This archive report was first published on 17 July 2019.
Kenya's sugar industry has been plagued by policy and public mismanagement, leading to a significant decline in productivity. The industry's natural advantages have been undermined, and when import protection ends, it will be undercut by cheaper imported sugar.
The consequences of this decline will be severe, affecting up to six million Kenyans who rely on the industry for their livelihood. Kenya saves between Sh40bn to Sh55bn annually in import costs by using locally produced sugar, which is crucial as the country's trade deficit continues to grow.
Despite the warning from COMESA that there will be no further extensions in protecting domestic sugar production from imports, the government has proposed new regulations that appear unjustified and inexplicable. The regulations aim to reduce production costs, but they will instead further load costs and prevent key corrections.
The starting point for Kenya's excessive costs is seeds. Farmers are still using old-fashioned, low-yield seeds, resulting in lower sugar production per hectare compared to competitors. A clear jumpstart would have come from regulations that encouraged entrepreneurs to produce high-yield seeds developed by the Kenya Sugar Research Foundation (KESREF).
Instead, the regulations put sugar cane seed production under the control of the Sugar Directorate, taking it away from the Kenya Plant Health Inspectorate Service (KEPHIS). This move will be costly and time-consuming, and it will only replace what KEPHIS already does.
The next 'dead hand' on Kenyan sugar production is the mismanagement and inefficiency of our mills. Egypt produces nearly five times the sugar that Kenya does, despite having half the amount of sugar cane. This is because Egypt's mills are larger and newer, and they crush better-quality sugar cane more efficiently.
However, instead of encouraging new mill investment, building incentives for higher quality cane, or chasing more modern machinery, the new regulations have added a framework that is proven to deter farmers and created extra disincentives to mill investments.
The regulations introduce zoning, which means every farmer growing sugar cane is assigned just one mill they can sell to. This has been tried in other countries, and it has led to a decline in sugar cane production. Kenya is now moving to zoning, which has also introduced extraordinary new rules around mill investments.
The new regulations are also not legal, breaching the constitution and multiple other laws. They never underwent an impact assessment, which is required as a matter of law in creating new regulations that affect large populations.
