Shelve proposal to control commodity prices, State told

The proposed amendment to the commodity price control law to grant the National Treasury Cabinet secretary power to dictate the price range of essential commodities in the country is ill-advised.

This is the general sentiment of the various sectoral stakeholders in the country who spoke to The Eastleigh Voice on the matter.

Dubbed The Price Control (Essential Goods) (Amendment) Bill, 2024, the Bill is being pushed by Nominated Senator Tabitha Mutinda and was tabled in Parliament early this month.

Commodities that would be under the CS’s radar if the proposal is approved include maize, maize flour, wheat, wheat flour, rice, cooking oil, sugar and prescribed pharmaceutical drugs.

Ideally, the proposal seeks to amend the Price Control (Essential Goods) Act of 2011 with a primary objective of ensuring essential goods remain affordable for the general public, particularly during times of economic distress or crises.

But while speaking to The Eastleigh Voice, the Consumers Federation of Kenya (COFEK) said it is opposed to the Bill’s intended purpose, terming it the most ridiculous thing one could do.

COFEK is an independent federation mandated with consumer protection. It also provides education, research and consultancy services.

The federation’s boss Stephen Mutoro, said the government does not own the means of production and, therefore, cannot decide pricing.

On the production front, the Kenya Association of Manufacturers (KAM), the umbrella body representing manufacturers in the country, said the proposed amendments carry several significant implications for its members.

“If the regulated prices are lower than production costs, it could lead to financial losses, potential layoffs, or even market exits of major players in the food sector,” KAM said.

“The necessity to comply with government-imposed price controls adds a layer of complexity and operational costs for manufacturers. The need to ensure adherence to these regulations could require additional resources, including staff and systems for compliance.”

KAM added that with price ceilings, manufacturers will have less incentive to innovate or improve product quality as they might not be able to adjust prices to reflect enhanced value.

“This could lead to stagnation in product development and reduced consumer choice.”

Nevertheless, KAM noted that if the Bill becomes law, it will stifle competition among manufacturers in the country, particularly the small and medium-sized enterprises who are likely to struggle to sustain operations under stringent price controls.

Market monopolisation

This, KAM said, could lead to market monopolisation by larger firms, reducing overall market competition.

“Supply chain disruptions are also inevitable once the Bill sails through. If manufacturers reduce production in response to unprofitable price controls, there might be shortages of essential goods, driving consumers to seek alternatives in an unregulated market,” KAM said.

As the Bill awaits parliamentary approval, the manufacturers’ body said it is continuously engaging with more of its members on the matter, but categorically stated that the initial reactions indicated major concerns about the potential negative impacts on profitability and the increased regulatory burden.

From the initial engagements so far, KAM said a majority of its members expressed concerns that the proposed Bill would be counter-productive in attracting and sustaining investments in the manufacturing sector.

“Instead of addressing the underlying issues driving up the cost of essential goods, the Bill focuses on symptoms rather than root causes.”

KAM, therefore, proposed that to effectively reduce the prices of essential goods as it is the intention of the Bill, the government should address the systemic challenges that impact the cost of production.

It noted that the government could prioritise initiatives aimed at reducing the cost of production by lowering the cost of doing business, cutting down on high energy costs, and eliminating corruption and middlemen in the supply chain.

KAM said regulating the current trend of runaway taxation is essential.

“By tackling these issues, the cost of production will naturally decrease, leading to lower prices for consumers without the need for stringent price controls as the market will regulate itself.”

On its part, the Competition Authority of Kenya (CAK), which is tasked with enhancing the welfare of consumers by promoting and protecting effective competition in markets and preventing misleading market conduct, said the proposed price fixing is anti-competitive.

“The Competition Act, CAP 504, lists price fixing as an anticompetitive conduct that harms consumers by occasioning higher prices of goods and limiting the choice of quality goods,” CAK said.

“The Act envisions that the price of goods and services offered in the Kenyan economy shall only be set by the forces of supply and demand, particularly in liberalised markets,” it added.

If the Bill is passed into law, the Treasury CS will also have the powers to declare any goods as essential, set their prices, and determine applicable categories and timeframes for price control.

A Price Control Unit would be established within the ministry, headed by a Director of Price Control, to monitor compliance, analyse pricing trends, and enforce price control directives.

The unit will collaborate with other regulatory agencies to prevent market manipulation, engage with stakeholders, and educate the public on price control policies.

The Bill requires the CS to issue a gazette notice upon consultations with industry stakeholders.