Comesa has warned that any plans to ship in duty-free imports outside the Comesa window could earn Kenya a major action, including the withdrawal of the special safeguards that the country was granted in December 2007.
Sugar barons won a major battle on Tuesday as the government announced plans to grant more duty free imports to alleviate a biting shortage in the domestic market.
Agriculture minister William Ruto told Parliament that the permits would be auctioned to interested bidders, who are expected to use them to ship in adequate quantities to ease an acute shortage that has seen prices rise to a high of Sh100 per kilogramme from an average of Sh75 in a span of four weeks.
Mr Ruto said enlarging the importers list should enable the country to buy sugar from diverse sources, ensure steady supply and predictable prices for consumers who have had to endure pricing volatility in the recent weeks.
People familiar with the high stakes sugar industry, however, said that in agreeing to expand the list of importers, the government may have bowed to the whims of merchants who were barred from importing the commodity when Mr Ruto took charge at the ministry early last year.
Mr Ruto said importers, who were licensed to handle this year’s supply quota from Comesa, had managed to ship in only 4,500 tonnes of sugar out of the 260,000 tonnes that Kenya is allowed to import under the terms agreed with the regional body.
In what is likely to rub local millers the wrong way, the minister said consultations were ongoing with Treasury and the East African Community (EAC) secretariat to allow importation of 60,000 tonnes in the next six months.
Mumias Sugar, the country’s largest miller by market share on Tuesday said the planned duty-free imports would adversely affect the local sugar industry at a time when they need to shape up their operations in readiness for the full liberalization of the market in 2012.
The protests by Mumias came through as the Common Market for Eastern and Southern Africa (Comesa) warned any plans to ship in duty-free imports outside the Comesa window could earn Kenya a major action, including the withdrawal of the special safeguards that the country was granted in December 2007.
“The Comesa mission clearly stated that having the extra imports outside their safeguards means that Kenya no longer requires the favoured treatment,” Dr Evans Kidero, the managing director of Mumias Sugar said after a meeting between the Comesa officials, the Kenya Sugar Board (KSB) and millers in Nairobi on Tuesday.
Only five of the 20 licensed importers have been active in recent months with the majority of inactive players citing shortage of the commodity in source markets.
Sugar prices have risen to a 28-year high in recent weeks causing speculative traders to diverting supplies to the more lucrative global markets.
This has resulted in supply bottlenecks for net importers like Kenya that have been thrown to the bottom of the exporters’ priority list on the basis of lower margins compared to those obtaining in leading world markets for a better part of this year.
Kenya has consequently been forced to rely on more expensive sugar from outside Comesa to bridge the deficit brought home by increased demand amid low supply.
Market data shows that ordinary shipments of sugar into Kenya cost about Sh30,000 per tonne compared to average highs of Sh45,000 per tonne of sugar in international markets -- explaining the shift in focus by exporters.
The minister’s sentiments came as officials from the KSB, the ministry and the Treasury finalised preparations for an auction of additional import rights next Tuesday.
More players “Our game-plan is to have more players come in so that we have our nets cast wider and mop up any consignment that may come up our way. The supplies in Comesa are scarce and more players would help net more,” KSB chairman Okoth Obado told Business Daily.
Inquiries both within government and the industry however revealed widespread discontent at the government’s plans to issue more import rights amid concerns that Mr Ruto may have fallen into the hands of cartels that have been jostling for stakes in the business.
Prior to the minister’s address to Parliament, sources at KSB, Kenya Revenue Authority (KRA) and the Agriculture ministry had hinted to Business Daily that a stand-off between the sugar industry regulator and cartels that control the import business over the recently awarded import rights could have also contributed to the “artificial shortage” in Comesa.
“The auctioning of the import rights was filled with controversy that saw matters land in court. But even after court the fact that new faces landed the import rights has kicked up fresh wars even in the source markets where cartels want to ensure that they don’t succeed,” said a source “The cartels want to retain their places.”
It emerged that some of the cartels had even moved to secure orders from the source market just to lock out the green-horns from gaining entry into the lucrative business import.
“The cartels have had a last laugh and are now back in business. They have fought their war and the government has given in,” an official at Treasury said.
Only last week, Mr Obado admitted that the board was aware was aware of the claims that some cartels were trying to sabotage the 2009/10 duty-free importations by discrediting the new import right winners as incompetent besides colluding with some traditional sources of the commodity to deny the country supplies.
“We have asked the traditional suppliers of duty-free Comesa sugar to tell us whether they have consignments. We want to know who to deal with and service this year’s quota,” he said.
Though Mr Ruto on Tuesday claimed that Comesa “ is traditionally sugar deficit” hence the latest pressure in supplies, market data indicates that production in main Comesa sugar producers such as Swaziland and Malawi had actually shot-up since 2007 as growers enticed by strong prices in the global scene looked up to share on the boom.
In Swaziland for example the crave to reap from the global price rally has triggered panic within the Government and the World Food Programme (WFP) as small-scale holders abandoned food crops for sugar production.
And in an even wider perspective, an outlook by the Food and Agriculture Organisation (FAO) showed that overall production of the commodity in Africa has been on a steady climb in the past year as exporters looked up to October when shipments from poor nations into the EU under the Everything But Arms (EBA) initiative takes effect.
Under the EBA initiative poor countries in Africa will be allowed duty and quota-free access to the EU market that is currently among the most lucrative in terms of price offers.
“Aggregate sugar production in Africa is forecast to rise by 8.3 per cent to 11 million tonnes in 2008/09, out pacing the three percent annual growth experienced for the past three years. Expansion is largely attributed to increases in planted sugar-cane areas and new processing capacity,” analysts with FAO said.
The EBA came into effect in 2001 for all products, except for fresh bananas, rice and sugar. Imports of these commodities from least (LDCs) were made subject to quotas attracting preferential duties that were gradually phased out by 2009.
In the case of sugar, no tariffs or quantitative restrictions will be applied on imports from LDCs as from next month.
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