Manufacturers Oppose Proposed Price Control Law, Warn of Business Implications

Kenyan manufacturers are voicing strong concerns over a proposed amendment to the Price Control (Essential Goods) Act, 2011, which seeks to regulate prices for key commodities. The Price Control (Essential Goods) (Amendment) Bill, 2024, sponsored by nominated Senator Tabitha Mutinda, has already passed its first reading and is intended to ensure that essential goods remain affordable for all Kenyans, particularly low-income earners.

The proposed amendment grants the Cabinet Secretary of the National Treasury the authority to set minimum and maximum retail and wholesale prices for essential items such as maize, maize flour, wheat, wheat flour, rice, cooking oil, sugar, and certain pharmaceutical drugs. To enforce these controls, the Bill suggests the creation of a Price Control Unit within the Ministry to monitor, enforce, and analyze pricing trends. Additionally, the Bill envisions providing incentives to farmers, manufacturers, and retailers involved in the production and distribution of these goods.

Industry Opposition and Concerns

The Kenya Association of Manufacturers (KAM), however, has expressed significant concerns regarding the proposed law, warning of its potential negative impacts on businesses, particularly small and medium-sized enterprises (SMEs). Tobias Alando, acting Chief Executive of KAM, argues that the Bill will have far-reaching consequences for competition and the overall business environment.

“First, it will stifle competition, particularly among SMEs, who are likely to struggle to sustain operations under stringent price controls. This could lead to market monopolization by larger firms, reducing overall market competition,” Alando stated. He further noted that if the regulated prices are set below production costs, this could result in financial losses, layoffs, or even market exits by food sector players.

Alando also highlighted that price ceilings would reduce the incentive for manufacturers to innovate or enhance product quality, potentially leading to stagnation in product development and limited consumer choices. He warned that supply chain disruptions could occur if manufacturers cut back on production in response to unprofitable price controls, leading to shortages of essential goods and prompting consumers to seek alternatives in an unregulated market.

Addressing Underlying Issues

While acknowledging the need to address the high cost of living, KAM has proposed tackling the root causes driving up prices of essential goods, such as high taxes, the cost of raw materials, and energy expenses. “Unfortunately, the Bill focuses on symptoms rather than root causes. It is crucial to replace price controls with expanded and better-targeted social safety nets, coupled with reforms to encourage competition and a sound regulatory environment that would have a better effect on economic growth and increase citizens’ disposable income,” said Alando.

KAM further recommends that the government address systemic challenges, including the prohibitive tax regime, high cost of raw materials, and corruption, to reduce production costs and, consequently, the prices of essential goods. “There is a need to regulate the current trend of runaway taxation. 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,” Alando added.

Support for Price Control Measures

Despite the pushback from manufacturers, Senator Mutinda defends the proposed law, asserting that it will prevent essential goods and services from becoming unaffordable to the public. “The enactment of this law will also ensure that Kenyans are protected from exploitative and unscrupulous businesspersons,” the Bill states. According to Mutinda, the proposed price controls aim to stabilize the cost of essential goods, ensuring that the cost of living remains manageable for ordinary Kenyans. The Bill also seeks to prevent sudden price variations that could reduce purchasing power and diminish consumer welfare.

Currently, the government regulates the prices of petroleum products through the Energy and Petroleum Regulatory Authority, which sets monthly prices based on global market trends and import costs. The debate around this new Bill, however, underscores the complexities of balancing affordability and business sustainability, with stakeholders remaining sharply divided on the most effective approach to managing the cost of living in Kenya.