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Kenya secures sugar safeguard extension against background of foreign investment

20 November 2011

The government of Kenya has received permission from COMESA to maintain in place the country’s current sugar safeguard measures for a further 2 years. However this has been made conditional upon an intensification of efforts to privatise and modernise the sugar sector, which has been making only slow progress since the initial activation of safeguard arrangements.

The Kenyan government has recently ‘published new laws allowing strategic investors to take up at least a 51 per cent stake in the five government run sugar companies that are scheduled for sale’, and a government spokesperson maintains that the privatisation process could be completed within 6 months. However, bottle-necks related to parliamentary procedures could delay progress.

Press reports noted that the conditionalities agreed by the COMESA Council were similar to earlier conditionalities linked to the previous extension of the safeguard measures.

Efforts are also under way to both improve the sector’s productivity and diversify the product range. Sugar sector operators are being required to ‘deepen research on high sucrose and early maturing cane varieties, while the Kenya Sugar Board (KSB) and the Kenya Sugar Research Foundation (Kesref) should spearhead adoption of research findings by cane growers’.

Press reports also indicate that investment is under way at Mumias Sugars to produce both beverage-grade alcohol and ethanol alongside sugar.

In September, meanwhile, it was announced that Mauritian sugar company Omnicane is planning to invest US$180 million in a sugar plant in the coastal region of Kenya. The project is to include ‘the establishment of an 18-megawatt bagasse power facility and a 30,000-litre ethanol production plant’, and Omnicane’s investment ‘is expected to boost the sugar production in the country, which presently is dominated by Mumias Sugar’. This is reportedly ‘one of the biggest foreign direct investments in Kenyan agro industry’.

Omnicane is expected to use its experience of modernising the sugar sector in Mauritius in the Kenyan context. Sugar production is to make use of irrigated land, based on a ‘nucleus system’ which ‘allows for planning and steady supply of uniform quality cane’.

Editorial comment

Issues of efficiency are central to the difficulties faced by the Kenyan sugar sector. Reasons which seem to prevent the country’s sugar subsector from competing at the regional level include:

  • a lack of investment in sugar cane research, rural infrastructure, irrigation systems and extension services;
  • the cost and availability of inputs
  • a need to strengthen farmers’ organisations to rebalance power relationships along the sugar supply chain.

This is compounded by underinvestment in the mills. There is a need for a strong private–public partnership to get to grips with the multifaceted challenges facing the sector.

There is also a need to review the regulatory framework (Kenya’s Sugar Act) to bring it into line with privatisation and liberalisation commitments. Macro-economic policy initiatives linked to high interest rates and initiatives to strengthen the functioning of the sugar supply chain would appear to be important components of any future sugar sector modernisation strategy.

Issues related to the functioning of sugar supply chains and the contractual relationship between millers and out-growers are a particularly important area for policy regulation in Kenya, since sugar cane is mainly grown by smallholder farmers, and there are serious concerns about the benefits gained by cane farmers under current arrangements.

One potential area of concern relates to revenue sharing arrangements between growers and millers, linked to the production of non-sugar products (ethanol, beverage-grade alcohol, electricity, and even sugar-based chemical products). In a number of other countries these revenue streams are accounting for an increasing proportion of the profits of sugar milling companies, in part because they do not form part of the common revenue pool shared with growers.

Although the privatisation process in Kenya has been subject to considerable delays, the new investments underway may well serve to stimulate more rapid progress.  However, given past experience, many local analysts remain sceptical of the pace at which change is likely to come. 

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