2013 Kenya Annual Sugar Report

An Expert's View about Food , Beverages and Tobacco in Kenya

Posted on: 30 Apr 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.

THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Required Report - public distribution Date: 4/17/2013 GAIN Report Number: Kenya Sugar Annual 2013 Kenya Annual Sugar Report Approved By: Kate Snipes Prepared By: Kate Snipes\Carol N. Kamau Report Highlights: 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). 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. Production, Supply, and Distribution (PSD) Table follows: Sugar, Centrifugal K 2011/2012 2012/2013 2013/2014 enya Market Year Begin: Market Year Begin: Market Year Begin: Jan 2011 Jan 2012 Jan 2013 USDA New USDA New USDA New Official Post Official Post Official Post Beginning Stocks 22 22 19 15 14 Beet Sugar 0 0 0 0 0 Production Cane Sugar 490 490 550 494 515 Production Total Sugar 490 490 550 494 515 Production Raw Imports 80 39 50 50 50 Refined Imp.(Raw 220 142 200 200 220 Val) Total Imports 300 181 250 250 270 Total Supply 812 693 819 759 799 Raw Exports 15 0 20 0 0 Refined Exp.(Raw 2 0 5 0 0 Val) Total Exports 17 0 25 0 0 Human Dom. 776 678 780 745 779 Consumption Other 0 0 0 0 0 Disappearance Total Use 776 678 780 745 779 Ending Stocks 19 15 14 14 20 Total Distribution 812 693 819 759 799 1000 MT Data Sources: Kenya Sugar Board (KSB)-- 2011 and 2012 production data; Global Trade Atlas (GTA) –2012 Trade Data; FAS/Nairobi Estimates for all other data Note: Refined sugar multiplied by 1.07 to convert to raw value basis Following table shows increase in area under cultivation, area harvested, and subsequent increase in cane for crushing expected in MY 2013/2014. 20101 *20111 20121 2013E 2014F Area Under Cane (Hectares) 157,583 179,451 213,710 240,000 260,000 Area Harvested (Hectares) 78,517 79,000 84,916 87,000 90,000 Total Cane for Crushing (Tons) 5,695,085 5,307,341 5,822,633 5,740,000 5,800,000 Data Sou 1 E,Frces: Kenya Sugar Board (KSB); FAS/Nairobi estimates and Forecast *Two sugar factories started operations in December 2011 hence the difference in data reported in 2012 annual sugar report 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. Following table indicates average factory, wholesale, and retail prices as reported by KSB. Kenya’s Monthly Ex-mill, Wholesale, and Retail Prices of Brown Milled Sugar in MY 2013 Kenya Sugar Prices Average Kshs. Price per 50 Kilogram Bag Ex-Factory Wholesale Retail (Per I Kilogram) Month 2011 2012 2011 2012 2011 2012 January 3,683 5,890 3,797 5,920 96 151 February 3,644 4,482 3,871 4,544 94 121 March 3,693 4,736 3,781 4,810 90 120 April 4,019 4,458 4,206 5,225 92 123 May 4,048 4,615 4,237 5,140 94 125 June 4,140 4,569 4,450 4,822 100 116 July 4,760 4,659 6,161 4,891 134 114 August 5,862 4,571 7,434 4,827 159 112 September 6,202 5,140 8,423 5,250 184 115 October 6,922 5,282 9,450 5,356 205 118 November 7,808 5,272 9,282 5,558 197 127 December 7,656 5,256 8,356 5,575 175 127 OVERALL 5,203 4,911 6,121 5,160 135 122 Data Source: KSB; Exchange Rate (Kshs/US$ = 88.90 in 2011 and 84.50 in 2012) 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.
Posted: 30 April 2013

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