The local sugar industry is highly viable, but has been undermined by policy and public mismanagement that has prompted a productivity slump. As a result, when import protection ends, supposedly next year, the industry will be immediately undercut by far cheaper imported sugar.
This will costs Kenya a lot.
At least 250,000 farmers grow cane while up to six million Kenyans draw a livelihood from the sugar industry. The country could save up to Sh55 billion a year in import costs by using locally produced sugar. This would help reduce our trade deficit which continues to grow and place pressure on the value of the shilling.
Yet the government has proposed new regulations that appear unjustified and even inexplicable.
Comesa has warned there will be no further extensions in protecting domestic sugar production from imports yet the cost of production for Kenyan sugar remains high. Currently, it costs $870 to produce a tonne, compared with $350 a tonne in Malawi and $400 a tonne in Egypt.
There is no possibility of Kenyan sugar competing against imports at the current cost of production.
Reducing cost of production should, therefore, have been the top in the new regulations.
The proposed new controls comprise a peculiarly old-fashioned model of expensive (for taxpayers) State intervention that is set to further load costs. The root of the excessive costs is seeds, with farmers still using low yield seeds. This means Kenya produces far less sugar per hectare than any of its competitors.
A clear jumpstart would have come from regulations that encourage entrepreneurs to produce the 14 new high yield seeds developed by the Sugar Research Institute and already released for commercial production.
Instead, the regulations put sugar cane seed production under the control of the Sugar Directorate, taking it away from the Kenya Plant Health Inspectorate Service that handles the country’s seed licensing.
Setting up a new department in the Sugar Directorate with the technical capacity, expertise and infrastructure to test seeds and approve growers is costly and time consuming, and will only duplicate what KEPHIS does.
The other dead hand on the local industry is the mismanagement and inefficiency of our sugar mills. Yet, instead of encouraging new mill investment or building incentives for higher quality cane, the new regulations have added a framework that is proven to deter farmers.
The regulations introduce zoning, which means every farmer growing sugar cone is assigned just one mill they can sell to. Countries that tried similar programmes only managed drive farmers out of cane production.
Besides adopting zoning that other countries have reversed, the government requires investors to put in place high-powered management teams up to two years before getting licences or going into operation, and must build sugar mills first, before finding out if they can be licensed. No investor will take such a risk!
The new rules never underwent an impact assessment, which is required as a matter of law in creating new regulations that affect large populations.
The Parliamentary Committee on Delegated Legislation is due to review this decision to ‘forget’ to carry out a cost benefit analysis, or any comparative assessment of other policies.For six million Kenyans, they still hope for a serious try at reducing production costs. The writer is coordinator, The Sugar Campaign for Change