A cloud of uncertainly is hanging over the local sugar industry after a deal that has locked out cheap imports expired Sunday without a clear guideline from market regulators.
The local firms said the expiry of the Common Market for Eastern and Southern Africa’s (Comesa) safeguards on Sunday has left them exposed to cheap sugar smuggled from other parts of the world.
“Our sugar can compete on equal footing with that from Comesa but we are concerned the opening of the market will inevitably result in increased dumping of illegal sugar,” Kenya Sugar Millers Association (KSMA) chairman Rai Tajveer told the Business Daily last Friday.
The Ministry of Agriculture had applied for another two-year extension, the fourth it is seeking, on the imports quota despite, hoping to conclude pending reforms to boost competitiveness of the local sugar industry by 2017.
On Friday, the millers played down concerns of a looming loss of market share to foreign sugar but warned of likelihood of increased dumping of the illicit commodity into the market in the absence of tight surveillance.
Mr Tajveer raised the red flag over a lack of tight monitoring of imports, saying local millers were already facing competition from illicit sugar imports even with the safeguards in place.
“This will compound the problem of dumping of sugar in the country, if left unchecked,” he said citing Madagascar and Somalia as popular source markets of illicit imports.
But a decision by Kenya to maintain the ban on imports, on the basis that it is awaiting Comesa’s decision following appeal for more time, could hurt its relations with trade partners such as Egypt, Sudan and Uganda eyeing the local market.
The three states which are huge markets for Kenya’s exports such as tea and building materials could choose to retaliate.
Agriculture secretary Felix Koskei said local millers were not ready for competition, citing challenges such as high cost of production and mismanagement – hence the appeal for a further extension.
“We are waiting for the report from Comesa,” Mr Koskei told the Business Daily.
A decision by the Comesa secretariat to strike down Kenya’s request, as it has recently indicated, would open the floodgates for cheap sugar imports from 18 partners and take competition to the doorsteps of struggling local millers.
Among the conditions set by Comesa when it first granted safeguards included privatisation of State-owned millers and diversification of their revenue streams.
It was only last week that Parliament approved sale of public sugar firms, paving the way for the long process of privatisation to start.