**Maize is consumed in a variety of forms in Kenya.**<sup>**62**</sup> Green maize or dried grain is usually boiled with beans in a stew called _Githeri_ .  Milling the dry grain in local ‘posho’ hammer mills produces a whole meal flour (or posho flour).  The _posho_ millers sell unbranded (‘loose’) flour produced from their own supply, or provide a ‘custom’ milling service at a fixed rate per unit. This flour is commonly consumed in the form of a stiff ( _ugali_ ) or soft ( _uji_ ) porridge.  Sifted flour is produced by the large industrial milling firms and sold in various retail outlets.  The price of this kind of meal is generally higher – it has a lower extraction rate, higher packaging cost and longer shelf life.<sup>63</sup> Sifted flour is consumed in the same way as whole meal flour.   An even more expensive variety of sifted flour, “fortified flour”, is available at a premium price with the addition of vitamins and minerals.

**Removal of subsidies during liberalization changed the relative importance of** **_posho_ flour and sifted flour in the market.** Sifted flour was heavily subsidized until 1993, and together with government restrictions, this resulted in large industrial millers dominating the urban market<sup>64</sup> **.** The removal of the subsidies and restrictions in 1993 resulted in a rapid transformation of the market, as _posho_ flour quickly gained a strong foothold.  Within two years, prices of both _posho_ and sifted flour dropped substantially, to the benefit of consumers in general and the poor in particular<sup>65</sup> .  Subsequent narrowing of the price premium of sifted flour over _posho_ meal (reportedly due in part to a decline in the degree of refinement of sifted flour), has led to a relative fall in the consumption of _posho_ meal, although its consumption still substantially exceeds that of sifted flour among poorer households.<sup>66</sup>

**This section gives an overview of the maize market in Kenya, and discusses some of the**

**factors that drive local prices.** We then look at the impact that these price changes have on the welfare of Kenyan consumers<sup>67</sup> .  We show that maize prices are important for household welfare in Kenya (and particularly that of the poor). Although household production of maize does substantially insulate many households from the effect of price changes<sup>68</sup> , the poorest rural and urban families are generally large net buyers and will benefit the most from lower prices.  We close with a brief review of some recent actions by the Competition Authority of Kenya (CAK) in the maize milling sector, and how these have affected prices.

# **3.1 Government interventions in the maize sector have led to higher prices**

**The Kenyan government continues to intervene extensively in the grain market, with the most reliable estimates suggesting that this has increased prices by an average of 20 percent.** There was a period of ‘liberalization’ in the grain market during which sifted flour

> 62 See De Groote and Kimenju (2012).

> 63 ILO & UNIDO (1984)

> 64 Jayne and Argwings-Kodhek (1997) estimated that sifted flour had a market share exceeding 90 percent in urban areas prior to liberalization.

> 65 Jayne (1997).

> 66 Kirimi et al (2011), De Groote and Kimenju (2012), Hoffman (2013), Jayne (1997).  See next section for analysis of current consumption.

> 67 Mghenyi et al (2011) produced robust estimates of the impact of large maize prices change on rural households in Kenya.  Unfortunately, the sample used was not nationally representative, and comparisons with KIHBS 2004/5 suggest that the sample does differ substantially from the population. We replicate some of these results for a representative sample, to assess how maize prices affect income and poverty for Kenya as a whole.

> 68 See Mghenyi et al (2011)

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