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Why sugar reforms must include deliberate efforts to crush barons, cartels

Governors, from left, Fernandes Barasa (Kakamega), Ochilo Ayacko (Migori), Anyang Nyong'o (Kisumu) and  Bungoma's Keneth Lusaka at Masinde Muliro University during the Sugar Industry Stakeholders Conference. [Benjamin Sakwa, Standard]

Sugar industry stakeholders gathered in Kakamega on Friday and Saturday in another effort to revive the now moribund sugar factories that were in the past the lifeline for farmers in western Kenya.

Kakamega Deputy Governor Ayub Savula says the meeting was expected to come up with the final draft that is expected to beef up the Sugar Bill 2023 drafted by Navakholo MP Emanuel Wangwe.

“All issues bedeviling the sugar sector will be discussed including the challenges at Mumias Sugar, problems in sugarcane production, the empowerment of our growers and dealing with cartels that have captured the industry,” said Savula.

The continued decline of sugar production in the region has been blamed on the collapse of government-run milling companies like Mumias, Nzoia, Sony and Chemilil but analysts also argue that sugar barons and cartels are another major factor.

Unfair competition

Sugar cartels have in the past been accused by the Ministry of Agriculture, millers and other players in the sector of engaging in corrupt practices, thus creating unfair competition to the disadvantage of the local industry and farmers.

Two years ago, the Kenya Revenue Authority (KRA) said it dealt with 198 cases of sugar smuggling into Kenya through borders and the port of Mombasa between 2018 and 2021, seizing 1,695,625 kilogrammes of sugar, valued at Sh235.5 million.

The Standard also reported how corrupt police officers abet the smuggling of sugar and its tax implications as local millers also cried foul over the excessive dumping of cheap sugar in the market.

Apart from the sugar barons who land thousands of tonnes at Mombasa port and get it into the country without paying taxes as pointed out in KRA reports, more of it gets in through porous borders.

Former Kenya Sugar Board (KSB) chairman Saulo Busolo has repeatedly complained that Kenya’s tariff windows create room for sugar cartels to illegally import sugar from countries like Brazil which is repackaged and sold on the local markets.

“The problem is that uncustomed sugar from non-Comesa countries is brought in through some Comesa countries and then dumped here, thus crippling the local sugar sector,” says Busolo.

While serving as KSB chairman, he together with the Ministry of Agriculture intensified a crackdown on sugar barons dumping the sweetener in the country.  

“We have licensed importers from Comesa region, but smugglers exist and that is what we attempted to deal with at KSB but the Agriculture and Food Authority (AFA) which took over appears to have not done much,” says Busolo. 

Among the recommendations made in the Sugar Bill, is the reconstitution of KSB to replace AFA, which has been identified as a major weak link in the revitalisation of the industry. 

In an attempt to deal with cartels, KSB had, before it was wound up, proposed fresh vetting of sugar importers as it worked with Kenya Ports Authority, the Inspector General of Police, the Kenya Bureau of Standard and Kenya Revenue Authority to reign the culprits.

The Kenya Sugar Millers Association has also complained over the increased smuggling of sugar into the country, a practice they claim affects the pricing of local sugar.

Before the current shortage, millers had argued that they were making losses and they, therefore, needed to sell a 50-kilo bag of sugar for at least Sh5,000 when it was going for Sh4,000 at the time.

According to figures from the sugar directorate, a 50kg bag of sugar in December 2022 was selling at a wholesale price of Sh6,844, translating to Sh137 per kilo and Sh155 per kilo-retail rate.

Eight months later, the price has shot up almost twofold and is currently retailing at over Sh200 per kilo in all supermarkets around the country.

It has also been reported by the Ministry of Agriculture that high production costs and the mismanagement of factories were key reasons for the collapse of the sector.

However, in 2020, sugar made up 48 per cent of the goods smuggled into the country, according to the National Crime Research Centre.

The report listed porous border points with Uganda at places such as Suam, Busia, Lwakhakha and Sio Port on the shores of Lake Victoria and at Sirare and Namanga, Loitoktok, Taveta and Vanga on the Tanzania border.

Others include Moyale on the Ethiopia border and Dhobley and Mandera on the Somalia side.

A report carried out by the Institute for Security Studies last year claimed that in western Kenya, the smuggling is perpetrated by sugar cartels operating along the Kenya-Uganda border.

“Kenyan criminals collude with Ugandan factory workers who smuggle sugar and sell it to Kenyans along the border areas. Bags of sugar from the Kamuli and Kakira factories in Uganda are continually ferried into Kenya,” said the report.

According to the United Nations COMTRADE database, Kenya imports sugars from Somalia that are also used to make confectionery and the practice continued in 2021 and beyond.

Last year, it was reported that illicit sugar trade from Somalia to Kenya could be terror militia group Al-Shabaab’s main source of revenue which they use to buy arms.

A study titled Terror and Taxes: Inside Al- Shabaab’s Revenue Collection Machines, said about one-quarter of the receipts are derived from the taxation of vehicles from Kismayo to Dhobley in Kenya.

The sugar allegedly comes in with the complicity of security officers and political power barons and is normally destined for the large population of consumers at the Dadaab refugee camp.

High tariffs on imported Kenyan sugar that were designed to protect the local industry have, therefore, not helped because of the corruption at the ports of entry and rogue enforcement officers who abet the vice.

The fact the leaders from across the political divide in all the 14 Lake Region Economic Block are meeting is however an indicator of the willingness by the political class to resolve the sugar industry crisis.

Politics has in the past played a big part in crippling the sector which unlike the tea and coffee which was revived by the government, sugar farming has been largely abandoned.

Busolo says farmers should be allowed to operate the sugar mills just like their tea-growing counterparts who were allowed to take over the factories by the government.

In 2015, opposition leader Raila Odinga led politicians from the western region in condemning a deal the government had entered into with Uganda for the importation of sugar.

The opposition leaders opposed the deal, claiming it was sealed to help sugar barons import the commodity from South America.

Diplomatic row

Ugandan President Yoweri Museveni also got involved in the sugar politics and told off Raila for opposing the deal with Kenya telling him that he was wasting his time. 

Raila created a diplomatic row over the sugar issue, after he organized a series of public rallies in the region, telling people that the sweetener was expected to be brought in from Brazil through Uganda. 

Speaking in Kampala, Museveni complained that Kenya was blocking Uganda’s sugar and maize yet Kampala for many years had been supporting the prosperity of Kenyans by buying its goods.  

“I will have to ring him (Raila) and tell him please don’t waste our time. Ugandan sugar should go to Kenya without hindrance the same way Kenyan goods are coming to Uganda without any hindrance,” he said.

President Museveni urged East African Community member states to buy Ugandan sugar, saying it was the only way to help it forget its past.

Debate also raged in Parliament, where the then leader of the Majority Aden Duale claimed he had evidence to prove that Raila had not paid debts he owed Mumias Sugar.

But the opposition leaders challenged Duale to table the evidence after saying that (Raila) he did not owe Mumias even a single penny.  

The ODM leader had accused Presidents Kenyatta and Museveni of protecting the sugar barons involved in the sugar importation business as he addressed rallies in Chemelil and Muhoroni and other meetings in Bungoma and Kakamega counties.  

He claimed the imported sugar was loaded on holding ships in the Indian Ocean and then brought to the port of Mombasa where it was to be cleared and thereafter escorted to Uganda before getting back into Kenya.

“Uganda cannot satisfy its own domestic demand for sugar and yet the Jubilee government wants us to believe that it can supply Kenya with sugar,” said Raila.

A study carried out indicates that in Kenya zones under sugar production are 88 percent under smallholder farmers while the rest under sugar industries in the form of plantations.  

Kenya sugar producers are primarily smallholder farmers with low technical capability and minimal capital who produce sugar under rain-fed conditions.

The high cost for cane growers are incurred during harvesting and transportation, accounting for 45 per cent of the overall cost of production.

“These expenses are assumed by farmers as they are deducted from the price charged at the farm gate by the manufacturer,” says the report.

Kenya’s production cost is Sh73,600 per MT while Malawi’s is Sh31,700, Zambia (Sh33,800) Sudan (Sh43,500), Egypt (Sh39,200), and Swaziland’s Sh40,000.

It was established that the country’s ex-factory prices are about 50 per cent higher than imports from Comesa that offer free trade exporters and so without major reforms, the industry cannot compete with other comesa sugar producing countries.

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