Costly diesel sets stage for higher food prices

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By Gerald Andae. 19 March 2018. This story was originally posted in Business Daily.

A farmer tills land in Uasin Gishu County.

Commodity prices are expected to rise as farmers factor in the steady rise in the cost of diesel over the past eight months.

The price of diesel has been on an upward trajectory since July last year with Energy Regulatory Commission (ERC) attributing the rise to the higher global cost of imported cargo.

The Ministry of Agriculture has been pushing for a tax waiver on diesel used for agricultural activities but to no avail, so far.

“The increase in the cost of diesel will definitely affect farmers’ margin due to the increased cost of production and the only way to recover this is by demanding high cost on their produce,” says Johnstone Irungu, director of crops at Agriculture Ministry.

Farmers normally use the high cost of production as a justification to demand higher payments for their produce, especially on maize where the government normally sets the price.

The price of fuel has gone up from Sh85.45 last July to sell at Sh97.86 in the latest monthly review by the regulator.

“We have to increase the cost of ploughing to be in line with rising cost of fuel,” said Gibson Kipkoech, a farmer and a tractor owner who leases out his machinery to other farmers.

Average diesel price (Sh/litre)
The price of diesel has been on an upward trajectory since July last year.

Source: Business Daily.

Whereas the cost of ploughing has remained the same at Sh2,500 per acre the cost of reploughing has gone up from Sh2,000 to Sh2,500 per acre.

Mr Kipkoech says the cost of ploughing is expected to be reviewed upwards following the new prices that were announced last Wednesday.

A report on the cost of production from Tegemeo Institute indicates that overheads have a direct impact on the price of commodities.

The report by Tegemeo shows that the cost of hiring machine contributes to a quarter of the total cost of production, at 25 per cent on average in Trans Nzoia, Uasin Gishu and Nakuru counties.

The government set the buying price of maize this year at Sh3,200, giving farmers almost 100 per cent profit on their produce.

According to Tegemeo, the cost of producing one bag of maize ranges from Sh1,600 to Sh1,800 depending on the region of production.

Millers have always been faulting government’s move to set the price, arguing that it distorts the market.