The local sugar industry could enter into uncharted waters with the entry of duty-free imports from the Common Market for East and Central Africa (Comesa) following expiry of safeguards that have been protecting the sector for the past decade.
Kenya is already lobbying for extension of import quotas that have kept competitors at bay, even though the country has exceeded the maximum allowable limit of 10 years.
Last October, the Comesa Competition Authority said it will not grant Kenya another extension because it would amount to anti-competitive business practice.
The country has so far met only a handful of the conditions set by Comesa. The key condition – privatisation of State-owned millers – has not been met.
The cost of sugar production remains high and farmers are still paid based on tonnage other than quality of cane delivered.
The head of the Sugar Directorate, Rosemary Mkok, talked to the Business Daily about issues facing the industry.
Kenya has exceeded the maximum allowable Comesa safeguard duration of 10 years. Is the sugar industry ready for competition with duty-free imports?
The industry is not fully prepared for competition from Comesa states at the moment. We have made a number of strides in making the sector competitive but we are yet to achieve all that is required.
For how long is Kenya going to seek extensions on safeguards?
We are using the infantry clause in the Comesa Act to seek for more time (3-4 years) that will enable our infant factories such as Kwale, Kibos and others that are still developing to be fully established. These factories should be allowed to mature before the market is fully liberalised.
Kenya is also party to the EAC protocol that provides for free movement of goods without restrictions. Are the sugar import safeguards a fair practice to other partner states?
The objective of the regional trade arrangement is to enhance economic growth and foster sustained development in the union. When, as a country, we ask for more time to address such challenges, it is not applying an unfair practice; it is operating within the spirit of the protocol.
None of the government-owned millers has been privatised as was required by Comesa. What is holding back the process?
Selling these factories has been slowed by the due process and the legislative requirements. The parliamentary agenda has been packed and MPs have not been in a position to debate and approve the matter.
Mumias, a private company, is still grappling with financial problems and has requested a bailout from the State. Is privatisation a solution to the woes facing local millers?
Lessons have been learnt from the Mumias experience and sufficient mitigants have been built into the ongoing process to avoid past pitfalls. Privatisation remains the only hope for reverting the State-owned millers to a profitable path.
How many state-owned factories are ready for privatisation?
All the five government-owned millers have been lined up for sale. These include Nzoia, Miwani, Chemelil, Sony and Muhoroni. The necessary arrangements have been made and the matter is now awaiting parliamentary approval.
State-owned millers have debts in excess of Sh40 billion. Are taxpayers going to foot these bills before the factories are sold?
A balance sheet restructuring has been considered and approved by Parliament as a precursor to the privatisation. Details will be made available in due course.
Diversification to other revenue streams is another condition given by Comesa. Mumias is making losses on ethanol and electricity sales to Kenya Power. This trend cannot be encouraging to other millers who are yet to diversify.
Obviously this trend is not encouraging and to address this, negotiations are already underway to improve the structure that had earlier been committed to by Mumias.
We will negotiate for higher feed-in tariffs and also push for the blending of ethanol with petrol in order to make it profitable.
A farmer in Mauritius will spend $400 to produce a tonne of sugarcane; in Kenya it will cost him $850 to produce the same quantity. Why are our production costs still so high?
Kenya does not benefit from economies of scale considering that approximately 90 per cent of our cane farmers are small-scale growers with average land sizes of 0.5 hectares.
Besides, a farmer in Mauritius receives subsidies on most farm inputs, a situation that is not true for Kenya. The high cost of inputs results to high cost of cane production.
The 12-months crop season is also an advantage to the farmer in Mauritius thus impacting positively on cost of cane production. In Kenya cane is majorly grown in the medium to high altitude areas and subsequently takes 18 -20 months to mature.
To address this, we have already introduced fast maturing cane and we hope farmers will embrace it.
There have been constant quarrels by the factories over zoning of millers, with some complaining that other sugar firms have violated the Sugar Act. How relevant is the zoning aspect today?
The Sugar Act, which provided for the zoning that would require a new miller to be at a distance of 40 kilometres from an existing one, has been repealed thus making the zoning issue null and void at the moment.
Millers have been complaining of illegal entry of cheap sugar that has in the past flooded the market. What measures have been put in place to address this practice?
Recognising the gravity of the impact and serious risks posed to the national economy and the industry by access of uncustomed sugar into the domestic market, a strengthened inter-agency unit comprising the Kenya Revenue Authority, Sugar Directorate, Kenya Bureau of Standards and the National Police Service is now in place to intensify surveillance against this illegal trade.
We have now adopted more deterrent measures such as blacklisting of culprits from engaging in the sugar business.
We are also in closer collaboration with competent authorities in partner states and this has enhanced the integrity of our verification procedures on imports and exports.