Speaking on a visit to a sugar factory, Mr Koskei maintained that under current conditions the Kenyan sugar industry cannot easily survive in a fully liberalised market, and that most factories would close if safeguard provisions were allowed to lapse as scheduled. According to a World Bank report, the protection measures have contributed to making Kenya a high-cost sugar producer, with average costs of US$950/tonne, compared to US$350/tonne in countries such as Malawi.
COMESA sugar safeguards have been in place since 2003, having been renewed in 2007 and 2011. It is unclear whether a further extension will be granted, given non-fulfilment by Kenya of conditions related to privatisation and the introduction of a sucrose-content-based cane payment system. The issue is further complicated by restrictions on the duration of safeguards under COMESA rules, which would need to be amended.
The Kenyan government maintains that a further 24 months are needed for the completion of the sugar sector privatisation process, while it looks to attract strategic investors along with some level of farmer ownership, an approach favoured by the Kenyan Sugarcane Growers Association . Participation of strategic investors is seen as critical to turning around struggling state-owned millers. In addition, as part of the reform process the Kenyan government is seeking to make it mandatory for sugar millers to co-produce sugar, ethanol and electricity, in order to improve the overall financial performance of sugar mills.
The Kenyan sugar sector is currently facing several problems. The licensing of new millers has led to the emergence of extensive levels of cane poaching. This has seen utilisation of mill capacity fall, with serious financial problems emerging. Press reports indicate that the combined losses of state-owned sugar mills reached KSh6.1 billion (51.8m) in 2013. This includes losses of KSh 1.67 billion at Mumias Sugar, a semi-privatised mill, in which the government stake is now only 20%. These massive losses are eroding the attractiveness of government mills for potential strategic partners.
Some representatives of both millers and farmers have criticised the Kenya Sugar Board (KSB) for inadequately fulfilling its regulatory functions, particularly with regard to the issuing of new milling licences, and there have been calls for the cancellation of some milling licences and for the dissolution of KSB.
Meanwhile, press reports have indicated that Kenyan sugar stakeholders are complaining about both sugar smuggling and the arrangements for quota-limited access for COMESA sugar producers (350,000 tonnes). Kenyan millers maintain that duty-free imports have left them with a growing stockpile of unsold sugar, as imports undercut local prices. This has led to calls for licences for COMESA duty-free imports to be suspended.
For their part, industrial users of imported sugar, such as Coca Cola, have called on the Kenyan government to ensure that any crackdown on illicit importers and rogue re-packers of sugar imported for industrial uses does not impact on genuine importers of sugar for industrial use.