fastest pace since February 2012, squeezing families in a country where almost half of the population lives on less than $2 a day.

The nation’s strategic reserves of corn have dropped to less than a day’s worth of consumption, with only 4,500 tons left, the National Cereals & Produce Board said on Tuesday.

Public discontent over the rise in prices of basic commodities is providing ammunition for the opposition National Super Alliance, led by former Prime Minister Raila Odinga, who will take on incumbent President Uhuru Kenyatta in the Aug. 8 vote. The opposition’s narrative has shifted its campaign away from corruption and onto high food prices and shortages of corn, said Anzetse Were, a Nairobi-based independent economist.

Last weekend, Odinga’s running mate Kalonzo Musyoka warned opposition supporters would carry out an “unga revolution” unless food prices are reduced.

“The government is going to take a lot of flak on this,” Were said. “The drought could have been mitigated, but nothing was done.”

Corn Imports

Kenya consumes about 288,000 tons of corn per month, according to the Cereal Millers Association, an industry body. Of that, about 135,000 tons is packaged and sold by millers, CMA Chairman Nick Hutchinson said in an interview on Tuesday.

The measures announced by the Agriculture Ministry include importing 450,000 metric tons of corn by the end of July and providing the grain to millers at more than half the price it’s currently available in the market, Bett said. The subsidized cost of a 2-kilogram packet of milled corn will drop to 90 shillings, he said.

“The government did the responsible thing to do, it’s not a political move,” Bett said.

Kenya had insufficient rain in crop-growing areas in March and April, the Kenya Meteorological Department said Monday in a preliminary assessment of the March-May so-called long rains. Most weather stations reported receiving less than 75 percent of their seasonal long-term average, it said.

--With assistance from Helen Nyambura-Mwaura

To contact the reporters on this story: Felix Njini in Nairobi at fnjini@bloomberg.net, Samuel Gebre in Nairobi at sgebre@bloomberg.net.

To contact the editors responsible for this story: Rene Vollgraaff at rvollgraaff@bloomberg.net, Paul Richardson, Helen Nyambura-Mwaura