**Even if sifted flour prices have been inflated by a hypothetical cartel at some point, the impacts on consumers and poverty would be much lower than those associated with grain price hikes.** A decrease in sifted maize prices (only) of 5 percent (the approximately amount that margins dropped post-investigation as outlined above) would increase real income by 0.1 percent<sup>96</sup> .  This is only 5 percent of the size of the average impact we estimated would be caused by a grain price decline of 20 percent.  The much more modest size is due to the fact that the average budget share of sifted maize is just under 2 percent, as opposed to the average total budget share of all kinds of maize at approximately 7 percent.  In addition, the impacts of sifted flour changes are less concentrated on the poor, since as we showed above sifted flour is a smaller portion of poor consumer budgets than other kinds of maize.  This is not to say that sifted flour prices are not important – clearly they still matter for consumers – but their importance is overshadowed by the importance of maize grain prices.

**The Monopolies and Price Commission of Kenya 2011 report on the maize market focused on NCPB activities and included a set of recommendations regarding its future conduct – reflecting the accurate assessment that this is the more important concern in the value chain.** This shift of focus towards maize grain prices is well advised, and the potential gains from removal of barriers to competition are much larger than those to be gained in the flour market.  However, continued vigilance regarding potential cartel activities (as the CAK continues to show<sup>97</sup> ) is important, particularly the trade barriers against imported flour (EAC-CET of 50 percent on maize flour).

# **3.5 Concluding remarks on maize**

**The analysis shows that eliminating the 20 percent average increase in maize prices caused by NCPB central buying would be equivalent to an increase in average incomes of 1.2 percent, and with an associated 1.8 percent reduction in the poverty rate.** It is the poor who have the most to gain here: the average gains as a percentage of income in the poorest decile are estimated to be 7.4 times those in the highest decile. While certainly there would be some that losers from lower prices, the number of households moving into poverty would be only 10 percent of the number moving out of poverty.  The gains on average significantly outweigh the losses.  In addition, the 20 percent price decrease that we have focused on is a smaller price variation than that which has actually happened over recent years.  From the beginning of the price spikes in January 2008 to their peak in June 2011, maize prices in Kenya increased by 64 percent in real terms<sup>98</sup> - far exceeding the increases in world prices.  These spikes have often been due to the barriers in place that prevent maize imports from entering the country from outside the EAC/COMESA, to ease tight supply

> 96 This is estimated using the first order method (i.e. without accounting for substitution effects), as we do not have reliable estimates of own or cross price elasticities of demand for the different kinds of maize. 97 See for example in the popular media:

> http://www.businessdailyafrica.com/Cartels+put+on+notice+over+high+flour+oil+prices/-/539546/1643524//item/0/-/bb1kxmz/-/index.html

> 98 Grain prices went from a national average of 20.3KES/kg to 51.21KES/kg in nominal terms over this period. However CPI rose more than 56 percent over the same period.  Real prices have since fallen (both due to a reduction in nominal prices and further inflation), such that the net real increase since January 2008 is 20 percent - still a large impact on consumption baskets. _Data source: KNBS._

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