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Importers defy ban by flooding market with illegal sugar

BUSINESS NEWS
By Macharia Kamau | December 6th 2020

Supermarket attendant arranging sugar in Migori Town on May 3, 2019 (Photo: Caleb Kingwara)

Unscrupulous businesses are having a field day bringing in huge amounts of sugar into the country illegally. The smuggling ring is also exposing Kenyans to substandard products and further weakening the ailing local sugar industry.

Large imports of brown sugar have made its way here over the last five months despite a ban last July by the Ministry of Agriculture, partly aimed at enabling the local players to stay afloat.

The excessive inflows are such that importers had by October exhausted the duty-free import quota they are allowed to get from Comesa countries over 2020.

To protect the Kenyan sugar industry players, Comesa has over the years allowed the country to limit the amount of sugar that comes from the partner countries.

This year, it was capped at 250,000 tonnes. By end of October, importers had brought in 277,000 tonnes, raising queries as to how they had exhausted the limit amid a ban on importation of brown sugar.

Cartels have been importing in total disregard of the quota due to their connection. It is believed they have already ordered for more imports and are at high seas despite the cartels not having licences to import.

“The country’s import quota for the year ending December 2020 from Comesa member States was pegged at 250,000 tonnes. This was negotiated based on the annual national consumption as well as projected sugar production,” reads a letter by Agriculture And Food Authority (AFA) to industry players on November 9.

“The authority wishes to bring the following to the attention of all sugar importers – (that) our total import for brown and white sugar under Comesa at October 31, 2020, is 277,973 tonnes and the allocated quantity (quota) is entitled to duty-free treatment and any excess above the quota attracts 100 per cent duty.”

It is the first time that AFA is communicating to importers about exhaustion of their Comesa import quota while asking the Kenya Revenue Authority (KRA) to charge all sugar imports, duty.

Projections by AFA show about one million tonnes of sugar would be consumed locally while production would stand at 600,000 tonnes.

The deficit is 400,000 tonnes, of which industrial sugar accounts for 150,000 tonnes - meaning deficit for white sugar would stand at 250,000 tonnes.

The resumption of crushing by Nzoia and Muhoroni Sugar companies increased the country’s production. The different millers have this year received 5.2 million tonnes of sugarcane from farmers in the nine months to September 2020.

This is the highest since 2016 when the amount was 5.5 million over a similar nine-month period before sharply declining to 3.1 million tonnes in 2017.

Rogue operations by players in the local sugar industry are not new. Mid this year, Agriculture Cabinet Secretary Peter Munya banned the importation of brown sugar and raw cane.

He noted that a number of firms that had been temporarily licensed to import had gone beyond the provisions of their permits which threatened to kill the ailing sector.

Malava MP Malulu Injendi now wants the government to bar sugar cartels from exceeding the quota to protect local industries. “Unregulated importation of sugar has brought our factories on their knees. This has greatly affected the sugar sector. Time has come when the interest of the farmers and the country should override the selfish interest of a few individuals,” said Malulu.

Comesa recently extended the safeguards accorded to the local sugar industry for another two years to February 2023.

This will ensure the local industry will continue to receive protection, with the duty-free imports from the Comesa countries capped depending on the local production and consumption.

Without the protectionist measures that the State has in place, sugar imports would overrun the local industry due to high cost of production.

According to the Ministry of Agriculture, the ex-factory cost of local sugar was Sh85,260 per tonne compared to Sh60,117 per tonne for imported sweeter.

Nzoia Sugar Company Managing Director Michael Wanjala expressed optimism that with safeguards in place and a crackdown on illegal importation of sugar, it would encourage the growth of the sector.

The Agriculture Ministry has in the recent past embarked on reforms that are expected to turn around the local sugar industry.

They include meeting local demand as well as exporting excess sugar. It also wants the industry to diversify and venture into the production of ethanol and electricity.

Oversight boards

The Sugar Bill 2020 is expected to reintroduce the Sugar Board as a semi-autonomous regulator as well as functions such as research.

The board was collapsed into AFA where it has been a directorate, as was the case with other oversight boards that were charged with nurturing and growing value chains such as coffee and tea.

The Ministry has also written off debts owed by the government-owned sugar millers – Chemelil, Miwani, Muhoroni, Nzoia Sugar and South Nyanza. They owed the State Sh64 billion, including Sh4 billion in unpaid taxes and penalties.

The Ministry has started leasing out factories to private sector players, who are expected to invest in modern equipment to enhance sugar production as well as diversify into electricity and ethanol production.

In the plans, the five millers will be leased out to private firms, who will be required to revamp and modernise them.

The State expects factories to increase the production of ethanol and electricity while maintaining sugar as the main product. The Ministry projects that the sugar factories could produce 260 megawatts of electricity.

The leasing however run into headwinds after the High Court temporarily stopped it, pending the hearing and determination of a case filed by a group of sugarcane farmers in Nandi County.

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