Minimum price of sugar cane, import cuts will sweeten Kenyan sugar »Capital News
After decades of poor performance, Kenya’s sugar industry is set to see better times as a result of recent state interventions to stabilize sugar cane prices, curb illicit sugar imports and improve the market. productivity, with more than 300,000 small-scale sugar producers ready to reap the rewards.
The first intervention of the State is the fixing of a minimum price of 4,040 Ksh per tonne of sugar cane to be paid by the millers to the farmers from April of this year, against 3,700 Ksh since 2018. This ensure better yields for farmers, ensure price stability and encourage investment in productivity.
Low sugarcane prices coupled with delays in harvesting and transporting the crop from farms to factories due to poor road infrastructure have been a major headache for farmers. These factors, along with others, such as unreliable inputs and processing inefficiencies, have been blamed on the low quality of locally produced sugar, hampering the industry’s overall competitiveness.
The other important state intervention in favor of local farmers is the tightening of sugar imports to slow the influx of the raw material into the market. Specifically, limiting the import quota to the actual sugar deficit in the market will close the loopholes that middlemen typically use to import cheap sugar sometimes illegally.
Importing sugar into Kenya is so lucrative that in 2018 there were around 60 registered sugar importers, more than double the number of millers. The high sugar deficit, reaching 600,000 metric tonnes per year, is normally met through carry-over stocks held by local millers and duty-free imports. Besides refined sugar for industrial use which is not produced locally, the permanent deficit of the domestic sugar market can be filled by increasing inputs.
The 2020 Crop (Sugar) (Imports, Exports, and By-Products) Regulations introduced by the state last year have forced sugar importers to reapply for permits. This should not only eliminate cartels, but also prevent cheap sugar from being dumped on the domestic market, leaving local millers stranded with a huge inventory.
Underlying these beneficial state-led reforms is a booming sugar industry that needs support to recover and develop in a sustainable manner. For example, sugar production rose to over 600,000 metric tonnes last year, up from 440,000 metric tonnes in 2019. The Food and Agriculture Authority (AFA) predicts that figure will rise to 660 000 metric tons in 2021.
The total area devoted to the cultivation of sugar cane in the country increased by 60%, from 126,826 hectares in 2002 to 202,616 hectares in 2020. Average sugar cane yields also increased to 61 tons per year. hectare in 2020, against 51 tonnes in 2019, an impressive 20% improvement.
AFA combines this improved yield with favorable weather conditions and optimized crushing capacity as a result of private sector and government investment through capital injections into local millers.
However, to consolidate these recent gains, we must urgently address the factors undermining the competitiveness of the local sugar industry. First, the ex-works price of Kenyan sugar must fall. It is currently around $ 800 (Ksh 80,000) per tonne, compared to the world average of $ 280 (Ksh 28,000) per tonne, which means our sugar is four times more expensive than the rest of the world. has to offer.
After taking into account the costs of buying sugar cane, milling, processing and selling margins, millers must add 16 percent VAT and 4 percent sugar development tax. Tax incentives such as lowering the sugar development tax or granting tax exemptions to new sugar manufacturers with fixed threshold capacity, among other measures, will further encourage the private sector to invest in new ones. crushing plants as is currently the case.
Second, we need to revisit Kenya’s arrangement with COMESA, where most of the sugar imported into Kenya comes from and which benefits from a preferential ad valorem tariff rate of 10 percent. Although Kenya was granted a two-year extension last December under the COMESA sugar import regime, this is subject to certain conditions, such as improving the competitiveness of the industry and the transparency of its operations. sugar production and consumption data to generate a more accurate picture of the deficit to allow further extensions.
To avoid having to request extensions from COMESA, we need to double production from the current 600,000 metric tonnes to match domestic consumption of over one million metric tonnes. This requires investments in the latest grinding technologies to increase capacity and quality, the renovation of infrastructure in the sugarcane growing areas and the reform of the governance of public flour mills, in particular by accelerating privatization.
There is also a need to diversify the cultivation of sugar from the traditional belt of the western and coastal regions. In fact, if you ask someone on the street, they’ll tell you that sugar production is Western Kenya’s business. Yet recent trends show a growing interest in crops in non-traditional production areas, a sign that the sugar value chain is ripe for diversification.
Counties like Trans Nzoia, Uasin Gishu and Narok known for growing corn and wheat now have sugar cane plantations. There are reports that private investors are planning to establish new crushing plants in Siaya, Kilifi, Kisii, Uasin Gishu and Tana River counties.
With agriculture being a decentralized function, counties should promote investment in cash crops like sugar cane if the country is to achieve food security and rapid industrialization, especially in food and drink manufacturing. The counties are also expected to spearhead fast-growing sugarcane varieties with high-quality sucrose content. This will create more jobs for Kenyans and value added opportunities for agricultural businesses.
Of course, sugarcane cannot grow everywhere, but if we encourage more countries to produce the sweetener, Kenya will become a net exporter of sugar as it was in the 1970s before the industry plunged. in perpetual malaise due to mismanagement and failure of innovative investments to produce the crop.
Mr. Murumba is CEO of Impulso Kenya Limited. Email: [email protected]