For two countries nominally in the same free trade area, Kenya and Uganda spend a lot of time squabbling about agricultural exports. The latest front is milk exports, where Kenya has been blocking Ugandan imports over claims that Uganda actually lacks the capacity to produce enough milk to export, and has been relabeling foreign milk powders instead.
David Ndii has an insightful take on this issue at The Elephant. He notes that the real issue in Kenya is politics, not economics. The country’s largest milk producer, Brookside Dairy, is owned by the family of the president, and has raised consumer milk prices by nearly 100% over the last decade. This has attracted the attention of Ugandan exporters. As he writes,
More fundamentally, why the Kenyan market is attracting Ugandan milk has little to do with Uganda’s demand-supply balance, and everything to do with Kenya’s consumer price. As observed earlier, the retail price of processed milk has doubled from Sh65 to Sh120. In Uganda, a litre of processed milk retails at between USh2,800 and USh3,000 which translates to an average of Sh80, i.e. Sh40 per half-litre packet, compared to Sh60 in Kenya. Ugandan producers are not obliged to satisfy their domestic market when a more profitable market is available across the border. If consumer prices had increased at the rate of inflation faced by Kenyan manufacturers, as measured by the producer price index (2.5 per cent per year), the retail price in Kenya today would be in the Sh70-75 range, which is well below the Uganda retail price.