Milk and eggs make a good food fight plot but it does not tell the whole story

Thursday January 23 2020

 

By Daniel K. Kalinaki

Dairy farmers around Mt Kenya have been crying into their muratina – a local brew, to the uninitiated – over the collapse of milk prices, which they blame on cheaper imports from Uganda.

Wide-eyed technocrats and farmers have visited from Kenya to investigate frequent sightings of cow-like animals in the Ugandan countryside and the milk-like liquid produced from their udders.

In the meantime, angry Kenyan farmers have called for tariffs, and even non-tariff barriers, against imports of milk, eggs, sugar, maize flour and animal feed from Uganda.
This would sound remarkable to anyone who remembers drinking milk, beer, sugar and soda imported from Kenya. We have also gone from clashing over abstract ideological ideas, as we did in December 1987, to self-interest bread-and-milk matters, as it were.

But that’s not the whole story. Investments in agriculture, especially large-scale operations and in value-chain agro-processing, have led to an increase in output in Uganda and brought into sharp focus comparative advantages.

The installation of milk coolers in south- western Uganda and the building of milk processing plants increased demand for milk and encouraged more investment in the dairy sector. The surplus has flooded the Kenyan market not because satisfied Ugandans are pushing away gourds of milk with their feet but because of higher purchasing power across the border.
In the case of the eggs, it reflects capital hunting for higher returns by bringing machinery closer to the source of key raw materials (maize), relatively cheaper land in central Uganda, near the urban areas, and cheap labour. It is classic capitalism.

Faced by this borderless competition, farmers elsewhere can become more efficient (produce more from the same or less), move up the value chain (produce premium-priced organic), remain uncompetitive but survive on subsidies (as happens in much of the Western economies) or sob more bitterly into their brews.

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As the Kenyan economy evolves from agrarian to agro-processing to manufacturing and onto services, it cannot expect to hang onto the competitive advantages of each transformational stage. It cannot also expect to do so in a vacuum, enjoying the benefits of borderless trade without the costs.

Rather than look smugly across the border, policy makers across the region ought to pay attention to the ways in which globalisation and technology have decimated this natural capitalist progression.

When British American Tobacco shut down its factory in Kampala and decided to make its cigarettes in Nairobi, it was leveraging the openness of the EAC Customs Union; manufacture where it is cheapest and transport to markets across the region.

The factories sprouting all around Kampala producing everything from floor tiles to cement are following in the same vein and will bring even more pain to agro-processors and light manufacturers who remain in high-production-cost jurisdictions.

Unless a Kenyan manufacturer can deliver a bucket to Kampala cheaper than local rivals, it might as well kiss that market good bye.

In this regard, and depending on where the raw materials come from and at what cost, the disadvantages previously associated with being landlocked could, for some producers become advantageous if it allows cheaper and quicker access to frontier markets.

One might actually argue that Kenya’s biggest problem isn’t in Uganda’s cattle corridor but in China’s Guangzhou province. Uganda’s exports to the Comesa region, most of which go to Kenya rose from $200 million in 2005/2006 to about $1.5 billion in 2017/2018, according to public data – all that sugar, milk, eggs and maize adds up.

The problem is that over the same time, imports from Comesa rose slightly until 2011/2012 then flat-lined while those from Asia, particularly China and India, jumped from $500 million in 2005/2006 to about $2.3 billion, including soaring above the $2.5 billion mark in 2013/2014.

Some of this is stuff that was previously imported from Kenya but which can now be sourced much more cheaply from China, like textiles, cement, steel and so on.

However, a lot of it is stuff that Kenya does not produce, including electronics, and some of which can now be imported as disassembled parts and then assembled as Made in Uganda, or even mobile phones made in Rwanda.

The biggest challenge, therefore, isn’t the prevalence of stuff grown in Uganda, but the decline in or absence of high-order white goods made in Kenya. This reality will soon spread across East Africa.

Mr Kalinaki is a journalist and a poor man’s freedom fighter.
write2kalinaki@gmail.com.
Twitter: @Kalinaki.

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