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Opinion & Analysis

Duty-free sugar imports window abused

A man shops for sugar. FILE PHOTO | NMG
A man shops for sugar. FILE PHOTO | NMG 

The window for duty-free sugar imports ended at midnight on August 31, 2017. However, I have it on authority that four politically well-connected importers are intensely lobbying the Ministry of Agriculture to give them a special dispensation to continue bringing in sugar from Brazil beyond the period for the window for duty-free imports.

Mark you, at the end of the August 31st window, merchants had brought in duty-free about 400,000 tonnes of bulk brown sugar from Brazil. This adds up to about six months of national sugar consumption.

What has the duty-free window for imports of brown sugar from Brazil achieved?

Significantly, it has put a great deal of competitive pressure on domestic consumer prices. We were going to experience crippling sugar shortages.

Domestic sugar production has fallen to an unprecedented levels with the statistics reported by millers showing that - currently - we only have about 2,000 tonnes of sugar sitting in the warehouses of our millers.

Thus, without the duty-free, consumer prices would have hit the roof by now.

But the flipside is that the duty-free window has more or less administered euthanasia on the local sugar industry.

If you look at the names of the companies that have taken advantage of the duty-free window to import thousands of brown Brazilian sugar, you will discover that the single biggest importer is a leading miller based in Western Kenya.

The single company brought in five full vessels of bagged and un-bagged Brazilian product it purchased from international commodity trader, ED &Mann.

In the past - when the country was confronted with floods of sugar imports - the loudest protests would come from millers and sugarcane growers.

Does it surprise that the sugar millers’ lobby has been quiet in the face of imports that are unprecedented in the history of the country?

No. Local millers have discovered that you make more money when you import sugar than when you mill it locally in your factories.

The upshot is disruption of the domestic sugar supply chain to levels that have never been seen before.

In the past, the local sugar industry would have benefited from the just ended duty-free window through the Sugar Development Levy.

This was a consumer tax that was taxed at seven per cent of the cost of the landed imported sugar or the net factory price on sugar.

But the government decided that protecting the interests of consumers of sugar was a more important objective than protecting the interests of the sugarcane farmer in Western Kenya.

In June 2015, Treasury secretary Henry Rotich scrapped the Sugar Development Levy in a move whose effect was to reward consumers and greedy sugar importers at the expense of the six million Kenyans who depend on sugar for a living.

Theory teaches that the best taxation systems are those that reward the productive section of society while punishing conspicuous consumption.
Indeed, this levy was the only source of affordable credit to farmers, millers, transporters, and out-grower companies.

In hindsight, the just-ended duty-free window for sugar imports was structured badly.

Like the Tanzanians do it, some limited taxation should have been applied. We allowed huge quantities of sub-standard sugar to get into the country.

Very large quantities of bulk sugar that came in did not have certificates of health conformity from their origins.

A reliable industry insider told me how some of the well-connected importers of Brazilian sugar had been granted a waiver of the 15 per cent imposed by health and standards authorities in Mombasa.

Clearly, the duty-free window was badly managed.

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