In a further sign that East African countries are intent or putting up trade barriers to protect local sectors, Kenya has proposed a 16% VAT on imported milk from Uganda. The move comes because Kenyan dairy farmers believe they are being undercut on prices by farmers in Uganda.
The measure was announced after a bilateral meeting between trade officials from Kenya and Uganda.
Uganda produced around 2.6bn litres of milk in 2018, of which around 144m litres are sold in Kenya in an export business worth around $80m. Under normal conditions, Kenyan milk would be more expensive than imported milk from Uganda. The application of VAT means that Ugandan milk is now more expensive. Until now, Ugandan milk brands such as Lato have become popular in Nairobi because they are cheaper than similar Kenyan products.
Meanwhile Kenya’s milk production has risen to around 5bn litres. The glut of Kenyan milk production has led to depressed prices in Kenya, adding pressure in the industry.
Competition between the two countries is likely to intensify unless demand increases in line with production: According to Uganda’s Agriculture Sector Strategic Plan 2015/16 – 2019/20, which set production targets for priority and strategic agricultural commodities, it has a target to produce 3.3bn litres of milk in 2020. It probably won’t hit that target because yields per cow are not increasing, but the overall pattern is one of increase: Uganda produced only 1.6bn litres of milk in 2016.
In late 2018, despite governments resolving to remove friction from trade, manufacturers in East Africa continued to complain about trade barriers. Manufacturers of confectionery in Kenya, oil and fats in Uganda and a wheat and juice producer from Tanzania reported encountering tariff and non-tariff barriers that blocked them from entering other East African markets.
The trade dispute has been especially intense between Kenya and Tanzania, which enacted tit-for-tat tariffs on products including confectionery, ice cream, biscuits, oils, flour and cement. In theory, The EAC common market allows for free movement of locally manufactured goods. In practice, both Tanzania and Uganda have, for example, accused Kenyan manufacturers of using a zero duty window to import industrial sugar, effectively making their products uncompetitively cheap.
Uganda, too has complained, most recently in August 2019. The government says that delays in verifying and scanning cargo in transit as well as corruption at the port of Mombasa through which most product destined for Uganda enters, accounts for more than 20% of losses in the goods that Uganda trades in.
“More than 82% of Uganda imports pass through Port of Mombasa. That is why we are meeting our Kenyan counterparts to address the logistics inefficiencies in import and export of goods which are estimated to cost $827m to the Uganda business community and government every year,” said the Ugandan Minister of Trade, Amelia Kyambadde.
According to “Resolving the unresolved non-tariff barriers in the East African Community”, a project financed by the United Kingdom’s Department for International Development (DFID), it was estimated that overall transit times between Mombasa and Kampala increase by 7.1 hours because of weighbridges, 20.7 hours because of delays at the border between Kenya and Uganda and 36.7 hours because of policy roadblocks and other unforeseen circumstances. This implies that, of the 5.6 days trucks currently spend in transit, 2.6 days are lost because of trade facilitation barriers.
Update: Since December, the Kenyan authorities have been systematically removing Uganda’s Lato brand milk from shelves, claiming they are substandard. The withdrawn products have a retail value of $360,000. The action is broadly seen as politically motivated protectionism.
