Tuesday, July 20, 2010

Kenya: Food Price Controls and Biofuels

The Kenyan Parliament has passed a price control bill, currently awaiting Pres. Kibaki's signature. I'm not informed of all the details, but it sounds heavily directed at maize and wheat prices. Analysts at the Kenya Institute for Public Policy Research and Analysis argue that price controls in the 1990s did more harm than good and these are likely to go the same way: "it may benefit the poor who have been priced out of food in the short term but is unsustainable in the long term." Among the reasons for concern are reductions in FDI and agricultural job loss, farmers switching to cash crops which would reduce food supply, and increased maize hoarding by farmers.

The last several maize harvests have not been good, leading to a 130% price increase in 2009 while world maize prices declined following the food price crisis. Despite this, overall inflation has fallen from almost 20% to 5%.

Proponents of the bill contend that it is an attempt to regulate maize and wheat millers, who "are a cartel that makes supernormal profits..." Analysts and retailers ask whether price controls are the way to deal with the cartel. There are anti-trust laws that can be used; increased international trade can provide additional sources of competition; it could hurt the newly forming COMESA (Common Market for Eastern and Southern Africa); and is "treating the symptoms and not curing the underlying disease." Agricultural research and investments to diversify agriculture and consumption patterns into a more diverse diet -- remember, meat, milk, fruits, and vegetables also compete with maize -- could lower prices both directly and indirectly without risking increased unemployment and hunger.

Meanwhile, there are arguments for and against setting aside 50,000 ha. of woodland forest for growing jatropha trees to produce biofuels. Opponents contend that the benefits jatropha trees have been vastly oversold and their costs underestimated: "a number of companies in East Africa have abandoned Jatropha cultivation citing its non-profitability with no single large-scale commercial growing of Jatropha succeeding in East Africa." The crop is blamed with eroding rather than preserving marginal lands, "causing poverty in many parts of the world," its oils are poisonous to humans and livestock, and would endanger some native species.
"The crop actually requires more water per litre of bio-fuel produced than most other bio-fuel plants. They even claimed that one plant can yield 4-6 kgs of oil per year yet recent studies by Kenya Forestry Research Institute (KEFRI) have shown it can only give away 0.6kg."
One proponent firm, Sun Biofuels, argues that it has had success and hasn't displaced food crops, having bought land used for growing tobacco. "If biofuels weren't a viable option, the Kenyan government wouldn't have added a provision for it in its revision of its feed-in tariff."

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