High costs sour outlook for local sugar industry

 

Sugarcane harvesting. Players have warned of the sector’s collapse if the State fails to secure another safeguard against imports. Photo/FILE  Nation Media Group

By George Omondi

In Summary

• The $700 (Sh60, 600) to $800 (Sh69, 600) spent to produce one tonne of sugar is 23.8 per cent higher than the $646 recorded last year.
• The industry players are lobbying for extension of the Comesa safeguard beyond March 2014.
• The lapse of the protective window would open the local market for duty-free sugar imports from the 19-member Comesa trading bloc.

The cost of running sugar factories has gone up by 24 per cent in the last one year, diminishing the industry’s chances for survival in an open market envisaged after March next year.

The $700 (Sh60, 600) to $800 (Sh69, 600) spent to produce one tonne of sugar is 23.8 per cent higher than the $646 recorded last year when the Cabinet approved privatisation of five sugar firms, insiders said.

“The local firms which procure expensive cane from smallholder farmers on rain-fed agriculture are not ready for full competition with cheap sugar from southern Africa,” Mumias Sugar Company CEO Peter Kebati said in Nairobi on Friday.

The industry players, led by principal secretary Cecil Kariuki appeared before the Parliamentary Committee on Agriculture, Livestock and Fisheries to lobby for extension of the Comesa safeguard beyond March 2014.

The lapse of the protective window would open the local market for duty-free sugar imports from the 19-member Comesa trading bloc.

According to a list tabled before the Privatisation Commission of Kenya, it costs $300 to produce one tonne of sugar in Zimbabwe, $310 in Malawi, $340 in Swaziland and $340 in Sudan.

Kenya initially requested for a five-year safeguard in 2003 that limited sugar from Comesa free trade area to 200,000 to be increased gradually.

The grace period was to be used to settle a debt of Sh59 billion that the five public sugar firms owed, privatise them and upgrade their equipment to boost production efficiency.

The Government had not made a single step on the path to reforming the sugar firms by the time it successfully lobbied for subsequent extensions that expire in March 2014.

(Read: Think-tank opposes extension of sugar industry safeguards)

The sugar industry remains vulnerable, with players warning of the sector’s collapse if the State fails to secure another safeguard.

“I am not shy to lead my team in seeking new extension because the challenge ahead of us is enormous and real,” said Mrs Kariuki.

She said the March elections and legal battles surrounding land ownership by Miwani Company delayed privatisation.

Last year, the Cabinet directed the Privatisation Commission of Kenya to start the sale of Nzoia, Miwani, Chemelil, Muhoroni and Sony sugar companies.

As part of the deal, the Treasury was asked to write off Sh33.7 billion out of the outstanding loans. Another Sh5.9 billion would also be taken up by government but in exchange for equity stake.