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In what could compound local sugar millers’ problems, Uganda barons are demanding full access to the Kenya market — based on the East African Community’s free market rule.
In what could compound local sugar millers’ problems, Uganda barons are demanding full access to the Kenya market — based on the East African Community’s free market rule.

Currently, Kenya has a cap on sugar imports to protect local mills from competition. But Uganda sugar firms want the Kenya market opened up to help in balancing trade between the two countries, which is currently in favour of Kenya.

“… Sugar from other countries in SADC and Comesa — which are not in EAC — enters Kenya with ease. The Uganda sugar industry would want to know why,” Uganda Sugar Manufacturers Association chairman Jim Kabeho said at a recent meeting on the matter, in a presentation seen by Smart Company.

The dispute has been ongoing, with EAC ministers meeting in July ordering regulatory authorities to meet and resolve the standoff.

This seems not to have worked to the satisfaction of Uganda, triggering the current call for full access.

The tussle can be traced to August 2011 when Kenya allowed Uganda to import sugar through the Port of Mombasa duty-free for a period of six months following a request to help the nation plug a deficit.

The only condition was that the sugar would be consumed only in Uganda.

If it was re-exported back to Kenya, a levy of 100 per cent would be charged. At the expiry of the stay period in January 2012, however, Kenya tax officials observed that sugar imports from Uganda were rising steadily.

This led to Ugandan businessmen being accused of exporting the sugar back to Kenya.

The Kenya Revenue Authority (KRA) said it was difficult to distinguish between sugar imported during the stay period and other ordinary imports.

Kenya imposed an import ban on Ugandan sugar in October 2012 on suspicion that the country was dumping duty-free sugar that it had been allowed to import in 2011.

In February, last year, KRA stopped over 220 tonnes of Uganda-manufactured sugar from entering the country.

Under the EAC common market rules, Uganda should be freely exporting its sugar, but Kenya is hiding behind the Common Market for Eastern and Southern Africa (Comesa) rules to impose a ban on imports.

Under these rules, Kenya is allowed to impose a limit of 300,000 tonnes on imports annually. The Comesa safeguards were renewed in February this year, even as the country exhausted the maximum allowable 10 years under the World Trade Organisation remedies.

Kenya was first granted protectionist measures from the 19-member trading bloc in March 2002 — for one year, which was again extended upon expiry in 2003 for another year. The second extension of four years came in March 2004, only to be extended again for another two years upon expiry in 2008. The third two-year extension expired in February this year.

The extensions were granted by Comesa on the basis of a 2007 special amendment to the bloc’s rule that allowed safeguards for a maximum of eight years.

Sugar-surplus nation

With Kenya relying on the safeguards to stop imports, Uganda sugar barons are escalating this by moving to have EAC declare their country a sugar-surplus nation, making KRA’s attempts to stop the sugar flow an illegality.

In the meeting, Mr Kabeho said Uganda had informed the EAC member states that it was now a surplus producer of the commodity and, therefore, continued importation of duty-free sugar would not assist in strengthening the industry in the region.

“Uganda is the first country in the East African Community to not only bridge the gap between demand and supply but also to plug the shortfall in neighbouring countries,” Mr Kabeho said.

Uganda has an installed capacity of 19,800 tonnes crushed per day (TCD). The surge in production is due to opening up of new mills and expansion of existing ones. Uganda’s annual sugar consumption stands at 320,000 tonnes, against 465,000 tonnes produced last year.

Sugar production is projected to reach 623,700 tonnes in 2015. New mills in Kamuli, Kafu, Kiryadongo, Luwero and Aliak are expected to further increase the country’s production in the next two years.

Kenya is considered the second most attractive market for sugar after the European Union, due to its high cost of production that is almost double the global average of $300 per tonne.

Data from the Kenya Sugar Board puts the local production cost at $870 per tonne, way above other Comesa producers like Malawi, Zambia and Swaziland that incur a $300-350 cost per tonne.

Also, Kenya is a net importer of sugar, with an annual deficit of between 250,000 tonnes and 300,000 tonnes. The deficit is normally covered through temporary issuance of import permits.

This year’s production has been reduced from the projected 698,357 tonnes to 636,956 tonnes, which the Directorate has attributed to closure of Mumias and West Kenya mills for maintenance, and delay in commissioning Kibos firm.

Approved sugar importation

Last month, the government approved sugar importation, with the Ministry of Agriculture saying this would help stabilise sugar prices. “To mitigate sugar shortage and anticipated price increases in October, the Directorate approved pre-shipment by 21 firms to import 89,100 tonnes of brown/mill white. This sugar is expected to be shipped in the next three months,” said Sugar Directorate interim head Rosemary Mkok.

Uganda has been one of Kenya’s biggest suppliers of sugar, with imports from the country rising from 73 tonnes in November 2011 to 30,299 tonnes in November 2012. They have been rising since then.

Other countries where sugar imports will come from are Zambia (24,500 tonnes), Madagascar (25,000 tonnes) and Egypt (2,000).

Uganda’s push for access is also pegged on a need for balance of trade, with Uganda saying Kenya is introducing unfair barriers to trade.

According to the 2014 Economic Survey, Uganda was the largest destination of exports from Kenya, constituting lime, cement and fabricated construction materials (other than glass and clay).

This earned Kenya Sh65 billion in 2013, compared with Sh67 billion in 2012. On the other hand, Uganda exported goods worth Sh16 billion to Kenya in 2013.

End to import safeguards

The new development comes against the backdrop of a weakened local sugar sector and an end to import safeguards in February, before the market is opened up to other countries in the Comesa region.

Nevertheless, local sugar managers are hopeful that the measures they are implementing will lift the sector from its current low state. “The main focus is to steer the industry from a traditional high cost single-commodity supplier to a competitive multi-product industry that is self-sufficient, a net exporter of sugar, electricity, ethanol, paper and other goods derived from cane,” Ms Mkok said.

She said an industry growth strategy — meant to cut costs at farm and factory levels while setting minimum performance benchmarks in terms of crushing capacity, applicable technology and efficiency benchmarks for all mills, and mandatory diversified products — would see the local industry claim some ground in the coming years.

An aggressive cane development campaign is underway, with Sh1.4 billion already disbursed to millers for onward lending to farmers.

Improved cane seed — early maturing, high sucrose content, sufficient fibre and disease resistant — will be introduced.

“We have traditionally relied on sugar as the only product and paid farmers based on the weight of their cane. But we shall now remunerate based on quality and a fair share of the value of all income from other products derived from their raw material,” she said.

It is hoped that this will facilitate an equitable mechanism for pricing of sugar-cane and fair distribution of income between growers and millers, while putting pressure on all players to diversify their product base and revenue streams.

They are now carrying out pilot projects on a quality-based payment system in Bungoma and Migori counties and expect this to be rolled out to all sugar zones by the end of 2016.

Jointly with the European Union, the government is seeking to transform sugarcane farmers from subsistence to agribusiness entrepreneurs to provide combined mill demand of about 33,240 tonnes of cane a day.

This, the Directorate said, would push production to over one million tonnes of sugar, which would be above the domestic demand of 800,000 tonnes a year.  About 900 farmers have benefited directly from the EU-funded programme.

These initiatives, combined with a Sh3 billion credit fund and an anticipated Sh44 billion debt write-off plan by the government, are among the measures envisaged to turn around the industry.

Sweet rivalry

     Uganda is now a surplus producer of sugar and, therefore, continued importation of duty-free imports will not assist in strengthening the industry in the region.

     EAC’s free market rules allow full access of the Kenya market to all partner states.

     Sugar production in Uganda is rising, due to opening up of new mills and expansion of existing ones.

     Uganda’s annual sugar consumption stands at 320,000 tonnes, against 465,000 tonnes produced last year.

     The production is projected to reach 623,700 tonnes in 2015.