EAST AFRICA SUGAR Smuggling leaves a bitter taste

Sugar production in East Africa remains below consumption requirements, despite what experts say are good soils, adequate rainfall and up-to-date research on sugar growing, but illegal imports and ageing factories, among other shortcomings, have forced hundreds of cane farmers into poverty.

The situation is particularly bad in Kenya, where the high cost of sugar is a key contributor to a high consumer price index, and where cane farmers are owed hundreds of millions of dollars in unpaid cane deliveries by the ageing and underfunded sugar factories.

The only shining star is Uganda, where the Uganda Sugar Manufacturers Association expects the country to be self-sufficient in sugar production by 2015. Kenya has a sugar deficit of 200 000 t, Tanzania 160 000 t and Uganda 10 000 t. Most sugar farmers in the region still grow cane that matures in 18-20 months, despite new varieties developed by research bodies like the Kenya Sugar Research Foundation that mature in 11-14 months.

Factors blamed for the poor state of the region’s sugar industry range from underinvestment in processing and the slow adoption of technology to mismanagement of state-owned factories, in particular.

Illegal sugar imports are rife as politically connected entrepreneurs flood the market with cheap, duty-free imports in return for funding ruling parties.

“Smuggling has become a major challenge not only in Kenya but the rest of East Africa,” says Kenya Sugar Board CE Rosemary Mkok. “It is undercutting the price of locally and legally processed sugar.”

Kenya sugar prices in the first quarter fell from an average US$43 per 50 kg bag to $36, which Mkok says is below breakeven price, due to illegal imports. Another problem is that locally produced sugar gets out of the warehouses slowly, leading to stockpiles and delays in paying cane farmers.

Some Kenyan millers import cheaper sugar and sell it as their brand to compete. This means their stocks pile up. This is one of the strategies used by Mumias Sugar Company, the largest and only listed miller in Kenya, which accounts for about 60% of the national output.

This practice has landed the company in trouble: parliament has recommended the suspension of some of its senior officials as investigations get under way. “We did not import any more sugar than we were allowed by the Kenya Sugar Board,” says suspended Mumias CE Peter Kebati.

The company posted a pretax loss of $26m in 2013, which it blames partly on cheap imports and cane poaching by new factories with an inadequate outgrower base.

Parliament’s smuggling probe includes how sugar imported through Mombasa by other countries is diverted to the local market. It has turned into a blame game as the Kenya Revenue Authority and the Kenya Police Service accuse each other of complicity. Kenya Revenue Authority commissioner-general John Njiraini told a parliamentary committee it had no control over the country’s porous borders: “Our staff can only man official border points and it is impossible for us to control entry of goods through unofficial border points.”

And even at official border posts it was not possible to verify that containers only had goods specified in import documents. Peter Kebati Mumias suspended CEO says imports were allowed by the sugar board

Police inspector-general David Kimaiyo alleged that revenue collection officials colluded with illegal importers.

The high cost of sugar production in Kenya doesn’t help. The sugar board estimates this at about $570/t compared with $270 in Egypt, $210 in Malawi and $275 in Swaziland. These countries are members of the Comesa free-trade area, so their goods can be imported to Kenya duty-free. A consolation for Kenya is that its sugar industry enjoys special protection from Comesa imports until it is able to reduce its production costs.

But this is unlikely to happen by the time the protection ends in a year, as most stateowned sugar mills haven’t the capacity to modernise operations to cut production costs. The MD of Kenya’s state-owned Nzoia Sugar Factory, which has liabilities of $376m, says the safeguard won’t help to cut production costs and that unregulated dutyfree sugar imports remain a major problem.

Kenya is looking to privatise its five stateowned sugar millers in a bid to save the sector. The plan includes paying off all their debts, a total of almost $500m. Parliament is expected to approve the privatisation plan in the next three months.

The county is banking on new private sugar millers like Kwale International Sugar Company in Mombasa, which is due to start production in July, adding 3 000 t of sugar daily to the market, helping meet the deficit.

The sugar board says it expects the deficit to be further reduced as production is expected to increase by 17% as a result of improved supply of cane.

Tanzania is seeking to triple sugar production by 2016, according to the acting director-general of the country’s sugar board, Henry Semwaza.

Projects are in various stages of implementation in Rufiji in the coastal region, in Kasulu District in Kigoma and in Ikongo in the Mara region.

Uganda expects production to grow to cover its deficit next year, according to the Uganda Sugar Manufacturers Association. “All three big producers contracted more outgrowers this year to secure higher supplies of cane. They also expanded their processing capacity last year, which accounts for the slight increase in output,” says the association’s secretariat manager, Wilberforce Mubiru. Cane crushing capacity has improved since the opening of a new factory, Kaliro Sugar, with the association predicting the country will be a net exporter of sugar by 2016.

Steve Mbogo, Nairobi