Regulatory impact

Under the Statutory Instruments Act 2013, regulations must conduct an impact assessment, to ensure they will produce positive results and not trigger any unforeseen negative results. No impact assessment was undertaken for the Crops (Sugar) (General) Regulations, 2018, in breach of the SIA. However, there are set to be a range of grave regulatory impacts.

The Problem: Low yields+ inefficient processing = high cost of production = uncompetitive

The proposed regulations will:

  • Prevent processing investment
  • Reduce production
  • Perpetuate low yields

Preventing curative investment

The biggest problem in the Kenyan sugar industry is low-grade mills that waste cane, run at low utilization rates, and crush inefficiently with elderly and poorly maintained technology. Yet the regulations support existing millers with inefficient operations, while, at the same time, locking out new mill investments.

Poor mills are now supported with enforced sales to them by cane growers under the zoning regulations and by price fixing.

For new investors, complex conditions demanding high-risk management recruitments and investments to build unlicensed mill with a view to later achieving a license deter investments, as do the regulations’ obligatory CSR costs.

This represents a seizure of public policy making by existing mill interests, and in support of the government privatisation agenda. Any policy built to achieve a future sugar industry must make its top priority encouraging and facilitating investment into upgraded, and efficient mills.

Reducing cane growing

If the result of propping up the existing, unimproved mills is more non-payment to growers after years of payment arrears, there is no help or insurance: and this will deter growers. Thus, the closedown of all options for farmers to seek reliable payers and good prices, will continue to drive farmers out of cane growing.

It will also mean reduced cane growing investment. In Australia, cane growers used to be required to deliver cane to designated mills. This led to the use of marginal land for cane production instead of more suitable land and also discouraged the use of the best agronomic practices.  The same has happened in Kenya.

In fact, in the five years before zoning was abolished in Australia, cane production dropped by an average 2.6 per cent a year. After zoning was ended in 1991, cane production grew by 13.4 per cent a year. This has been the same in every sugar industry in the world. Zoning and price fixing will not have a different, production-enhancing impact in Kenya. It is a well-documented and proven means to reduce and ultimately close down the sugar industry.

Holding yields down

Yields have fallen sharply in Kenya, driven by issues in seed production and growers’ knowhow. Multiple high-yield seeds have been developed, but have not been used by farmers, who are not getting extension services and are buying from an under-invested seed sector.

Yet, rather than stimulating entrants into high yield seed production, the regulations now move the Sugar Directorate into control of seed production and takeover of the normal Kenya Plant Health Inspectorate Service (KEPHIS) seed regulation regime. This is set to make the issues around seed production far worse.

Certification involves field inspections, seed processing to remove undesirable contaminants, seed testing to determine quality, labelling and sealing, and tests to confirm if these measures have been effective. All this needs to be done by qualified professionals in this field. This makes for a large setup cost and process for the Sugar Directorate to perform KEPHIS functions itself, adding further delays and obstacles to gaining more sugar seed nurseries producing high-yield varieties.

The regulations also omit to provide for the training obligated under the parent Acts, deepening the knowhow gaps.

And adding needless bureaucracy and costs of doing business

Growers are required to register to an apex body with multiple departments, complex functions and capacity, rather than simply growing and selling sugar cane to the best buyer. Indeed, every market link is now buried in forms, approvals, plans and bureaucracy, creating hundreds of administrative jobs but with no benefit at all over an open market.

The impact is to add even greater costs to sugar production for the producers and for taxpayers.