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USDA GAIN: Oilseeds, Cotton, Sugar, Grain and Feed


26 April 2013

USDA GAIN: Kenya Sugar Annual 2013USDA GAIN: Kenya Sugar Annual 2013

Kenya’s sugar sub-sector seems unprepared for market liberalization ahead of the expiry of Common Market for Eastern and Southern Africa (COMESA) safeguard measures, beginning March 2014. High cost of production and taxation makes Kenya’s sugar-subsector uncompetitive compared to other sugar producers within the COMESA trade bloc. Kenya will continue to rely on imports to meet increased demand for sugar. FAS/Nairobi forecasts imports to about 270 thousand metric tons and a modest increase in domestic production to 515 thousand metric tons in 2013/2014 marketing year (MY).
USDA GAIN Report - Oilseeds, Cotton, Sugar, Grain and Feed

Executive Summary

Kenya’s sugar industry will need to become more efficient to remain competitive before COMESA safeguard measures lapse in February 2014. Upon expiry, COMESA member countries will have duty-free access into the Kenyan sugar market. Since October 2011, COMESA secretariat has allowed Kenya to limit the amount of duty free sugar imports to 340,000 tons and ten-percent tariff above the quota. The safeguard measures were stipulated to allow Kenya enhance its competitiveness in sugar production. However, local millers appear unprepared to compete with other sugar producers in the region due to high cost of production and taxation compared to the largest sugar producers within COMESA trade bloc such as Mauritius, Egypt, Malawi, and Zambia. For example, the Kenyan government taxes its sugar producers an overall 24 percent of total production cost. Most sugar producers within COMESA trade bloc abolished such rates a long time ago.

Analysts estimate Kenya’s cost of sugar production at about $600 per metric ton, far above the world average of between $300 and $400. Normally, high retail prices reflect the high cost of production. However, due to illegal sugar imports in the Kenyan market in the last six months, retail prices have slightly fallen compared to the same period last year.

Production

FAS/Nairobi forecasts sugar production in MY 2013/2014 (January to December 2013) to continue the upward trend, experienced in MY 2011 and MY 2012, year-on-year per ‘New Post’ data. New cane growing areas and varieties, increased and planned investments in crushing capacity, and improved producer prices mostly explains the expected increase in production.

Weighted raw cane price averaged Kshs. 3,792 per metric ton (US$ 45) in MY 2012/2013, a nine percent increase from the previous year (MY 2011/2012).

Consumption

Kenya’s sugar consumption continues to grow and to outpace production. FAS/Nairobi forecasts consumption to remain above 770 thousand metric tons in MY 2013 as shown in the PSD table below. Domestic production supplies about 70 percent of total consumption. The factors driving increased consumption include population growth and increased industrial use. Industrial demand for sugar to manufacture soft drinks, biscuits, other beverages and confectionary products keep on rising as Kenya’s food processing industry continues to grow.

Consumption of alternative sweeteners remains insignificant.

Stocks

The Kenyan government has no programs or incentives for sugar mills to keep stocks. However, industrial users, retailers, and the sugar mills appear to hold some stocks as sugar imports increase.

Policy

Last year, the Cabinet approved privatization of five government-owned sugar mills in readiness for the expiry of the COMESA safeguards, but this is yet to happen. The newly-elected government will likely complete the process. The COMESA safeguards were first granted 10 years ago to allow Kenya enhance its competitiveness in the sugar sub-sector through privatization and product diversification. However, the country has repeatedly extended the safeguards while putting off the privatization process.

Kenya Sugar Board (KSB) is lobbying the government to reduce or abolish the taxes and cut the cost of production (for example, through subsidized farm inputs) by 40 percent to make the sub-sector competitive ahead of the planned market liberalization.

Marketing

Kenya does not have any competitive advantage in the world and regional market.

Local sugar mills have not only segmented the consumer market but also branded their products to increase sales and product identification. They have introduced both white and brown sugar into the local market to cater for different consumer preferences. To penetrate the consumer market, the millers have packaged sugar into 2kg, 1kg, 1/2kg, 1/4kg, 100gms, and 5gms packets.

In addition, most local sugar mills have diversified their product range to include ethanol, power, and bottled water production.

April 2013

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