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The Kenyan sugar industry is in the throes of economic restructuring. This has been occasioned, partly, by the country’s accession to multilateral and regional free trade agreements and treaties, especially the WTO agreement and the COMESA treaty, as well as poor management and institutional structure.  The Sugar Act No. 10 of 2001 enacted to streamline this process is dogged with implementation controversies, while the millers are saying they are unable to sell their stock due to the flooding of the domestic market by cheap imports.


It is against this backdrop that the Sugar Campaign for Change (SUCAM) organized a two-day stakeholders conference to critically analyze the status of the Kenyan Sugar Industry and come up with concrete proposals on effective and efficient production and appropriate safeguard measures against cheap imports. A wide range of participants was invited including the Kenya Sugar Authority, millers (both local and foreign), the growers, Government officials, Policy makers, importers, commercial attaches and the media.


A boycott by the local millers notwithstanding, the conference proceeded smoothly. The presentations were quite incisive and very informative and the discussions candid. This report is a comprehensive coverage of what transpired during the two days. It is a rendition of the diagnoses of the problems of the sugar industry made by several experts, the recommendations they gave and the reactions of the various categories of participants. It is also a delineation of the experiences of other COMESA countries and the positions of Kenyan trading partners in the region as recounted and stated, respectively, by experts and the various delegates.

















Mr. Peter Kegode welcomed delegates from London, Malawi, Egypt and Zimbabwe; government officials, Kenya Sugar Authority personnel, growers, and other key players.






This meeting is meant to bring up the stakeholders in the sugar industry to come up with a way forward, by looking at safeguard measures such as quotas etc.  There is a need to know the background of the sugar industry.


Status of Kenya Sugar Industry


·         Company                       Year                       Capacity                                                Status

·         Miwani                           1922                        1500                                                        Receiver/Man.

·         Ramisi                            1927                        1000                                                        Receiver/Man.

·         Muhoroni                      1966                        2000                                                        Receiver/Man

·         Chemelil                         1968                        4000                                                        Operational

·         Mumias                          1973                        10000                                                      Operational

·         Nzoia                              1978                        3000                                                        Operational

·         Sony                               1979                        3000                                                        Operational

·        West Kenya                  1981                        900                                              Operational


Five new sugar factories have been proposed of which Busia, with a capacity of 4000 and Transmara are still in the drawing board. Coveka and Soin with a capacity of 2000 and 1500, respectively, are under construction, while Ulumbi with a capacity of 400 is under rehabilitation. The sugar industry is predominantly government owned. The Government owns majority shares in Chemelil, Nzoia, Sony and Muhoroni and is a minority shareholder in Mumias and Miwani. Four of the companies West Kenya, Soin Sugar, Ulumbi Sugar and Coveka are private. Of the five operational government owned sugar factories, Mumias was recently privatized; Chemelil is next in line for privatization while Nzoia, Sony and Muhoroni are not yet on schedule. Muhoroni, Miwani and Ramisis are under receiver management, while Mumias and Nzoia are under F. C. Shaffer and associates and Booker Tate, respectively.


Socio-Economic Importance of the Sugar Industry

The Sugar industry supports directly and indirectly five million people, representing about 16 per cent of the entire population of Kenya. It is a source of income to over 120, 000 small-holders who produce 88 per cent of cane (the remaining 12 per cent is produced by factory owned nucleus estates) and provides direct employment to over 40, 000 workers. Sugar is major food item in Kenyan’s household budget. Refined Sugar is a major raw material for industrial production, food processing, beverage manufacturing, pharmaceuticals, soft drinks and others.


The Sugar Act

The Act, which came into being on 1st April 2002, seeks to streamline the operations of the sugar industry. It, for example, provides for the existence of the Kenya Sugar Board, the apex body that is supposed to run the industry and the Kenya Sugar Research Foundation (KESREF), that would be responsible for research into effective cane varieties with high sugar content.  The Act will enable hitherto disorganized groups to find organizational forms. Some organizations/associations are not imbedded in the Act. This is because some actors, millers, transporters etc. were not active in the lobby for the Act. This forum is meant to bring together such stakeholders to dialogue and negotiate.


 Key Challenges Presented by the Sugar Act


·        Board Representation

This has proved to be the most controversial provision. The millers are complaining about an overwhelming majority of farmers in the board. This they argue will affect the smooth running of the industry. They feel there is a need for more miller presence. This is however debatable. No industry has thrived on the basis of either millers or farmers. There is need for a partnership. There is need to bring some sense of decorum, to have a situation where farmers and millers dialogue amicably.


·        Prompt payment clauses

It takes two years to pay farmers after sugar cane has been long crushed and sold. Kids get born and walk before the payment is done!


·        Cane Weighing on the farm

Millers argue that they do not have the necessary infrastructure, while the farmers argue that there is a lot of wastage between farm gate and factories. Such losses should be investigated. The clause is as a result of a problem in the industry. The MPs and farmers thought it fit to legislate this.


·        Payment by Sucrose Contents

The millers argue that in order to fulfill the requirements of the clause they must quickly put Kshs. 50m on laboratories to measure accurate sucrose content. While the farmers feel they cannot be penalized for poor sucrose content because this is a function of the variety of seed cane they were supplied with. There is need for a proper research body. Although these issues are problematic, they must confronted.


·        51 per cent Shareholding by farmers 

The Act does not clarify between public owned and private owned firms. There is need for clarity. MPs introduced the clause because they found the government was very reluctant to offload majority shares to the farmers. While the millers argue that not everybody can invest, there would be no proper industry without farmer ownership.


·        51 per cent representation on privatized sugar companies.

The millers are wondering why they should bring in farmers in their management.


Challenges facing the Sugar Industry

The following must be addressed if we need change in the sugar sector:


·        Low cane crushing Capacity, post harvest losses, low extraction-Poor factory technology and poor management causes low extraction parameters.


·        Unpredictable weather patterns-Rain fed production, in the absence of irrigation, results into the failure to meet production projections.


·        Lack of syndicated long term financing to finance new investments in the industry-there is no long-term financial arrangement. There are no local financiers to undertake investment of a scale such as Mumias, hence it has failed to come up.


·        Corruption and political vested interests; high costs of production, procurement and unsustainable cost structures; poor rural infrastructure and poor crop husbandry practices aggravated by existence of weak out-grower companies.


Sugar Marketing Challenges

·        Cash flow crisis-this problematic is occasioned by high sugar inventory, which leads to the factories inability to pay farmers, creditors etc. on time. But the question is why seat on such an inventory? Why not exploit other markets even the COMESA.


·        Unregulated sugar imports-this is another problematic issue. There is a whole over 1000 Kilometres border between Somali and Kenya which is unmanned. Duty free sugar from Mogadishu finds its way into the country. This is very difficult to control.


·        Dumping of transit sugar destined to neighbouring countries into the local market. While all the documents show that such sugar has crossed, for instance, into Uganda it still finds its way into the local market, hence it has been dumped. This does cause problems for the industry. Other challenges include ineffective surveillance and monitoring of illegal sugar and poor regional marketing strategy


Protective Measures to Safeguard the Sugar Industry

The protective measures, the instruments that can be used to protect the industry against injury due to a surge in imports are to be discussed later at a deeper level by experts. We have brought COMESA representatives for the purposes of consultation. This is because invoking such measures without consultation will result into other ramifications.


Way Forward

·        Change process at all levels

·        Attack costs at all levels, to increase competitiveness

·        Efficient operations

·        Attract new investment in the sub-sector

·        Deal with corruption at all levels

·        Undertake capacity building in the sector

·        Implement the Sugar Act. Negotiate with stakeholders on controversial clauses


SUCAM’s reason for existence is to introduce change in the sugar sector. There is a tendency to resist change even if it is for the better. Need for some counseling. There is a counselor to handle this. More speakers will come in to address the arising issues in a more detailed manner.






Why are we here? We are here to discuss the sugar industry condition, especially with regard to entry into a free trade area COMESA and Kenya’s protective policies. The global sugar production is 132 million Mt. The current world surplus is 20 million Mt. The global market, is a residual market, a market with excess surplus. Surplus management and domestic consumption results in approximately 34 million Mt of sugar delivered to the international market per annum. The World market values are volatile as a result of market gearing and seasonal production and consumption variances. Ten years ago the price of sugar was twice what it is now.


How does this impact on Kenya and COMESA? The member states of the COMESA FTA that are currently in a position to export sugar to Kenya are Egypt, Malawi, Mauritius, Sudan, Swaziland, Zambia and Zimbabwe. The estimated availability from COMESA is 60, 000 Mt with Sudan capable of an additional 100, 000 Mt. Kenya’s actual domestic production deficit for 2002 is likely to be less than 90, 000 Mt. An additional 80, 000 Mt is likely to be sourced by Kenya’s industrial community from outside the FTA.


The global sugar dynamics have limited effect on the export of sugar to Kenya by COMESA countries. This is because of sugar pricing in COMESA. When it comes purchasing, the Kenyan buyer of COMESA sugar will exercise purchases in the prompt month according to the short-term supply and demand balance of the market. A seller will react to domestic market prices in Kenya as dictated by competition between domestically produced and imported sugar. The duty on world market sugar is 100 per cent, pricing is based on the value and availability of sugar from within COMESA only. The seller will charge a premium where the delivery cost is less than the domestic price of sugar in Kenya. The sugar industry in the region is managed against a benchmark of 100 per cent import duty. Zero rate interest in COMESA region does not directly affect Kenya.


What does this portend for Kenya’s trading in the future? The free trade area is an expanded market that encourages development and competition. Kenya has to increase production substantially to satisfy the COMESA deficit. But, Kenya is currently a high cost producer of sugar and in order to develop and compete, initially within COMESA, it must rationalize its sugar industry to achieve a significantly lower cost of production. Sustainable protectionist measures are contrary to the treaty. The Kenyan sugar sector on a very short-term basis made significant returns due to high import duties and freight benefit-sugar cane manufactured in Western Kenya and sold in Kenya. Neighbours in COMESA and, others further a field, have very low cost of production. Kenya has to compete; there are no two ways about it. Tariffs are a thing of the past. Tariffs do not address longer-term efforts of manufacturers or traders of sugar. In a Free Trade Area it is immaterial whether domestic deficit is 90, 000 Mt or 200, 000 Mt. Other members will target the entire market. Kenya has to have efficient and effective producers of sugar, there is going to be no tariff in the COMESA region. It has to be in a position to compete with the COMESA residual price and even the world residual price. Kenya needs to export to the world market not only in the COMESA region.


Who are importers of sugar? These are parties who import sugar as a business. Importers of sugar into Kenya are now significant stakeholders in the sugar economy. They have a pivotal role to play in the future of the industry. They are not out to undermine the domestic industry. Where opportunities are left wide open they will be exploited. They are bound to take advantage of Kenya’s market. We need to see what we can do to reduce production costs and make the market much more competitive. Kenya exports so much into the COMESA region, it cannot afford to protect its sugar industry for it will suffer more if others retaliate. A recovery in world market values may result in more attractive destinations for COMESA exports.






The sugar industry is one of the oldest processing industries in the world. It has had a long and shameful history coated with bitter memories of poverty and squalor, on the one hand and trade and prosperity, on the other hand. The industry was the cornerstone of the “triangular trade” which began with tradeables from Europe being brought to Africa to be battered for slaves. The slaves were exchanged in the West Indies for sugar, which was then shipped to Europe. It is not a coincidence that in Kenya also, there is almost a direct correlation between sugar cane growing and poverty to the dominant stakeholder-the farmer. This meeting has been convened at the right time. The sugar industry in Kenya is undergoing a fundamental structural change-of which most of the millers are not prepared for. There also appears to be lack of a coherent strategy for long-term survival and prosperity. Sugar is a highly politicized commodity. The continued growth of government participation and control has played a major role in determining the industry’s performance worldwide.


Scenario from the Mid 1990s-Early 2000

Kenya is going to import sugar for the foreseeable future. Investments in domestic production capacity are lagging well behind the growth in demand. Domestic and imported sugar compete directly in the domestic market where traders and consumers decision to buy local or imported is made purely on the basis of price and quality. A question worth pondering over is about the long-term prospects from the industry that comprises about 4 per cent of the value of agricultural production. Kenyan sugar is produced in Western Kenya in three zones. The cost of producing cane in each zone and scale differs, (using the 1998 figures) the cost is lowest in the Western and South Nyanza small-scale systems at Kshs. 979 compared with Kshs. 1497 in the Nyando sugar-belt small scale. But pricing in all zones was pegged at Kshs. 1730 per tonne, leaving the Nyando systems with a Kshs. 500 per tonne cost disadvantage at the farm level that worked to over Kshs. 5000 per tone of processed sugar.


The processing efficiency is an important parameter in determining the competitiveness of the sugar production system. Among Kenya’s seven sugar factories, the tonnes of cane needed to make one tonne of sugar ranged from 9.82 tonnes for Mumias to 16.65 for Miwani sugar companies. This implies that the extra 6.83 tonnes that was needed by Miwani to produce sugar relative to Mumias, meaning that the factory had to pay an extra Kshs. 10, 816 for cane in making one tonne of sugar before it was placed under receivership. The factory zone efficiency is measured by the metric tonne of cane used to produce one metric tonne of sugar. The least efficient producer, Miwani used Kshs. 12, 000 (40 per cent) more on sugar to produce a metric tonne of sugar than did Mumias. But the sugar industry policy whereby selling prices take into account the costs of the least efficient producer has meant that the relatively efficient factories suffer as much as the inefficient ones from the inability to unload stocks in the face of import competition. Restructuring the industry would help address the artificial problems such as corruption in cane weighing, the purchase of costly and inappropriate equipment that have scaled up the costs. The policy question is how this restructuring process can be made transparent, fair and politically acceptable while earning the government maximum revenue from sales.


Cost of Sugar Production in Kenya: The Question of Efficiency

A survey by the Kenya Sugar cane Growers Association in 2000 found that the cost of producing a tonne of white sugar in Kenya is more than Kshs. 2500 compared to sugar production in South Africa, which stood at Kshs. 2000. In general all factories have low cane crushing capacity, and low sugar extraction parameters caused by poor factory technology and mismanagement. The existing average national factory capacity is 24, 500 TCD, which can be expanded to 41, 000 TCD. However, the diversity of conditions, systems and practices seriously limits the confidence of comparisons of efficiency and profitability of sugar cane production. There are small as well as large growers at the primary stage operating under different economic, technical, and financial constraints which in turn are reflected in the wide divergence in the yields, costs of production, technical efficiency and so on. Milling in Kenya is however highly centralized, but comparatively inefficient by world standards.


At the technical level, the size of the plant and scale of operations are crucial factors. In Kenya substantial under-utilization of capacity is evident. Although technically this extra capacity could be used to expand the scale of operations. Two observations are crucial with respect to Kenya: most millers are high cost producers; the industries are beset with serious technical and logistical problems. Consequently not only is the cost a major constraint on the scale of operations, but also the level and type of technology, which they employ, would be critical in the context of competition in the world market. Chemelil sugar factory uses both vertical and horizontal crystallization, which is cost effective and fairly efficient in mill extraction, while Mumias sugar factory uses diffuser technology, which is most efficient in mill extraction but too costly to maintain. The diffuser technology in Mumias has not led to reduction in costs. 


The Question of Economies of Scale

The annual accounts of the sugar companies show that none of the companies regularly make any profits or break even on their sugar production. Miwani, Muhoroni and Nzoia had not had an operating profit in five financial years proceeding the year 2000. Chemelil and Sony had modest operating profits four years preceding the year 2000. Mumias have been able to post some operating profits in the 1996/97 financial year. It is imperative that the sugar companies urgently address and reduce the overall production cost of sugar. For quite sometime, it was not possible to increase the selling price without opening the doors to imported sugar which had largely been kept out of the country through duties and high tariffs, of 125 per cent level which could not be increased further with increased liberalization of the sector. The companies can reduce the direct costs of sugar production by improving cane quality, sugar recoveries, factory efficiency, labour utilization and usage of chemicals and other materials.


Factory Time Efficiency

A well-run factory should operate for at least 22 hours a day non-stop. In practice, factories do not achieve this because of stoppages occasioned by breakdowns in equipment, lack of cane, congestion in the process house and other operational difficulties. Factory time efficiency is a measure of the factory’s ability to sustain operations against the theoretical available time excluding stops due to cane supply. Internationally, the standards for FTE are 91.7 per cent. Kenyan sugar factories incur a lot of down time mainly due to breakdowns in equipment. These breakdowns can be attributed to poor maintenance of equipment. Miwani gives a worst case scenario with 56.7 per cent.  Chemelil has the highest score at 86.3 per cent, while Mumias and Sony operate at 83.2% and 85.87%, respectively. The poor FTE means that the majority of sugar companies are losing revenues from lost production time incurring the cost of idle labour and overheads. The F. C. Schaffer report (1995) cited lost time as the single largest operating problem in Kenya. To be competitive, the companies should consistently operate at a FTE of 91.7 per cent.


Factory Capacity Utilization

Capacity utilization is related to FTE but in addition takes into account the availability of cane and factory throughput. Between 1996 and 1999, the capacity utilization had been below average except for Sony at 91.2 per cent in 1997/98. Mumias’s was 82.3 per cent for 1998 and 1999. Muhoroni and Miwani at 56.8 per cent and 44.4 per cent against the normal 85% have by and large, been operating at half capacity, which is equivalent to keeping the factory closed for half the time while meeting paying for overheads. More often than not, the SDF funds have not been forthcoming from the KSA. The problem of inadequate funding has been very severe for the poorly performing factories like Miwani, Muhoroni and Nzoia. These companies are highly indebted and have not been able to generate enough revenue to cover their operational costs, and have reserves for subsequent maintenance.


Case For Diversification and Technology Improvement

Kenya sugar industry has not maximized its full potential. Diversification is a strategy that can help in mitigating the high costs of production, ensuring food security for the sugar cane farmers-thus empowering both the millers and other stakeholders. Researches done show that the Western and Nyanza sugar belt can also support vegetable and fruit farming and cultivation of palm oil, which a local Kenyan cooking oil processing factory, BIDCO has embarked on to diversify its base as well. BIDCO has grown palm oil in Sese Island (Lake Victoria) Uganda. This has been successfully done in Cote D’ivoire


The byproducts of sugarcane have a wide scope to be put into more diversified and economic use. The byproducts are mainly bagasse, filter cake and molasses. The industry markets yeast, molasses for the production of alcohol, vinegar, acetic acid and acetone, and as a supplement for livestock feed. Subsidiary industries can also be developed on sugar by-products. Bagasse can be used as fuel supplement of steam to provide energy to the factories. For example, Mumias sugar factory can generate 9 megawatts of power from bagasse. The filter cake can be used as an organic fertilizer and as soil ameliorate. Other possible uses of bagasse include production of newsprints, building construction hardboard and briquettes. Bagasse and molasses can be used to make feed blocks. There is a great potential in exploiting alternative potential.


There has been inadequate development and adoption of gene technology to produce superior varieties. There is also lack of industrial research and systematic programmes for researching in areas that encompasses operational difficulties. Consequently, adoption of new and appropriate technologies has been slow. Some of the problems in the sector such as the technology use, diversification, breeding among others, can be addressed through research.


Import Parity Prices

The import parity prices for imported sugar have been ranging from Kshs 37,448 per tonne for industrial users to Kshs 54,327.09 per tonne for mill white sugar imported from countries other than COMESA. The import parity prices for sugar from COMESA countries before the tariff zero rating was in the range of about Kshs 42,683.22 per tonne.


For years, the resources and surpluses generated by the industry were not ploughed back in the industry to support sugarcane production, marketing and credit schemes-but were expropriated by the state either in the form of taxes or senseless levies. It is ironical that the government until 1996 still collected excise duties on sugar, according it, an essential good consumed by a vast majority of consumers the same tax treatment as beer and cigarettes. The government in 1986 collected Kshs 1000 from every tonne of sugar in excise duties at a time when the consumer price of a tonne of sugar was Kshs 3000. In 1999 a tonne of sugar was selling on average at Kshs 40,000, of which the SDF levy was Kshs 2,800. Margins which rightly belonged to farmers and sugarcane millers, and which should have been used to improve infrastructure in sugarcane growing areas were expropriated away by the central government to finance projects in other sectors of the economy and in other regions in the country.


Lessons from Kenana

Sugar from Kenana factory in Sudan, a country that is in civil war, costs less than local brands in Kenya. Situated some 250 km south of Khartoum Kenana beats the Kenyan sugar producers on price because of its size efficiency. The Company owns the sugarcane plantations, the transport fleet of trucks and is in charge of its own sugarcane research and marketing. Kenana currently produces an average of 420,000 metric tonnes of sugar annually. It moves 23,000 tones of cane per day from the plantation to the mills. It has over 40,000 hectares under cane and employs 16,000 workers. The fact that Kenana is in control of all the operation that go into production from planting of cane to marketing of the sugar gives it great advantage. They are in a position to determine when to plant, the quality of crop ands to take it to the milling plant when they want. Sixty percent of the harvesting is mechanized while forty percent is manual. They have managed to reduce the wastage to 0.4 tonnes per hectare. The offloading exercise is also fast and efficient. A survey by the London Mills Commodities Limited in 2000 put the average cost of producing a tonne of sugar at US$ 400.  Kenana has managed to reduce this to US$ 230, putting it among the top five cost effective sugar factories in the world. Compare this with the current selling price of US$ 345 per tonne CIF Mombasa makes Kenana have an upper hand against all Kenyan sugar factories. Kenana continuously upgrades its equipment, unlike the Kenyan ones where these are left to chance.


The Kenya Sugar industry does not, in fact, have a coherent strategy for its long-term survival and prosperity. It seems to react to situations as they arise. This style of running the industry does not enable various options and alternative scenarios to be properly evaluated or systematically analyzed. More has to be done by the sugar companies themselves to reduce the overall costs so as to weather the vagaries of globalization. The industry has to be competitive in order to remain in the market.




MANAGING CHANGE IN THE SUGAR SECTOR (Raphael Mwai-Fama Consultants):


I have worked in the sugar industry for a long time in consulting capacity and as an outgrower. The problems we are discussing are not peculiar to the sugar industry. What is happening in the sugar industry is similar to what is happening in the cotton industry, the coffee industry etc. I will begin this presentation by quotes from two gentlemen: “Our future success will depend on our ability to anticipate the future than replicate the past” (Morlund); “In time of rapid change and transition, experience is our worst enemy” (Paul Getty).”


The Sugar Industry and Changing Paradigm

A paradigm is a basic way of thinking, valuing and doing, associated with a particular vision of reality. The control paradigm saw the government control everything, interests rates, prices etc. The paradigm has shifted from control to liberalization. There is need to put in place systems and processes and mechanisms that can make one change and prosper. Sugar producers had been made to be comfortable in the control paradigm. Why a paradigm shifts? This is caused by a change in political perception. The collapse of the Communist bloc has resulted into a New World order. The West has emerged as a powerful political force. If you cannot create your own paradigm, then you have to work with the dominant world order. If you try to resist you will be swept aside.  The role of government has changed from control to that of facilitator.


The Current Sugar Sector Paradigm

The Sugar industry is operating at a paradigm that is incongruent with the New World order. It is still operating in a protected market and high sugar prices of Kshs. 45, 000 per tonne. The sugar factories are only beginning to employ marketing-they are accustomed to packaging sugar for retail outlets as marketing channels. The sugar factories are operating with high cost processing and low capacity utilization (of 46 per cent). In fact, the high cost of production is not really connected to sugar production, it has do with extraneous activities, for example, sponsoring AFC Leopards. All sugar factories in Kenya pay a uniform price of Kshs. 2, 015 per tonne of cane. This price is artificially created irrespective of price of production. Sugar cane growing in Kenya is largely under contract farming, which has resulted in a tradition of farmer dependency on the sugar factories. The out-grower associations are invariably very weak in terms of leadership, management and financial resources. The institutions disintegrate at a certain level. They are more of social organizations than commercial outfits. They are more of political and usually take the cultural values of their local environment, hence nepotism. They are the institutions that are better placed to further farmers’ interests. Other features that characterize the current sugar industry paradigm are poor cane husbandry practices, weak extension services and inadequate research and development. The latter normally results in weak technology application at farm level.


3. The Economics of Cane and Sugar Production



















                                         Per ton of sugar





16, 989

9, 820

26, 809





18, 234

10, 540

28, 744


1, 497



19, 428

11, 230

30, 658





20, 310

11, 740

32, 050





30, 379

11, 780

32, 159





25, 708

14, 860

40, 568


1, 497



28, 805

16, 650

45, 455


Ex factory prices are uniform at Ksh. 32, 000 per ton

Add: 5% Sugar Development Fund + 15% VAT=Ksh 6, 4000


Retail price in Nairobi is Ksh 45, 000 per ton.

World prices for sugar currently Ksh 15, 500 per ton. (Fob MSA=Ksh. 18, 500/=)


The New Paradigm for the Sugar Industry

Several features characterize the new paradigm, to which the sugar industry is yet to adapt. Economic liberalization and de-regulation in global trade characterize it, with an increased role for transnational organizations such as the WTO, COMESA and East African Community (EAC). Safeguard measures and anti-dumping duties only exist as a temporary measure, they are not reliable. Whether you are given a respite period of five years at the end of the day you will have to contend with the reality. Competition from COMESA Countries-Southern Africa and Sudan; and Brazil, is a reality in the new paradigm. The consumers thus have wide choices in prices and quality. This raises a lot of concern given, for example, the cost of cane in Sony is similar to the price of sugar you get at the port of Mombasa, yet the factory still has to incur milling costs. The role of government, in the new paradigm, is changing from control to facilitation. We have, however, been socialized to believe that the Government brings about development and one must belong to the right political organization to get the fruits of independence. Industry stability is increasingly the role of stakeholders. The fate of the industry is at the hands of such stakeholders as millers, transporters, growers, importers etc.


The Paradigm Shift

When a paradigm shifts, everyone goes “back to zero”-to the drawing board. All the knowledge you had accumulated goes to waste. You have to start afresh-institutions change in order to remain relevant in a changing environment. Several changes accompany a paradigm shift. In the sugar industry these are likely to include: one, a new market strategy-the factories do not seem to be doing much to address this. Two, cost reduction strategy. Three, increased productivity of resources, both human and mechanical. The average capacity utilization of our factories is 42 per cent. If they cannot make profit, then for how long will they continue harassing the consumers? What happens when consumers get a choice? This explains what is happening to Unilever, and previously to the cotton industry. The factories have a lot of overhead costs, for example carrying cane over along long distances and sponsoring social activities.  This has made them irrelevant. The possibility of extinction is real. It is, for instance, impossible to revive Muhoroni and Miwani. Fourth, is increased technological focus. Failure to embrace change on the part of the factories would result in ineffectiveness and inefficiency, adverse image, irrelevance and, ultimately, extinction.


Essential Changes Required in the Sugar Sector

Changes in the sugar industry are required at the policy, factory and farm levels. At the policy level there is need for reduction in taxes and levies to make the industry competitive, as enforcement of import taxes and anti-dumping duties (is but a temporary measure); and a review of policy on research and extension services-a commercial approach. At factory level there is need to: first, privatize sugar-milling companies to introduce private sector management practices and culture. We know what happens when it comes to the appointment of directors. A parastatal culture is not appropriate to development. Second, there is need to introduce appropriate process technology.  Miwani technology for instance is pre-first world war and can never produce for export. Third, we should focus on the core business technology and reduce unnecessary overheads. At farmer level there is need to: one, enhance technology transfer on-farm-research technologies and new cane varieties; two, improve on-farm husbandry through farmer training (extension services); and three, enhance the capacity of the outgrower organizations to better serve the needs of the growers.


Resistance to Change

People resist change due to several factors. One, fear and anxiety due to perceived threats to benefits and usual lifestyle. This is applies mostly to the leaders. People are normally comfortable with the status quo. Two, perceived threats to farmer livelihoods and income. This is largely applicable to the growers. Three, misunderstanding of the need for change-farmers, for instance, expect the government to take a major control. Nobody will be able to tell farmers the truth, when this happens to be in a KANU zone, as civic education is normally disrupted. Next, is the way in which change is introduced and, lastly, group influence. People resist change because they are in a group-for example; farmers think millers are crooks while millers think farmers are illiterate peasants.


Leading and Managing Change

This requires two basic things: a common mental map and the presence of a number of critical success factors. A common mental map entail, in the first place, a very clear understanding of what is being envisaged. In 1998, for instance, someone questioned whether it would be profitable to grow sugar in the Nyando belt and he was almost lynched. Sugar cannot be grown profitably in certain ecological zones. There is no need for wasting peoples time. In the coffee growing areas people are resorting to horticulture farming. Why embark on a mission impossible? Next, it entails a clear understanding of the reasons why the old ways will no longer suffice; and how the change will be implemented. The foremost critical success factor is the existence of a strong and focused leadership. There is need to tell people how change will take place. Most of these changes are technical not political. The leadership should be focused on the industry. Leadership has been abdicated to MPs who cannot think beyond the next elections-where are the millers, consumers etc? There is need for a stakeholder approach to management of institutions for them to be focused. Other factors include a well developed and effective communication programme and the establishment of processes and practices that encourage participation in the change processes.




CALEB OKONG: I have looked at the policy environment and regional integration as far as policy is concerned. South Africa and European Union seem to have looked at globalization and responded accordingly. They have come up with trade agreements on times at which they will open their borders. Don’t we also need to come up with an agreement on a transitional period? In the European Union and South African arrangement, tariffs on South African exports to the European Union will be phased out after 10 years while those on the European Union exports to South Africa will be abolished after 12 years.


JOSS: The question should have been asked 5 or even 10 years ago. The circumstances we are in are beyond the scope of the sugar industry. We have been pushed into it. Under such circumstances protection is a privilege the sugar industry cannot have. We signed a Free Trade Area (FTA)-not everybody in COMESA is a member of the FTA. Moreover, Kenya is more advanced in other sectors and stands to benefit more, the Sugar sector is but one among the many sectors.


MWAI: A transition was built into this five years ago but the Kenyan private sector did not take advantage of it. Safeguard measures are but transitional arrangements. Otherwise, the sugar industry would have been wiped out. Private sector does not participate in the WTO negotiations. The Governments has always taken charge. Consequently, the private sector has found itself bound by agreements it was not a party to. The Sugar industry must be proactive in such negotiations.


KEGODE: Sugar is one product that has not been put into WTO. The Cane group-membership, a group of the most efficient producers are beginning to attack the WTO sugar protocols. Safeguard measures will be wiped out with time. Inefficient producers will die. Kenyans have lost time-still grappling with management issues. There is need to diversify industry and maximize capacity. We do not need time.


SABWA: Shem, did you look at the Sugar industry in Sudan or just Kenana? Kenana is a factory with its own farms, all of which are under irrigation, which has made mechanization possible. It also receives heavy funding from the Middle East, and the interest rates in Sudan cannot be compared to those in Kenya. Avoid blanket comparisons!


SHEM: Well, the bulk of sugar production in Kenya is rain fed, most of the growers are small holders and this hinders mechanization. But the bulk of production is in Western, Nyando and Sony zones, which allows for the possibility of using Lake Victoria for irrigation. Yes, Kenana receives a lot of funding for instance from Kuwait. But Kenyan industries pay 9 per cent Sugar Development Fund (SDF). At some point it was to the tune of 15 billion or 10 billion. Is it being used to promote industry? We do not need to go to the United Arab Emirates to get funds when we can generate it locally. Why must we borrow from the IMF? Even if 10 billion annually is on the higher side 8 billion would suffice even 3 billion would do. Factories in Kenya do not use nucleus zones-even Mumias the best in Kenya cannot compare with Kenana the best in Sudan in a fight amongst the best. Yes, there is the issue of the micro-economic environment, but?


KEGODE: This is a question of comparing oranges to oranges not oranges to apples or pears. We need to benchmark Mumias not with Nzoia but with Kenana. Granted, Kenana is large scale but we will also have to come up with a strategic vision.


SHEM: Palm oil production in Ivory Coast is done profitably on a small-scale basis. The problem with this country is that when you come up with ideas you are asked: who told you that people are supposed to think here? This is a true incident. There is need for diversification BIDCO oil company for instance is growing palm oil on Ugandan islands.


KEGODE: Mauritius realized the need to get sugar grown elsewhere. They moved their sugar plantations to Mozambique and Tanzania, because their land was quite small and finite. Kenyans need to think even laterally.


NJENGA: I have been out of the country for sometime. Since I came back every industry does not seem to work. Is it a question of no professionals or idle professionals in Kenya? We have enough experience. We re-invented the wheel and produced Nyayo pioneer and failed. If we cannot produce sugar efficiently why continue doing so? The overhead costs are too high mainly due to such things as sponsoring football teams; we do not need time. Sugar has been grown for many years in Western. When coffee failed in central we diversified into horticulture. 


KEGODE: Yes, we can abandon producing sugar. But there are 5 million people whose life depends on sugar. What will we do to these people? In this case the only option available to us is to attack the costs. We need to give sugar cane stakeholders a chance to attack costs. Farmers have never been able to deal with their problems. There has never been a holistic approach to the problems of the sugar industries, only snapshots, synopsis. After a holistic approach then we can give up.


**§: Change is inevitable, I beg to differ with the person who said that Kenyan professionals do not think. We are here, because we think, to put our heads together. We might be thinking in the right way but the implementing aspect is what is missing. Sugar should be looked at in a historical perspective. One objective for the establishment of the sugar factories was to create jobs to limit rural urban migration. We have to acknowledge that policies are dynamic and change with time. The Government should change from being an investor to a facilitator. It should recognize that the private sector has the right impetus to run business ventures. Yes, we should acknowledge that the 1920s technology used by Miwani is obsolete.


With regard to the COMESA market, what is the domestic pricing structure? I bet there is a price differential and that imported sugar prices do not differ substantially with our whole sale and retail prices. What happens when sugar lands in Mombasa, [CIF?] value cannot be compared with ours.


As for the comparison being made with Kenana we, can only make some improvement, others cannot be borrowed. We cannot for instance borrow the micro-economic environment or the plantations. Irrigation allows one to harvest at maximum sucrose content. God weather cannot allow for that. Our sugar plantations that range between O.4 to 0.8 Ha and the highland topography compare well with that of Hawai. Then there is the question as to why we should borrow from Sudan, which is at war. Research continuity in the sugar industry was broken with the break away from East African Community. Now there is research. Research needs collaboration with neighbours-hence collaboration with Sudan and South Africa. You cannot do research in isolation.


ROBERT SHAW: We need to make a plea for the majority of the consumers. Yes, there are five million people who depend on the Sugar industry, but there are 30 million Kenyan consumers. We should look at the prices, whether fair or unfair. We have a situation in which world producers are in alliance with local producers. Of course there are fundamental differences between Mumias and Kenana but we do not have a choice. We do not have to cuddle five million people.


HENRY KABACHA-ZAMBIAN SECRETARY IN CHARGE OF ECONOMIC AFFAIRS/ ECONOMIC ATTACHE: Kenya undertook a mission to research on the competitiveness of sugar industries. That the Kenyan industry is not as competitive as the Zambian one is not debatable. The industry should come out with a measure of efficiency. Zambia has a problem with oil industry, KAPA and BIDCO in Kenya doing better. But whenever the Zambian oil industries ask me to do something I tell them to emulate KAPA and BIDCO.


TWALIB HATTAYAN-CHAIRMAN OF ASSOCIATION OF SUGAR IMPORTERS: We have held meetings with relevant government officials regarding these issues. The challenge that has confronted us as importers is the question as to whether we can come up with a quota system. In the last meeting we held in Mombasa we concluded that we couldn’t distribute quotas, as new entrants are not barred. But after the 200, 000 Mt is cleared duties will go back to 100 per cent.


EGYPTIAN ECONOMIC ATTACHE: I am normally not encouraged to speak in such meetings but I am encouraged by my Zambian counterpart. If you can’t beat them you can get into friendship with them. We need to call a meeting between the sugar industries. We are soon getting into a COMESA custom union where challenges will be much greater.


KEGODE: There is need to point out these things


TWALIB: Look, we have millers from Malawi and other COMESA countries yet the local millers are not around. This meeting was meant to bring us together to share as brothers, on research and marketing strategies.


KEGODE: The Local millers are still brooding about the Sugar Act. But perhaps we should examine the quantitative restrictions. How is the sugar going to be brought in?


TWALIB: From January 2002 to January 2003 we will only bring in 200, 000 Mt to give the Kenya industries time. After that it will be free for all. This is a tricky question, local millers would have given stock levels-we only have time limit not quantity limit. Look, we have millers from Malawi and the COMESA region yet local millers are not around to share information.


SHEM: Let me make a brief comment on the role of research in the sugar industry, which has reduced us to importing seed cane from Sudan, which is at war. We cannot blame the breakdown of research on the breakdown of the East African Community. Some factories were established long after that incident. The Kenya Sugar Authority Research Foundation came about two years ago. That is hardly enough time for meaningful research, but what about the billions sunk into it. Privatization is not a panacea even in Mexico and Botswana, which are showcases of privatization. In Kenya there is no privatization law. Privatization per se is not bad. Kenya airways is a success story. Without law and regulation privatization will be abused. High tariff structures give false value of local industries. Mumias was privatized recently a development that has witnessed the supply of wrong information to important stakeholders, misinformation, for example to the farmers. As to what we can borrow, I think we can borrow the idea of irrigation.  With regard to funding I think the most important question is, how do we utilize the Sugar Development Fund? Do we use it for taking managers to holiday in Mauritius? Why do we not consult? Look at the Millers reaction to the Sugar Act. They are still pontificating in the comfort zones of control. We need to consult. Millers should not think they are the only stakeholders.


MWAI: I appreciate Njenga’s impatience with the dot com age. Regarding the issue of looking at two million farmers, it is not the market that keeps manufacturers going it is consumers. We need a strategy for developing the sugar industry. Agricultural plan for rural development is not the solution. Strategic regional networking is the way forward. It is not a question of comparative advantage but competitive advantage. When we ignore technical issues because we are political then we should be ready to suffer the consequences.


KEGODE: Change will take place even if major stakeholders do not participate. I am not worried about Mumias’s absence. The resolutions that are going to come out of this meeting will have the sympathy of a majority of stakeholders.






WTO RULES & IMPACT OF LIBERALIZATION IN THE SUGAR INDUSTRY (Lawrence Makumba-Institute of Multilateral Trading Systems, Analysis and Research):


Kenya is a member of the World Trade Organization (WTO) which came into force on 1st January 1995. Article XVI of the agreement establishing the WTO obliges each member to ensure the conformity of its laws, regulations and administrative procedures with its obligations provided in the annexed agreements. WTO rules are very challenging; they cover all rules of human endeavour. Members have to have all the institutions, laws and regulations.


·        The Agreement on Safeguards

The Agreement authorizes importing countries to restrict imports for temporary periods. This is after investigations carried out by competent authorities establish that imports are taking place in such increased quantities (either absolute or relative to domestic production) as to cause serious injury to the domestic industry that produces like or directly competitive products. It further provides for the application of such measures as increment of the bound rate of tariffs or imposition of quantitative restrictions on imports, normally on MFN basis to imports from all sources. The investigations for the imposition of such measures can be initiated either by the government itself or on the basis of a petition from the affected industry. In practice, however, the investigations are generally initiated on the basis of petitions from the affected industry.


The Agreement lays down the criteria which investigating authorities must consider in determining whether increased imports are causing serious injury to the domestic industry. It also sets out basic procedural requirements for the conduct of investigations. One aim of the procedural requirements is to provide foreign suppliers and governments whose interests may be adversely affected by the proposed safeguard actions with adequate opportunity to give evidence and to defend their interests. The term ‘Serious injury’ is defined as the “significant overall impairment in the position of a domestic industry.” It must be established that imports are causing such injury to domestic industry, defined as producers as a whole of the like or directly competitive products.” In other words, it is not permissible to take safeguard measures to restrict imports where only a few producers are finding it difficult to meet import competition.


Application of Safeguards

Taking safeguard measures should aim at promoting “structural adjustment” and to “enhance rather than limit competition in the international market.” Adjustment could take the form of the adoption of improved technology or rationalization of product structures. The type of safeguard action to be taken is decided by the investigating authorities. Action should be taken only after consultations with and approval by, the Committee on Safeguards. A member country proposing to apply safeguard measures is expected to offer adequate trade compensation to countries whose trade interests would be adversely affected by such measures. Imports from a developing country are exempt from safeguard measures if its share in the imports of the product concerned into the country taking the measure is less than three per cent. This exemption does not apply if developing countries with individual share in imports smaller than 3 per cent collectively account for more than 9 per cent of imports. The maximum initial period for application of a safeguard measure is four years. This initial period may be extended up to a maximum of eight years (ten years for developing countries). The agreement also provides for procedures to be followed by a government to take safeguard measures and those to be followed by the affected government to defend itself.


·        Rules on the Use of Countervailing and Anti-Dumping Duties

The General Agreement on Tariffs and Trade (GATT) rules deal with two types of “unfair” trade practices, which distort conditions of competition. First, the competition may be unfair if the exported goods benefit from subsidies. Second, the conditions of competition may be distorted if the exported goods are dumped in foreign markets. Broadly speaking, an enterprise is said to dump a product if it exports the product at price lower than the price of the like product in the exporting country. Formally “dumping” is defined as the introduction of a product in the commerce of another country (exporting it to another country) at a price, which is less than the normal values. Generally, the normal value is the comparable price of the like product in the exporting country in the ordinary course of trade. In examining the existence of dumping therefore, there are three steps of examination, viz., determination of the export price, determination of the “normal value” and comparison of the export price and the normal value.


An importing country can levy countervailing duties on subsidized imports and anti dumping duties on dumped imports only if it is established, on the basis of investigations carried out by it, that such imports are causing “material injury” to domestic industry. There has to be a causal link between dumped subsidized imports and injury to the domestic industry. Relevant economic factors having a bearing on state of the industry should be taken into account. The Agreements provide for the steps to be taken by the government for anti-dumping measures as well as those to be taken by affected governments/exporters in defense.


·        The Agreement on Subsidies and Countervailing Measures

The Agreement elaborates on the Tokyo Round Agreement and provides greater uniformity and certainty in its implementation. It imposes disciplines to ensure that subsidies do not adversely affect the interests of WTO members.  The discipline on countervailing measures aim at ensuring that they do not unjustly impede trade, and that they provide relief to producers adversely affected by subsidized imports. A government, however, is not obliged in any way to impose a countervailing duty on subsidized imports. It provides for the procedures that a government is to take to impose countervailing duty. There should, of course, be sufficient evidence of the existence of subsidy, injury and causal link between the subsidy and injury. The agreement also provides for the steps to be taken by the affected government in defense.


·        Status of the Legislation on Anti-Dumping and Countervailing Measures Regulations

According to the Kenya Gazette Supplement No. 41 dated 6th August 1999-under Legislative Supplement NO. 32-Legal Notice No. 111, the Minister for Finance, in the exercise of the powers conferred by section 234 of the Customs and Excise Act, Cap 472 of the laws of Kenya, made Regulations which are cited as “The Customs and Excise (Anti-dumping and Countervailing Measures) Regulations, 1999.”


There is so much that is common between the anti-dumping Agreement and the Agreement on Subsidies and countervailing Measures. It is probably because of this that the Kenyan authorities decided to come up with the customs and excise (anti-dumping and countervailing measures) regulations 1999. This attempts to consolidate the main features in the two agreements with a view to giving credibility to effecting both anti-dumping and countervailing duties that are spelt out in the agreements. It would be useful to put these regulations to the test to determine whether or not they conform to the requirements of the two agreements.


·        The Sugar Act 2001, No. 10 of 2001

Articles 27 and 15 under part IV and VI, respectively, of the miscellaneous provisions and of the Sugar Act addresses safeguard measures. The Agreement on Anti-dumping Practices and on Subsidies and Countervailing Measures authorize countries to levy compensatory duties on imports of products that are benefiting from unfair trade practices. However, in Article 15 (3) the Act says that anti-dumping duty and countervailing duty have already been imposed on sugar imported into Kenya. It would be interesting to know whether the proper procedures were followed in arriving at these measures. On the other hand, Article 15 (4) speaks of the Minister of Finance establishing a five person advisory committee to investigate cases of dumping or subsidization of goods exported to Kenya and to report its findings to the Minister. One would wish to believe that such a committee has been established and is already discharging its mandate. That indeed would be a move in the right direction.


·        Conclusion and the Way Forward

It is obvious that the WTO Agreements have provisions, which could be used to tackle problems caused through dumping and subsidization. Anti-Dumping duties or countervailing duties could be levied in such situations. Provisions exist for safeguard measures to be taken to restrict imports in emergency situation. Special flexibility is also available to developing countries to take safeguard actions for economic development purposes. In all cases, however, there is need for having proper legislation in place. The appointment or establishment of a competent authority to undertake the necessary investigations and come up with appropriate recommendations should follow this.


The envisaged Advisory committee must be one that is properly trained and should be provide with the necessary resources to be able to carry out its work effectively and efficiently. The involvement of all the parties is a must, for without their involvement, not much can be achieved. Finally, there is need for total government commitment if any tangible movement is to be made on these highly complex issues.




JOSS: How easy is it to convince local millers to come?


KEGODE: The millers are still brooding over the Act. We need the active participation of the millers at the same level as farmers. But, how do we deal with the issue of bringing sugar in without schedule? How do we safeguard the industry in the interest of farmers?


ERIC: I would like to comment on the so-called importers. In fact, back at home we, as farmers, call them Abunwasi’s. Looked at superficially one would agree that we should abandon sugar production. But, people do not obey WTO and COMESA rules. The ex-sugar factory prices in the state of Louisiana is Kshs. 26 same as Mumias, but the same sugar still reaches the port of Mombasa at Kshs.12. Really, the various players involved are not straightforward.  


TWALIB: We are not Abunwasi’s my friend! We are not interested in killing the sugar industry even though we are aware that they are very inefficient and should in fact die a natural death. While we are ready to buy local sugar and even stop imports for three months, local millers are not willing to come for discussions.


MALAWIAN MILLER (ILLOVO): We did not come to turn on the Kenyan sugar industry, we came to deliberate and come out with something.


PHILIP: Yes, we are importers but we are also producers in Tanzania. We have invested heavily in production in Tanzania. No sugar industry will survive without a consistent coherently applied sugar policy.


**: Kenya’s problems are as a result of policy and nothing else.


**: No government leaves its agricultural sector entirely to the private sector. Even the USA agriculture industry is still heavily protected. The Government should push for the necessary balance.


ASHISH: We already have a Sugar Act, which is geared towards creating democracy, transparency and accountability in the sugar industry. But the millers keep on going to the government instead of coming for dialogue.


TWALIB: It takes two to tango-when people fly from London and local millers do not appear what do you expect us to do? We have never imported sugar from the USA for the last ten years!


SHEM: Reactions of local millers indicate satisfaction with status quo–Mumias and company are content comparing themselves with Nzoia. You cannot have your cake and eat it at the same time. We signed the WTO. The Sugar industry must be protected. Kenya is a member of the COMESA which should itself trade with the European Union, NAFTA etc. To me, this meeting is not futile. As the bible says keep knocking at the door and it will be opened. When the Act was being drafted the farmers were completely ignored. There is no constructive engagement in the industry. Millers like the Americans during the time of Malcom X are suffering peacefully. This could be because they do not bear the cost of inefficiency; this is borne by consumers. Millers are not the only stakeholders, there are several stakeholders, consumers, researchers etc.


**: I want to make a simple observation. In a forum of this nature we should say factual things. It is not right to say that farmers were excluded. Farmers were on board from the very first day. MPs, farmers and their representatives and millers were part of the process, in fact the meeting at Imperial Hotel, Kisumu was a big event.


KEGODE: Yes, farmers were consulted but their views were not taken forward. The Bill that landed in the floor of parliament was a different thing altogether.  


TWALIB: We need to come up with a way forward. We have a 200, 000Mt quota; we are ready to forego 50, 000 Mt. We have made suggestions to the Government but nobody is responding. We are ready to buy all the millers stock.


NJENGA: While I agree that we can do business with morals. We need to ask ourselves one question: who will bear the high costs of production? Is it the consumers?


**: Well we have the two million people who depend on the industry for their livelihoods. Farmers cannot change overnight-we need a way forward.


ERIC: I am glad the importers have made concessions, although nobody has checked the quantity. The concession is good. We seem to be concentrating on millers. This is because as the saying goes if you are not part of the solution you are part of the problem. Internet information reveals that urea or CAN can be landed at Kisumu at a price of Kshs. 600 yet in Mumias we have it at Kshs. 1, 500 at farm gate. A 90 H/P tractor goes at Kshs. three million, yet duty free in South Africa it goes for Kshs. 900. The cost of production also has to do with the cost of machinery and such in puts like fertilizers. This touches on the importers. The differences in prices cannot be attributed to freight. If we could look at this in addition to the concessions the importers have made, then, we can substantially move forward in terms of cost reduction.


KEGODE: Several proposals have been made-we then can have a way forward and discuss finer details. We need written proposals from importers and growers. Tomorrow we can come up with concrete results. Let us have proposals, collate them and put them forward into the Public domain








The objective of SUCAM is to give farmers more say and control over the sugar industry. The campaign is geared towards the realization of efficiency and cost effective production and marketing of sugar. We are not out to create a communist situation; we are only fighting for effective farmer representation. The purpose of this meeting is to basically dialogue and negotiate for the operationalization of the Sugar Act. The Act is but just a starting point, not an end in itself. There is no perfect legislation. The implementation of legislation is a learning experience. In this regard a workable legislation suffices. It can be improved later.


The starting point of analyzing a new legislation begins with the following four questions: first, what is the problem that it seeks to address? In our case the problem is the mismanagement of the Sugar industry. Second, on what policy is the legislation based? Third, what realities inform the legislation? Fourth, what assumptions does the legislation make? The Government’s management of the sugar sub-sector has not been very successful. The long-term goal with the sector is to privatize it not to continue state management. What appears in the Act is a confused approach to legislation, it is not clear whether the Government wants to privatize or to continue running it. This is the cause of the tussles we are witnessing. Mumias has been privatized in a situation where privatization was not anticipated at all.


Two primary organs stand out in the Act: the Sugar Board and the Sugar Arbitration Tribunal.  SUCAM lobbied for the latter in the understanding that our courts are not yet effective in resolving the kinds of disputes that are bound to arise in the course of the implementation of the Act. The Board is to take over the functions of the Kenya Sugar Authority (KSA) automatically upon the commencement of the Act. Its functions are: one, to regulate, develop and promote the sugar industry; two, to co-ordinate the activities of individuals and organizations within the industry; and three, to facilitate equitable access to the benefits and resources of the industry by all interested parties. It will be composed of the following: a non-executive chair elected by it membership from the representatives of growers, seven representatives elected by farmers, three representatives elected by millers, the PS agriculture, the PS treasury, the Director of Agriculture and an ex-officio chief executive officer. The vice-chair is to be elected from the members. The board members will have a three years, renewable, term of office.


 The minister has been given too much power under the Act, which is bound to affect the operationalization of the Act. The Minister will have the powers to: one, amend the second schedule of the Act; two, make regulations in consultation with the board; three, remove board members; and, four, appoint and removal of members of the arbitration tribunal.


The benefit that is expected from the operationalization of the sugar Act is an effective and accountable management of the of the sugar sub-sector. The second schedule provides for a lot of other things-contracts, penalties and an auditing process. It also provides for an Annual General Meetings (AGM), during which the players can hold the board to account, a research foundation and a sugar development levy. The Act constitutes a big departure from the previous situation where the sugar sub-sector was governed by the Agriculture Act. The journey towards the Act was a very long one; the legislated Act is the fourth one to be drafted. It was drafted after very extensive consultations. Stakeholders approached the Ministry and SUCAM organized for several forums. Claims of inadequate consultation cannot, however, be ruled out as some stakeholders have been left out. Legislation has never been consultative in the country, it is has been largely a government affair.


Controversial Sections

·        Weighing of cane at the farm gate

The millers are scared of this provision because they do not have the necessary facilities; hence the fulfillment of this provision will not be cost effective on their side. The reason why we pushed for this clause is that there is a lot of spillage of cane on transit. 


·        Prompt payment clause

We felt this was necessary, as some farmers have not been paid for the last 24 months.


·        Sampling of sucrose content

We did not push for this particular amendment. In fact it was inserted at the advice of the minister.


·        The pricing formula

There are serious arguments that pricing formula is biased in favour of the farmers.


·        Shareholding by farmers

The provision giving the farmers a chance to buy 51 per cent of shares in public factories was brought in by the Agriculture Committee in Parliament. The logic behind this is that 50 per cent farmers’ ownership translates to 50 per cent representation in the board of directors. I will not make a statement on whether those raising contentions are wrong because that is the purpose of this forum.


All the contentious provisions are in the second schedule to the Act. This means that they can all be amended by the minister through gazettement upon recommendations from the Board, as provided for in section 32.


Key Challenges Presented by the Sugar Act

·        There is an urgent need to create awareness among the various actors on their roles under the new Act.


·        The Government’s policy is confused, it is not clear on whether it want to privatize or not, whether to privatize first then have a legislation or have a transitory legislation. The government has decided not to let farmers or other stakeholders take charge of the sugar sub-sector. In the Government’s eye the sugar industry remains government owned. Privatization is not in the mind of government. It is a legislation to address an election year problem. A clear indicator of the government’s intention is the appointment of the interim board without consultations with farmers. Farmers should be the primary stakeholders. The appointment is patently illegal. It invokes the State Corporations Act. This is not permissible when guidelines are provided by an Act of parliament. The State Corporations Act does not apply because the provisions of the Sugar Act are clear that the board is elected except for the government’s representatives. The chairperson is elected from farmers’ representatives. There are no provisions for an interim board.


·        The Act does not have transition provisions, as the Coffee Act does. The buck for this stops with the minister. The interim Board can be challenged successfully in court. This can put the industry in chaos. Farmers can boycott the factories. This is an act of bad faith that will affect industry both in the short and long run. The government is clearly sabotaging the implementation process.


·        The provisions governing elections are contentious. Rule seven does not clearly state whether it will be by secret ballot or show of hand–forget acclamation! Farmers by show of hand have to decide on whether to vote by show of hands or secret ballot. Lack of good will may result in the Act not being operationalized.




KEGODE: Any questions or comments regarding Mr. Kibara’s presentation? He will be leaving shortly.


BUSOLO: What is the role of the President in appointing interim officials using the State Corporations Act?


KIBARA: The appointment is illegal, there is no provision for appointment of a board under the State Corporations Act. The Sugar Act is very clear on how the board is to be appointed.


NJENGA: Two wrongs never make a right-if the board is illegal, it is a problem. It cannot make any binding decisions.


OKETCH: If the board is illegal then what is the way forward?


KIBARA: Farmers can go ahead and elect representatives, the same applies to the millers and even the Government. There is no provision in the Act for the facilitation of farmers or millers elections. The Government did not envisage a role through legislation. We are organizing farmers, we hope millers are doing the same. The Government too. The government is giving itself illegal powers. Farmers can go to court; we have the experience of the Donde Act and KACA Act. The board can get into contracts with private enterprises; such transactions are illegal.


**: Is it the Act, which is illegal, or the board that is illegal or constituted illegally?


KIBARA: The Act is legal, it was passed legally through Parliament. But, through a gazette notice, dated 28th March, purportedly using the State Corporations Act, the President appointed the board. Any sector that is catered for by an Act of Parliament should not be governed using the State Corporations Act.


OGEKA: We are in a confused situation, which is made further volatile by people who do not want stakeholders to control the sector. Farmers have organized themselves. Government is putting the cart before the horse, thereby creating total confusion.


KIBARA: The Act has provision for elections. Nobody wants to sideline the Government. But the government is intent on sidelining farmers. The way forward is a dialogue between farmers and the Government. Invocations of illegal things would not do.  Illegal contracts and agreements cannot abrogate the law; these will be challenged in court.


KITUYI: The government has not matured to the fact that the Sugar Act is legal-but has matured to the fact that privatization of coffee and tea sectors has resulted into the loss of a milch cow. Mumias factory is distributing documents-binding farmers to disobey the Sugar Act as a condition for “your cane to be harvested”. The President’s action on 28th of March is a legal nullity. We are struggling to get out of politics of legal nullity e.g. the provincial administration. Backed by state might this legal nullity will appropriate farmers’ money. A politically correct judge can favour the state. What you see, as independent judgements are a ploy by the state to kill laws it does not like.


KIBARA: Even if you think you are interfering with the Act you can paralyze a sub-sector, as is the case of the Donde Act and the banking sector.


KITUYI: There is something I failed to mention the coffee board ceased to operate on 1st April, but yesterday the coffee board auctioned coffee.


OKETCH: SUCAM is not keen on pushing for sucrose content analysis, but only a high sucrose content will improve efficiency.


KIBARA: In principle we are for it, but on discussions with farmers they said they were not ready, as they have poor varieties of cane. Researchers are to blame for this; the preparation of land is done when the in put is not ready. This is a question of putting the cart before the horse.


OKETCH: Previously we wanted some colour improvement in the Kenyan sugar. We came up with the appropriate colour standard at the Kenya Bureau of Standards upon which we gave three years to the millers and the target was achieved.


KIBARA: As stakeholders we can work together to achieve some of these things.


OKETCH: There would be no problem if the mode of transport prevented spillage. But in any case we have jua kali artisans who can fashion such gadgets (weigh-bridges).


OBWOGO: The Bill the AG presented for enactment was agreed on unanimously by the stakeholders, the confusion arising is as a result of amendments in the House by MPs.


KITUYI: I was not a consistent participant in the stakeholders’ workshop series. I am aware though of the weigh-bridges provision. But, you cannot bind parliament in a workshop.


KIBARA: It is the work of parliament to amend bills except for constitutional bills.






This presentation is divided in two parts. The first part addresses the application of anti-dumping measures and customs enforcement mechanisms whereas the second part examines the safeguard provisions under COMESA in relation to the provisions under the multilateral trading system of the WTO.


Application of Anti-Dumping Measures and Customs Enforcement Mechanisms

Dumping is a situation of international price discrimination where the price of a product when sold in the importing country is less than the price of that product in the market of the exporting country. Thus in the simplest of cases one identifies dumping by comparing prices in the two markets thereby determining the dumping margin. The Kenya Anti-dumping legislation states that imported goods shall be regarded as having been dumped if the export price of the goods exported to Kenya is less than the comparative price, in ordinary course of trade, for the product when destined for consumption in the export country. And, if the importation of the goods causes injury or threatens to cause injury to a Kenyan industry in-terms of decline in output, sales, market share, profits, employment and return on investments. This is also referred to as a causal link between the dumped product and injury to the domestic industry. The Customs and Excise Act also provides for the establishment of an advisory committee to investigate cases of dumping of goods exported to Kenya. However, the situation is rarely, if ever, that simple, and in most cases it is necessary to undertake a series of complex analytical steps in order to determine the appropriate price in the market of the exporting country known as the “normal value” and the appropriate price in the market of the importing country known as the export price so as to be able to undertake an appropriate comparison.


The WTO agreement on Anti-dumping practices authorizes countries to levy compensatory duties on imports of products that are benefiting from unfair trade practices, only after a proper investigation procedure. The Kenya Anti-dumping legislation also lays down similar criteria.


Safeguard Provisions under the WTO

The WTO Agreement on safeguards authorizes importing countries to restrict imports for temporary periods if it is established that imports are taking place in such increased (either absolute or in relation to domestic production) as to cause serious injury to the domestic industry that produces like or directly competitive products. This could be done by an increase in tariffs over bound rates or the imposition of quantitative restrictions. The primary purpose of providing such temporary protection is to give the affected industry time to prepare itself for the increased competition that it will have to face after the restrictions are removed. A government wishing to provide higher protection through the imposition of safeguard measures is expected to notify the WTO secretariat of the: one, particular industry or industries, either existing or new, for the development of which such higher protection is necessary. Two, nature of the proposed restrictive measures (increase in tariffs, imposition of quantitative restrictions etc). Three, special difficulties that imports pose for the development of such industries. And, four, why measures other than import restrictions are not practical.


COMESA Safeguard Measures in Relation to the Provisions under the Multilateral Trading System of the WTO

To ensure that there is uniformity among member states of COMESA in the conduct of trade remedy investigations, the COMESA Council of Ministers meeting held in Lusaka, Zambia in November last year adopted regulations on trade remedy measures in line with the provisions of Article 10 (1) of the COMESA Treaty. These measures were to reinforce trading practices within the region and ensure that investigations are within the framework of the WTO safeguard agreement. Article 61 of the COMESA Treaty was subsequently amended to address the trade remedy measures. The COMESA safeguard measures are applied in conjunction with the existing national legislation for conducting safeguard investigations and reviews in the individual COMESA member states. All COMESA Member states recognize that they have the right to apply their national legislation without amendment in conducting safeguard investigations from the date the safeguard regulations came into force. This is because their national legislation complies with both the WTO Agreement, of which most of them are signatories, and the COMESA Safeguard Regulation.


If an investigation initiated by a COMESA member state finds that the industry under investigation includes imported products only from COMESA countries, the provisions to be applied are the COMESA trade remedy regulations. If investigation reveals imported products are from non-COMESA WTO member countries, the provisions to be applied is the WTO Agreement on Safeguards. If the industry under investigation includes imported products from both COMESA and Non-COMESA WTO member countries, the provisions to be applied are the WTO safeguard agreement, and where not otherwise provided for by WTO, the provisions of the COMESA trade remedy regulations will apply.


Conditions for application of safeguard measures

A member may apply a safeguard measure only following an investigation by the investigating authority of that Member State. This investigation shall include reasonable public notice to all interested parties and public hearing or other appropriate means in which importers, exporters and other interested parties could present evidence and their views, including the opportunity to respond to the presentations of other parties and to submit their views as to whether or not the application of a safeguard measure would be in the public interest. The investigating authority shall publish a report setting forth its findings and reasoned conclusions reached on all pertinent issues of fact and law. In critical circumstances where delay would cause damage, which would be difficult to repair, a member may take a provisional safeguard measure for a period not exceeding 200 days during which investigations for the application of safeguard measures would have been finalized. The period for the initial application of safeguard measure shall not exceed four years. However, this period can be extended provided the total period of application of a safeguard measure including the period of initial application and any extension thereof, shall not exceed eight years.


Notification and Consultations on Application of Safeguard Measures

A member shall immediately notify the Committee on Trade Remedies upon: first, initiating an investigatory process relating to serious injury or threat thereof and reasons for it. Two, making a finding of serious injury or threat thereof caused by increased imports. Three, taking a decision to apply or extend a safeguard measure. The member is to provide all pertinent information which shall include: evidence of serious injury or threat caused by increased imports, proposed safeguard measure, proposed date of introduction, expected duration and timetable for progressive liberalization and restructuring of the industry. She has to provide adequate opportunity for consultations with affected member states with a view to exchanging ideas on the proposed safeguard measure.


Way Forward on the COMESA Safeguard Measures to Businesses in the Region

The new safeguard rules under COMESA reinforce the WTO’s rules providing for security of market access. Under the current WTO system, importing countries are prohibited from requesting exporting countries to ask their enterprises to restrain their exports under the voluntary export restraints (VER) or similar arrangements. Under the WTO, tariffs have been bound against further increases, thus restricting the right of countries to raise tariffs as and when they decide to do so. The COMESA rules on safeguard measures require importing countries to take measures to restrict imports only when they cause or are threatening to cause serious injury to the affected industries. The rules further try to protect the interests of the exporting countries and enterprises by giving them the right to defend their interests during the investigations and to produce, if necessary, evidence to establish that the imposition of restrictions would not be in the interest of the consuming public in the importing country.


It is therefore essential to look at the COMESA safeguard rules not only from the viewpoint of the exporting countries and enterprises but also from the perspective of enterprises which as a result of sudden surge in imports are finding it difficult to compete with foreign suppliers in their domestic markets. These enterprises also have the right to make a presentation to their governments to take safeguard actions to restrict imports. Such petitions cannot be made by a single or a few enterprises, but by producers whose production constitute a major proportion of total domestic production. In practice such applications or petitions are often made on behalf of producers. Complaints of serious injury to the domestic industry as a result of a surge in the imported products from the COMESA region are on the increase. While most of these complaints are due to the inability of domestic industries, long accustomed to heavy levels of protection, to adjust to the changed competition situation under COMESA trade regime, some are undoubtedly genuine.


The ability of the affected industries to take advantage of the COMESA safeguard provisions will depend on how far they are able to build up the case for such temporary protection, taking into account the Agreement’s strict conditions for the imposition of safeguard measures. On the case of sugar a quantitative restriction was imposed without any investigation having been made to determine the extent of material injury and the causal link to the effected industry. To date the margin of dumping has not been established. The cause of sugar imports into Kenyan can be rightly linked to cases of under valuation or under invoicing or lack of proper controls at our borders. I have no illusion that the export prices compared with the contracted or the normal value have been determined or established to enable one conclude a case of Dumping of sugar imported into the Kenyan market.




KEGODE: Any questions or suggestions?


SHAW: I am a bit lost I would like to get a direct comment on the role of the Government in all these.


M’MWENDA: The 200, 000 Mt annual quota is a temporary measure. It is not supposed to take more than one year and then a process has to begin for the establishment of causal link between sugar imports and material injury to the sugar industry. Provisions should have been made in 1995 when we acceded to WTO. Applications should be made in advance and valuations made public.


KABACHA: you have not gone into challenges of establishing anti-dumping. What are the parameters that one uses to ensure he is not confusing competitiveness and dumping?


KIMOTE: There have been serious consultations on the COMESA treaty to protect particular sectors. At the time COMESA did not have regulations. Through legal notice number 28 of April 2002, Kenya invoked safeguards on 18 December 2001 which came to force on 28 February 2002. This should be effective for one year, after which Kenya is to go back to the drawing board.  The legal notice allowing for the importation of 200, 000 Mt is not clear on the duration of the period. Despite the surge on increase of imports, as of last year there is no investigation to establish material injury. But consultation is going on among COMESA members. After the expiration of the period other measures will surely be invoked. Kenya as of last year does not have regulation covering trade remedies. But there has been an agreement with exporters and exporting agencies-may be a link was determined.


KEGODE: Let us give Mr. James Musonda from the COMESA secretariat a chance to give us a bit of background on the COMESA treaty.


JAMES MUSONDA-SENIOR TRADE ADVISOR COMESA SECRETARIAT: The purpose of integration is to foster economic development. Hence if we see an industry suffering we get worried. We are aware some sectors of the region get affected. The are provisions in the COMESA treaty that allow countries to use safeguard measures even if dumping has not been proved, so long as an industry, for example the sugar industry is affected. Article 61 of the COMESA treaty provides guidelines on what is to be done.


Sugar from Sudan is 60 per cent the price of sugar in Kenya, while that from countries like Malawi, Swaziland, Egypt and Zambia ranges between 30 per cent to 60 per cent. This sugar is therefore not dumped and Kenya cannot invoke an anti-dumping price. The cost of producing a metric tonne of sugar in Malawi and Zambia are $235 and $230, respectively, while in Kenya this costs $600. Only a period of six months is left before consumers stop consuming Kenyan sugar. Export is not an option for Kenyan manufacturers as the world market is flooded by cheap Brazilian sugar. The COMESA secretariat has given the Kenyan sugar industry time to restructure and stay afloat. The statistic of 200 000 Mt constitute the shortfall of sugar production in Kenya for domestic consumption. It invokes a tariff rate quota to protect domestic consumption. The time frame is very specific as per article 61 of the COMESA treaty-it is a period of 12 months, that is from 28th February 2002 when the relevant law came into effect to 27th February 2003. After that there will be no restriction of importation and sugar imports will be duty free.


Way out for the Sugar Industry

The stakeholders in the Kenyan sugar industry can approach the COMESA Council of Ministers for an extension. They will be expected to furnish the Council with a convincing progress report on what they have done to restructure the industry in the preceding period, for example modernization of plants, for the Council to view their proposal favourably.


Challenges of Verifying that Imports Actually Originated from the COMESA Region


Goods that meet COMESA rules of origin are not goods that are on transshipment for example sugar from Brazil. Verification of the origin of imports can be done by physically visiting plants in exporting COMESA countries and ascertaining their capacity. There are several tools at the disposal of countries whose industries get affected. Article 52 provides for a general safeguard against dumping and article 54 tackles customs subsidy, while article 48 provides for the protection of an infant industry. The investigations as to whether there is a causal link between the importation of sugar and material injury on the domestic sugar industry are not exhaustive. All options are not applicable in Kenya. In between the period industries must do what the measures demand.


MAKUMBA: Mr. M’Mwenda seems to treat anti-dumping duty and countervailing duties as one and the same thing?


CALEB: It seems the COMESA officials and the Kenya Sugar industries are comatose, they are just buying time. Are there no mechanisms for mergers between efficient and inefficient producers?


M’MWENDA: Of course I am aware of the differences. But we do not have legal provisions for safeguard measures as they appear in the WTO agreement. Kenya seems to have merged three agreements into one.


MUSONDA: We can look at this issue from an investment and efficiency point of view or from a competition point of view. The same company, ILLOVO, a multinational corporation that has brought in efficient management, runs the sugar industries in Malawi, Swaziland, South Africa and Zambia. The question then becomes, if we know key players why not apportion quotas? Apriori apportioning of quotas is in contravention of article---of WTO agreements.


BUSOLO: This is not just a matter of economics. I am an historian by profession. We have problems with economists on the ground. They talk of formulations in boardrooms and books that do not stand to the reality on the ground. Sugar industries are high cost industries. In our context industries were established for the purpose of rural development, creation of employment, supporting sports and generally bringing about social development. In the present global trade regime if you are a powerful economy you can do what you want-we know of the steel wars, but as a poor and weak economy there is nothing you can do. Social cost should be taken into consideration.


M’MWENDA: The mistake we made from the beginning was that we did not put reservations. The USA and the European Union on the other hand made reservations. We must therefore play by the rules of the game. Causal link can be established by pointing out loss of employment and the future. There is an investment measure agreement of WTO, but we are not yet signatories. We can make use of this provision to protect our sugar industry. The implementation of WTO rules has social cost effect measure; the agreements are not tenable. The agreement on agriculture entitles us to 100 per cent tariff-we can go back to this as a way forward.


CALEB: I would like to respond to Busolo’s comments. It is the consumers that are subsidizing social costs that he is advocating. If consumers were to exercise their choice then all factories would go down.


TWALIB: Social responsibilities are very important, even the Swazi sugar industry cater for such needs. In fact, all companies around the world do. Farming is a very important source of livelihood for 2-3 million people, we cannot write it off. But solutions lie with stakeholders. As importers we do not want to kill the industry. We can self regulate ourselves, we are only seeking to cover for shortfalls. Invocations of safeguard measures will provoke trade wars. Other than sugar, Kenya is a giant in the COMESA region, exporting mabati and all that. The sugar industry did not work even before COMESA came into being- it merely provides a cheap excuse. Malawi millers are here to help but our local millers are not present. Exporters are willing not only to cut imports but also to buy out the millers stocks; there are many stakeholders in the sugar industry-Coca-Cola uses sugar. The millers are using exporters as an excuse. We have severally called for meetings with the millers in vain. Forget about legal restrictions, as exporters we can even reduce the statutory quota. The solutions to the problems of the sugar industries lie within us, as stakeholders.


**: I would like to comment on Busolo’s view of economy, he seems to be very distrustful of economists. The Geneva Convention enjoins–any entrepreneur to look at the social environment. Economist must on the other hand look at cost effectiveness and there is a need not to overdo social aspects at expense of commercial activities. But we must also look at environment.     


SABWA: The Government is thin on a lot of advice. The National Committee on WTO should come in handy. The Government should be used to discourage dumping. We need a forum for dialogue among stakeholders in the sugar industry.


CALEB:  We are not proposing that the factories be closed. We are just pointing out the need to cut on social costs and concentrate on commercial activities.








Kenya’s sugar sub-sector: A good case for multi-functionality?

The number of people in low-income countries involved in agriculture is 60 per cent and their contribution to the GDP is 34 per cent. In the European Union, however, only 1.7 per cent of the population is involved in agriculture and agriculture’s contribution to GDP is 5.3 per cent.


Key Features of Multi-Functionality

·        Multi-functionality seeks to acknowledge the “social role” of agriculture. Hence, focuses on the non-trade concerns of agriculture. Multi-functionality admits that beyond ensuring food security, agriculture plays an important role in supporting rural development, maintenance of agricultural landscapes, cultural heritage, preservation of agri-biological diversity and good plant, animal and public health. In developing countries agriculture is a means toward poverty alleviation. Consequently, countries should have enough elbow room to do these other things. Even within the European Union consumers pay double the price.


·        Government intervention is viewed as important to support multi-functionality even where this contradicts trade rules. Even within the European Union government intervention is required for price guaranties. The European Union Council of Ministers meet annually to guarantee farmers good returns. For example, excess sugar within the Union is exported as subsidized sugar. Multi-functionality assumes government has a strong role to play in agricultural production. This is because even though people grow for market and rules of the latter apply, there is a strong feeling that agriculture supports livelihood, employment, rural development, hence multi-functionality, and can not be left to the vagaries of the market. In many developing countries the agriculture sectors are not entirely developed and normally perform below par, hence the need for government intervention. The biggest question with regard to this is: do governments especially those of the developing countries have the resources, especially under a SAP regime?


·        The agricultural sector is largely underdeveloped in many developing countries for domestic and export market. Still, agriculture accounts for large share of GDP, employs a large share of labour force, is major source of forex and subsistence and income for large rural populations. Given that the domestic supply of sugar has not been achieved there is need to develop it further and even develop additional capacity for export. According the world Food and Agriculture Organization (FAO), “Significant progress in promoting economic growth, reducing poverty and enhancing food security cannot be achieved in most of these countries without developing more fully the potential capacity of the agricultural sector and its contribution to overall economic development” (FAO, 1999). Key sub-sectors need a multifunctional approach in recognition of their far-reaching implications on peoples’ livelihood and employment. Multi-functionality should be geared towards increasing domestic capacity, improving rural employment and development.


Characteristic of the Sugar Sub-sector in Kenya

Kenya’s sugar sub-sector is dominated by small-scale producers. It has been marked by mismanagement resulting in a drastic decline in production levels. In 1999 for instance, Mumias had a total production of 253,000 tonnes compared to a total production of 191,000 produced by Chemelil, South Nyanza (Sony), Nzoia and Muhoroni. Mumias is considered a more efficient producer due to its management style. Although Kenya has excellent cane growing weather conditions lack of adequate incentives has meant that local out-growers’ out put can meet only two-thirds of consumption.


The sugar sub-sector provides direct and regular employment for 35,000 workers and thousands more employed as casual workers on farms. It supports an estimated 2.6 million people representing seven to eight per cent of the population. As at the beginning of 2000, 88 per cent of a total area of 108,793 hectares belonged to small-scale growers. The sub-sector is there very strategic in promoting rural development and fighting poverty.


Key Issues in Thinking about Multi-Functionality on Sugar Sub-Sector

·        Local out-growers need protection against unregulated sugar imports that glut the domestic market and stifle local production. Potential intervention areas include classification of sugar as a designated commodity, under-declaration and duty evasion by sugar importers. An allocation of import quotas is an important check against dumping and protection of revenue base for local farmers. Imports should be strictly based on shortfalls. Multi-functionality does not pay much attention to inefficiency. But, such safeguards are not a long solution. At the end of the day we shall have to address the underlying causes of the problem, we need to improve on efficiency.


·        Incentives should be targeted at enhanced efficiency by reducing production costs and development of better varieties to enhance competitiveness against low cost producers like Brazil and Australia. Wide variances exist on production costs. Mumias is the most efficient producer using 9.82 tonnes of cane to make 1 tonne compared to 16.65 tonnes for Miwani. In 1999, KSA estimated that the cost of developing a hectare of plant cane in Nzoia nucleus estate and out-growers’ farms was Kshs 158,174 against a return of Kshs 138,400 to the farmer paid over two to three years.


·        The level of taxation is very high, the farmer has to pay: 18 per cent value added tax, seven Sugar Development Levy, two per cent presumptive income tax, one per cent cess to local authorities and additional levies to outgrower companies. In sum, the total tax burden on the farmer is in excess of 28 per cent. There should be enough incentives to support out-growers to sell without burdening consumers. Currently, taxation accounts for an average 35 per cent of the retail prices. While European governments give their farmers generous incentives. The Kenya government only gives its farmers a very low incentive, of 0.04 per cent. The prices of sugar should be determined by the (international) market to ensure better returns to farmers as opposed to the current structure where the price is negotiated between the Kenya Sugar Cane Growers Association, Kenya Sugar Manufacturers in consultation with Kenya Sugar Authority. There is need to consider measures which can boost efficiency in the sub-sector e.g. irrigation and land reform in favour of consolidation to reduce costs and enhance efficiency.


·        There is need to consider how best to address the problem of dumping with a view to cushioning local producers. Current world production of 129.1 million tonnes in excess of annual consumption of 124.6 million tonnes has created an avenue for dumping.


How Can Multi-Functionality Be Operationalized?

There is need for the development of a “Development Box” under which developing countries can increase domestic production and protect livelihoods of small farmers. Liberalization cannot work in developing countries as in developed countries, hence there is need to identify crops grown by small holders and exempt them from WTO rules. The development box should provide flexibility of import controls, tariff barriers and domestic support for key agricultural products until export levels are achieved.




NJENGA: Is FAO by emphasizing on the social impact of agriculture in order to justify the sustenance of an inefficient industry. Kenya is governed by WTO and closer home COMESA rules. We cannot afford to subsidize farmers as European Union and the USA, when we are still fighting for half rents, as in Kibera. Sugar is not a staple food like maize that we cannot do without. It is not a life and death matter. Social responsibilities go to those who can afford such luxuries as horse shooting not someone concerned with survival.


NDIRANGU: The issue of competitive advantage is a lot more complex than we tend to think. The European Union grows sugar, which is 10 times more expensive than Brazilian sugar. This is more or less analogous to the situation between Kenya and Sudan. The rules of trade and trade are quite distorted. There is no fair level playing field. Pricing of commodities is not based in actual cost of production but on whims of key players. In fact, not of governments but of the five leading MNCs in the world. If the European Union uses certain rules to grow sugar even if they are not competitive why can’t we come up with our own measures? The only issue here is whether we can get the money with which to finance this.


**: Rules of comparative advantage are probably more on the theoretical than on the practical aspects. Europe is cultivating expensive beet sugar. Sugar was never a core crop for Brazil. [Ethanol?] was, emphasis on sugar just came about because of the Soviet Union.


KEGODE: Let us give this opportunity to Hughes James to share with us the experience of Swaziland.




We need to adapt to the reality that change is inevitable. We do not have all solutions-sugar is a highly political industry. The Swazi sugar industry is governed by a Sugar Act that came into effect in 1967. It is a very short Act, in terms of wording as it is based on Swazi Sugar Association. The rest of the details governing the sugar industry are annexed into the Swaziland Sugar Agreement, a contract between millers and growers outlining their respective rights and responsibilities.


All the sugar produced in Swaziland as well as the by-products are owned by the Association. As an association we are employees of the sugar industry. This arrangement has enabled us to work at a very high efficiency level. Our industry is a partnership; it is an association of players, very much like a marriage. Inevitably differences arises between the various players for example, regarding when to deliver sugar. But the organizational structure of our industry is well designed to foster partnership. The association owns the sugar and by-products in trust, in a single channel marketing arrangement. It is a corporate whole-market strategy. It is the responsibility of the association to market the sugar abroad for example to the European Union, under special preferential tariff treatment through the Asian Caribbean and the Pacific Union (ACPU). The European Union is a hard priced market. There is also the South Africa Custom Union market.


Sugar is a highly complex matter. There is need to strike a balance. The world market is a residual or dump market. There is need to protect markets at any cost. At the cost of $130 a metric tonne, Australia and Brazil supply 22 million Mt of sugar to the world market.


The Swazi millers and growers estates are mostly large plantations. There are also Out-growers with smaller patches of land. We are extending the industry through irrigation. We are under constant expansion. We seek preferential markets in the European Union to enable us use the industry to empower Swazis who would not find it easy to make ends meet, using any other means. Sugar is the real Swazi gold. Currently we are constructing a new dam that will have the capacity to irrigate 600 Ha of land. Our sugar industry, though regulated, is well functioning. The Government does not interfere. The industry is governed by the 1967 Sugar Act, but it does work independently of government interference.


Farmers in Swaziland are paid according sucrose content; that is, they are paid for the sugar in the cane. This is recognition of quality. Without efficiency the future is bleak. There is an equity rate basis to encourage the delivery of cane throughout the season. As in Australia payment range from an average relative to the season, that is, farmers are compensated for the loss incurred for bringing in cane during a season of low sucrose content.


Growers deliver cane to mill weigh bridges and there is constant sampling of cane as it gets delivered. An independent analyst does this averaged sucrose content analysis. Payment for millers and farmers is normally done seven days after sugar production. It is the millers who receive money; they pay the farmers at around 2 to 3 days later. If necessary the association even borrows money to pay for products before selling the sugar and by-products. This arrangement enables farmers to concentrate on growing and millers on milling as the marketing element is removed from both. The sugar in the sack is as much the farmer’s as it belong to the millers, as payment is done on sucrose content. The division of proceeds is done using a formula of 68 per cent to the grower and 32 per cent to the miller. This is much in line with what is happening in South Africa, Australia etc. The Swazi Sugar Association distributes proceeds by paying the millers less their operational costs and the millers in turn pay growers.


Multi-functionality is a balancing act. In developing countries the role of agriculture is very important. When you talk of agriculture in Swaziland you are basically talking about sugar. Consequently, the sugar industry in Swaziland performs its social responsibilities such as the construction of hospitals and schools. Obviously, a big-bang approach towards liberalization would jeopardize this. But, multi-functionality only helps in buying time. It is not a panacea for the solution of the problems of our sugar industries. Time is not on our side; we need to improve our efficiencies.  We should preach the need to our farmers. The New World Order will be upon us soon. If we do not do this we will be swamped over.




TWALIB: We want to self regulate ourselves. We have here millers from Malawi, who are willing to co-operate with us so that we can assist each other. We need to have a meeting with the local millers and growers, there is no way forward without a meeting. We have proposed to import 150, 000 Mt instead of 200,000 Mt, we need commitment on the part of our local millers.


With regard to the schedule of sugar imports we are not in a position to make a legal commitment.  Everybody is free to import sugar. If we allocate quotas among our current members, new members will complain. But, we promise to self-regulate ourselves. So the way forward is dialogue. The importation of sugar has a lot of logistics. Countries have limited amounts of surplus and have different milling seasons. If the millers say so or if we don’t have enough sugar we will import.


KABACHA-ZAMBIAN ECONOMIC ATTACHE: I cannot be part and parcel of the resolution to reduce the import quota, from 200, 000Mt to 150, 000Mt. I need to consult with my Government first.


NJENGA: The operating overhead costs cannot be brought down. Is our industry viable? There is a lot of Politics involved in our sugar industry. Take the floatation of Mumias shares into the stock market. Why didn’t the elites by the shares? What confidence will investors have in our sugar industries when we go about setting up illegal boards? The talk about social responsibility does not make economic sense. The 25 million consumers will vote according to their wallets. Two million stakeholders cannot hold the country to ransom. The Sugar industry constitutes a mere 4.5 per cent of the Kenyan economy. We need to be honest with each other, even at the expense of leaving conferences as enemies-sugar growing is no longer sweet. 


MUSONDA: I oppose any resolution to reduce the sugar import quota from 200, 000Mt to 150, 000 Mt. In fact, this will automatically invite allegations of a cartel. Given that Kenya belongs to a free trade area sugar should come in duty free, which is the ideal situation.


TWALIB: We have withdrawn the offer!


JOSS: As from 18 of February to date around 30, 000 Mt has been brought in. Kenya is in a privileged position within the COMESA. In fact, the balance of trade in the region is in favour of Kenya. The surplus of sugar in the COMESA region-from, Swaziland, Egypt and Zambia is residual sugar. The COMESA partners are looking at the Kenyan market in entirety. Millers and growers should work very closely.


OKETCH: Although we are not making profit, since Sudan and others are doing it we can do it. We need to make sugar production efficient. Add to that list importation. Who is to tell us the stock level? The new board should play that role. We cannot leave this to importers.


JOSS: The board should be responsible for information co-ordinating, that is, to give the various stakeholders the information. Otherwise, market demand and supply should regulate imports.


OKETCH: Without farmers there will be no sugarcane and without millers there will be no sugar. Importers are also part of the team. The concessions they have made have made me change my opinion about them.


TWALIB: As importers and COMESA partners we are willing to assist in research and other things-Joss painted too grim a picture, there is hope. We need representation in the Kenya Sugar Board.


KABACHA: Is the sugar industry going to inherit previous liabilities?


**: The new sugar board once constituted will take all liabilities and assets of the Kenya Sugar Authority. This is very clear in the Act.


OGEKA: I express great appreciation to my importing colleagues. I hope there are no mysterious importers behind you. I was in a meeting where a senior miller was accused of importing sugar and labeling it local. Production machinery in Kenya cost 10 times exporter factory gate prices. Fertilizers are supposed to be subsidized but politically correct individuals sell it at between 10 to 14 times the price. The Kenya Sugar Authority is but a conduit for the various godfathers to siphon farmer’s money. Other than Mumias, I have strong doubts whether Sony, Chemelil and Muhoroni have any sugar in stock. The problem is mismanagement. Satisfying greedy people is very difficult; it is only needs that can be satisfied. Well, there is a need for the millers to mill and the growers to grow, but there is no independent marketer. Sugar in the high seas finds its way into the Kenyan market. The Kenya government has a duty to defend and protect its domestic market just like the American government.


TWALIB: The Association of Sugar Importers is a registered organization. We got the registration after one year of lobbying. The days of political correctness are over-we are a transparent lot. We believe in marketing and fairness to all parties. We need to support farmers. Marketers are only 10 per cent of the problem, 90 per cent of the problem has to do with the millers, in the form of internal overpriced fertilizers etc.-sort it out


JOSS: Something can be done immediately about overpriced implements. Things can be sorted out immediately!


BUSOLO: Farmers are organized in out-growers’ institutions but the Kenya Sugar Authority is the one that gets the sugar levy. This institutional framework makes it impossible for farmers to purchase in puts.


JOSS: SUCAM should change this–we need to reduce costs. The issue of costs should be properly addressed and the progress presented to the COMESA secretariat. If this is not addressed, the status quo will prevail and more sugar will come from COMESA.


ASHISH: SUCAM is campaigning for farmers’ representation in the sugar board-the authority, which is to redress these problems. The key challenge is to ensure that the board has competent people. There is need to have proper representation.


NJENGA: We have a limited time period. The COMESA secretariat would like to see positive efforts. COMESA is a large market; we would need to export tea, for instance. A small sector like Sugar should not hold us hostage; this is an election year, you do not expect anything constructive to be done. The elites in this country are the ones who have money. They can purchase fertilizers. They are the ones who talk a lot. Why did they not buy Mumias shares? 25 million consumers cannot be held hostage.


ASHISH: Most consumers are growers. If the sugar industry with five million is let to collapse, the other industries will also be affected. What is affecting the sugar industry is affecting coffee and others-they will collapse too and the 25 million consumers will all perish. SUCAM has achieved a lot in the previous months, let us not be fatalistic. Although millers have snubbed the meeting we need to lobby them. This may appear idealistic though. Forget about textbook economics; let us look at the political economy. The Auditor and controller general for instance has produced a report showing that Sony cannot account for 600 million!


SHEM: The political dimension of the sugar industry must be addressed. We know the problem-it cannot be addressed simplistically. We need to review the Agriculture Act, remodel institutions; privatization is not a panacea. It will matter what we put in place to privatize. SUCAM is made up of over 20 organizations. It has achieved a lot. We are advocating for constructive engagements. I am an economist and I do research in other sectors too. Textbook approaches are fatalistic. Theories of comparative advantages are largely nonsensical. The sugar industry is very complex and is heavily protected. We need to rethink our strategies.


PAKISTANI COMMERCIAL ATTACHE: Pakistan has a large sugar sector of 78 sugar factories. ---. The problems in the sugar industry can be addressed at the level of the grower. Growers can directly address such things as the costs of in puts, sugar cane development, technical assistance and irrigation. The tractors you are using are too expensive. Developing an irrigation system is not that very expensive. Open up in sourcing in puts. Tractors manufactured in Pakistan are sourced from Britain at double the price. Maintenance of sugar mills is so prohibitive; the resources used could install a new mill. Maintenance contracts can make things a bit predictable. Pakistan can avail tractors. 85H/P tractors can be sourced very cheaply from Pakistani through growers associations. Implements are available from Pakistan and even Iran. Of course transport is very expensive but sourcing implements from alternative sources will considerably reduce costs.  There is need for someone to play a leadership role.


CALEB: There is need for peer pressure at the regional level to bear on unco-operative governments.


OGEKA: We are glad to hear from you (Mr. Musonda of COMESA) what is in the files of our government but which would have been made available to us at the last minute. Please give us bulletins on which we can base our strategies. We do not need to be sadists, regarding the fate of the sugar industry. For those who believe in Jesus sacrificing 99 sheep for the sake of one is a worthy cause. Let us sacrifice our efforts for the sake of all. Mankind is an institution-elections come and go. SUCAM is a worthy vehicle, which is not appreciated despite the fact that it is working on a government programme of poverty alleviation, as described in the Poverty Reduction Strategy Paper. Furnish us with bulletins; send us your journals so that we can share texts. Where Uganda and Tanzania import is where we import. If Europe feels it can go together why not us? Instead of putting pressure on solving our problems the government is putting pressure on our existence. Sugar cultivation in Kenya is taking place in a region of ecological abundance. It is irregularities that are killing the sugar industry. The absence of a sugar Act for all this period was deliberate. The current Sugar Act was signed last year, yet the government in its negligence did not make any preparations for its enforcement. We are in a situation of anarchy masquerading as governance. 


NDIRANGU: In the last WTO inter-ministerial meeting, there arose some conflict. A French delegate reasoned that trying to remove distortions from trade will lead to his government losing elections, but the Tanzanian ambassador or was it the foreign minister? I cannot remember properly, observed that doing so would lead to their losing lives. The world market is not structured in what makes economic sense. We need to restructure for example things like the price of fertilizers. Resolutions cannot be based solely on economic basis alone.


KEGODE: The sugar industry is very complex-one cannot just wake up one day and make solutions. We may need to discuss further. But there is a clear need for change. There is a lot of resistance. What is needed on the part of stakeholders is to continue applying pressure. We may call upon you once more–do not get tired. The conference was supposed to have been officially closed by Hon. Raila Odinga but we have gotten word that due to some pressing matter in his busy schedule he is not in a position to be with us. Thank you very much!

§ No name given