Kenya is member state of COMESA FTA
In 2003 Kenya sought COMESA intervention of safeguard mechanism to protect its sugar industry from threats by imported sugar thus limiting imports from COMESA to 200,000 this has increased to 220,000
The Safeguards were to expire in March 2008 but Kenya was given an extension and they are set to expire in 2014 meaning unlimited export of sugar from COMESA countries to Kenya
Kenya’s current sugar situation
Production capacity - 520,000
Consumption - 740,000
Deficit - 220,000
Kenyan sugar industry high cost because of;
- Reliance on small holder’s thus greater variability in input use and field preparation
- less timely and consistent crop care.
- Higher harvesting and transport costs
- Taxation regimes in Kenya
- Longer growing cycles in Kenya (15-20) compared to 10-12 in other countries because of higher altitude.
- Schemes in Kenya 100% rain fed thus vulnerable to drought and reduced yields thus raising average cost of production compared to other countries who depend on irrigation.
- Most COMESA countries heavily subsidized
- Danger of dumping by countries Unfair competition from under invoiced sugar
- Cost of cane in Kenya two times more than other COMESA countries
Protection of sugar industries in other countries is done by: Most regimes including US, EU, Pakistan, Brazil, Thailand, China, Australia, Malawi, Mauritius, Swaziland, Zambia South Africa provide government protection through;
- Favourable policies
- Straight government subsidies
- Tax rebates on inputs
- Zero taxation on the sugar
- Tax breaks/holidays on investments.
- Governments fully responsible for infrastructure.
- Government support for ethanol and cogeneration policies
The Government policy needs to be reviewed with focus on regulatory structures and comparative analysis of policies affecting sugar, coffee, tea, dairy and livestock with a view to establishing political goodwill and consistency in policy implementation.
- Privatisation of all mills in order to inject private capital
- Marketing environment be reviewed
- Policy environment be made favourable for ethanol production /cogeneration
- Review taxation regimes
- Production incentives
- Subsidy support
- Government must ensure that competition from COMESA is fair and that there are no cross subsidies on sugar imports that unfairly disadvantage the Kenya sugar industry.
Status: The government of Kenya was given an extension to the COMESA safe guards. The four year period is the last that Kenya is allowed to have in the governing rules of the COMESA treaty.
MSC has ensured its capacity to survive the post COMESA period by the product diversification i.e. power that it has invested in, in order to adopt alternative income generating processes. This is unless the government reviews its policies regarding the industry in terms of taxation and allows for the privatisation of the remaining industries.