Millers warn of continued surge in the price of sugar

High sugar prices are set to persist till early next year, millers said, citing acute shortage of cane that has reduced local output and forced the market to rely on expensive imports from Latin America.

Sugar prices rose from an average of Sh75 per kilogramme in January to Sh200 this month as cane shortage forced most of the millers to operate below capacity, causing an acute supply shortage in the market.

Local sugar millers, led by the largest and most efficient player Mumias, said they expect high prices to continue into next year.

That should add impetus to the rate of inflation that stood at 15.53 per cent last month and open new opportunities for traders to make billions of shillings from the high margins that they charge on imported sugar.

Demand

“There are expectations of relatively higher prices in the medium term driven by increased demand and inability of local millers to meet the requirement,” said Mumias Sugar in a statement.

This price outlook means hopes that a resumption of milling by Mumias after a month-long break would increase supply and cool down prices will fade.

Kenya is expected to be more dependent on international markets to meet the ever-rising demand for sugar even as reports indicated that global prices were at record levels.

Though a kilogramme of sugar is retailing at Sh73.60 in international markets, the 100 per cent duty charged on imports, freight charges and traders’ margins mean consumers can only get it at more than Sh200 per kilogramme in the shops.

A recent weakening of the shilling against major world currencies has also contributed to the high cost of importing goods such as sugar.

The shilling has lost 22 per cent to the dollar since the start of the year and closed trading last week at Sh92.50 to the greenback.
Persistent shortage of sugar has forced most retailers to ration the commodity.

In recent months, the scarcity of sugarcane has also diminished the capacity of millers like Mumias to generate electricity forcing Kenya Power to go into a rationing.

Bad weather

Western Kenya’s sugar millers have responded to the cane shortage with production cuts that have forced hundreds of workers out of jobs and hurting their earnings.

Chemelil, Muhoroni, West Kenya Sugar and Kibos sugar factories have reported operating at less than half capacity while Mumias Sugar is operating at below last year’s output.

Bad weather has forced most farmers to reduce the amount of acreage under sugarcane, leaving the millers without critical raw material.

Mr Albert Aki, the head of agriculture at Chemelil Sugar Company, said the firm is currently crushing 700 tonnes of cane per day against capacity of 3,000 tonnes.

“We have to accumulate to get enough to mill and this takes up to three days,” said Mr Aki, adding that the firm is operating at less than a third of its capacity—forcing it to lay off casual staff.
The situation is similar across the Nyando, Mumias and Kakamega sugar belt, threatening the economy of western Kenya where the cash crop is their mainstay.

Industry regulator Kenya Sugar Board expected annual output to drop to 400,000 tonnes from 500,000 tonnes, moving the country farther from the annual demand level of 900,000 tonnes. The board attributes the shortage to declining yield per acre and static production, arguing that the millers have not done enough to boost production in their respective zones.

“The yield in Nyando sugar belt is now down to approximately 65 per cent,” said Francis Kibebey, the head of agriculture at KSB, adding that the current shortage could last for years.

Mumias officials, however, accused new entrants to the market of exacerbating the shortage through cane “poaching”.

“A number of new sugar factories have been established and many more are in the pipeline and this has put constraint on cane supply because these operators are located close to each other, making it impossible to operate at full capacity.”

Restore stability
High sugar price is expected to pile pressure on household budgets that are already feeling the weight of high food, energy and transport costs.

Finance minister Uhuru Kenyatta has opened discussions with the Central Bank to curb inflation and restore monetary policy stability.

Last Thursday, Mr Kenyatta said: “We need to take some action to restore some kind of stability on the monetary side of our affairs.”