How release of impounded sugar is causing cane farmers losses

Demonstrators in Kakamega town in June, when they protested against sugar barons. [Benjamin Sakwa, Standard]

Days after the Kenya Revenue Authority (KRA) agreed to an out-of-court settlement on a tax dispute relating to imported sugar, a supply glut has hit the market.

Local millers are unable to offload their more expensive produce, with fears that the 40 million kilos could have long-term implications for the industry.

Darasa Investments, owned by billionaire Ibrahim Noor Hillowly, was granted access to the sugar it imported mid-last year before the commodity was impounded.

Mr Hillowly’s sugar has been released after he agreed to pay up to Sh3 billion in taxes amid the dying storm over irregular imports by other traders.

Significant consignments

West Kenya Sugar Company, owned by the Rai family, imported 34 million kilos while several others brought in smaller but still significant consignments.

Failure by the National Assembly to adopt recommendations to destroy suspected contraband sugar, and the release of Darasa Investments’ consignment, are responsible for the over-supply.

Jayanti Patel, chairman of a sugar millers' lobby, confirmed the glut and the distress on the local sugar industry but promised to issue a detailed statement after consultations with peers.

“We are working on a statement over this problem, but so are the equally affected farmers,” said Mr Patel, who also owns Butali Sugar Mills in Kakamega County.

The detailed statement is expected to carry the views of affected millers.

At the heart of the problem for local millers is how their produce will compete with imported sugar, whose landed cost (total price of a product or shipment once it arrives at a buyer's doorstep) was below Sh40 per kilo against the local ex-factory price (price at factory) of Sh90.

This is a more than 30 per cent drop and is expected to cascade to shelf prices in coming days.

Global prices

Reuters, which tracks global prices of widely traded commodities, quoted the price of a kilo at about Sh33, a third of the local ex-factory prices.

Adding shipping costs from major markets such as Brazil, the landed price per kilo is less than Sh40.

Duty-free imports allowed last year, ostensibly to help tackle a biting shortage at home, opened the way for traders to make massive profits – at the expense of local farmers.

More than Sh40 billion worth of sugar was imported during the three-month window, which was nearly the country’s consumption for two whole years.

Patel has been a fierce business rival of the Rai family, which has a monopoly of the regional sugar market, with a huge presence in Kenya and Uganda.

Jaswant Rai, chairman of West Kenya and a former chairman of the millers’ lobby, is among those who testified before the parliamentary committee probing the sugar sector's woes.

Mr Rai also owns Kinyara Mills in Uganda besides the Kenyan portfolio of Sukari Industries in Ndhiwa, West Kenya (Kabras), Olepito in Teso and one under construction in Bungoma County.

The National Assembly committee investigating the irregular imports indicted various State agencies, including KRA, for the lack of regulation.