Kenya’s ban of Ugandan milk points to flaws in soft diplomacy

By Musinguzi Blanshe
Posted on Tuesday, 30 March 2021 17:41

An employe restocks the dairy products section at a supermarket in Nairobi, Kenya 8 May 2017. REUTERS/Baz Ratner

At the end of 2019, Kenya refused entry of milk from Uganda — its largest trading partner in the region. More than a year later, this 'dairy war' remains unresolved. What is behind Nairobi's firm resolve to keep Kampala out?

As per the East African Community (EAC) common market protocol, so long as Ugandan products are produced in the country, they are permitted to enter the Kenyan market without any hindrance.

In 2018, Ugandan milk exports totalled $131m. 74% of that ($96m) was exported to Kenya, according to data from United Nations Comtrade.

In 2019, Uganda’s exported dairy products were worth $135.9m, according to Ugandan government statistics. That figure is triple what the country earned in 2015 ($45m). Milk production also increased to 2.7 billion litres in 2019 from 2.08 billion litres in 2015.

But by 2018, Kenya began to poke holes in the cheap imports of Uganda’s milk in an effort to protect the local market. Kenya first raised its doubts on Uganda’s milk production capacity; but that was debunked through a fact-finding mission in 2019.

High levels of aflatoxins

Technocrats then proposed a 16% levy on Ugandan milk to ensure it would be expensive in the Kenyan market but President Uhuru Kenyatta rejected the proposal. Soon after, a ban on Ugandan milk was imposed in 2020.

Since early March, the milk blockade has been extended to include maize imports from both Uganda and Tanzania. Nairobi said it had found these imports to contain high levels of aflatoxins that are consistently beyond safety limits.

The move has triggered calls for retaliation. “This is protectionism and self-interest action by the Kenyan government. Tanzania will probably retaliate. Uganda needs to stop focusing on Kenyan market,” tweeted Angelo Izama, a policy analyst.

In 2017, Uganda recorded a trade surplus of $31.8m with Kenya, according to Bank of Uganda trade data. This surplus decreased to $21.1m in 2018. Kenya then regained it surplus position, earning a $342m surplus from exports to Uganda in 2019.

While the issue of the blockade remains specific to dairy, and now, maize, the two countries have worked out a potential bilateral agreement that would end the trade dispute in sugar, fruit juices and pharmaceuticals.

Protecting Kenya’s local market

Kenya’s ultimate target has been to protect its local market. It views Uganda’s milk as cheap. Peter Munya, the Kenyan agriculture cabinet secretary said in February that tighter measures would be be in place to control imports of milk from Uganda. He warned unscrupulous traders who are illegally importing dairy products through porous border points that Kenyan authorities will soon catch up with them.

Munya added that limiting milk imports has caused a price upsurge. Half a litre of milk now costs KSh35 ($0.32) versus KSh19 ($0.17) prior to the blockade of Ugandan imports.

To export milk to Kenya, officials at two dairy processing firms in Uganda say they have to get permits from the Kenya Dairy Board (KDB). Those permits, they say, only allow them to sell about 30% of the milk they used to export in 2019.

Impact of blockade on Uganda

It’s hard to measure the impact of this blockade since statistics of Uganda’s dairy exports to Kenya are not readily available. Mutahunga Emmanuel, Uganda’s commissioner for external trade, says he does not have exact figures of what volume and value of milk the country exported to Kenya in 2020.

“It is not [as] much as we would want to export,” he says. “As you know, at some point, they had stopped all exports. Out of engagement, we were allowed to export but not at the level we want.”

Despite the blockade, milk is entering through formal and informal channels. Speaking to The Africa Report,  Kansiime Michael, executive director of the Uganda Dairy Authority – a government sector regulator says: “I want to tell you that we still export a lot of milk to Kenya.”

But Bijoy Varghese of Pearl Dairy Limited, a dairy processor  whose milk was confiscated by Kenyan authorities in January 2020, says the sector has been hit hard by the loss of access to Kenya’s market. “We are operating at a very low capacity. Between 15 to 20%,” he says.

Growing Uganda’s domestic market

Michael says they have “learnt that the sector cannot rely only on the external market.” And as a consequence, he says the government is deliberately working to develop the domestic market.

“Without the East African community market, there is no market.” – Bijoy Varghese of Pearl Dairy Limited

To mitigate the problem of shrinking the market both internally — as result of the pandemic and externally due to the blockade — he says dairy processors have processed liquid milk into powder that can be stored longer.

Uganda’s President Yoweri Museveni said in an address on 14 March 2021 that the government is exploring the possibility of giving school children milk and porridge to stimulate growth of the  internal market for maize and dairy.

In order for Uganda’s dairy sector to thrive, Varghese says it must have better access to the East Africa market, given:

  • Rwanda closed its main border with Uganda in 2019;
  • Tanzania slapped TSh200 ($0.8) on every litre of milk since 2017.

“Without the East African community market, there is no market,” he says.

Leveraging the Africa Free Continental Trade Area (AfCFTA), Pearl Diaries Farm Limited says it has expanded to South Sudan, Ethiopia and Malawi markets.

The company says it is working to enter the Algerian market. For countries far away, however, the company says it can only export powdered milk and export costs inevitably push up prices.

Soft diplomacy

Kenya is “using some avenues of failing us; that is the truth,” said Uganda’s minister for East Africa affairs, Julius Muganda, when speaking to parliament in February. Amelia Kyambadde, Uganda’s minister of trade, said the government has exhausted all diplomatic avenues to resolve this conflict.

Several legislators, including the speaker of parliament Rebecca Kadaga chided the government for failure to press Kenya harder to end the blockade. Kadaga urged the government to “exercise [a] principle of reciprocity.”

But Museveni, who often justifies his long stay in power for having achieved East Africa integration, has rejected all calls for retaliation. Speaking at a virtual summit of East African Community heads of state at the end of February, he said: “Uganda will never be found wanting on the efforts of Africa liberation and integration.”

Isaac Shinyekwa, a senior trade and regional integration fellow at Economic Policy Research Centre (EPRC) — a Uganda think tank — says Kenya should be quick to present its issues if it has them. And those issues should be listened to. He adds that established institutions of the regional block usually take long to resolve conflicts. Member states, Shinekwa says, should focus on strengthening the East African Community “institution[s] that are supposed to resolve such conflicts.”

East African Community or retaliation?

Frank Tumwebaze, a Ugandan cabinet minister, raises the question of why such matters were not discussed within the forum of the East African Community before unilateral decision were taken.

Dickson Kateshumbwa, a former senior customs commissioner at the Uganda Revenue Authority tweeted that Uganda’s only crime was “having closed trade deficit. It caught our neighbours by surprise.”

Those calling for retaliation Emmanuel says, are theorists who don’t understand the intricacies of negotiations. “Do they want us to invade Kenya and force them to buy our milk? Certainly, no,” he says. He says the solution to this conflict will only come through persistent dialogue by the government.

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