Spat over EU sugar exports to keep prices up

Consumers in Kenya and other sugar deficit nations are unlikely to enjoy lower prices of the commodity any time soon following a fresh dispute between the EU and three top producers over volume of shipments to the world market.

In the latest feud, Thailand, Australia and Brazil want an immediate withdrawal of an additional export of 500,000 tonnes of out-of-quota sugar by the EU, arguing it was illegal under World Trade Organisation (WTO) rules.

Extra shipments

The EU plans to make the extra exports of the commodity in the current 2009/10 marketing season, arguing that its ceiling, provided for under WTO agreements, had since increased by close to 100,000 tonnes after its membership swelled to 27 from the previous 15 countries.

The EU had initially committed to make sugar exports under the WTO agreement totalling some 1.27 million tonnes and its critics argue that the planned extra 500,000 tonne could tip the scale by 576,5000 tonnes if it hits 1.85 million tonnes in the current year.

They also claimed that if more than the agreed quota of such sugar was exported, it amounted to a prohibited subsidy under WTO rules.

The three countries further said the planned extra exports were subsidised and such a move would be tantamount to dumping—a claim the EU denies, arguing it made the step as a result of exceptional market conditions that saw sugar prices hit a 29-year high.

Analysts said extra shipments from the EU would have substantively helped ease the pressure on global prices of the commodity, especially at a time when production continued to fumble in leading producer countries such as India because of poor weather conditions.

Though not directly linked to the global market, Kenyan consumers are already feeling the heat of the world sugar supply shortfalls because suppliers in traditional import sources of the commodity such as the Common Market for Eastern and Southern Africa (Comesa) are turning to the more lucrative and better rewarding international outlets.

Estimates showed that ordinary shipments of sugar into Kenya are priced at about Sh30,000 per tonne compared to the global average of Sh45, 000 per tonne — offering producers a reason to divert supplies.

This means the local market is unable to efficiently receive stocks from Comesa to cater for its 200,000 tonnes annual production deficit hence the persistence in high prices of the commodity locally. Kenya is expected to ship in 260,000 tonnes of duty-free sugar from Comesa this year.

Signs of the difficulties in sourcing sugar consignments from Comesa showed in September, 2009 when Agriculture minister William Ruto ordered a repeat auction that saw the number 2010 import licence holders doubled to 40 in a bid to cast the net wider and mop up the little available stocks.

Today the Kenya Sugar Board(KSB) admits that not much has changed even with the bigger number of licensed imports.

“The stocks have dried in Comesa and our importers are having serious difficulty in securing orders to bring home. Everyone seems to be eyeing the world markets,” KSB chairman Okoth Obado said on Sunday.

But he said the planned move for extra exports by the EU would have helped reduce the incentive among Comesa stockists to turn to global markets.