Kenya could get into trouble with the Common Market for East and Central Africa (Comesa) for breaching an agreement that led to the extension of its sugar sector protectionist measures by two more years.
Nairobi’s decision to import sugar from outside Comesa is contrary to an agreement that the country increase its sugar quota of imports from Comesa to bridge its deficit.
This move violates international trade agreements and could lead to sanctions, including possible suspension of further safeguards.
Industry insiders say Kenya has an agreement with the Comesa Council of Ministers to import sugar from the bloc and any move contrary to this requires approval of the Council.
An attempt by The EastAfrican to confirm whether this approval was given to Kenya was unsuccessful as National Treasury Cabinet Secretary Henry Rotich did not respond to our enquiry.
However, the Principal Secretary in charge of Trade, Dr Chris Kiptoo said the Kenyan sugar situation was unusual and required unusual intervention measures.
The Kenya government said its action was necessary in order to address an acute sugar shortage.
Dr Kiptoo said the government looked farther afield to deal with a sugar shortage, since Comesa was also experiencing a shortage of the commodity and could not consistently service the quotas allocated to it.
“Extraordinary circumstances sometimes call for extraordinary measures… this was one such case,” Dr Kiptoo told The EastAfrican.
He added that the duty-free window for the importation of sugar was a temporary stop gap measure to bridge the domestic shortfall and during this period the Comesa quotas do not apply.
“Comesa was also seriously affected by drought, and the traditional suppliers of sugar from the region also experienced acute shortage of the commodity. This then necessitated a consideration to import the sugar from outside the region,” said Dr Kiptoo.
During the 19th Comesa Heads of State and Government Summit in Antananarivo, Madagascar, in October 2016 the Council of Ministers agreed to extend Kenya’s sugar safeguard measures to February 2017.
One of the conditions for the extension was that the country increase its sugar imports from the bloc.
But Kenya, through a gazette notice on May 11, opened up its borders to unlimited sugar imports from non-Comesa countries, citing drought that had exacerbated the shortage of the commodity.
The duty-free sugar importation window expires on August 31 2017.
Kiptoo said Kenya would revert to importing sugar from the Comesa as per the agreed quotas after the expiry of the gazette period though it was not immediately clear if the region will have returned to normal production by the end of August.
Sugar millers privatisation
Other key conditions that Kenya has struggled to fulfil include the privatisation of ailing sugar millers and adoption of a cane pricing formula based on sucrose content of cane rather than on the weight of the cane delivered.
Kenya is also staring at a possible influx of cheap sugar imports from the EU starting October 1, 2017, when the region increases its sugar production.
Sugar production in the European Commission between 2016 and 2025 is expected to increase by five per cent to 17.7 million tonnes and 2017-18 exports to increase to 2.2 million tonnes from the current 1.5 million tonnes, turning the EU into a sugar exporter.
It is feared that some of this sugar will find its way into the Kenyan market compounding the misery of local farmers and millers.
According to the Comesa Secretariat, Kenya applied for protection of its sugar sector by way of safeguards under Article 61 of the Comesa Treaty to ensure that sugar imports from Comesa states were subjected to tariff rate quota.
When Kenya agreed to the Comesa Free Trade Area in October 2000, there was a surge in sugar imports from the Comesa, resulting in a negative effect on the domestic sugar sector.
As a result Kenya was granted a Comesa safeguard in 2002 that limited duty-free imports from the region of up to 200,000 tonnes.
The safeguard was to allow the country to restructure and become a more efficient sugar producer.
The measures were implemented in March 2002 for an initial period of one year and has subsequently been renewed by the Council of Ministers seven times.
Kenya’s sugar industry has been unable to compete with other more efficient producers.
According to the Department of Trade, the country’s implementation of directives issued by the Comesa Council of Ministers to reform its sugar sector has been hampered partly by court cases obstructing privatisation of the millers, low uptake of new cane varieties by farmers and the high cost of equipment, testing facilities and the long time required to implement cane payment based on sucrose content.
Kenya produces about 520,000 tonnes of sugar against an annual consumption of 740,000 tonnes, leaving a gap of 220,000 tonnes which is filled through imports.