State bets on local sugar supply as imports dry up

The government is banking on improved local production to satisfy consumer demand as sugar supplies from the Common Market for Eastern and Southern Africa (Comesa) comes under increased pressure, nearly five months after traders were handed rights to import the commodity from the market.

“Prices are coming down on the effects of the improved weather locally, but shipments from the Comesa have been very disappointing,” Agriculture permanent secretary Romano Kiome said.

Kenya was expected to ship in 260,000 tonnes of duty-free sugar from Comesa in the current window ending March.

Egypt, another member of Comesa, is also undergoing a similar nightmare with its Cabinet being forced to extend the exemption of raw and white sugar imports from duties until June 30 next year in a bid to ensure sufficient stocks for consumers against a backdrop of soaring global prices of the commodity.

Reports by Reuters said that Egypt had exempted sugar imports from duties starting August 15 last year, until the end of December, to control prices in the domestic market.

Egypt traditionally charges a two per cent duty on raw sugar and a 10 per cent duty on refined sugar and consumes about 2.2 million tonnes of sugar a year, including about 1.4 million tonnes produced domestically. The deficit is plugged using imports from main markets such as Comesa as well as other international outlets.

“We are in consultations with the Trade ministry to look into the disappointing import volumes from Comesa and see what can be done.

“Though people were licensed to bring in sugar, the size of the shipments remain wanting,” Dr Kiome told Business Daily in an interview but ruled out the option of any duty-free imports outside the existing Comesa window.

Analysts attribute the agony of sugar importers such as Kenya and Egypt to an unprecedented rally in global prices of the commodity last year.

Sugar prices rose to a 28-year peak four months ago on the back of weather-related interruptions in production in Brazil, the world’s largest exporter.

Though Kenya has no direct links to global sugar markets, it has had to suffer the after- shocks of supply shortage and the resulting high prices as its Comesa suppliers diverted their stocks to better paying European, American and Asian markets.

Good reason

Records show 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 — a good reason for producers to divert supplies.

The fears of diversions are reinforced by the fact that sugar production both in Comesa and the rest of Africa has been on a climb since 2006, with projections by the Food and Agriculture Organisation (FAO) showing that the continent’s output is expected to rise by 400,000 tonnes or 3.5 per cent to 11.2 million tonnes helped by expansion of land under sugarcane and enhanced processing capacity.

Domestic consumption

“Strong domestic consumption growth and improved access to the European market under the Everything-But-Arms initiative (EBA) and Economic Partnership Agreements (EPAs) are fostering large investment efforts in the continent,” FAO said.

In the face of such hitches from Comesa, Dr Kiome said the government would be banking on improved local production as rains continue to pound most growing areas of western Kenya. “The rains are going on well and we anticipate this would translate into improved sugar production to supply customers,” he said.

According to the third quota report by Kenya National Bureau of Statistics (KNSB), production of sugar cane increased from 994.7 thousand tonnes in third quarter of 2008 compared to 1,103.5 thousand tonnes during the same quarter of 2009.

Expected to grow

FAO said Kenya output is expected to grow by a margin of four per cent helped by improved weather in the western sugar belt. South Africa, the region’s largest sugar producer, is expected to bring 2.4 million tonnes to the market in 2009/10 helped by improved crop husbandry.

“We are optimistic production will improve and consumer prices will continue coming down,” the PS said.

At the end of the December 2009, FAO predicted that consumers, hard hit by the recent rally in global prices, could be headed for a period of affordable supplies following steady price drop in recent weeks on improved output.

FAO) says the average sugar price has dropped from a 28-year-high of US cents 25.18 per pound (or Sh42,000 per tonne) on August 31 to US cents 22 per pound (Sh36,000 per tonne) at the end of October as supply improves with increased output from Brazil and India.

“While a gradual increase in prices in 2009 was expected, given the tightening of the global market, the speed and magnitude of the run-up showed an overreaction of the market to an expected surge of imports by India and to a poor outlook of crops in Brazil in 2009/10,” said FAO.