Alarm over failure to reform sugar sector

Kenya now looks unlikely to put its sugar industry in order before safeguards on imports comes to an end in 2012.

At risk are 200,000 farmers and another 40,000 workers in factories.

Unless quick action is taken to give Kenya a competitive edge through diversification and increased efficiency, the industry will simply collapse.

According to Kenya Sugar Board (KSB) projections, an estimated production of 553,000 metric tonnes of Sugar is expected this year compared to last year’s 544,000 metric tonnes.

Comesa (Common Market for Eastern and Southern Africa) granted Kenya a four-year extension to safeguard its industry on conditions that a number of reforms, including the privatisation of the Government owned mills be undertaken.

Comesa similarly demanded that Kenya shifts to a quality based payment system for cane instead of the weight-based approach.

But all appears not well in the industry with priorities for reforms being ignored by top industry players including the KSB and the Government.

The average cost of production of sugar is alarmingly increasing.

"Industry’s average cost of sugar production in 2006-2007 was Sh42,192 per metric tonne compared to Sh30,450 per tonne in 2005-2006," indicated KSB report.

Kenya will similarly suffer the effect of European Commission reforms, which effected price cuts to its guaranteed preferential market by 36 per cent.

The EU offers unattractive market destination for Africa, Caribbean and Pacific countries that have over the years been servicing the market.

Major threat
"The likely impact of the price cut is the diversion of sugar previously destined to the EU to find its way in the high priced Kenyan market, creating a major threat to the industry," the report warns.

"Muhoroni Sugar Company tops the list of high cost sugar producer, at Sh56,661 per tonne compared to the lowest, which is Mumias Sugar at Sh39,673 per tonne.

The KSB report indicated that most of the sugar companies with the exception of Mumias and West Kenya are grappling with heavy debt and poor credit rating.

"As at the end of 2007, total indebtedness by all sugar companies stood at Sh58 billion, with the largest single debt held by Nzoia Sugar Company at Sh26.7 billion," says the KSB report.

source: eastandard.net