Farmers Review Africa Sept/Oct 2019 Farmers Review Africa September - October 2019 dig | Page 15

OPINION
Free market far more advantageous
for the sugar sector than the current
heavily regulated regime
T
he sugar sector employs over 250,000
Kenyans and supports six million
livelihoods. Yet it has become one of the
country’s loss-making ventures. Not because
the industry is not viable and that farmers don’t
have the experience and skills to farm the crop,
but because government policies are overriding
a free and fair market system, breaching the
Competition Act, 2010.
The Act advocates market forces, promoting
effective competition and preventing unfair and
misleading market conduct, and specifically
prohibiting dominant undertakings and restrictive
trade. While the government is supposed to
develop laws as tools to implement these policies,
the proposed Crops (Sugar) Regulations, 2019,
have no element that upholds these requirements,
instead creating a buyers’ market – known as a
monopsony - that will lead to the final death of
Kenya’s sugar sector.
At the heart of this ‘fix’ of the sugar industry is
zoning, renamed cane catchment areas during
the national sugar taskforce draft report validation
forum. This force sugar farmers to register and
then be assigned one mill they are allowed to sell
to. The results are set to be irreparably damaging
to Kenya and to western Kenya.
By giving all the sugarcane buying power in
a region to a single miller, the government is
indirectly granting them absolute control over
prices and farmers’ income too. Indeed, millers
can treat their supplying farmers however they
like, pay slowly, pay late, shift prices, demand
off-sets, they can do anything, because there will
be nowhere else any farmer can go that won’t be
illegal. All competition has been ended.
It’s a policy-based redistribution of power
that raises questions about why the Kenyan
government passed the Competition Act in the
first place. If the ideal way to rescue an ailing
and high cost, uncompetitive industry, such as
sugar, was to override all market forces, why was
a policy commitment to competition ever put onto
the nation’s statute?
Yet, the anti-competitive combination of power
being relocated to buyers and intense and highly-
staffed government control mirrors many similar
approaches by the Ministry of Agriculture and
Irrigation, of late, in policies that seem to be
employing large numbers of staff to proscribe the
minutiae of agro-industry mechanics.
In the current climate of avowed determination to
end corruption, its new regulations, furthermore,
appear filled with opportunities for rent seeking,
across requirements for letters of comfort as
confirmation of commitment by investors to install
a factory, special approvals, permission-based
registrations, and extra licenses. All of these
are put in without reason or justification, but all
of them grant government employees power over
industry players - which is an unusual way to stop
requests for ‘appreciation’ payments.
Numerous extra barriers to market entry have
been added too. No farmer or Kenyan can
produce sugar seeds, grown sugar, process
sugar, transport it, distribute or wholesale it
with any normal business license, but must now
go through complex bureaucratic registration
processes that include exorbitant licensing fees
in a now fully controlled market and industry.
In the end, for sugarcane farmers and their
dependents, the sum is set to be grave for it will
be very expensive or near impossible to transition
into alternative crop. This will open up a bigger
trade deficit as Kenya imports even more sugar.
Additionally, centralising and allocating sugar
processing operations and all distribution
trade to millers will lead to further operational
inefficiencies by millers; arbitrary deductions
during ploughing and in provision of seed cane,
delayed services such as provision of seed cane
to farmers, harvesting and cane transportation as
well as defective weighbridges.
If the country were to allow the forces of demand
and supply to prevail – as the Competition Act
does specify – with everyone free to participate
with minimal government control, we would
achieve far better results.
Sugarcane farmers would be at liberty to sell their
cane to mills of their choice, which would drive
millers to set their buying prices at the right market
Michael Arum, SUCAM coordinator
value or jeopardise their raw material supplies.
Competition would force all of the industry’s
participants to strive for greater efficiency or
risk going out of business; seed producers
would ensure they sell the highest quality of
seeds to farmers to avoid losing market share to
competitors, farmers would strive for higher sugar
content, and everyone would earn more.
As a result, the existing cane factories and
infrastructure would be utilised at a far higher rate
than the current 58 per cent.
Ultimately, if we were able to achieve 90 per cent
utilisation of the existing capacity, the country
would end up saving Sh16.6bn a year in import
costs, significantly reducing our trade deficit.
Over time, the volumes of sugar produced
would not only be sufficient to meet consumer
demand, but also to provide a sustained surplus
for exports, thus improving the country’s balance
of payments. In 10 years, the net revenues would
amount to Sh172bn based on industry spending
of Sh20bn.
But instead, we are stuck with spending at least
Sh23.8bn a year on sugar imports to supplement
the mounting production deficit, and a huge civil
service bill to override the market and devise
‘letters of comfort’.
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