Here is how the sugar import business is big, big money

NAIROBI: A dysfunctional sugar sector in Kenya has created a loophole for dealers to book abnormal profits in dealing in the commodity.

Countries within the Common Markets for Eastern and Southern Africa (Comesa) are currently producing a kilogramme of sugar at about Sh30, while it costs Kenya about Sh72.

Regional protocol allows for duty-free trade across the bloc, though minimal restrictions such as quotas are in place to control volumes. The long-term plan, however, is to remove restrictions for commodities like sugar. For Kenya, the quotas were projected to be out by April 1, 2012.

While that proposition would enhance cross-border trade, it would certainly kill the local sector. It is on this premise that Kenya has been allowed extensions on trade restrictions. But the country has not achieved the milestones it committed to, such as privatisation of sugar factories.

Further, findings of a parliamentary committee investigating the crisis in the local sugar sector showed that Kenya’s sugar was up to three times more expensive than some countries in the region, while inefficiencies along the supply chain meant local dealers were earning up to Sh45 per kilo over factory prices.

There are also minimal differences in price between local and imported sugar, presenting importers with an opportunity to make profits that could be anywhere around 200 per cent on the cheaper imports

Local manufacturers are producing a kilo of sugar at Sh87, the MPs reported, which is three-fold the Sh29 it would cost a comparable mill in Malawi.

A recent report from the Kenya Sugar Board found that the landed price of imported sugar was on average Sh62 per kilo, but could be lower depending on individual millers’ efficiencies.

Sugar retails about Sh100 per kilo, which makes profit margins a minimum 30 per cent for sugar importers.