Kenyan 2010 sugar output down

NAIROBI (Reuters) - Kenya's 2010 sugar output dipped 4.5 percent to 523,522 tonnes due to a weather-induced cane shortage in some zones but should rebound by 6 percent in 2011, the industry regulator said on Monday.

East Africa's largest economy remains a sugar importer and is struggling to boost output due to relatively high production costs and poorly funded sugar factories.

"There was stress on cane due to poor rains. The shortage was particularly bad in the west Kenya and Nyando zones, which led to mills not crushing at full capacity," Solomon Odera, acting managing director of the Kenya Sugar Board, told Reuters.

In its record year in 2009, Kenya produced 548,207 tonnes of sugar thanks to better weather and improved installed capacity.

But sugar consumption in Kenya continues to outpace production. In 2010, it was 772,731 tonnes, and the regulator projected demand for sugar would grow to 794,844 tonnes by 2012.

"The main challenges in output growth are to do with the high cost of sugar production in Kenya relative to producers in the region. This cost is occasioned by a number of factors, key among which is the undercapitalisation of sugar factories especially with the state-owned mills," Odera said.

"This has tended to keep factories in poor operational state, with low capacity utilisation, poor sugar recoveries and lost productivity due to frequent breakdowns," he said.

The regulator estimated the cost of producing a tonne of sugar at about $570 in western Kenya compared with $240-$290 in rival producers such as Egypt. Experts blame high costs of production for making the Kenyan sugar industry uncompetitive.

PRIVATISATION PLANS

Kenya plans to privatise five sugar factories to cut inefficiency and boost competitiveness ahead of the end of trade safeguards in March 2012, which limit imports from the Common Market for Eastern and Southern Africa (COMESA).

A tentative plan unveiled by the Agriculture Ministry in early 2010 showed the government would sell a 51 percent stake in five sugar companies to strategic investors and reserve another 30 percent for farmers.

Once factories are profitable, the government would then sell the remaining 19 percent in the Sony, Chemelil, Nzoia, Muhoroni and Miwani milling companies in initial public offerings.

"The concerted push for privatisation of the government owned mills is expected to attract private sector capital for modernisation and expansion of milling capacity," Odera said.

"Additionally, several new mills such as Kwale International in Msambweni, Transmara Sugar Mills and Sukari Mills in Ndhiwa have already been registered -- all of which are expected to commence milling operations in 2012-13."

The official said surveillance partnerships with other member countries of COMESA helped prevent distortions in the Kenyan market through illegal imports.

"There is more stringent vetting of entities registered to import sugar, increased surveillance of imports especially through other entry points, apart from Mombasa," he said

Odera further said the forthcoming expiry of the COMESA deal was unlikely to have a major impact on Kenya's market.

"The country is a net importer of sugar, and in the past year or so there has been suppressed supply of sugar both regionally and internationally. Imports have therefore generally not affected local production and may not affect us much even next year," he said.

source: reuters