Sugarcane harvesting. Players have warned of the sector’s collapse if the State fails to secure another safeguard against imports. Photo/FILE
What you need to know:
The $700 (Sh60, 600) to $800 (Sh69, 600) spent to produce one tonne of sugar is 23.8 per cent higher than the $646 recorded last year.
The industry players are lobbying for extension of the Comesa safeguard beyond March 2014.
The lapse of the protective window would open the local market for duty-free sugar imports from the 19-member Comesa trading bloc.
The cost of running sugar factories has gone up by 24 per cent in the last one year, diminishing the industry’s chances for survival in an open market envisaged after March next year.
The $700 (Sh60, 600) to $800 (Sh69, 600) spent to produce one tonne of sugar is 23.8 per cent higher than the $646 recorded last year when the Cabinet approved privatisation of five sugar firms, insiders said.
“The local firms which procure expensive cane from smallholder farmers on rain-fed agriculture are not ready for full competition with cheap sugar from southern Africa,” Mumias Sugar Company CEO Peter Kebati said in Nairobi on Friday.
The industry players, led by principal secretary Cecil Kariuki appeared before the Parliamentary Committee on Agriculture, Livestock and Fisheries to lobby for extension of the Comesa safeguard beyond March 2014.
The lapse of the protective window would open the local market for duty-free sugar imports from the 19-member Comesa trading bloc.
According to a list tabled before the Privatisation Commission of Kenya, it costs $300 to produce one tonne of sugar in Zimbabwe, $310 in Malawi, $340 in Swaziland and $340 in Sudan.
Kenya initially requested for a five-year safeguard in 2003 that limited sugar from Comesa free trade area to 200,000 to be increased gradually.
The grace period was to be used to settle a debt of Sh59 billion that the five public sugar firms owed, privatise them and upgrade their equipment to boost production efficiency.
The Government had not made a single step on the path to reforming the sugar firms by the time it successfully lobbied for subsequent extensions that expire in March 2014.
A row has been simmering in the industry as the government scouts for strategic investors to take up controlling stake in each firm in exchange for the funds and technology required while farmers want to take full charge of the factories.
“We are keen on strategic investors because farmers cannot raise all the Sh54 billion to prepare the firms for competition,” Privatisation Commission CEO Solomon Kitungu told the Parliamentary committee.
Under the arrangement preferred by the government, farmers would be given 24 per cent while the government keeps 25 per cent stake. Once the firms are brought back to profitability, the government will sell its stake, reserving six per cent of it for farmers.
The State intends to present its proposal to Comesa Council of Ministers. If approved and granted another extension, Kenya will have crossed the World Trade Organisations timeline of 10 years for extension of safeguards.
A section of MPs, however, accused the Government of taking advantage of the ease with which extensions have been granted in the past to maintain the status quo.
“The industry has been lucky to have governments that specialise in negotiating safeguard extensions and has been going back to sleep every time one is secured,” said Kareke Mbiuki, who was up to March an assistant minister for agriculture.
According to the World Bank, the protection from exports and inefficiencies of local firms have left the country with one of the highest sugar prices in the world.
The sugar industry has also been accused of promoting monopolist tendencies to push up retail prices. Every year, the firms close their factories at the same time, causing artificial shortage that push up sugar prices.
