Required Report - public distribution

**Date:** 4/10/2006

**GAIN Report Number:** KE6004

KE6004

**Kenya**

**Sugar**

**Kenya Sugar Update Report**

**2006**

**Approved by:**

![](media/image1.wmf)Kevin N Smith

U.S Embassy

**Prepared by:**

Mary Onsongo

**Report Highlights:**

The Kenya Sugar Industry faces an uphill battle to gain a competitive
advantage over COMESA imports

Includes PSD Changes: Yes

Includes Trade Matrix: No

Annual Report

Nairobi \[KE1\]

\[KE\]

Table of Contents

[Production 3](#production)

[Area Under Cane, Area Harvested and cane yields
4](#area-under-cane-area-harvested-and-cane-yields)

[Sugar Research Foundation 4](#sugar-research-foundation)

[Consumption and Trade 4](#consumption-and-trade)

[COMESA quota system 4](#comesa-quota-system)

[Policy and Marketing 5](#policy-and-marketing)

[Sugar Industry Challenges 5](#sugar-industry-challenges)

# Production 

Kenya Sugar Board (KSB) registered production for 2005 at 489,000 tons,
about a 5 percent decline from the previous year. The decline in
production is attributed to reduced cane yields, area harvested and cane
deliveries in the Nyanza sugar belt and decreased efficiency in some
factories. Cane fires, drought and delayed payments in some areas also
led to a decline in performance (reduced production and quality).

  ------------------- --------------- ----------------- ---------- ----------------- ---------- -----------------
  **PSD Table**                                                                                 

  **Country**         **Kenya**                                                                 

  **Commodity**       **Sugar,                                                       (1000 MT)  
                      Centrifugal**                                                             

                      2004            Revised           2005       Estimate          2006       Forecast

                      USDA Official   Post              USDA       Post              USDA       Post
                      \[Old\]         Estimate\[New\]   Official   Estimate\[New\]   Official   Estimate\[New\]
                                                        \[Old\]                      \[Old\]    

  **Market Year                       01/2003                      01/2004                      01/2005
  Begin**                                                                                       

  Beginning Stocks    146             146               135        175               130        119

  Beet Sugar          0               0                 0          0                 0          0
  Production                                                                                    

  Cane Sugar          430             517               450        489               450        500
  Production                                                                                    

  TOTAL Sugar         430             517               450        489               450        500
  Production                                                                                    

  Raw Imports         100             108               75         87                75         80

  Refined Imp.(Raw    90              74                100        80                100        100
  Val)                                                                                          

  TOTAL Imports       190             182               175        167               175        180

  TOTAL SUPPLY        766             845               760        831               755        799

  Raw Exports         11              0                 10         22                10         10

  Refined Exp.(Raw    0               0                 0          0                 0          0
  Val)                                                                                          

  TOTAL EXPORTS       11              0                 10         22                10         10

  Human Dom.          520             550               520        590               520        590
  Consumption                                                                                   

  Other Disappearance 100             120               100        100               100        100

  Total Disappearance 620             670               620        690               620        690

  Ending Stocks       135             175               130        119               125        99

  TOTAL DISTRIBUTION  766             845               760        831               755        799
  ------------------- --------------- ----------------- ---------- ----------------- ---------- -----------------

Kenya sugar is produced largely in western Kenya in three zones:

-   The Nyanza sugar belt the oldest producing zone suffers heavy clay
    soils that make operations very expensive, and relatively low
    rainfall that reduce yields. The mixture of large and small-scale
    producers in the area are served by struggling sugar factories with
    one under receivership, one closed and the other struggling.

-   Western Kenya, a small-scale production zone is served by the
    profitable and efficient Mumias sugar Factory and Nzoia sugar
    Company. But the area is constrained with the dwindling land sizes.

-   The South Nyanza belt is served by one factory that has a current
    crushing capacity (3,000 tons cane a day (TCD)) that is below the
    region's requirement. It has the best potential for expansion in the
    sugar industry. Plans are underway to increase the factory capacity
    to 6,500 TCD.

Kenya's state run Tana and Athi River Development Authority (TARDA) and
MAT International signed a partnership agreement to build the Tana Delta
Sugar Company (\$ 300 Million) using financing through a consortium led
by Switzerland UBS Bank. The sugar factory expects to initially produce
160,000 tons. The area has land for expansion and the climatic
conditions in the area favor fast growing cane variety. GOK is still
negotiating with MAT International and the project status still remains
unclear at the moment.

## Area Under Cane, Area Harvested and cane yields

As indicated in the table below area under cane increased, area
harvested/cane delivered declined and cane yields increased.

  ---------------------------------- ------------------ ------------------
                                     2004               2005

  Area under cane (HA)               131,507            144,465

  Area Harvested (HA)                54,537             56,537

  Cane delivered (TC)                4,660,995          4,800,820

  Cane yields (Mean) (TC/HA)         73.81              71.46
  ---------------------------------- ------------------ ------------------

Source: Kenya Sugar Board

Better cane yields are likely to be realized in 2006 as the farmers
improve on crop husbandry practices if prompt payment and weather
conditions remain reliable.

# 

# Sugar Research Foundation

The Sugar Research Foundation has developed six new varieties, ready for
commercialization (adoption on going). The new varieties are high in
sugar content, have improved yield prospects and can withstand
resistance to pests and are early maturing. The varieties are for
different agro ecological zones and yield 10-13 % more than the
conventional varieties. Research activities are operating below
expectations at present.

## Consumption and Trade

## COMESA quota system 

Kenya received the first COMESA safeguard in 2002 for sugar, which was
extended in 2003 and 2004. On realizing that the three-year safeguard
had achieved little, the GOK negotiated for a final four-year extension
ending in 2008 in order to allow the sugar industry to recover and
restructure and attain self-sufficiency. Due to its WTO commitments
Kenya is unable to ban sugar imports i.e. fear of retribution by other
COMESA member states like Egypt and Malawi.

Imports, mainly from COMESA member states, are difficult to capture as
the sugar comes in containers and is often not declared by the traders.

![](media/image2.wmf)

# 

# Policy and Marketing

During 2003 the sugar industry was on the brink of collapse due to high
production costs, old machinery, low investment, and lack of credit and
general mismanagement of factories. As a result a four-year COMESA
safeguard period was negotiated to cushion local industries from
competition by low cost producer member states. Work has begun on
reducing the cost of sugar production. Deliberate efforts have been made
to develop the sugar industry through seeking new markets, generating
novel uses for cane and it's by products, researching better cane
varieties and developing infrastructure in sugar cane growing areas.

### Sugar Industry Challenges 

The industry is faced with a major challenge of reducing the cost of
sugar production if they are to compete with the other COMESA member
states, after the expiry of the safe guards in 2008. The factories are
considering the following options as cost cutting measures;

-   Co-generation of power and consequent contribution to the national
    grid

-   Adopting the new released sugar varieties that are early maturing,
    rich in sugar and high yielding.

-   Improving or boosting technology i.e., diffuser systems, modern
    boilers, powerhouse etc.

-   Branding sugar to claim ownership and market segmentation.

-   Fortification with vitamin A and other minerals.

Only Mumias has evolved various strategies to face the challenge of
losing the temporary protection offered by COMESA. Regulatory and
industry changes to embrace production of ethanol and core generation
remain a challenge.

Most of the six functioning factories have branded their sugar except
Muhoroni (under receivership) and West Kenya. Mumias, the industry
flagship, has embarked on market segmentation and product positioning.
The South Nyanza sugar Company has aggressively been involved in brand
building initiatives to increase brand visibility and develop new
markets. A major achievement being recorded in the development and
launching of sugar sachets (SONY Sugar), previously unavailable from the
local sugar industry.