•The first State intervention is the setting of a minimum price of Ksh4,040 per tonne of sugarcane to be paid by millers to farmers starting April this year, up from Ksh3,700 since 2018.
•This will guarantee farmers better returns, ensure price stability and encourage investment in productivity.
After decades of poor performance, Kenya’s sugar industry is set for better times ahead following recent State interventions to stabilize cane prices, curbing illicit sugar imports and improved productivity, with the over 300,000 small-scale sugar farmers set to reap the benefits.
The first State intervention is the setting of a minimum price of Ksh4,040 per tonne of sugarcane to be paid by millers to farmers starting April this year, up from Ksh3,700 since 2018.
This will guarantee farmers better returns, ensure price stability and encourage investment in productivity.
Low cane prices coupled with delays in harvesting and transporting the crop from farms to factories due to poor road infrastructure has been a major headache for farmers. These and other factors like unreliable inputs and processing inefficiencies have been blamed for the low quality of locally produced sugar thus hampering the overall competitiveness of the industry.
The other significant State intervention in favor of local farmers is tightening sugar imports to curb influx of the commodity in the market. Specifically, limiting the import quota to the actual sugar deficit in the market will shut the loopholes middlemen typically use to bring in cheap sugar sometimes illegally.
So lucrative is the sugar importation business in Kenya that by 2018, there were about 60 registered sugar importers, more than double the number of millers. The high sugar deficit running up to 600,000 metric tonnes per year is normally plugged using carryover stocks held by local millers and duty-free imports. Apart from refined sugar for industrial use which is not produced locally, perennial deficit in the domestic sugar market can be addressed by raising input.
The Crops (Sugar) (Imports, Exports and By-Products) Regulations 2020 introduced by the State last year compelled sugar importers to apply afresh for permits. This is expected to not only weed out cartels but also prevent cheap sugar being dumped into the domestic market leaving local millers stuck with huge inventory.
Underpinning these beneficial State-led reforms is a resurgent sugar industry that needs support to recover and grow sustainably. For
instance, sugar production rose to over 600,000 metric tonnes last year compared to 440,000 metric tonnes in 2019. The Agriculture and Food Authority (AFA) projects this to rise to 660,000 metric tonnes in 2021.
The total area under sugarcane cultivation in the country has expanded by 60 per cent from 126,826 hectares in 2002 to 202,616 hectares in 2020. Average cane yields have also increased to 61 tonnes per hectare in 2020 from 51 tonnes in 2019, an impressive 20 per cent improvement.
AFA links this improved yield to favorable weather patterns and optimized milling capacity following investments by private sector and government through capital injections in local millers.
However, to consolidate these recent gains, we need to urgently address factors undermining the competitiveness of the local sugar industry. First, the ex-factory price of Kenyan sugar needs to go down. It is currently at approximately $800 (Ksh 80,000) per tonne compared to the global average of $280 (Ksh 28,000) per tonne meaning our sugar is four times more expensive than what the rest of the world has to offer.
After the costs of purchasing sugarcane, milling, processing, and sale margins are factored in, millers have to add 16 per cent VAT and 4 per cent Sugar Development Levy. Tax incentives like lowering the sugar development levy, or granting tax holidays to new sugar millers with a set threshold capacity among other measures, will further encourage the private sector to invest in new milling plants as is happening now.
Second, we need to revisit the arrangement Kenya has with COMESA where most of the sugar imported into Kenya comes from and which enjoys a preferential ad valorem duty rate of 10 per cent. Although Kenya secured a two-year extension last December under the COMESA sugar import regime, this is subject to certain conditions, like enhancing industry competitiveness and transparency of its sugar production and consumption data so as to generate a more accurate picture of the deficit to allow further extensions.
To avoid having to seek COMESA extensions, we must double production from the current 600,000 metric tonnes to match domestic consumption which stands at over one million metric tonnes. This calls for investment in the latest milling technology to boost capacity and quality, revamping infrastructure in sugar cane growing zones, and reforming governance in State-owned millers, including speeding up privatization.
There is also need to diversify sugar growing from the traditional belt in the western and coastal regions. In fact, if you ask anyone in the street, they will tell you sugar production is a Western Kenya affair. Yet, recent trends show growing interest in the crop in non-traditional producing areas, a signal that the sugar value chain is ripe for diversification.
Counties like Trans Nzoia, Uasin Gishu and Narok known for growing maize and wheat now have sugarcane plantations. There are also reports that private investors are planning to set up new milling plants in Siaya, Kilifi, Kisii, Uasin Gishu and Tana River counties.
Agriculture being a devolved function, counties should promote investment in commercial crops like sugarcane if the country is to achieve food security and rapid industrialization especially in food and beverage manufacturing. Counties should also spearhead fast-growing sugarcane varieties with high quality sucrose content. This will create more jobs for Kenyans and value addition opportunities for agro-driven enterprises
Of course, sugarcane cannot grow everywhere but if we encouraged more counties to produce the sweetener, Kenya will become a net exporter of sugar as was the case in the 1970s before the industry plunged into perennial malaise owing to mismanagement and failure to invest in innovative ways of producing the crop.
Mr. Murumba is CEO Impulso Kenya Limited. Email: [email protected]