Under the Statutory Instruments Act 2013, regulations must conduct a cost-benefit analysis assessing the value of the new regulations and comparing them with alternative actions. This was not done for the Crops (Sugar) (General) Regulations, 2018, breaching the SIA.

However, our consultant conducted a cost benefit analysis estimating the net financial impact of the regulations versus maintaining the status quo (changing nothing), or removing the regulatory market control and moving to a free market.

Two measures were used to evaluate the relative financial strength of the different policy routes.

The Benefit Cost Ratio is the ratio of the benefits to cost, so that a BCR of 2 means a policy yields twice as many benefits as costs.

The Net Present Value (NPV) is the benefits minus the costs and shows the net financial gain.

The NPV and the BCR are normally used together to highlight the best policy route. Both were calculated over ten years.

New regulations:

The new regulations were estimated to deliver a BCR of 1.2, such that for every Sh1m the new regulations cost, they generate Sh1.2m in benefits.

Over 10 years, the total net benefit or NPV from the new regulations was Sh38.5bn, but this required spending of Sh156bn over the period.

This renders the regulations expensive and of little benefit compared to the large scale of necessary spending. From the industry’s current position of financial losses, it is exceedingly unlikely the sugar industry will survive these costs and these regulations.

Free market

The free market alternative BCR of 9.47 times the benefits achieved on each unit of costs. The NPV of the total net benefits over 10 years is Sh172bn, based on a spend of Sh20bn.

Conclusions

Both models gained from the current status quo through better utilising Kenya’s sugar mills and wasting less sugar cane, but the free market does this at one-fifth of the cost of the regulations.

Thus, the cost-benefit analysis reveals no substantive gains from the regulations, with a move to a free market delivering far better results.

This cost benefit analysis used poor quality data, but knowledgeable estimation. Therefore, the results provide a guide to impact, sufficient for policy decision making.

Under the Statutory Instruments Act 2013, regulations must conduct a cost-benefit analysis assessing the value of the new regulations and comparing them with alternative actions. This was not done for the Crops (Sugar) (General) Regulations, 2018, breaching the SIA.

However, our consultant conducted a cost benefit analysis estimating the net financial impact of the regulations versus maintaining the status quo (changing nothing), or removing the regulatory market control and moving to a free market.

Two measures were used to evaluate the relative financial strength of the different policy routes.

The Benefit Cost Ratio is the ratio of the benefits to cost, so that a BCR of 2 means a policy yields twice as many benefits as costs.

The Net Present Value (NPV) is the benefits minus the costs and shows the net financial gain.

The NPV and the BCR are normally used together to highlight the best policy route. Both were calculated over ten years.

New regulations:

The new regulations were estimated to deliver a BCR of 1.2, such that for every Sh1m the new regulations cost, they generate Sh1.2m in benefits.

Over 10 years, the total net benefit or NPV from the new regulations was Sh38.5bn, but this required spending of Sh156bn over the period.

This renders the regulations expensive and of little benefit compared to the large scale of necessary spending. From the industry’s current position of financial losses, it is exceedingly unlikely the sugar industry will survive these costs and these regulations.

Free market

The free market alternative BCR of 9.47 times the benefits achieved on each unit of costs. The NPV of the total net benefits over 10 years is Sh172bn, based on a spend of Sh20bn.

Conclusions

Both models gained from the current status quo through better utilising Kenya’s sugar mills and wasting less sugar cane, but the free market does this at one-fifth of the cost of the regulations.

Thus, the cost-benefit analysis reveals no substantive gains from the regulations, with a move to a free market delivering far better results.

This cost benefit analysis used poor quality data, but knowledgeable estimation. Therefore, the results provide a guide to impact, sufficient for policy decision making.

.

.