Kenya has been granted another one-year extension of sugar import limits from the regional trade bloc Comesa, offering relief to local millers that would have to deal with tougher competition from more efficient producers.
The decision to grant Kenya a sixth extension to February 2017 was reached during the 35th Common Market for Eastern and Southern Africa (Comesa) Council of Ministers meeting in Zambia.
The tariffs were scheduled to fall to zero in February and the extension giving more time for it to improve infrastructure and carry out other reforms like sale of the loss-making companies, introduce new cane varieties and revamp roads in sugar growing zones.
Kenya has been allowed for more than a decade to protect its sugar farmers that are not competitive with high tariffs.
“This is big win for Kenya but also a call for fast- tracking of the reforms in our sugar sector,” said the acting Agriculture Cabinet Secretary Adan Mohamed.
Kenya invoked the infantry clause— Article 61 of the Comesa Treaty — that calls for the protection of the emerging factories, limiting competition from other states until that time when they will be considered to have matured for competition.
The safeguards allow Kenya to limit the entry of sugar imports to 350,000 tonnes to plug the annual production deficit.
The trade arrangements with Comesa were first drawn up in 2002, but Kenya has implemented a few reforms meant to make its sugar industry competitive.
Industry regulator Kenya Sugar Directorate estimates the cost of producing a tonne of sugar at about $570 (Sh57,000) in western Kenya.
The cost ranges between $240 (Sh24,000) and $290 (Sh29,000) in Egypt. Critics have blamed a high cost of production for the woes facing Kenya’s sugar industry. Poorly funded government-owned factories have aging machinery prone to break down.
Kenya has over the past decade pledged to sell a 51 per cent stake in five sugar millers to strategic investors under reforms. This process started last week with the invitations to investors keen on acquiring the majority stake.
The government was to reserve another 30 per cent for farmers and sell the remaining 19 per cent stake in Sony, Chemelil, Nzoia, Muhoroni and Miwani milling companies in an initial public offering once the factories are profitable.
Other conditions set by Comesa include conducting research on new early maturing and high-sucrose-content sugar cane varieties and adopting them, paying farmers based on sucrose content instead of weight.
The five State-owned millers are steeped in debt amounting to Sh100 billion.
Nzoia owes Sh37 billion, Miwani (in receivership) Sh28 billion, Muhoroni (in receivership) Sh27 billion, Chemelil Sh5 billion and Sony Sh3 billion.