Sugar hits Sh200 per kilo as supply shortage persists

The price of sugar rose to a historic high at the weekend as speculators took advantage of a supply shortage to trade the commodity at wide margins in the retail market.

A 2kg packet of sugar was being sold at between Sh350 and Sh400 in most retail outlets around the country – a 100 per cent rise from the price of Sh200 in January.

This is the highest price that sugar has fetched in its trading history in Kenya.

Reports, however, indicated that the average ex-factory price remains at between Sh5,000 and Sh6,500 per 50kg bag or Sh130 per a kg — showing the wide margins at which speculators are trading the commodity in the retail market.

Industry insiders said the recent closure of some factories for annual maintenance had partly contributed to the shortage that is expected to persist over the next few months.

Apart from the interruptions brought about by the factory maintenance breaks, below normal rains have affected cane output, reducing supply to factories by up to 50 per cent.

So far, Chemelil, Muhoroni, West Kenya Sugar and Kibos Sugar companies are operating at less than half capacity due to the acute cane shortage.

“Cane supplies are still shaky, but we hope things will get better with time,” said Bakari Salim of Chemelil Sugar.

It is, however, expected that heavy rains in parts of western Kenya in the past two weeks will improve cane supply in coming months.

Kenya National Bureau of Statistics data shows that sugar production stood at 38,729 tonnes in June, a 31 per cent per cent drop from the January figures.

he dip is largely attributed to low supply of cane for crashing following months of dry weather and its impact on cane output.

On the retail front, the supply shortage has been aggravated by reduced imports from traditional markets such as the Common Market for Eastern and Southern Africa (Comesa) as producers divert their supply to better paying global markets.

The latest World Bank report on global commodity prices shows that sugar is among the key drivers of a general surge that has pushed food prices to a three-year high.

Sugar prices increased by 29 per cent between May and July as a result of Brazil’s lower-than-expected sugarcane harvest.

“Given that sugar and vegetable oils together account for roughly 50 per cent of the World Bank’s food price index, volatility in these prices is likely to have unexpected effects on food prices in the months ahead,” the World Bank said.

Mumias — the country’s largest sugar miller — resumed normal operations last week after a month-long closure for maintenance.

Speculators are said to have taken advantage of the break to hold on to their stocks, driving up the prices to the current levels.

Mumias officials said the miller had embarked on restocking of its supply chain to ease the crisis.

“We have resumed operations and are committed to ensuring sufficient stocks in the retail outlets,” said Pamela Lutta, the corporate communications manager at Mumias. “The retail outlets are ethically run and providing them with sufficient stocks will help correct prices and lock out speculators.”

Huge stocks of sugar currently being sold in the market are not branded, raising fears that some traders may be taking advantage of duty-free supplies from Comesa region to rake in super profits.

Some traders also said domestic prices of the commodity are likely to remain high as millers compete for cane.

“The millers are showing a bad example by increasing the price of cane to woo suppliers,” said Mr Ahmed.

“They will definitely pass on this extra cost to consumers.”

Millers including Mumias, Butali and West Kenya have increased cane prices by an average of 9.2 per cent in the battle for cane that is expected to continue till end of year. Mumias Sugar increased its prices from Sh3,200 to Sh3,475 per tonne, Butali from Sh3,400 to Sh3,600) and West Kenya from Sh3,213 to Sh3,355.

Nearly all the millers expect ex-factory prices of sugar to rise in the coming in line with rising demand.

“Everyone is bound to make money and any opportunities presented by factors of demand and supply must be seized at all cost,” a senior official from one of the millers who did not want to be named setting up the consumer for higher prices said.

In Kisumu, all leading retail chains had run out of stocks except Ukwala Supermarket, where a 2kg packet was priced at Sh350. Shoppers were however restricted to buying only one packet each.

Retail managers in the lakeside town said speculators anticipating higher prices were to blame for the shortage and price surge.
Consumers in Mombasa, Nyeri and Kakamega have not been spared either. A kilo of sugar was priced at Sh200 in Kakamega having climbed sharply from last week’s Sh130.
Local supermarkets reported that there had been a scramble for the limited supplies available on the shelves, forcing them to limit each customer to 1kg packet.

Getting out of control

“The situation is getting out control and we cannot do anything about it until the supply improves,” said a manager at one supermarket.

In Mombasa, the commodity sold at a historic high of Sh380 for a 2kg packet but most shops had run out of stocks. Nairobi was in a similar position with a 2kg packet being sold for Sh400.

The Agriculture Ministry has warned that high prices of sugar are likely to persist in the short term as the cane shortage continues to bite.

Kenya Sugar Board had not responded to a request for comment by the Business Daily by the time of going to press.

Reporting by Frankline Sunday, Benson Amadala, Rebecca Okwany and Charles Mwaniki