Illegal sugar, not the imports, is the greatest threat to the local industry

What you need to know:

  • Industry has the potential to not only meet local demand, but also to produce surplus for export.

Contrary to popular belief, Kenya’s sugar sector does have the potential to not only meet local demand, but also to produce surplus for export should the sector be properly regulated and given a chance to thrive.

Sugar production is a capital-intensive business and the government needs to invest substantially in the public mills to increase their capacity or engage the private sector to invest if they are to meet the demand in the country, and have surplus for export.

If as a country we had surplus sugar, we could competitively sell it in neighbouring countries as export commodities and enjoy certain tax advantages that make them competitive.

If Kenya, for example was able to export the commodity to Uganda, it would be cheaper in Uganda due to the harmonisation of taxation regimes among East Africa Community states.

Despite the market challenges, the sector has continued to attract new millers including smaller, private operations, clearly showing that the sector has good returns.

Sugar remains a lucrative business and the mere increase in the number of factories in Kenya is testimony that the industry is still competitive.

Today we have four operating public mills and seven private millers actively involved in sugar production. What differentiates the private millers from public millers is that the public ones have a specific mandate to support development.

The mandate of public mills is to increase national sugar production and reduce dependence on imports, create jobs, enhance regional development and also make a return on investment.

This mandate means that public millers cannot merely be driven by the motive to create a profit for their shareholders, primarily the government.

NEW VARIETIES

The issue of Kenya sugar not being competitive is a myth. Sugarcane production is a standard business where all millers use the same raw material to produce the final product.

Even energy costs are contained as the sugarcane factories in Kenya generate their own electricity for production. The position in the public domain that sugar companies in Kenya do not do co-generation is therefore false.

The argument that sugarcane from Western region is not competitive due to its long maturity period also does not hold water. The Sugar Research Institute (formerly Kenya Sugar Research Foundation) has developed new sugar-cane varieties that matures early and yields more returns.

These varieties yield between 90 to 120 tons of cane per hectare depending on the ecological zones, compared to the industry average of below 75 tons/ha. percentage cane. The industry average is between 12-13 sucrose percentage cane.

Illegal and excess importation of cheap sugar into the local market together with counterfeiting, periodically, adversely affect sales and cash flow positions of millers creating significant bottleneck to timely progress in implementation of their strategic initiatives.

This issue is further compounded by the fact that in some of the countries where this cheap sugar is coming from, the product is heavily subsidised by governments.

SHARING OF INFORMATION

Illegal importation of sugar poses unfair competition to local sugar millers and is impacting on small-scale farmers negatively, therefore threatening the future of the entire domestic sugar industry.

A substantial amount of illegal sugar is repackaged into locally branded bags to conceal identity and evade the surveillance network. The repackaged sugar often does not meet the Kenya Bureau of Standards specifications for packaging of domestic products and consequent marketing on the retail shelves.

The major challenge we have is that there is no proper sharing of information among the agencies at the major entry points into the country, especially the ports, leading to unscrupulous business people taking advantage of the situation.

If the matter of liberalisation of sugar market is not done within the law and proper measures taken, then the sugar industry in Kenya will not survive.

Such liberalisation will create negative economic impact specifically in regions that depend largely on sugarcane growing as their major cash crop.

If we have the same quality of sugar entering the country through legal means, then the price of the imported stuff will almost match that of local millers.

Mr Weda is the Sony Sugar Board chairman