Let's get to the bottom of Kenya’s sugar woes

NAIROBI: The sugar industry supports well over 300,000 small-scale farmers in the Western, Nyanza and Coastal regions of Kenya and it is estimated that over six million others make their livelihood either directly or indirectly from this crop. The sector saves the country about Sh50 billion in foreign exchange every year from sugar that is produced from about a dozen public and private sugar factories.

 

The country produces about 70 per cent of the sugar it needs, that is, about 500,000 metric tonnes compared to an annual demand of 700,000 metric tonnes. But, for many years, the industry has always remained in constant danger of collapsing mostly due to a myriad of problems. The sector is seen as strategic since it helps improve food security, rural incomes and provides important raw materials for several industries.

The sugar industry has had a long history of gross mismanagement, Government interference, high cost of production and poor returns to farmers. This has led to declining production and rising prices of locally produced sugar.

A critical look at history shows that the sector has experienced policy and strategic failures; even the changes that were made ostensibly in the best interests of the sector seem to have failed in the past.

While the sector was seen as relatively stable and vibrant in the 1970s and 80s, its liberalisation in the 1990s sparked a downward spiral that has become difficult to contain.

This, combined with mismanagement and increasing competition from imported sugar, has not helped the situation. Poor legislative and policy frameworks have conspired to create weak institutional structures that have led to the poor performance of the sector. Indeed, when one looks at the sector, it is difficult to tell if we have learnt at all from its non-performance in the past.

Several institutions that were created to guide and regulate the sector in the past, such as the Kenya Sugar Board, Sugar Development levy and the sugar arbitration tribunal working under the ministry of Agriculture have proved to be poor and ineffective in guiding this important sector.

And, as if this is not enough, we have recently enacted the Agriculture, Food and Fisheries Authority act, without due consideration of why the previous dispensation failed to work in the first place.

In my view, this new arrangement can only accelerate the downward spiral of this vital sector, even with the planned privatisation of Government-owned sugar factories.

One persistent constraint that has continued to haunt the sector is the poor marketing system. The system as currently designed is uncoordinated, inefficient and benefits only a few people who have formed a strong cartel around the commodity. This has led to flooding of the local market with cheap imported sugar that greatly out-competes locally produced sugar.

The bottom-line is that our locally produced sugar is way too expensive compared to imported sugar, mostly because our farmers use farm inputs that are costly, fragmentation of land, which has increased production costs, poor management of sugar factories, factory inefficiencies emanating from ageing and obsolete processing machinery, over-employment at the sugar factories, poorly designed sugar distribution systems and cartels that have pushed the prices of farm activities such as ploughing, cane cutting, transportation and marketing well beyond prevailing international sugar prices.

For example, while the production cost per tonne of sugar in Sudan is Sh25,000, our sugar is produced at Sh50,000 per tonne. Our farmers are using poor husbandry practices (something that sugar factories used to try and improve and have since stopped), poor yielding seed, late maturing and low sucrose sugar varieties.

All these conspire to make local sugar expensive and not able to compete with imported sugar. Worldwide, the 10 lowest-cost sugar producers include Australia, Brazil, Colombia, Guatemala, Fiji, Malawi, Swaziland, Thailand, Zambia and Zimbabwe, whose average cost of production per tonne of sugar is Sh20,000.

And that most of our sugar is produced under rain-fed conditions does not help the situation, since in many countries sugar is produced under irrigation. Combine this with poor research and extension services for farmers, and you have a recipe for disaster.

The world market price of sugar ranges between Sh15,000- Sh34,000 per tonne. Which is way below our cost of production in Kenya. Importation of sugar in Kenya is controlled by considerations beyond the laws of supply and demand.

Because of the political nature of the commodity, KSB has been totally unable to regulate imports, according to internationally accepted agreements. This precarious situation has undermined local production through unfair competition, since some of the imported sugar evades taxes.

It is therefore imperative that debate on how to improve the sugar sector must look at a wide range of factors that have conspired to consign this important sector on the path of constant failure.

Quick fixes such as privatisation and import controls without proper assessment of the problems that bedevil this sector are bound to fail, as the case of Mumias Sugar Company has shown.