Kenya faces tough queries on sugar sector protection

A tractor loaded with sugar cane arrives at the Chemelil Sugar weighbridge. Kenya’s chances of winning another extension of the safeguards protecting the local sugar industry from duty-free imports will depend on the implementation of sector reforms, Comesa has said

Kenya’s chances of winning another extension of the safeguards protecting the local sugar industry from duty-free imports will depend on the implementation of sector reforms, Comesa has said.

Local millers are protected by the Common Market for Eastern and Southern Africa (Comesa) safeguards initiated in 2007, which limits the amount of sugar that can be imported from these countries besides imposing a 10 per cent duty.

The protection is expiring in March 2012, opening up the local sugar industry to cut-throat competition from imports from the bloc whose members produce sugar at half cost of Kenya’s millers.
Last week, Comesa said in statement: “The safeguard is subject to certain conditions which are supposed to be continuously met, and extension of the safeguard depends on whether the conditions are being complied with.”

“So, when Kenya comes back (to the Comesa Council of Ministers) to ask for the extension, there will be a review of the progress made.”
Kenya was expected to reduce production cost by at least 39 per cent through upgrade of plants to make them more efficient by, among other things, reducing the amount of cane used to produce a tonne of sugar.

The government was also expected to sell millers — Chemelil, Nzoia, South Nyanza, Miwani and Muhoroni — controlled by State.
These mills have not been upgraded while the treatment of Sh50bn debt they accumulated has stalled the privatisation plan.

Poor planning, corruption, and red tape have reduced efficiency, making the factories weak competitors in a free market.

“We expect to communicate the extension request very soon. We are certain that the local sugar industry has not reached a stage where it can compete freely with imports from efficient producers in the region,” said Trade ministry permanent secretary Abdulrazaq Ali.

Kenya’s production cost of Sh45,000 per tonne is higher than that of rivals within Comesa such as Swaziland, Malawi, and Zambia whose average cost is Sh20,000.
While the rivals plant the bulk of their sugarcane, Kenyan millers rely on independent farmers whose cane pricing is regulated by the Government, which owns at least five of the sugar firms.

Kenya has been opening her sugar market to imports from Comesa members at the rate of 40,000 tonnes annually, on top of the 220,000 tonnes agreed on in 2007.

Duty on the imports has also been coming down, from 100 per cent in 2008 to 40 per cent in 2010 and 10 per cent this year before attracting zero duty from next March.

Kenya will be seeking to invoke provisions of the Comesa treaty that allows member states to delay implementing regional agreements that are injurious to their domestic industries.

News of the extension bid comes when sugar millers have cut production and are laying off workers as they struggle to cope with shortage of cane.

Chemelil, Muhoroni, West Kenya, and Kibos are operating at less than half their capacities due to cane shortage, while Mumias Sugar Company is producing less than it did last year.

The drop in cane supply has been blamed on reduced production by farmers. But the Kenya Sugar Board blames it on poor planning.

“Drought has played some part in the shortage being experienced at the farm level, but the big picture is that most millers have failed to invest in cane development products,” KSB acting CEO Solomon Odera told the Business Daily last week.