“Africa produced around 10 million tons of sugar last year but it needed to import an additional two million tons to meet up with the shortfall. There are certain parts of the continent where there are large deficits particularly in East Africa,” Edward George, Head of Soft Commodities Research at Ecobank told CNBC Africa.
According to a report by Ecobank on East Africa’s agro-industrial sector, a large sugar deficit of 400,000 tons is run by Kenya and Tanzania which must be imported and only Ethiopia and Uganda run tiny surpluses.
Statistics indicate that Kenya’s cost of production is above the world average and those of other countries in Common Market for Eastern and Southern Africa (COMESA) because of its reliance on small holder production and low capacity utilisation in factories.
“Kenya has the least efficient sugar industry in East Africa, probably around 70 dollars a ton to produce sugar. So this encourages much sugar imports into the country from elsewhere,” said George.
Kenya’s domestic production is around 550,000 metric tons, however the country’s potential demand is approximately 800,000 tons leaving a net deficit to be filled by imports.
To enhance efficiency of the sugar sector, state-owned sugar companies will be privatized and include are Chemelil Sugar Company, Nzoia Sugar Company Ltd, South Nyanza Sugar Company Ltd, Muhoroni Sugar Company Ltd and Miwani Sugar Company.
“It is a huge challenge to reform Kenya’s sugar sector. The most difficult will be consolidation. The need to consolidate various sugar mills some of which sit in different political constituencies,” George said.
The privatisation of the companies will inject more capital, diversify and make the industry more competitive.
Kenya got a one-year extension to delay duty-free sugar imports from COMESA member states till March 2015, so as to complete reforms in its sugar industry. The government applied for protection for the sector by way of a safeguard under Article 61 of the COMESA Treaty in 2003 to run till 2008 so that sugar imports from COMESA are subject to customs duties.
“The COMESA safeguard after having its final extension is due to run next year and of the five state-owned sugar mills, are either bankrupt or almost bankrupt. So there needs to be a root and branch reform of how sugar is produced in Kenya and that means introducing more market friendly reforms.”
COMESA gives full market access at zero-rate tariff to goods from member states.
Uganda sugar millers are also in support of a safeguard for EAC economies against COMESA sugar giants.