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Thursday, June 22, 2006

Kenya Meat Commission Revival Welcome

Photo: EA Standard
Just when the country was trying hard to digest the bad news from Uchumi's fall from grace and profitability, the government has done what any government should do. It has acted to save face and revive crucial public sector businesses. It has worked hard to revive the Kenya Meat Commission and now the plant is at least running. Test runs have been completed and the once famous meat processor is in the process of reclaiming its lost glory. That is after fifteen years in the doldrums. The government has proved that actions speak louder than words. See EA Standard story on KMC's revival.


The reopening of KMC is good news not just for the country's economy but also for the oft-neglected pastoralist communities who tend animals for a living.They will now work as hard as they have always done but with the reassurance that they now have a ready market. KMC will save them from having to see their animals die during droughts as they can be slaughtered and their meat canned while they are still in reasonable shape. The country can earn much needed foreign exchange with the export of meat and meat products to the Middle East and the European Union.

This is just the latest in a string of decisions that the government made and which are in my humble opinion a step in the right direction. They include the provision of free primary education (dismissed as impossible by Moi just some years back),the waiver of farmers' loans, the recarpeting of roads and completion of new ones at a respectable pace, the stabilising of milk, coffee and tea producer prices, the improvement of the Jomo Kenyatta International Airport (upgrading of facilities),the rescue of the Kenyatta International Conference Centre and elevation of the same to international conference facility standards etc

Then there is the raising of police salaries, teachers' salaries, armed forces salaries,civil servants salaries etc as well as good returns posted by large corporations. Police housing has been addressed with the completion of new housing estates for the officers. Then there is the rescue plan for Uchumi Supermarkets that is now being put in place (see news report) as well as the bailing out of ill performing parastatals that are now finally raking in good revenues. The government will inject up to 900 million shillings as a step-in measure in Uchumi's revival.

Of course there are areas that the government can improve in: increase its accountability and punish corruption and deliver wholesale improvement infrastructure improvement. The government has shown that it is working even as its critics shout themselves hoarse but do little for their own constituents.

7 Comments:

  • At June 22, 2006, Anonymous Anonymous said…

    I remember KMC having the best sausages ever!How long till their products are in the market?

     
  • At June 22, 2006, Blogger walk said…

    Does this mean we will have canned beef again .certainly looking foward to some kenyan canned beef and not those dubai imports

     
  • At August 09, 2006, Anonymous Anonymous said…

    I could not disagree more with your opinion and your enthusiasm at the Kenyan government re-opening KMC, or of your general attitude of foolish optimism. First of all, the fact that the government is getting involved in private business is fundamentally against the basic principles of a free market economy. You do realize that this is simply a gimmic till the next election? The government has spent more than Kshs. 300 million getting involved in business, however the business of the government is not to involve itself in profit making enterprises (or loss making ones, for that matter). Rather, the government should focus on providing basic infrastructure, education and a generally supportive marketplace so that PRIVATE citizens, enterprises, corporations and businesses can focus on creating jobs and wealth.

    It is very naiive of you to greet this news with such optimism. Do you realize that the governments promise of exporting 60% of KMC's produce is not only unfeasible, it is complete hogwash. Go into the marketplace in Nairobi, or any other city, and you will find that the price of meat in Kenya is extremely high. Our beef would be competing with beef from countries like Brazil and Argentina, whose prices are lower than ours by more than 50 to 100%. Part of the reason our beef is so highly priced is that by the time it gets to the slaughterhouses, with extremely high transportation costs and the high cost of doing business, overheads and raw material costs are already inflated. The only reason that we might think that we will be competitive, is the low costs of direct labor, however bear in mind that labor costs in Kenya are comparable to those in Brazil in Argentina. Hence, even though that may seem like an advantage we have, it really is not.

    Due to intense global price competitiveness, and Kenyan beefs inherent expensiveness, KMC/the government is not going to be able to be able to attain its unrealistic export targets. Let us also not forget that there are extremely high barriers to entry in the global beef industry, for example brand/product identification. KMC has been out of the market for 15 years, and no one in the international market (save a few Kenyans living abroad)really identifies with Kenyan beef. Not only are they not aware of Kenyan beef, they certainly will not be willing to pay a 50 to 100% premium for KMC's product. As a result, the government will end up cannibalizing the local market, and this has already begun to happen. They will fight with local beef manufacturers, who are much smaller and much less powerful, for a small market. However, even if KMC were to gain the whole market, their huge size (and hence, extremely high fixed costs) will make render them unable to reach or maintain break-even, let alone profitability. And it would be foolish to assume that local private beef processors are going to give up that easily. These are brands and companies that have been in the industry since independence, and have historically shown great resiliency. Their owners will certainly fight KMC tooth and nail, to the extent of a full out price war. Since their fixed costs are much lower, they will also be better able to handle short term losses in the hopes of KMC's eventual closure.

    My final point is that in any case, even if KMC does get the whole local market share, the government will not be creating value for the economy as a whole. Rather, they will be shifting money from private investment to governement expenditures. Remember in basic macroeconomics, GDP= C+I+G+NX, where C is consumption, I is investment, G is government expenditures and NX is net exports. In the situation of KMC, all that is happening is that the government is creating the good (through KMC) and selling it to the market, rather than private industry/investor. Yes, money might shift from Investors to Government, however in aggregate GDP will NOT be affected. And therein lies my main point, the government should focus on increasing GDP/Output of the whole economy rather than creating pointless transfers within the economy that do not benefit the country as a whole.

     
  • At October 31, 2006, Anonymous Anonymous said…

    The opening of KMC has been met with alot of sceptisim by some but lots of hope and optism by most. We do agree that there is a huge number of obstacles to be overcome. However, in my personal view, it is a step in the right direction. KMC is one of the companies that most Kenyans remember with alot of nostalgia. I am glad that it is open if for no other reason but to offer Kenyans hope and in addition that the starving, sidelined and almost forgoten pastoralists like the Maasai, Samburu, Somali, Boran to mention but a few, will have a place to sell their produce.

     
  • At February 15, 2007, Anonymous Anonymous said…

    Sam J.M says,

    With the current Rift Valley Fever problem in Kenya, KMC stands a good chance of revolutionizing the selling of meat in the country.
    It a pity that Kenyans must buy their meat from very unhygenic butcheries across the country.
    It is my suggestion that KMC needs to make its presence in the Kenyan market felt by ensuring that it sells its products through the proliferating supermarkets, especially in the urban areas.Other firms, notably Farmers Choice, KCC,and Mumias Sugar have made a great impact by selling direct to consumers using these channels .This ensures the consumer receives quality products packed hygenically and in a price that does not keep on escalating unnecessarily. KMC, we expect to see you in our supermarkets sooner than later.

     
  • At July 19, 2007, Blogger jimbo646 said…

    Hi
    we are comming over to kenya for a visit and would like to buy a beef steer to have a feast in the village we are staying in could you give me an idea of cost please. regards
    jim

     
  • At September 25, 2008, Blogger David and Darlene said…

    TO: Kelele Leo

    Your article about the Kenya Meat Commission blessed me...the picture of the one in the middle is Sammy Mutie...one of my students long ago. Please pass this message to him...how can I contact him. My address is ddnoden@aimint.net. We saw Sammy in 2006 at a reunion of old boys. It was fun. Your article told the KMC story well and we are proud of all that has happened......David and Darlene Noden, Bloomington, Illinois.

     

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