There has been a huge hue and cry on the 2009/2010 Budget announcement to lower import duty on wheat from 25 per cent to 10 per cent in the last couple of weeks, reported “Kazakh-Zerno” NA with reference to the “Business Daily“.
Surprisingly, the debate which should have offered Kenya an opportunity to see reduced prices of wheat products on the shelves, has instead been reduced to protectionist arguments with farmers being fronted as the only stakeholders in the wheat industry as well as the ‘victims’ of this policy change with politicians getting involved in the melee.
Kenya’s total wheat grain requirement for milling into flour is around 900,000 tonnes annually.
Kenya’s wheat farmers’ production is in the region of 300,000 tonnes annually and is entirely dependent on local millers as the market for their produce as Kenyan wheat is not competitive enough to penetrate the regional market.
The remaining 600,000 tonnes of the country’s requirements has to be imported to bridge the gap at a duty rate of 25 per cent.
The logical conclusion to a reduction in import duty on wheat, a product which requires over two thirds of its requirement to be imported is that it will curtail spiralling prices of wheat and its by products.
It is unfortunate that for the past 15 years the Kenyan consumer and wheat miller has borne the brunt of the inefficiencies of the Kenyan wheat farmers.
Wheat millers have been subjected to unfair trade practices within the region and Comesa and every effort to create a level playing field for the millers has been thwarted in a bid to protect the Kenyan wheat farmers.
In spite of the protection accorded to farmers in the form of heavy import duties over the last 15 years, wheat production has not dropped from 357,793 acres in 2002 to 325,175 acres in 2009 while production has fallen from 312,755 tonnes to 219,301 tonnes during the same period while consumption of wheat has grown from 884,350 tonnes to one million tonnes.
In order to fully understand the disparity in duty structures within the East African Community (EAC), if Kenya continues to pay 25 per cent duty, millers in Tanzania and Uganda would import wheat grain at 10 per cent, mill in Tanzania and Uganda and export the same wheat flour to Kenya duty free.
Apart from disparity in duty structures in EAC, millers also have to contend with Comesa whereby wheat millers are faced with imported duty free flour from Egypt and Mauritius who are substantial exporters of wheat flour yet Egypt only produces 50 per cent of its domestic requirement and imports the rest of the wheat at subsidised rates.
Surprisingly Mauritius does not grow any wheat at all yet imports European Union subsidized wheat and re-exports to Kenya at zero duty.
The consequence of the above policy means that Kenyan millers would pay duty on the raw material whilst the finished product would continue to come into the country duty free.