CTA
Small fontsize
Medium fontsize
Big fontsize
English |
Switch to English
Français
Switch to French
Filter by Agriculture topics
Commodities
Regions
Publication Type
Filter by date

COMESA approves 1-year extension of Kenyan sugar safeguards

10 May 2014

In February 2014, it was announced that COMESA had approved the extension for a further year of Kenya’s special safeguard arrangement for sugar. This will allow Kenya to maintain a 350,000-tonne ceiling on duty-free sugar imports from COMESA. Regional press sources noted that “Kenya’s leading sugar miller, Mumias Sugar Company, welcomed the decision as the right step that will enable the industry to deal with outstanding matters before the country opens up to duty-free imports,” and noted also that Mumias is currently “looking for a strategic investor to partner” the expansion of the company’s irrigated sugar production.

In seeking the safeguard extension, the Kenyan government highlighted its planned reforms, which include:

  • the privatisation of state-owned millers;
  • “the adoption of a cane pricing formula”;
  • the adoption and implementation of an energy policy to facilitate co-generation of electricity and ethanol production;
  • a “substantial infrastructure development fund” (partly financed with EU support).

These are, however, long-standing reforms, as privatisation has stalled, in part linked to the high level of indebtedness of state-owned mills (reportedly “five times more than the miller’s Sh4 billion worth of current assets”). The lack of progress in restructuring since the introduction of the first COMESA safeguard in 2003 has led to questions as to the usefulness of a 1-year extension of the safeguard. Indeed, 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.

According to the Standard, the current sugar policy framework has created a situation where the main beneficiaries are sugar importers, who made an estimated KSh15 billion in profits in 2013, as a result of retail prices double those for imported sugar.

Little progress has been made on diversifying revenues (as opposed to cost-reduction initiatives). The pricing of co-generated electricity (i.e. the price paid for the electricity after the fees for using the grid have been deducted) has proved unattractive to potential mill-based electricity suppliers, while the policy framework and infrastructure for the development of the local ethanol market is also reportedly underdeveloped.

A survey from Kenana Engineering and Technical Services has suggested that Kenyan farmers “would be better off growing maize [compared to] both rice and sugarcane”. It concluded that “locally produced sugar will remain unfeasible compared to imported sugar, due to the inefficiency of the industry and non-utilisation of by-products”. 

Editorial comment

The deferment of full competition from COMESA sugar producers has provided some relief to the hard-pressed Kenyan sugar sector. One year is unlikely to be sufficient to address the root-and-branch reforms required, yet any further delays to the implementation of required reforms (including the difficult process of privatisation) will only exacerbate the problems faced. These will arise not only from accumulating debts but also from the changing market context facing major Southern and Eastern African sugar producers where production is surplus to national demand.

The ending of EU production quotas will see a disappearance of the major price premiums previously enjoyed by exporting to the EU market (see Agritrade article ‘ More limited market prospects projected for sugar imports beyond 2017’, 3 March 2014). This will leave surplus sugar producers in Eastern and Southern Africa looking for alternative market opportunities, with the Kenyan market offering substantial price premiums and hence attracting substantial imports once safeguards are abandoned.

Investments to fully develop alternative revenue streams will also take many years to come on stream, even after regulatory issues that currently act as a disincentive to investment have been addressed. While the recent discovery of oil in Kenya is likely to reduce the urgency of establishing a clear regulatory framework for the local ethanol market, electricity pricing issues could prove easier to address. Scope also exists for enhancing revenue from the production of animal feed by-products.

Relocating sugar production to the coastal zones, where agricultural conditions are better, while developing production in Eastern Kenya of crops such as rice and maize (which have their own unresolved value chain problems) is likely to prove commercially and politically controversial.

Comment

Terms and conditions