Local sugar sector faces tough times as Comesa deadline looms

By JACKSON OKOTH

The country’s sugar sector is headed for a rough time, a July report shows.

According to the report, titled The Implementation Status of the Comesa Sugar Safeguards by the Ministry of Trade, the sugar industry may not survive in the face of a deluge of cheaper sugar imports from Comesa countries. This is because of delays in selling off state-owned sugar mills, a move that would have made the industry more competitive.

The report shows that apart from Mumias Sugar Company, all other sugar millers will not be able to survive intense competition if cheaper sugar from Comesa were allowed into the country duty-free.

To save the sector, the report urges for the fast tracking of privatisation process. The list of Government-owned sugar companies earmarked for privatisation and approved by the Cabinet are Chemelil, Nzoia Sugar, South Nyanza, Muhoroni and Miwani Sugar Company Ltd.

Following consultations between the Government of Kenya and the Comesa secretariat, the Government applied for protection for the sector by way of a safeguard under Article 61 of the Comesa Treaty so that sugar imports from Comesa are subject to customs duties.

The safeguard was implemented in March 2002 for an initial period of 12 months and subsequently renewed by the Council of Ministers.

Kenya is on a fourth extension of two years, which began on March 2012 and ends in February 2014.

Apart from gradual lowering of import tariffs on sugar from Comesa, the Government must divest from state-owned mills and adopt an energy policy aimed at promoting co-generation and other forms of bio-fuel energy production that will contribute to making the sugar sector more competitive.

High-yield variety

But this is not happening fast enough. In January this year, the Finance, Planning and Trade committee passed a resolution that privatisation of state-owned sugar mills be postponed until such a time when all legislation affecting the sugar factories and the affected County Governments have been put in place.

Kenya is also required to develop high sucrose and early maturing cane varieties. Other steps that the sugar industry must bench mark against is adopting a cane pricing formula based on sucrose content of cane delivered rather than one based on the weight of the cane delivered.

However, the report notes that to date, there is little to show this is happening, except Mumias, which is already experimenting with high-yield and early-maturing cane varieties.

The report also notes that while State-owned sugar firms were expected to diversify their operations, cash flow challenges experienced in the operating 2012/13 period by most millers has greatly hampered progress on this front.

For example, Nzoia Sugar Company shelved the request for proposals to put up ethanol distillery until the cash flow situation stabilises.

Mumias, whose diversification had picked steam, soon suffered a setback as rival firms started ‘poaching’ cane under its zone.

This meant that its other plants including the ethanol distillery operated at sub-optimal levels due to inadequate raw materials.

Until these millers are privatised, the sector remains in the woods, the reports notes.