Source: Daily Nation
Writer: Angeline Ochieng
In Angeline Ochieng’s article for the Daily Nation, the sharp drop in sugar prices due to an oversupply in the market has become a significant concern for local sugar millers, who are reporting substantial financial losses. The Kenya Sugar Manufacturers Association (Kesma) claims that the influx of duty-free and illegal sugar imports has exacerbated the situation, pushing prices down to levels that are unsustainable given the high cost of production.
The article details how the sugar prices have dropped drastically over the past few months, with the price per 50-kilogram bag falling from KSh. 6,300 in March 2024 to KSh. 5,000 by August. This decline, amounting to a loss of KSh. 26 per kilogram, has led to losses of between KSh. 18,000 and KSh. 20,000 per tonne for local millers. Kesma’s Chief Executive Officer, Stephen Ligawa, expresses concern that this trend is severely affecting the viability of the industry, as the pricing of raw sugarcane is closely tied to the ex-factory prices of processed sugar.
The article highlights that the Agriculture and Food Authority (AFA) attributes the glut in the market to increased production by local millers. AFA Chairman Cornelly Serem has indicated that the government is considering exporting surplus sugar to stabilize prices domestically, marking a significant shift for Kenya, traditionally a net importer of sugar.
Official statistics reveal a staggering 123.4% increase in sugar production in the first half of 2024 compared to the preceding six months, further contributing to the price drop. While higher production is generally positive, the concurrent increase in imports has created an oversupply, driving prices down and threatening the economic stability of the industry.
Kesma has voiced concerns that the continued price decline will destabilize the well-established cane pricing formula, which has been in place for over 15 years. The situation is creating uncertainty and anxiety within the industry, with both millers and farmers facing financial strain. In response to these challenges, Kesma approached Agriculture Principal Secretary Paul Ronoh, who in May 2024 committed to freezing imports to help stabilize the market.
Opinion: While the reduction in sugar prices due to a glut may be justified as a short-term measure to benefit consumers and manage oversupply, it is crucial to balance this with the long-term sustainability of the sugar industry. The drastic price drop is a necessary response to the current market conditions, ensuring that the surplus does not lead to an even greater market disruption. However, the government must act swiftly to implement strategies like freezing imports and facilitating exports of surplus sugar to stabilize the market and prevent further financial losses for millers and farmers. By carefully managing this situation, Kenya can avoid long-term damage to its sugar industry and protect the livelihoods of those who depend on it.