Manufacturers and retailers blame rising cost of goods

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A woman sells fruits and tubers at her stall in Kiranja market along the Embu-Chuka highway in Tharaka-Nithi county. [File, Standard]

With commodity prices soaring, buyers are now pointing the finger at retailers and manufacturers, who in turn are pointing the finger elsewhere – particularly external factors such as the Russian-Ukrainian war.

While one side seeks an explanation and the other struggles to be understood, Kenyans continue to grapple with unusually high prices for some commodities – the highest the country has ever seen.

The Kenya National Bureau of Statistics (KNBS), which collects prices across the country for an index of the cost of living – Consumer Price Index (CPI), said that in May, two kilograms of flour from maize sold for an average of 147.6 shillings. in the country, an increase of 23.8% compared to last year.

This increase has been significant for millions of Kenyans for whom ugali is a staple food.

KNBS CPI data also showed a kilogram of edible cooking oil was up 47% year-on-year, selling for an average of 370.71 shillings in major cities across the country. , compared to 252 shillings the same month last year.

Moreover, issues such as the shortage of palm oil have caused the price of cooking oil to increase day by day.

Reuters recently reported that edible oil prices have hit record highs this year due to the war in Ukraine, which has disrupted the supply of sunflower oil and wheat. Indonesia is the largest producer of palm oil and Malaysia is the second.

The dollar shortage, cited by Pwani Oil as the main reason the company is temporarily closing its manufacturing plant, has also been attributed to rising costs for products such as cooking oil.

Raw products obtained outside the country have been difficult to find, according to the companies. As this happens, prices on the shelves skyrocket. Kenya is experiencing the highest inflation rate since February 2020.

Now the fingers are pointed at the closest and most visible victim, the retailer. A spot check by the Weekend Business team showed that in some stores across the city, commodities were at an all-time high, straining the budgets of people whose incomes remained mostly unchanged.

“Supermarkets price most products well above recommended prices, making crazy markups. We need to follow the price movements from the factory to the retail store. I wonder why the government isn’t bothered by this,” SokoAnalyst said on Twitter.

Reacting to accusations that cement manufacturers were responsible for a rise in cement costs earlier this year, which in turn impacted the growth of the construction industry, Narendra Raval, Executive Chairman of Devki Group of Companies, a conglomerate that makes steel, aluminum and cement, blamed retailers for high-rise buildings.

While admitting that manufacturers had raised prices “within a reasonable range”, by 10-12% or even less, he said wholesalers were responsible for the punitive increase which saw customers protesting.

According to the rate of increase that Raval insisted the manufacturers had overseen, a bag of cement that sold for Sh400 would sell for between Sh440 and Sh448. But prices had gone up to Sh700 for a bag. , and even more. He blamed wholesalers and retailers.

“They are unregulated and cannot be controlled. That’s why they use the scarcity to mint money,” he said of the wholesalers. “If they choose to lower their prices, we won’t have that problem.”

XN Iraki, an associate professor at the University of Nairobi, says it is likely that retailers could take advantage of prevailing costs to make huge profits at the expense of Kenyans.

“Retailers will likely benefit from higher prices. If manufacturers recommend a 5% increase, they can increase 7% and blame inflation. Controlling prices is not easy,” says Professor Iraki.

A question about the cost of pastries has also caused an uproar on Twitter recently, with one Twitter user asking if some supermarkets deliberately set higher prices for breads from other manufacturers so customers can choose their own.

“Bread makers say supermarkets are overpricing their bread above recommended retail prices so they can sell their own homemade bread for less. Let’s say they are already giving supermarkets much higher margins than manufacturers of other products are offering,” SokoAnalyst wrote.

In one of the supermarkets where Weekend Business spot-checked, we realized that the cost of a 600g loaf made by the retailer itself was 85 shillings.

Loaves from other manufacturers (600g) are priced at Sh90 and above. At another supermarket the difference was even greater for the same weight of bread, well over 10 shillings compared to other brands.

Retail Association of Kenya chief executive Wambui Mbarire said retailers have been trying to maintain their selling prices and readjustments are indexed to the cost of goods as set by manufacturers.

“Retailers’ margins have shrunk due to their attempt to hold down prices. Our purchase price from manufacturers has increased significantly due to what we are told is an increase in manufacturing costs,” she says.

“Formal retailers have to manage shelf pricing; otherwise the products will not move as consumers prefer where the bulk can be divided into smaller sizes.

She admitted, however, that some manufacturers may have overpriced certain products. Most of the blame could then be borne by the supermarkets, which are “consumer-facing”.

But Kenya’s top manufacturing lobby group, the Association of Kenya Manufacturers (KAM), denies that manufacturers are responsible for rising commodity prices.

“Manufacturers do not raise prices for locally produced products, but rather prices are subject to prevailing costs of raw materials, transportation and logistics, among other factors affecting the cost of production,” says Phyllis Wakiaga, director outgoing general of KAM.

International prices of some essential commodities have increased significantly due to external shocks, including the effects of Covid-19, the Russian-Ukrainian crisis, the oil crisis and the weakening of most currencies against major global currencies like the US dollar,” says Ms. Wakiaga.

“For example, before Covid-19, crude palm oil prices were around $700 (Shs. 81,900) per ton, but rose to $1,980 (Shs. 231,660) per ton in March 2022. Oil, metals and other raw materials and inputs have mostly disappeared in the same way,” she says.

Logistics burdens continue to hit a local industry that has been slow to recover from the devastating blow of Covid-19.

“Local industry is still recovering from the effects of the pandemic, which has resulted in lost revenue for manufacturers. In addition, the Russian-Ukrainian war had a negative impact on exporters. Freighters have increased shipping costs by 10% in response to rising fuel costs and logistical disruptions,” Ms Wakiaga said.

The high inflation rate was also cited as one of the biggest problems in the market today.

According to KAM, inflation is caused by the depreciation of the Kenyan shilling against major world currencies and in some cases by demand, such as the oil shortage earlier this year.

“While the cost of production has increased, manufacturers are not raising the prices of raw materials,” adds Wakiaga.

Unless prices stabilize, many Kenyans will soon be unable to afford many products on retail shelves.

The food basket is already out of reach for many, even as retailers, wholesalers and manufacturers deny their guilt and point a hesitant finger at government and other external actors.

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