The sugar industry is both strategic and political ; it ensures nutrient security, improves rural lives and provides sustainable supports for 1000000s of Kenyans but it besides has to endure heavy authorities intercession. The industry is under changeless menace of fall ining due to perennial challenges. The major crises the sub-sector is presently sing include liberalization and increasing competition from inexpensive sugar imports, hapless industry policies and constructions that fail to turn to basic jobs that would help in recovery and continued authorities intercession that has resulted in misdirection of the industry. During the Institute of Economic Affairs ‘ public forum on 5th May 2004 the beleaguered sugar sub-sector ‘s, Mr. A. O. Otieno ( Kenya Sugar Board ) , Mr. Shem Ochola ( Sugar Campaign for Change ) and Mr. Paul Gamba ( Tegemeo Institute ) shared their positions on the perennially troubled sugar sector. Below are some of the issues that were discussed. Trade Notes high spots
the issues raised at the Forum.
I N S I D E T H I S I S S U E:
ugar is produced in more than 100 states around the universe. It is
Sone of the most traded trade goods
Though Kenya has first-class cane turning weather conditions, local sugar manufacturers are merely able to run into about two-thirds of ingestion demands i.e. 450,000 MT.
Production is concentrated in Western
Challenges: What ails
the Sugar industry in
3 with exports accounting for a one-fourth
of planetary production. But it besides has one of the most deformed planetary
7 markets such that there is no flat playing field. Sixty-five per centum of
Kenya with chiefly mill white sugar being produced. It is besides produced in Rift Valley and Coast states. Commercial production of sugar in Kenya began in
1902 with Miwani being the first cane
universe sugar trade comes from four
states, viz. Brazil, Australia, Cuba and Thailand while the biggest importer is Russia. All major manufacturer and consumer states protect their markets from the lower priced sugar available in the universe March ke t. Therefore this market may non r vitamin E P R vitamin E s vitamin E n T T H vitamin E B vitamin E n degree Celsius H m a R K o f determining a just monetary value for sugar.
Sugar as a merchandise can be derived economically from two merchandises, sugar Beta vulgaris and sugar cane. The latter is cultivated in the Torrid Zones and the former in temperate countries. Seventy per centum of universe production comes from sugar cane and the three large manufacturers are ; Brazil, which produced 20.3 million metric metric tons ( MT ) in 2003, India 19.9 million MT and the European Union ( EU ) 15.5 million MT.
mill to be set up. This was followed by the puting up of Ramisi Sugar mill in
1927, Muhoroni in 1966, Chemelil in 1968,
Mumias in 1973, Nzoia in 1978 and South Nyanza Sugar Company ( Sony ) in 1979. Since so, there has been a socio- economic betterment in the lives of the rural population through occupation and wealth creative activity.
Sugar ‘s Multifunctional Role in the State
The sugar sub-sector plays a major function in the Kenyan economic system and is a beginning of support for 1000000s. The national one-year ingestion of sugar has been increasing and is about
700,000 MT yet the one-year production bases at less than 500,000 MT. As can
be seen in Table 1, in 2003, local ingestion increased by 1.6 % while end product of sugar declined by
9 % from 2002 degrees. The diminution came approximately through a letup in the sums supplied by husbandmans. Meanwhile, sugar imports increased by 40 % in 2003 from the old twelvemonth apparently to cover that shortage.
The sugar sub-sector is labour intensive supplying direct and regular employment for 35,000 workers. Small-scale manufacturers dominate the sub-sector. As at beginning of 2000, 88 % of a entire country of 108,793 hectares belonged to small-scale agriculturists. It is besides of great importance to adult females. It is the chief beginning of income to over 200,000 more people in the agro- processing, distribution and other related services. The sub-sector supports an estimated 2.6 million people stand foring 7-8 % of the population. Its portion of the agribusiness GDP is 7 % or KShs.9.1 billion.
However, the sugar industry has been marked by gross misdirection, changeless authorities intervention and deficient inducements ensuing in a drastic diminution in production degrees and hapless returns for husbandmans. The blue public presentation is non alone. There have been similar reverses in other industries of the agribusiness sector. This is partly due to Kenya unequal accommodation to liberalization and globalization forces, which have greatly affected the fight of the sector.
Background of the Industry
Due to the strategic nature of the trade good, the authorities decided instantly after independency to put to a great extent in the sugar industry to accomplish autonomy and gain foreign exchange
through exports. In 1966, Kenya was importing 70 per centum of her sugar demands but by 1976, domestic production stood at 296,000 MT while ingestion demand stood at 253,000 MT. However, in ulterior old ages this changed and Kenya is now a net importer of sugar. Table 1 shows that local demand for sugar supply has systematically outstripped local supply in recent times. The figures show that while production has slowed, sums being imported are increasing.
Early on efforts to streamline the sugar industry were unsuccessful and merely brought about a batch of confusion. In 1994 for illustration, the authorities released a paper called the Sugar Sub-sector Restructuring Study ( SSRS ) . The survey proposed among other affairs, selling portions ( Chemilil ) , engaging proficient advisers and presenting performance-based contracts ( Sony, Muhoroni and Nzoia ) and denationalization ( Nzoia and Muhoroni ) .
The proposals did non travel down good with the husbandmans who claimed they were non consulted. Furthermore, during that period, the authorities began liberalizing assorted markets and privatizing some parastatals. But this was done without any legal or policy model in topographic point.
Trade liberalization for the sugar sub-sector removed barriers curtailing the flow of trade and eliminated monetary value controls. This resulted in an addition in trade instead than in productiveness and fight in the local industry. The import figures of the period 1994-
1997 in Table 1 have no relationship to the deficit in
ingestion figures against local production. It was assumed that ingestion figures were either overdone or that significant imports were non recorded. However, studies indicated that there was a oversupply in the local sugar market occasioned by the supply of cheap imported sugar during that period. This
Table 1: Sugar Production, Imports, Consumption and Exports in Kenya ; 1999-2003 ( ‘000 Metric tons )
glut was damaging to local manufacturers who were unable to dispose of their higher priced supplies. Therefore trade liberalization at that clip had inauspicious consequences as the local industry had non been given clip to develop sufficiently to run into its challenges.
Following this alone crisis that led to the close prostration of the industry, the Sugar Act ( 2001 ) was enacted to convey order to the industry. The Act came into being in 2002. It empowered the freshly created Kenya Sugar Board ( KSB ) to develop the industry and its ordinances. KSB replaced the Kenya Sugar Authority ( KSA ) , which had been set up in March 1973 to seek and advance the development of the industry but failed.
In add-on, a Task Force was appointed by the Ministry of Agriculture in March 2003 to look into the jobs of the industry. Poor direction, deficiency of a proper selling and hapless substructure were but a few of the challenges named in the study. A squad of stakeholders from the sector in concurrence with the Ministry of Agriculture developed the Kenya Sugar Industry Strategic Plan ( 5-10 old ages ) from the recommendations of the Task Force. The Plan ‘s purpose is to resuscitate the industry and to do it profitable and competitory.
Some of the proposals have been implemented. The authorities attempted to guarantee that there was good direction at the mills. Some sugar companies such as Mumias Sugar Co. have recorded net incomes in recent months with direction alterations being effected. Besides the Sugar Development Fund ( SDF ) rates were lowered by 50 per centum to ease the development of cane, substructure and mill rehabilitation.
Despite these attempts, the industry is still undergoing a crisis. The chief donees seem to be sugar importers and the mills. The chief also-rans are husbandmans who are impoverished and consumers who have to pay higher monetary values for the trade good as Table 2 illustrates.
Challenge: WHAT AILS THIS INDUSTRY?
Broadly, the jobs confronting the sugar sub-sector include:
I1.Weak institutional constructions and policy regulating the sugar industry
nconsistencies in policy, weak institutional and selling constructions have been lending factors
to the industry sufferings. Furthermore, the key stakeholders
have non been to the full involved in the creative activity of the industry policies. Alternatively, the authorities through inordinate control of the sector may hold been instrumental in the industry diminution. There is therefore the demand for a proper policy and legislative model to be put in topographic point or the demand for bing 1s restructured and implemented efficaciously.
( I ) Over-regulation
There is no effectual representation of husbandmans as the chief stakeholders in decision-making organic structures of the sub-sector. Though the Sugar Act 2001 is meant to turn to the hapless public presentation of the sugar industry, it has a batch of failings that fail to undertake the jobs. The Act grants the authorities immense control in the sector peculiarly in the direction construction. The primary stakeholders, the husbandmans and husbandmans ‘ administrations, do non hold sufficient control the Kenya Sugar Board ( KSB ) the cardinal establishment of the industry.
Regulative Variety meats
The chief industry organ is the Kenya Sugar Board. KSB was established to modulate, develop and advance the sugar industry ; organize the activities of persons and administrations in the industry and ; facilitate just entree to the benefits and resources of the industry by all interested parties. KSB has 12 members and renewable term of office of three old ages ( Box 2 ) . Another cardinal participant is the Minister of Agriculture who imposes levies on domestic and imported sugar, Special Development Levy ( SDL ) , makes the ordinances and appoints the SAT members in audience with the Attorney General.
Box 1: The Key Industry Variety meats
Kenya Sugar Board
Minister of Agriculture
Sugar Development Levy
Zonal Committees – Farmers voice
Selling Agency ( Imports & A ; Exports )
Sugar Arbitration Tribunal ( SAT )
The stakeholders in the industry include husbandmans, the authorities, sugar mills, out-grower establishments like the Kenya Sugarcane Growers Association ( KESGA ) , Kenya Sugar Research Foundation ( KESREF ) , importers, fiscal establishments, transporters, consumers and anteroom groups like Sugar Campaign for Change ( SUCAM ) . Unfortunately, non all of them have been involved in the due procedures and most of them have non been represented. This has resulted in a little group doing determinations that affect the full industry. This is occasioned by political intervention.
Most of the industry histrions want a stakeholder-based system profiting all. The husbandmans should be given more powers to pull off the industry without unneeded intervention. The authorities should deprive from many industry activities.
Box 2: Kenya Sugar Board Representation
12 seats allocated as:
Minimal 6 seats to husbandmans
1 place to makers representative
Minister ‘s representative – Agribusiness
Minister ‘s representative – Treasury
Attorney General – representative
CEO Kenya Sugar Board
The hapless and uneffective difference declaration mechanism provided by the Sugar Arbitration Tribunal ( SAT ) lacks independency from the executive and has no ability to implement orders. There are no commissariats for entreaties and no indicant that the determination is concluding.
( two ) Sugar Marketing Agreements
The present system of selling of sugar is uncoordinated, inefficient and benefits merely a few bargainers to the hurt of the other industry participants. Selling is left to distributers, jobbers & A ; unregulated speculators.
This has resulted in differences about figures on domestic ingestion and demands ensuing in instability in supply and demand tendencies and subsequent implosion therapy of imports. As a effect, the industry loses KShs.5 billion yearly to a few bargainers.
The present system contributes to high consumer monetary values in Kenya, which sell at a premium of US $ 560 per metric ton. This contrasts aggressively with the consumer monetary values in the United States where it is US $ 430 and in the EU where it is US $ 530 ( see Table 2 ) . This makes the Kenya sugar market possibly the most attractive unfastened market in the universe after the EU in footings of premium sugar finish market. Other states have better organised constructions supplying for individual desk selling e.g. Mauritius has Mauritius Sugar Syndicate ( MSS ) , Swaziland has Swaziland Sugar Association and in South Africa, the South Africa Sugar Association is the exclusive Marketing Agency.
Table 2: Comparative internal monetary values of sugar in assorted governments
Price/Ton ( US $ )
Kenyan Domestic Mkt
*EU Special Preferential Sugar
2. International Trade Regimes of Sugar
he international sugar trade government is affected by considerations other than supply and demand.
TDue to the political nature of the trade good, assorted
markets for sugar exist. There are four governments under which sugar is traded and this drama a cardinal function in finding sugar monetary values.
First, a discriminatory and quota governments offered by developed states, notably the USA and the EU. In Kenya ‘s instance, the latter is the EU Special Preferential Sugar Arrangement where supply demands are met through the African Caribbean and Pacific ( ACP ) states Sugar Protocol.
Second, there are legion international sugar understandings supplying models for the protection and trading in the trade good.
Third, free trade agreements in regional trading axis like EAC, SADC and COMESA.
Finally, the residuary free market trading under the World Trade Organisation ‘s ( WTO ) most favoured state duty or bilateral committednesss of single states.
( I ) COMESA-FTA Agreement
Trade liberalization is another major challenge confronting the local industry. This has non merely resulted in the importing of cheaper sugar, but has spawned corruptness in the industry that is aching husbandmans and consumers likewise. Kenya is a member of the COMESA Free Trade Area ( COMESA-FTA ) . The FTA obliges the state to let responsibility and quota free entree for merchandises including sugar from the other FTA member states into her market. But it besides provides for the infliction of safeguard steps in order to cut down the measures of trade good imported for a stipulated period of clip to let a peculiar industry to retrieve.
Kenya ‘s sugar industry is non competitory hence cheaper imports could likely bring down irreparable harm to the industry in its present province. Kenya requested for and was granted a four-year precaution period to keep duty protection beyond a certain imported quota. During that period ( 2004-2007 ) , the industry should be able to increase its fight. This was an extension of the one- twelvemonth precaution antecedently given, which the authorities felt was unequal. Under the current agreement, up to 2007 Kenya can import a upper limit of 200,000 MT from the COMESA-FTA responsibility free to cover the national shortage. Any measure above that sum or from non-COMESA -FTA
states invites the application of full duty ( Tables 3.1 and 3.2 ) .
Table 3.1: Prevailing Duty Structures: Imports from
COMESA-FTA ( within the quota )
Beginning: Kenya Sugar Board
Table 3.2: Prevailing Duty Structures: Non-COMESA- FTA states and imports transcending quotas
added revenue enhancement
Beginning: Kenya Sugar Board
Industrial sugar shortage is between 80,000- 100,000 metric metric tons. There are 30 companies that utilize refined sugar in their fabrication procedure. These are in drinks, candymakers, and pharmaceuticals, baking & A ; tining industry. There are different duties that apply, which include the COMESA zero duty, refined sugar, natural sugar and white sugar duties.
( Tables 3.1 & A ; 3.2 ) .
The KSB is meant to closely modulate sugar imports harmonizing to the COMESA understandings. It has put in topographic point ordinances for the enrollment of sugar importing. But this has been abused and incidents of importers transcending the quota degree without paying the responsibilities are non uncommon. Some besides under-declare to hedge revenue enhancements. In add-on, the licensing process has been questioned. These activities stifle local production through unjust competition. Furthermore, since the duty imposed is linked to the value of the imported sugar ( ad valorem ) determined by the production cost in the exportation state which is much lower than that predominating in Kenya, even with duty applying may still do that sugar competitory domestically. For illustration, in Sudan, the Kenana Sugar Company mean cost of production is US $ 230 per ton.
( two ) EU-ACP Agreement
Within the model of the EU-ACP Cotonou Agreement, Kenya exports sugar despite the national deficit as Table 1 shows. The state ( along with 16 of the 77 ACP members ) under the EU-ACP Sugar Protocol has been allocated a 10,000MT quota to export natural sugar at guaranteed high EU monetary values. The EU itself protects its sugar market and distorts the universe market despite the discriminatory agreements it has with some of the ACP states. Through to a great extent subsidizing the industry, it restricts market entree for cheaper sugar manufacturers into the EU ; undercuts export chances for them in other markets ; undermines value-added processing even for the ACP chosen few ; every bit good as depressing and destabilising universe monetary values. This protection and its hurtful effects are replicated in other regional axis around the universe including MERCOSUR and NAFTA.
Reforms are underway for the EU agribusiness sector and sugar specifically to do it compatible with the WTO Agriculture Agreement. If finally that happens, this would intend that either Kenya would hold its quota reduced or would see a autumn in the monetary value the sugar exports presently enjoy.
( three ) International Agreement & A ; Tariff Regimes
There are no major chances for planetary sugar monetary value recovery unless significant trade liberalization is undertaken. This seems improbable in the foreseeable hereafter given the fact that the agribusiness dialogues in the Doha Round have stalled. The planetary market is full of high duty constructions and other signifiers of protections such as quota systems. Sugar protocols and particular discriminatory sugar agreements prevail. Most members of the WTO including Kenya maintain high barriers in the sub-sector though the state ‘s protection degrees are baleful in comparing ( see Table 4 ) . Kenya ‘s WTO edge rates for sugar is 100 per centum Table 3.2 ) .
Table 4: WTO Member Tariff Bindings for Sugar – Comparative Analysis
Market monetary value
Most authoritiess ‘ support for sugar is provided
chiefly through monetary values. Sugar production requires fixed capital investing, which means that:
The premium over universe monetary value is greater than for other trade goods,
There are larger differences in monetary values between states because of different support demands, and
It is hard to accommodate differences among regional trading axis with regard to net trade place cost, fight, monetary values and support policies.
T3. Low productiveness at farm degree and dearly-won inputs
he cost of sugar production in Kenya is high compared with other states. The universe market
monetary value of sugar scopes between US $ 125- & A ; 168 which is
good below the cost of production of Kenya where it averages US $ 500 per ton. At farm degree, there are hapless cane farming patterns taking to low outputs in measures per hectare. Use of hapless seed assortment consequences in low sucrose content and late adulthood. This does non compare good with other regional sugar manufacturers.
The Kenyan entire field cost of sugar production is $ US
420 per ton. In Sudan, the Kenana mean cost of production is US $ 230 per ton. The mean entire field cost for the African EU-ACP Sugar Protocol holders is US $ 197.2 ; while the entire mean cost including operating expenses is US $ 340. The mean cost for the ten percent lowest cost manufacturer in the universe is US $ 178 ; while the entire mean cost including operating expenses is US $ 271.0. The 10 lowest cost sugar cane manufacturers of the universe are Australia, Brazil, Colombia, Guatemala, Fiji, Malawi, Swaziland, Thailand, Zambia and Zimbabwe.
Other factors that are responsible for the high costs of production include:
High costs of cane procurance ( 70 per centum of cost of production goes to procurement )
Harvesting & A ; handling charges
Costly inputs – high costs of fertilisers, weedkillers etc
Agricultural equipments such as tractors are excessively expensive
Failure to supply recognition installations for little agriculturists
Poor research and extension services
Adverse climatic conditions
Lack of irrigation installations
Excessively much trust on little graduated table out agriculturist farms
These factors led to an end product diminution by 6.7 % from
2002 to 2003. The diminution was besides occasioned by failure by husbandmans to provide cane to the mills in February to April 2003 in protest against the decrease in cane monetary values and increased sugar imports. The country under cane harvested besides declined by 6.6 % and mean cane output by 2.0 ( Table 5 ) .
Poor substructure has for old ages dogged the industry with husbandmans and the sugar mills hardest hit. Poor roads have been a hinderance to transit of cane to the mills with the ensuing wear and tear. Underdevelopment in most parts of the sugar belt attests to the hapless substructure – bedraggled roads, deficiency of entree to schools and wellness installations. Muhoroni and Miwani sugar bring forthing countries have been particularly difficult hit.
There has been the limited usage of modern engineering, which would increase production and lessening in the cost of production. Very small farm mechanisation and intensive agriculture are practiced.
M4. Decline in productiveness and efficiency at mill degree
ismanagement in the mills at all degrees of Pr Doctor of Optometry uction a nd decision- devising has contributed to inefficiencies. Government intervention has besides non helped the state of affairs. Lack of financess and hapless usage of financess for mill rehabilitation has lead to low productiveness degrees at the mill. This in bend has resulted in low sugar outputs, capacity under- use and therefore, low income to husbandmans impacting
their cane farming patterns.
Potential solutions include:
Table 5: Area under sugar Cane, Area Harvested, Production, and Average Yield, 1999-2003
Area under cane ( Ha )
Production ( metric tons )
6 9.1 7
*Does non include country harvested by non-contracted husbandmans
Beginning: Kenya Sugar Board
Adjustment of Exits
With the jobs prevailing in the industry, some of affected husbandmans should be given an option to prosecute in other feasible alternate endeavors or non-farm activities e.g. trade and agro-processing activities. However, this option may non be available because the husbandmans have low resource gift, are ill educated and are unskilled. Politic of the countries besides come into drama and husbandmans are forced to go on with the loss doing manner of life. In some sugar cane turning countries such as the Nyanza belt, the alternate land usage is negligible. Thus it is of import for the husbandmans to hold a high capital spending and be equipped with relevant accomplishments and be provided with efficient markets. ( * ) Such a well-planned issue is necessary and non alone to the sugar sub-sector. Furthermore, the world-wide tendency is for fewer more productive larger graduated table husbandmans.
Policy and Structures
a ) The board should hold greater representation from husbandmans including all husbandman organisations, the java and tea sub-sectors. The authorities should merely ease the operating environment.
B ) The demand to privatize the industry to curtail authorities intervention and shoot some professionalism in the direction. This will increase efficiency and encouragement productiveness. Mumias Sugar Company has been a reflecting illustration of what private orientation can make to the industry.
degree Celsius ) Adoption of a individual desk selling system for all sugar gross revenues to supervise and organize efficaciously imports, exports and domestic gross revenues to free the industry of the exploitatory jobbers.
vitamin D ) The sugar companies should be allowed to use the Ce fund paid to local governments to better the route substructure in cane turning countries. Currently, local governments in cane turning countries do non use financess obtained from sugar mills to keep entree roads.
Designate Sugar as a Sensitive Commodity
Sugar could be classified and treated as a particular and sensitive trade good due to its multifunctional function as most states do. Additionally, it should besides be considered a basic nutrient and be zero-rated in footings of VAT in order to cut down consumer monetary values. Presently, the husbandman has to pay: 16 per centum VAT and 7 per centum SDL. Incentives should back up framers to sell without burthening consumers. Further, to cut downing tax write-offs from husbandman returns, authorities levies and revenue enhancements on sugar inputs ( fuel, fertilisers, implements ) should be reduced to take down the costs associated with turning cane and do Kenyan sugar more competitory vis-a-vis imported sugar.
Measures to safeguard the sub-sector from the negative effects of liberalization demand to be considered and should include use of precautions, application of anti-dumping statute law and rigorous monitoring of the COMESA zero duty sugar importing. This should buffer local manufacturers until they become competitory. Current universe production of 129.1 million MT in surplus of one-year ingestion of 124.6 MT creates an avenue for dumping which should be curbed.
Understating Production Costss
This can be achieved through:
aˆ? Proposed irrigation policy from the constituent of
aˆ? Shorter cane adulthood
aˆ? Mechanisation and intensive agriculture
aˆ? Predictable reaping plan and planning.
aˆ? Product variegation and value add-on. i.e molasses can be a beginning of energy ( co- coevals ) , which can be spread over the cost of sugar.
aˆ? Extension services should be provided
aˆ? Easier entree to recognition installations
Revamp sugar cane research
There should be more resources for research and development into more productive cane assortments and methods of cane farming. This should present high giving up, sucrose rich assortments of cane. The sucrose content of cane grown by Kenyan husbandmans is much lower than that found in sugar exporting states such as Sudan and Brazil. The Kenya Sugar Research Foundation should be supported financially in order to transport out the necessary research.
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