Soaring Maize Prices in Kenya and Malawi: A Tale of Market Dysfunction

Over the past year, maize prices in Kenya and Malawi have significantly outpaced those in other East and Southern African (ESA) nations. While Tanzania, a leading maize producer in the region, enjoys stable prices, Kenya and Malawi are grappling with exorbitant costs, driven by unique, yet problematic factors within their respective markets.

The Kenyan Scenario: High Margins and Market Dysfunction

In Kenya, maize prices have surged due to excessive margins imposed by sellers. The cost of maize in the country has consistently exceeded the import parity price—the price of maize from surplus-producing countries plus transportation costs. Between January 2023 and April 2024, Kenya’s maize prices were on average $624 per tonne, significantly higher than the calculated import parity price of $359 per tonne, representing an 82% excess margin.

Kenya, with its population of over 1.2 million facing acute food insecurity, heavily relies on maize imports from neighboring countries such as Tanzania, Uganda, and Zambia. However, despite these imports, maize prices remain high, reflecting a dysfunctional market where producers and traders have the power to manipulate prices by restricting supply.

This market distortion became evident when maize prices in Kenya sharply declined from over $600 per tonne in April 2024 to $315 in May 2024, following an influx of imports and the release of hoarded maize by producers. The price rebounded slightly to $374 in June 2024, yet still remained 50% above the import parity price from Tanzania, which stood at $249 per tonne.

The fluctuations in maize prices in Kenya underscore the inefficiency in the maize market, where despite the availability of cheaper imports from Tanzania and other neighboring countries, prices remain artificially high. This suggests that maize markets in Kenya are not operating efficiently, allowing traders and producers to charge inflated prices by controlling supply, further exacerbating food insecurity in the country.

Malawi’s Struggle: Poor Harvest and High Fertilizer Costs

Malawi’s maize market tells a different story, rooted in poor harvests and high input costs. Typically, Malawi produces enough maize to meet its domestic demand of around 3.1 million tonnes annually. However, the 2023 harvest fell short due to a combination of factors, including high fertilizer prices, adverse weather conditions, and trade bans.

In 2022, global supply shocks drove up the cost of fertilizers like urea, and although global prices eventually dropped, Malawi’s fertilizer costs remained disproportionately high. This discouraged farmers from purchasing adequate fertilizer, leading to a significant reduction in crop yields. Fertilizer imports in Malawi in 2022 were approximately half the volume of 2021, severely impacting maize production.

Moreover, delays in the procurement of subsidized fertilizers through Malawi’s Affordable Input Programme compounded the issue, leaving many farmers without the necessary inputs to maximize their crop yields. The result was a poor harvest in 2023, further strained by localized crop damage from Cyclone Freddy, which affected about 10% of the country’s overall crop production area.

By mid-2024, maize in Malawi was selling at $433 per tonne, far above the import parity price of $265 per tonne. This 63% excess margin indicates that maize prices in Malawi, much like in Kenya, do not reflect regional market dynamics, but are instead driven by local supply constraints and market inefficiencies.

The Need for Regional Market Interventions

The disparity in maize prices between Kenya, Malawi, and Tanzania highlights a broader issue of market dysfunction across the region. In well-functioning markets, maize prices in Kenya and Malawi should align more closely with those in surplus-producing countries like Tanzania. However, excessive margins, market concentration, and barriers to regional trade have disrupted this balance.

To address these issues, economists from the African Market Observatory recommend that competition authorities adopt a regional approach to monitoring markets. This includes assessing and addressing barriers to regional trade, and intervening in cases of anti-competitive conduct to ensure that maize prices across the region reflect true market dynamics, rather than artificial price distortions. Such interventions are crucial for stabilizing maize prices in Kenya and Malawi, and ultimately, for ensuring food security in the region.