REPORT OF THE SUGAR INDUSTRY STAKEHOLDERS’
CONFERENCE
DATE: 3RD
TO
VENUE: HOLIDAY INN HOTEL, WESTLANDS, NAIROBI
ORGANIZED BY:
THE SUGAR CAMPAIGN FOR
CHANGE (SUCAM)
TELEPHONE:
(254)-0722-691 900
EMAIL:
sucam@kenyalink.org
http: www.kenyalink.org/sucam
EXECUTIVE
SUMMARY
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.
DAY ONE
Mr. Peter Kegode welcomed
delegates from
1ST PRESENTATION
BACKGROUND:
OVERVIEW TO
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
· 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
·
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
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
The Sugar Act
The Act, which came into being on
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
·
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
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.
2ND PRESENTATION
GLOBAL & REGIONAL TRADING REGIMES, COMESA TREATY (Joss Taylor- Czarnikov Sugar):
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
How does this impact on
The global sugar dynamics have limited effect on the
export of sugar to
What does this portend for
Who are importers of sugar? These are parties who import
sugar as a business. Importers of sugar into
3RD
PRESENTATION
COST OF
PRODUCTION (COMPARATIVE ANALYSIS OF
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
Scenario from
the Mid 1990s-Early 2000
The processing efficiency is an important parameter in
determining the competitiveness of the sugar production system. Among
Cost of Sugar
Production in
A survey by the Kenya Sugar cane Growers Association
in 2000 found that the cost of producing a tonne of white sugar in
At the technical level, the size of the plant and scale
of operations are crucial factors. In
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
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
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
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.
4TH
PRESENTATION
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
The Current
Sugar Sector Paradigm
The Sugar industry is operating at a paradigm that
is incongruent with the
3. The
Economics of Cane and Sugar Production
|
|
COST TO PRODUCE 1 TON OF CANE |
|
TONS OF CANE |
COST OF CANE |
PROCESSING COST |
PRODUCTION COST |
|
|
(Ksh.) |
|
Per ton of sugar |
|||
|
MUMIAS |
979 |
|
9.82 |
16, 989 |
9, 820 |
26, 809 |
|
SONY |
979 |
|
10.54 |
18, 234 |
10, 540 |
28, 744 |
|
CHEMELIL |
1, 497 |
|
11.23 |
19, 428 |
11, 230 |
30, 658 |
|
WESTERN |
979 |
|
11.74 |
20, 310 |
11, 740 |
32, 050 |
|
NZOIA |
979 |
|
11.78 |
30, 379 |
11, 780 |
32, 159 |
|
MUHORONI |
979 |
|
14.86 |
25, 708 |
14, 860 |
40, 568 |
|
MIWANI |
1, 497 |
|
16.65 |
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
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
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.
PLENARY DISCUSSION
CALEB OKONG: I have looked at the policy
environment and regional integration as far as policy is concerned.
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,
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
SHEM: Well, the bulk of sugar
production in
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
KEGODE:
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
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
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
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:
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
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
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
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
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.
LUNCH BREAK
5TH
PRESENTATION
WTO RULES
& IMPACT OF LIBERALIZATION IN THE SUGAR INDUSTRY (
·
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
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
·
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.
PLENARY DISCUSSION
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
**:
**: No government leaves its
agricultural sector entirely to the private sector. Even the
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
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.
**: 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
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
DAY TWO
1ST
PRESENTATION
COMMENTS ON
THE SUGAR ACT &CHALLENGES PRESENTED BY THE NEW LEGISLATION (Gichira Kibara-Centre for Governance
and Development):
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.
PLENARY DISCUSSIONS
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.
2ND
PRESENTATION
APPLICATION OF ANTI-DUMPING MEASURES AND SAFEGUARD PROVISIONS UNDER THE COMESA TREATY (Geoffrey M’mwenda & Joseph Kimote-Delloite & Touche):
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
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
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.
PLENARY DISCUSSION
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,
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
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
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.
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
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
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,
**: 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.
LUNCH BREAK
3RD
PRESENTATION
CASE FOR
DEVELOPMENT & MULTI-FUNCTIONAL ROLE OF THE SUGAR SECTOR-GICHINGA NDIRANGU
(Action Aid
Kenya
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
·
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
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
·
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
· 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.
PLENARY DISCUSSION
NJENGA: Is FAO by emphasizing on the
social impact of agriculture in order to justify the sustenance of an
inefficient industry.
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
**: Rules of comparative
advantage are probably more on the theoretical than on the practical aspects.
KEGODE: Let us give this opportunity
to Hughes James to share with us the experience of
HUGHES
JAMES-COMMERCIAL DIRECTOR OF
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
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,
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
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
Multi-functionality is a balancing act. In developing
countries the role of agriculture is very important. When you talk of
agriculture in
PLENARY DISCUSSIONS: ON THE WAY FORWARD
TWALIB: We want to self regulate
ourselves. We have here millers from
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
TWALIB: We have withdrawn the offer!
JOSS: As from 18 of February to
date around 30, 000 Mt has been brought in.
OKETCH: Although we are not making
profit, since
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 Kenya
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:
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
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!