Duty-free exports to lower Kenya sugar prices

Saturday April 25 2015

Customers grab sugar packets at a supermarket in Kakamega, Kenya. Prices of the commodity are expected to drop. PHOTO | FILE

Consumers are set to benefit as a regional trading bloc moves to eliminate cartels that are blamed for distorting sugar prices in Kenya.

The Common Market for Eastern and Southern Africa (Comesa) has formed a committee to decide how its members will export duty-free sugar to Kenya to help offset perennial production shortfalls estimated at 300,000 tonnes annually.

A committee to decide on how the volumes will be shared among the member states is scheduled for June.

“An ad hoc technical working committee should be convened not later than June 30, to thoroughly deal with the draft criteria for allocating country-specific quotas, and the draft criteria for determining that an industry is an infant,” reads a resolution of the Comesa Council of Ministers passed last month when it extended quotas for its members to sell duty-free sugar to Kenya to 2016.

Previously, Kenya was free to pick one or two Comesa sugar exporting countries to help offset the deficit.

In November last year, Kenya announced it would import 12,500 tonnes of sugar from Uganda and Zambia.


Demand for equal share

But the 19 member states now want an equal share in exchange for the extension of the sugar safeguards meant to protect local producers. Mauritius, Malawi, Egypt, Zambia, Uganda and Sudan are among the countries anticipated to benefit from the new arrangement.

READ: Uganda protests Kenya’s move to curb sugar imports

The safeguards were first granted in 2003 but have been extended every time they are about to lapse.

Currently, such deficits are filled by merchants who are invited to import the commodity by the Kenya Sugar Board. The merchants are known to buy sugar from the Comesa countries and to repackage it to disguise its origins, helping them make a killing by charging high prices.

A source privy to the discussions said the move to have Comesa member states access the Kenyan market during the safeguards period emanates from allegations of irregular licensing of cartels to import cheap sugar from outside Comesa, including by local millers who sell the same cheap sugar disguised as their own after being re-packaged.

“There are claims that some member states import sugar from outside Comesa and repackage it as their own,” said the source.

Vimal Shah, chairman of the Kenya Private Sector Alliance, said the country no longer needs safeguards and should open up the market and position millers to compete regionally and internationally.

“Our local industry has for long been overprotected, we have made our market lucrative for other Comesa states through the high cost of doing business in the country, so let us break the barriers and learn painful lessons,” said Mr Shah.

He said this would put local companies under pressure to match the price of imports from Comesa.

According to former Kenya Sugar Board (now Kenya Sugar Directorate) statistics, it costs $500 to produce a tonne of sugar in Kenya against $450 in Mauritius, $340 in Sudan, $250 in Egypt, $230 in Zambia, $200 in Malawi and $180 in Uganda. Regular imports from these countries would bring down sugar prices in Kenya from an average of Ksh220 ($2.4) per 2kg bag currently.

It Uganda, it costs a consumer an average Ush3,000 ($1) to buy a 2kg packet. In Egypt a 2kg packet costs ($1.4) per kilogramme. Egypt Supplies Minister Khaled Hanafi said the country was working to promote brown sugar exports to Kenya. Egypt subsidises sugar production in the country.

The Council of Ministers also directed that Comesa member states report their annual sugar production volumes to help in monitoring the volumes each of the countries would have in excess for export to member states.

The Council said the Comesa Secretariat was drafting a system for allocating the Kenyan sugar deficit to all member states on the advice of the extraordinary meeting of the Trade and Customs Committee.

In 2003, Kenya sought Comesa intervention in the shape of the safeguard mechanism to protect its sugar industry from threats from imported sugar, thus limiting imports from Comesa to 200,000 tonnes. The safeguards are subject to another one-year renewal, according to Comesa.

Since 2007, Kenya has been expected to privatise state-owned mills; do research into new early-maturing and high sucrose content sugarcane varieties and adopt them and pay farmers on the basis of sucrose content instead of weight, while maintaining and providing infrastructure in the sugar growing areas as part of the Comesa requirements. The country is yet to meet these requirements.

According to Alfred Busolo, Agriculture Fisheries and Food Authority managing director, arrangements are under way to have the country comply with the safeguard conditions.

State-owned sugar companies, Chemelil Sugar Company, Nzoia Sugar Company Ltd, South Nyanza Sugar Company Ltd, Muhoroni Sugar Company Ltd and Miwani Sugar Company are yet to be privatised to enhance efficiency in the sugar sector.

READ: Five govt-owned sugar firms in $1b debt

“As a producing country we must address cost of production exhaustively; from the farm to the factory, our sugar is disadvantaged,” said Mr Busolo.