Competition in Kenya and Its Impact on Income and Poverty: The Case of Sugar and Maize

Abstract

This paper investigates the link between competitive, well-functioning food markets and consumer welfare. The paper explores two key food markets in Kenya – sugar and maize – and argues that a variety of factors conspire to distort market prices upwards. Distortionary factors include import tariff policy, non-tariff barriers, potential anticompetitive conduct by firms and direct state intervention. Changes in prices are associated with welfare effects on consumers, using the most recent available representative household survey data – the Kenya Integrated Household Budget Survey (KIHBS) 2005/6. Relaxing trade barriers to allow sugar prices to fall by even only 20 percent could reduce poverty by 1.5 percent. Similarly, adjusting government interventions in the maize market, that have been shown to inflate maize prices by around 20 percent on average, could reduce poverty by 1.8 percent. More competitive prices have a larger effect on the poorest households in both urban and rural areas, therefore the relevance of effective competition policies for poverty reduction strategies.