Runway commodity prices could spur price controls

The Kenya government, last week, surprised many when it took a populist decision to set two prices of the same quantity of maize flour to cater for two extremes of people within the economy.
The high prices of maize flour, the chief staple food, had recently turned the government of the people into an unpopular regime with Prime Minister Raila Odinga receiving constant boos while on state functions.
The government finally responded by setting two price caps, Kshs72 for the urban and Kshs52 for the rural, for a-2-kgs pack of maize flour. To illustrate its level commitment, the government announced plans to set up its own grain-milling plants to control maize flour prices in the market and abolished services of many middlemen whom it perceived as responsible for price escalation. Actions of our eastern neighbours are not any different from those Rwanda and Tanzania.
The governments of Tanzania and Rwanda have recently been singing the same chorus on the need for equitable fuel prices in a market controlled by greedy barons seeking to exploit every opportunity to increase market prices. Such actions bring back the memories of the early 1990s when the government was still a central player in price controls. Everybody would gather by the radio receiver to listen to the minister of finance as he read out price caps for various basic commodities.
Although actions of the Kenyan government are not anywhere near the price controls of the early 1990s whose net effect was price distortion and emergence of a lucrative black market, its actions show the need for minimum government intervention to prevent commodity prices from running amuck. It shows that minimal price interventions are needed to protect citizens against vagaries of free market economy.
While in theory a free market economy perfectly operates where the forces of demand and supply determine the market price of a given product, the practice often turns out different. The fuel market for instance is controlled by a few large companies with a behemoth market share that gives them the ability to fix market prices in total breach of market fundamentals such as cost of production.
That is why the government does not need to abdicate is role as the market regulator. The Kenyan government has in the past used the National Oil to keep fuel prices from running amuck but its presence is so limited that it can scarcely take on industry giants. Now it has resorted to exerting pressure on fuel companies when it feels the market price is not reflective of the costs involved.
Shell Kenya, last week, finally succumbed when it announced that it had reduced the price for a litre of petrol by Kshs15 (Shs375). In times of scarcity, Rwanda uses fuel quotas to prevent prices from rising beyond the reach of average Rwandan. However, the Uganda government often folds its hands as Ugandans continue to get a beating from unscrupulous dealers. The government should learn from its neighbours that minimal controls are necessary to prevent prices from escalating beyond reasonable levels. Our neighbours seem to have set a precedent that is likely to sweep a cross Africa