Sugar – Comesa grants Kenya another safeguard extension

Sugar – Comesa grants Kenya another safeguard extension

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Kenya has agreed to raise its quota for sugar imports from Uganda
Kenya has agreed to raise its quota for sugar imports from Uganda
Kenya has agreed to raise its quota for sugar imports from Uganda

The Kenyan government has secured another one-year extension to the Comesa safeguard,
offering a lifeline to its embattled sugar sector. The safeguard, which limits imports from Comesa members to 300,000 tonnes per year, is intended to give Kenya time to restructure its sugar sector so that it can compete with cheaper imports once the safeguard lapses.

Kenya’s sugar sector is hobbled by high production costs which, at $570 per tonne, are double the average of Zimbabwe ($300 per tonne), Malawi ($310 per tonne), Swaziland and Sudan (both $340 per tonne). This reflects the dominance of Kenya’s smallholders, whose lack of scale increases collection and transportation costs, low sucrose yields, owing to poor irrigation and use of inputs, and widespread cane-poaching, which disrupts mills’ operational capacity.

The high altitude of the western Kenya sugar belt also impedes efficiency, as growing cycles are up to 24 months, double that of other sugar producing regions. In an effort to turn around the sector’s fortunes, the Kenyan government has pledged to privatise five state-owned sugar millers, which are saddled with over KSh100bn ($1.1bn) of debt. However, the process has been held up by wrangling over ownership with county governments, which are demanding majority equity in the mills.

Mumias, the private miller which controls at least half of output, might take over some government-owned mills, which would consolidate the sector and ease pressure on sugar cane supply. But the government’s bailout programme for Mumias—which included an emergency KSh500 million loan in January—has been opposed by some farmer groups and county governments, while a parliamentary investigation continues into alleged illegal imports of sugar by the company.

‘This reflects the myriad of interlocking stakeholder and political interests in Kenya’s sugar sector which will hinder the reform process, making it likely that Kenya will need to seek a further one-year extension to the Comesa safeguard next year,’ analysts at regional bank, Ecobank, said in a research note.

Meanwhile, Kenya has agreed to raise its quota for sugar imports from Uganda to 97,000 tonnes, equal to nearly half of its import requirement, resolving a three-year trade spat. The dispute was triggered by the abuse of overlapping trade regimes by unscrupulous traders, and led Kenya to ban all Ugandan sugar exports in 2012, a move that Uganda complained had violated EAC trade rules. The raised quota should reduce Uganda’s sugar surplus, estimated at 146,000 tonnes, as the country struggles to replace its key export market in South Sudan where political instability has disrupted trade flows. However, this is a stop-gap measure, as Ugandan exporters are actively seeking to expand their market share in Kenya.

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