Board targets sugar barons in review of import quotas

Kenya’s sugar market is set for a big shift as the sector regulator moves to review data that has shaped import quotas for more than a decade.
Industry operators say the data, which was last reviewed 17 years ago, is the main instrument that barons use to lobby for continued shipping in of thousands of tonnes of processed sugar every year.

For close to two decades, the country’s annual sugar production deficit has remained static at about 200,000 tonnes, despite the opening of new factories and expansion of existing ones in tandem with rising demand for the commodity from homes to industries.

“A review of the demand is in order because the current figure flies in the face of the fundamentals. Some people must be using this loophole to ship in what is not needed,” the Kenya Sugar Board chairman, Mr Okoth Obado, said in an interview.
The regulator’s concerns are supported by the fact that although the country was yet to receive more than 70,000 tonnes of sugar that is supposed to come in as part of a deal Kenya signed with Comesa for the year 2008/09, there has been no supply shortage in the market.

Under the deal agreed with Comesa in 2007, Kenya should import 220,000 tonnes of duty-free sugar between March 2008 and March this year.
With less than two months to the deadline, 70,000 tonnes of this duty free sugar have yet to arrive but no supply shortage has been reported in the market. “We haven’t had any shortages so far despite a supply shortfall,” Mr Obado told the Business Daily.

He said the flaw could be the cause of cash flow problems facing local millers who have often found their stores packed with loads of sugar but without a market to sell.
“In such a scenario you cannot rule out dumping because people bring in unnecessary sugar that only causes a market glut,” said Mr Obado.
As part of the 2007 deal extending special safeguards on duty-free imports, Kenya committed to enlarging the quota under the safeguard each successive year of application.

Besides, the tariff on imported sugar above the quotas is to fall during each successive year of application of the safeguard measures to hit zero by 2012.
This year, the safeguard quota of 220,000 tonnes is expected to rise by 40 tonnes to 260,000, to 300,000 in 2010 and 340,000 in 2011 before being eliminated by 2012.
The tariff charged above the safeguard quota is set to fall by a margin of 30 per cent every year starting March this year before being phase out in 2012.
Besides the quota-tariff structure, the Government also committed to give up ownership of sugar mills within the first 24 months of the extension of safeguard measures.

The Privatisation Commission of Kenya has started the sale process and placed a tender for advisors to help identify strategic partners for State-owned Chemelil, Muhoroni, Sony and Nzoia sugar companies.
Other issues embedded in the deal with Comesa included requirements that the Government adopts an energy policy aimed at promoting co-generation and other forms of bio-fuel energy production to improve the industry’s competitiveness.

Deepen research
The pact also requires sugar sector operators to deepen research on high sucrose and early maturing cane varieties while the KSB and the Kenya Sugar Research Foundation (Kesref) should spearhead adoption of research findings by cane growers.
But even as KSB moves to audit the demand structure, its officials will have to endure pressures from the importers’ cartels whose influence in the industry remains overbearing.

Backed by huge war-chests, these cartels have always managed to influence government policy through influence peddling and court processes to block measures they deem punitive to their interests.
Agriculture minister William Ruto has made major strides in the fight against the cartels with the introduction of new rules, which demand that the right to import sugar from Comesa be granted through a transparent auction system to rid it of corruption.

Unlike the past when such dealers were granted blanket licences for imports and exports depending on prevailing demand, the minister further ruled that those engaging in the trade would be granted annual permits with specific consignment volumes.

This means that applicants for such permits would be required to know upfront the amount of sugar they intended to bring in or ship out of the local market within any given year and include such specifications in their request forms.
Such permits would also not be transferable to third parties while a manufacturer wishing to procure refined sugar locally from another manufacturer would be required to obtain express permission from the industry regulator, KSB says. “The war is not going to be easy but we shall soldier on. Resistance will come but we shall deal with it,” said Mr Obado.