Buying sugar is now leaving a bitter taste in the mouths of Kenyans as prices of the sweetener have hit a record high.
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Why sugar prices are set to increase even further
Buying sugar is now leaving a bitter taste in the mouths of Kenyans as prices of the sweetener have hit a record high, but in a twin blow, the prices are set to rise even further after the government introduced excise duty on sugar imports and temporarily suspended local milling.
Sugar prices have jumped at the fastest rate over the past 12 months among all the key commodities that are tracked to measure inflation, according to data from the Kenya National Bureau of Statistics (KNBS).
A spot check by the Nation at some retail outlets in Nairobi shows sugar prices are retailing at between Sh225 and Sh250 per kilogramme. For a two-kilogramme packet, retailers are selling the sweetener at between Sh460 and Sh490.
Sugar is used to sweeten drinks such as tea and coffee, manufacture of soft drinks such as juices and soda, baking of popular foods such as bread, biscuits, chapati and mandazi, manufacture of pharmaceuticals such as syrups and in beauty products.
As such, when the price of the sweetener increases, consumers incur higher costs of not only buying the commodity at the shop, but also other products which sugar is used in their manufacture or preparation.
“The price of sugar and other items has really increased, but if you raise the cost of food, customers will no longer come to your kiosk,” lamented John Maina, a food vendor at Roysambu.
Last week, sugar millers in Western and Nyanza region shut operations as the government moves in to address the acute cane shortage in the zone.
Agriculture and Food Authority (AFA) declared the suspension of crushing for a period of four months, noting that the millers have realised a drastic decline in sugar production in the last six months.
Sugar Directorate acting director Jude Chesire noted that the break will allow sugarcane to mature so that millers can resume normalcy.
“Milling operations had reached less than 25 per cent of the installed capacity utilisation, leading to a drastic decline in sugar production in the last six months,” he said.
He attributed the shortage to the lack of investment in cane development by millers due to uncontrolled cane harvesting outside respective catchment zones.
“We also had unregulated cane collection centres and non-adherence to proper cane husbandry by farmers due to lack of access to adequate financing,” said Mr Chesire.
Milling operations in South Nyanza and the coastal region will, however, continue uninterrupted due to availability of mature cane .
This means that Kenyans will rely on Sony Sugar, Transmara, Sukari Industries and Coast-based Kwale International Sugar Company Limited (Kiscol) for the supply of the sweetener and bridge the deficit through imports.
The country needs 185,000 metric tonnes of sugar to cover the period.
West Kenya, Olepito, Nzoia and Butali have already given a notice of ceasing operations and declared that only critical workers will be maintained during the time.
“All casual employees except those in nucleus estates and critical areas will have their contracts terminated forthwith. Fresh contracts shall be signed for the exempts,” said Nzoia Sugar managing director Bryan Keya.
AFA said that a sugarcane census will be undertaken within the next two months to determine the actual cane situation.
In the interim, Mr Chesire called on all millers to undertake cane development to ensure adequate supply of the critical raw material in future.
Duty-free imports
Sugar prices have continued to increase despite the government’s move to allow importation of 100,000 tonnes of the sweetener duty-free from outside the Common Market for Eastern and Southern Africa (Comesa) region.
Sugar coming in from other parts of the world attracts at least 50 per cent duty under the East African Community’s common external tariff.
The government also allowed the Kenya National Trading Corporation (KNTC) to ship in 200,000 tonnes of sugar duty-free for a one-year period from January 20, 2023, to January 19 next year.
The imports have failed to stabilise prices as local sugar production has reduced due to cane shortage which means the imports on their own cannot satisfy the growing demand.
“Sugar imports in May totalled 28,258 metric tonnes, 101 per cent up from 14,034 MT last month (April),” said the Sugar Directorate.
Cane shortage
The main driver for the sharp increase in sugar prices is the shortage of sugarcane in the Western sugar belt. Data from the Sugar Directorate for instance shows ex-factory sugar prices for May 2023 averaged Sh8,597 per 50-kilogramme bag, a 21 per cent increase from Sh7,055 per in April and Sh6,661 in March.
The wholesale sugar prices for May 2023 averaged Sh9,252 per 50-kilo bag, up 28 per cent from Sh7,210 in the previous month. Retail sugar prices in May 2023 averaged Sh211 per kilo up from Sh160 in April and Sh157 per kilo in March, according to the Directorate. This means that within just two months, retail sugar prices went up by 34 per cent.
Global prices jump
With demand far outstripping supply, Kenya is a net sugar importer which means changes in global sugar prices directly impact local prices.
Kenya’s total sugar requirement is estimated at 1.1 million tonnes each year, including 930,000 tonnes of table sugar and 170,000 tonnes of industrial sugar. There are 16 operating sugar mills in Kenya with a total processing capacity of 51,450 tonnes of cane per day, but the utilisation of this capacity is currently just at 56 per cent, according to the Ministry of Agriculture.
The local mills produce about 700,241 metric tonnes of sugar annually.
According to the International Sugar Organisation (ISO), the price of a tonne of white sugar averaged $549.91 (Sh77,893) in June 2022. This price has however shot up to $701.9 (Sh99,422) in May 2023, an increase of 27.6 per cent in just 11 months.
Weak shilling
The cost of importing sugar has been worsened by the sharp deterioration of the Kenya shilling during the period. On Friday, the local currency was trading at Sh142.29 against the US dollar, which is a record low. In comparison, the shilling was trading at a mean of Sh118.75 against the green back on the same day last year. This means that importing a tonne of sugar is costing 19.7 per cent more than it did last year because of the weakening shilling alone.
“In May 2023, CIF (cost, insurance and freight) Mombasa landed values for imported white refined sugar averaged Sh88,525/tonne,” said the Directorate. “In June 2022, CIF Mombasa landed values for both imported white refined and mill white/brown sugar averaged Sh73,072/tonne.”
Finance Act, 2023
The Court of Appeal on Friday overturned an order preventing the government from implementing the Finance Act, 2023, which has allowed the Kenya Revenue Authority (KRA) to start collecting the new taxes. This is a blow to consumers, as the Act has introduced an excise duty of Sh5 per kilogramme of imported sugar.
In the Finance Bill, 2023, the National Treasury had proposed not only the excise duty on imported sugar, but also a duty of Sh42.1 per kilogramme of locally manufactured confectionery. The proposal was, however, shot down by Members of Parliament after protests from manufacturers.
“The proposal to impose excise duty on locally manufactured confectionery will drive several local companies out of business as it will make them uncompetitive and their products unaffordable,” the Kenya Association of Manufacturers (KAM) had argued.
Cost of living
Sugar is one of the 330 key commodities that are used by the KNBS to track the cost of living. In June, year-on-year inflation stood at 7.9 per cent, driven by an increase in the cost of food items, fuel, electricity, rent, transport and other goods.
The data showed that sugar prices rose at the fastest pace of 58.1 per cent during the period, with a kilo of the sweetener retailing at an average of Sh204 in June, up from Sh129 in June last year.
Other products whose prices rose sharply during the period include diesel, whose prices jumped by 19.2 per cent, loose maize (930.7 per cent), kerosene (25.9 per cent), electricity (53.4 per cent) and Irish potatoes (19.5 per cent).
Outlook
Kenya is betting on investment by private sector in the sugar industry to boost local production capacity despite the struggles by the existing millers.
A number of projects valued at about Sh15 billion are in the pipeline, with the bulk of the greenfield sugar factory projects targeted for Narok, Nandi and Kericho counties, which are not traditional sugar producing zones.
“The industry has the potential of producing over 1.47 million metric tonnes of sugar which would meet the domestic demand and provide a sustained surplus for export to the wider Comesa region which is generally a net importing region,” said the Ministry in the draft Policy on Revitalisation of the Sugar Industry 2023 released in May.
