more investment and efficiency<sup>23</sup> , have been topics of discussion since joining COMESA, with little real action. The cabinet has approved the privatization of five state owned mills, but this has yet to occur. The latest information from the website of the privatization commission claims that the latest proposal is under consideration by parliament<sup>24</sup> .

**The local sugar milling market is quite concentrated, and combined with the barriers to trade this suggests that the largest players have significant power over prices.** Mumias, the largest sugar company, had a market share of 38 percent of domestically produced sugar in 2011, lower than its typical market share due to cane shortages<sup>25</sup> . Combined with the government-controlled share of the industry, this implies that essentially two entities control at least 75 percent of local production<sup>26</sup> .  The shares of local producers in domestic market _sales_ vary quite widely depending on the period, as the volume of imports fluctuates a great deal.  For example, Kenya Sugar Board data from the first two quarters of 2012 show imports were approximately 33% of local production.  To some extent the high level of concentration in the market is probably driven by economies of scale – it is cheaper to produce and market sugar at large scale.  There are many markets where the sugar sector is highly concentrated. Regional markets such as South Africa, Tanzania and Zambia have fewer players than Kenya (Zambia only has one), and yet ex-factory prices in Kenya have consistently been the highest for the past decade, as illustrated below in Figure 1. However, the combination of a concentrated market _and_ a very high level of protection means that there is little real price competition in the market.

**Figure 1: Ex-factory sugar prices**

<!-- Start of picture text --> 1400<br>1200<br>1000<br>800<br>600<br>400<br>200<br>0<br>2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012<br>USD per ton<br><!-- End of picture text --> <!-- Start of picture text --> World Sugar Prices (London) Kenya<br>Tanzania South Africa<br>Zambia<br><!-- End of picture text --> _Source: Reproduced from Chisanga et al (2014)_ 23 Media articles report that the cost of sugar production in Kenya is more than double that of other COMESA countries; $700 (Sh59,500) per ton compared to $323 (Sh27,455) per ton. It costs $300 to produce one ton of sugar in Zimbabwe, $310 in Malawi, $340 in Swaziland and $340 in Sudan. http://www.the-star.co.ke/news/article-130060/kenya-spends-more-produce-sugar-mp; http://www.businessdailyafrica.com/High-costs-sour-outlook-for-local-sugar-industry/-/539546/1929486//r11qf4/-/index.html

> 24 See http://www.pc.go.ke/index.php?option=com_fsf&view=faq&catid=3&Itemid=535

> 25 Kenya Sugar Board figures show Mumias had higher market share than this in 2009 and 2012.  Mumias claims a 60 percent market share on its website – but this includes imports.  This suggests that when we look at the wholesale market it may be even more concentrated that local production figures suggest. FAS (2008) reported a production share of 50 percent for Mumias in 2007.

> 26 Kenya Sugar Board Data.

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