Think-tank opposes extension of sugar industry safeguards

A government think-tank is opposing the extension of the safeguards protecting the local sugar industry from duty-free imports being fronted by the Trade and Agriculture ministries.

The Kenya Sugar Research Foundation (Kesref) says the country is losing Sh4 billion annually because of inefficient milling.

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.

But Kesref says the protection has made sugar millers, save for Mumias, inefficient, leading to expensive sugar and lost earnings for farmers and the millers. “This translates to an average loss of $43.64 million per annum since the protection policy was introduced in Kenya,” says Kesref

“Therefore, opening up of trade will reduce prices of sugar and save consumers income which could be directed to other areas.”

Sugar prices rose from an average of Sh75 per kilogramme in January to Sh200 this month as cane shortage forced most of the millers to operate below capacity, causing an acute supply shortage.

Local sugar millers, led by the largest and most efficient player Mumias, said they expect high prices to continue into next year, adding fresh impetus to inflation that is running at 16.67 per cent.

The protection of local millers is expiring next March, opening up the local sugar industry to cut-throat competition from imports from the bloc whose members produce sugar at half the cost of Kenyan millers.

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

The Trade and Agriculture ministries want Comesa to keep on hold the 10 per cent duty beyond next March, arguing that millers were not strong enough to compete with the region’s least-cost producers. [Read: Sugar hits Sh200 per kilo as supply shortage persists]

“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 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 budget 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 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.

Kesref reckons that lack of competition has made local millers, especially State-owned Chemelil, Nzoia, South Nyanza (Sony), Miwani and Muhoroni lax, arguing the inactivity has led to reduced sugarcane and obsolete equipment.

Poor planning

The planned upgrade of the plants by, among other things, reducing the amount of cane used to produce a tonne of sugar has been delayed.
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 Kenya Sugar Board blames supply drop on poor planning.

source: businessdailyafrica