Kenya faces an increased risk of illegal sugar imports following an agreement with Uganda and Rwanda to open up the already vulnerable market ahead of the expiry of special regional safeguards on the entry of the commodity.

Kenya Sugar Board (KSB) officials said the cost of producing sugar in Kenya was significantly higher than Uganda and Rwanda, meaning local farmers and millers could be priced off the shelves by their neighbours due to free trade in the bloc.

“Without government interventions to lower the cost of production and keep illegal sugar away, this agreement will open a window for more imports that will fuel pressure on locally produced sugar,” said Saulo Busolo, a director at KSB.

It costs $950 to produce a tonne of sugar in Kenya compared with $750 in Uganda.

In a meeting held in Kampala recently, the three countries resolved to lift restrictions on sugar imports. All sugar imports will be cleared through the Single Customs Territory within seven days, down from three months.

To monitor the sugar trade, millers will be providing production data on a monthly basis to the revenue authorities, but there are fears that the government has no capacity to stem repackaging of illegally imported sugar. Of equal concern too, is inadequate surveillance and enforcement of rules of origin.

“The governance standards need to be very high to ensure that rules of origin are observed and no sugar is imported from outside the region to trade as local sugar,” said Rosemary Mkok, the KSB chief executive.

“Unscrupulous traders would want to take advantage of the tripartite agreement that encompasses SADC and Comesa; we need to enhance better surveillance with police, sugar millers and revenue authorities to curb illegal inflows.”

In 2011, Uganda was allowed to import 40,000 metric tonnes of sugar duty-free on claims of an acute shortage. The country overshot the stated volumes and the extra ended up in Kenya, said a Kenyan government official who warned of possible illegal inflows through the system.

Uganda has surplus sugar estimated at 100,000 tonnes while its annual consumption stands at 300,000 tonnes.

Kenya, on the other hand, produced 534,000 tonnes of sugar in the year to June against a demand of 700,000 tonnes according to KSB.

Mr Busolo said the conflict in South Sudan has affected Uganda’s market and the country is now looking elsewhere to fill the gap.

“Kenya, which has a deficit is a likely target,” he said.

Diversion in transit

Richard Kamajugo, the Commissioner for Customs at the Uganda Revenue Authority said production in Uganda had risen considerably, increasing pressure on local producers to find new markets.

He, however, added that the country would provide Kenyan authorities with information on all sugar consignments destined for neighbouring markets like South Sudan, so as to prevent diversion of goods in transit.

“Inclusion of sugar in the Single Customs Territory clearance list will also minimise delays in the movement of exports from Uganda,” said Mr Kamajugo.

According to the agreement, millers will be required to provide ex-factory selling prices to revenue authorities on a quarterly basis and will not participate in sugar imports.

“In case of prices falling below a certain margin, it will be easy for member states to detect the entry of illegal sugar into the country, protecting the industry,” said Vimal Shah, the chairman of the Kenya Private Sector Association.

A decision on whether Kenya will allow sugar imports from Uganda without permits will be made at a meeting later this month.

The Kenyan government planned to allow privatisation of its sugar firms before the one year of a special safeguard arrangement on imports from Comesa into the country elapses, but the plan has stalled, partly due to the high level of indebtedness of the mills.

READ: Sugarcane farmers to wait longer for payout

Privatisation

“The lack of progress in restructuring since the introduction of the first Comesa safeguard in 2003 lessens the meaning of a year’s extension of the safeguard. The government should privatise the likes of Mumias and Nzoia sugar firms to allow investors to introduce new technologies boosting quantity and quality production,” said Mr Busolo, adding that farmers were struggling with the 16 per cent VAT introduced on transport, and inadequate markets for their produce.

It is argued that certain aspects of policy development, such as the licensing of new mills without enforceable cane supply agreements, have exacerbated problems in the sector by undermining efforts to boost cane yields and improve the efficiency of agronomic practices. 

Millers have been accused of sneaking in sugar instead of manufacturing it in the country. The new rules stipulates that millers will have no right to import sugar into the region, with all eligible importers of sugar being required to register with the relevant authorities.

“We will be protecting our farmers. Millers should concentrate on production instead of being used by greedy businessmen to import illegal sugar. The agreement is a breakthrough for us,” said the government official.

Tanzania resolved in May to create a taskforce to draw up new sugar importing procedures with a view to safeguarding local industries.