Kenya has secured yet another 2-year extension of the sugar of safeguard measures by COMESA’s Council of Ministers This is the 7th such extension of the Common Market for Eastern and Southern Africa (COMESA) safeguard measures.
“I am happy to note that the COMESA Council of Ministers approved the request by Kenya and granted a two–year extension of the sugar safeguards measures meant to protect the sugar industry from adverse effects of liberalization,” said Rebecca Miano, Cabinet Secretary-Ministry of Investments, Trade, and Industry.
- Kenya secured a sixth extension in December 2022, which ran from March and expired in November 2023.
- Following consultations between the Government of Kenya and the COMESA Secretariat, the Government of Kenya applied for protection for the sector by way of a safeguard under Article 61 of the COMESA Treaty so that sugar exports from COMESA to Kenya are subject to customs duties.
- At present, Kenya’s sugar market is protected by safeguards against any duty-free imports from COMESA.
To enhance the efficiency of the sugar sector and meet the Government of Kenya and COMESA Sugar safeguard commitments, there is a plan to privatize all state sugar companies, inject more capital, diversify, and introduce early maturing cane varieties.
Treasury had written a memorandum to the National Assembly to consider and approve write off of loans owed by the five state-owned sugar factories to the Government of Kenya and the Commodities Fund run by the Kenya Sugar Board amounting to KSh 65.8 billion as of 30th June 2023 as well as any accrued interest.
The Treasury memo to revive and commercialize the state-owned sugar companies also sought parliamentary approval of a cabinet decision to write off tax penalties and interest that these firms owe KRA, amounting to KSh 50, 144,801,608.00 Billion and any other accruals.
- Treasury also wanted parliament to scrap the privatization model it approved in 2015 and instead allow the leasing of Nzoia, Chemelil, Miwani (in receivership), and Muhoroni Sugar Company (in receivership as well as South Nyanza Sugar Company.
- Treasury wanted a new repayment plan for the KSh 1.72 billion balance owed to cane farmers, to be worked on by it and the Ministry of Agriculture.
- It is a race against time for Kenya’s sugar industry to either shape up or ship out. This is because most of its state-controlled sugar milling firms will be unable to compete when the country finally opens its borders for cheaper imports.
The safeguard was first implemented in March 2002 for an initial period of twelve (12) months and subsequently renewed by the Council of Ministers as follows. An initial safeguard of 12 months was imposed from March 2002 to February 2003.
- Subsequent extensions have been done six times with the latest one lasting two years – November 2023 to 2025.
- According to analysts, most state-owned sugar milling firms have no capacity to modernize their operations or replace their age-old machinery as required by the conditions imposed before safeguards can be lifted.
- A list of conditions put on the Government is that it must offload its interests in these state-owned sugar mills while allowing them to diversify their operations into producing other products such as ethanol.
State-owned sugar firms are also required to encourage their farmers and supply estates to plant early maturing cane varieties as well as seek strategic partnerships with other investors.
While the future of Kenya’s sugar industry hangs in the balance, some players appear unperturbed by grim prospects if the COMESA safeguards are lifted.
KENYA’S SUGAR SECTOR
A report on the implementation status of the COMESA sugar Safeguard, July 2013 lists Public Sector owned sugar companies earmarked for privatization and approved by the Cabinet as Chemelil Sugar Company, Nzoia Sugar Company Limited, South Nyanza Sugar Company Limited, Muhoroni Sugar Company Ltd and Miwani Sugar Company.
The recent entrants to the sector are Kibos Sugar and Butali Sugar Company. At the same time, three factories are at different stages of construction namely: Sukari, Transmara, and Ramisi.
- Kenya’s potential demand should now be approximately 800,000 metric tonnes.
- However, the country’s domestic production has historically hovered around 550,000 metric tonnes leaving a net deficit to be filled by imports of approximately 250,000 metric tonnes.
- With this big deficit to be filled, a number of private sector players have recently identified investment in the sugar sector as an avenue to deploy capital to obtain a reasonable return.
Although the attraction of available demand is obvious, Kenya’s sugar industry suffers the challenge of being one of the highest-cost sugar producers. Statistics show that Kenya’s cost of production is way above the world average as well as that of other countries in COMESA.
KENYA SUGAR MORE EXPENSIVE THAN COMESA PARTNERS
Upon the expiry of the COMESA safeguard measures, unrestricted amounts of sugar can be imported into Kenya without attracting any duty. This means that Malawian sugar produced at $215 or Swazi sugar produced at $275 a tonne can access the Kenyan market duty-free, a dreadful prospect for a sluggish sugar sector.
- The Kenyan sugar industry is a relatively high cost compared to the other countries in the neighbouring countries because of its reliance on smallholder production.
- Cane growing is rain-fed and most factories have low factory capacity utilization.
- The reliance on smallholders rather than estates as is in the other countries results in higher costs because of greater variability in input use and field preparation, less timely and consistent crop care, and higher harvesting and transport costs associated with many small growers.
Production costs will ultimately determine whether the Kenyan sugar industry can compete with duty-free and quota-free imports from the COMESA free trade area.
The Kenyan production costs are nearly double those world’s major sugar exporters and ex-factory prices are about 50per percent higher than import prices from COMESA FTA exporters.
Without major reforms in the industry the country will not be able to compete and even with major reforms Mumias which accounts for about 60% of the country’s production will be the only miller that will be internationally competitive.
The other four operating government-owned factories (Chemelil, Sony, Nzoia, and Muhoroni) still face a difficult challenge to compete unless they are privatized and recapitalized.
Other private mills may be able to compete if cane production costs can be reduced as part of the reforms. Kenyan cane prices currently are one-third higher than can be justified by international prices due to increases in the early 1990s.
Cane transport costs currently account for 37per cent of cane production costs and poor roads contribute to these costs by slowing the movement of cane hauling equipment and contributing to more frequent breakdowns and equipment deterioration which in turn add to the cost of cane transport.