Delayed sugar privatisation has led to high production costs

Saturday August 29 2015

By SCOLA KAMAU, Special Correspondent

Kenya's Finance Cabinet Secretary Henry Rotich has said that the country is paying the price of delaying sugar privatisation.

Tanzania, in 1998, 1999 and 2002, privatised the Kilombero, Mtibwa and Kagera sugar companies respectively. In 2006, Uganda privatised the Kinyara sugar factory. It costs $950 to produce a tonne of sugar in Kenya, compared with $750 in Uganda.

“Tanzania and Uganda are better placed in the sugar industry, Kenya’s industry would have stabilised if privatisation were done six or seven years ago. Now we need to move quickly ahead of the 2016 Comesa deadline,” said Mr Rotich.

Comesa extended Kenya’s safeguard term by a year against duty free sugar imports from its member states, as the country builds up its industry to competitive levels.

The term is open for a final extension if Kenya meets the stipulated conditions — which include privatising state-owned millers, doing research into new early maturing and high sucrose content sugarcane varieties and adopting them, paying farmers on the basis of sucrose content instead of cane weight, maintaining the safeguard as a tariff rate quota with the quota increasing while the above quota tariff falls until it reaches zero per cent, and maintaining and providing infrastructure including roads and bridges in the sugar growing areas.

The issue of the cost of production of sugar remains a hindrance to the country’s competitiveness, even with the Comesa terms in place, implying there will always be the need to import cheaper sugar.

Privatisation of the five millers is expected to provide solutions to low quality cane, delayed cane harvesting, delayed payment to farmers, and dilapidated machinery, Mr Rotich said.

Kenya produces an average of 600,000 tonnes annually against a demand of 900,000 tonnes.