Kenya seeks another term of sugar safeguards

What you need to know:

Agriculture secretary Felix Koskei says the government is keen on an extension of the protection
Kenya has exhausted the required allowance for the extensions as put in place by the Comesa treaty, and it is not clear whether the window will be extended
Initially, the treaty would provide for a maximum of eight years, however, the waiver in December 2007 was amended to avoid contravening Comesa Trade Remedy Regulation which provide for a maximum eight years for the application of safeguards under the bloc’s terms

Kenya’s sugar sector faces a gloomy future as the end of the Comesa safeguards beckons.
In March 2004, the government requested a four-year cover that was granted with conditions from the Common Market for Eastern and Southern Africa (Comesa) council of ministers.
However, Kenya is yet to meet any of the conditions, and the government now indicates it will be seeking another extension when the current one ends next March.
Agriculture secretary Felix Koskei says the government is keen on an extension of the protection.
“We will explain to Comesa why we need an extension; we understand that we have exhausted our limits, but we still have the reasons to be given one more extension,” says Mr Koskei.
Kenya has exhausted the required allowance for the extensions as put in place by the Comesa treaty, and it is not clear whether the window will be extended.
The cover came into effect in 2003 and Kenya was given a four-year waiver that would see the importation of duty-free sugar from the Comesa market regulated. Kenya got extensions in 2007 and in 2011.
Initially, the treaty would provide for a maximum of eight years, however, the waiver in December 2007 was amended to avoid contravening Comesa Trade Remedy Regulation which provide for a maximum eight years for the application of safeguards under the bloc’s terms.
Comesa reviewed the regulations to be in tandem with the World Trade Organisation’s agreement on safeguards which provides for a total of 10 years for developing economies.
A former chairman with the Kenya Sugar Board (KSB) and currently a director at the agency says political will shall override the Comesa treaty on the protection.
“At the end of the day, political will shall prevail over the treaty; each member country has own interest of protecting their sugar sectors which provides a source of livelihood for more than a million people,” says Mr Saulo Busolo.
Kenya is considered a large-scale consumer of industrial sugar, used in making cakes, sweets and pharmaceutical products, which are later sold within Comesa.
Mr Busolo says Kenyan consumers are paying exorbitant prices for sugar as a result of shielding the local manufacturers from increased competition from neighbouring African nations.
“Consumers are parting with high prices in buying sugar compared to other African countries such as Mauritius,” he said, adding that Kenyans were paying more than two times the world average.
Mauritius exports all the locally produced sugar and imports cheap sugar from the Comesa market to sell it to its citizens cheaply, he said.
A World Bank report on Kenya released last week says the protection measures have contributed to making Kenya a high-cost sugar producer, hurting the consumer.
The high cost of producing sugar in Kenya is attributed to high cost of farm inputs. Kenya’s average production cost stands at $950 per metric tonne compared to regional countries like Malawi where the cost is as low as $350 per metric tonne.
When the safeguards were granted Kenya was asked to, among other conditions, come up with a formula for paying farmers and sell the State-owned millers.
Some of the State millers are Miwani, Muhoroni, Awendo-based Sony, Nzoia, and Chemelil. Currently, the payment is based on a farmer’s supplies and the industry average. According to the Comesa safeguards, the payment would be quality-based judged by sucrose content, not the bulk. The KSB, the industry watchdog, says a pilot is running in Sony and Nzoia. The impending sale of the millers has been delayed for years, the Cabinet having given it a nod in 2010. But it could not take off, partly because there was no law and having the Privatisation Commission in place also took a while.
Critics and reviewers, however, have voted overwhelmingly for the sale of the former giants to inject efficiency backed by new investment, talent, and limited political interference.
Before the window closed in the first four years of the first extension, all these millers had a combined debt of Sh50 billion, one of the factors that delayed their sale.
The minister has blamed the delay in privatisation on the last Parliament, that, he says, did not give the government the go-ahead.
“Parliament did not give the Treasury the privatisation go-ahead that would have started early this year,” said Mr Koskei.
The government negotiated for the Comesa lifeline to allow the importation of 200,000 tonnes to meet the country’s deficit, whose total annual consumption stands at 700,000 tonnes against the local production of 500,000 tonnes.
This comes even as the regulator has warned that it will cancel the licences of the sugar factories that would not comply with the sugar policy that requires all the millers to have more than one income generating project.
The policy, to be implemented in the next 24 months by the KSB is aimed at protecting the local sugar industry from collapsing in the weight of cheap sugar once the Comesa window closes. KSB chief executive officer Rosemary M’kok says that the 24-month window period is enough time for all the sugar factories to have complied with the requirement.
“The factories that would not have complied with our policy will definitely have their licences cancelled as KSB will not renew them,” Ms M’kok told the Business Daily.
It would be mandatory for all the millers to produce sugar, ethanol and electricity as a different source of generating income, instead of relying on sugar alone.