The Political Economy of sugar in Kenya

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According to annual reports by the US Department of Agriculture, Kenyan sugar consumption is growing, yet local production is declining. In 2011 domestic production covered 70% of local consumption, but in 2015 the local share was down to 62% (USDA 2016). In 2014, Kenya had a sugar deficit of 200,000 tons. Local production is outdated, sugar mills have not been modernised, and each year they are closed for weeks on end for maintenance. As a result sugar processing in Kenya is slow and expensive, resulting in production costs that are 50–60% higher than in neighbouring Uganda and Tanzania (USDA 2016), not to mention Ethiopia, which has increased its sugar cane production in recent years as part of government-led agricultural development projects (Kamski 2016). In 2016 the Kenyan government, for the third consecutive year, negotiated exceptional import safeguards for sugar with its counterparts in the Common Market for Eastern and Southern Africa (COMESA). Yet the government does not seem to have national production under control. Mumias Sugar Company Limited, the largest sugar manufacturing company in Kenya, which accounts for close to 60% of national sugar output, has been wracked by financial irregularities and corruption, repeatedly putting the production temporarily on hold since 2012. The Kenyan government owns 20% of the shares of Mumias Sugar, and in 2013 the government paid US $5.5 million to help the company out of its deficit.9 The government has continued to provide financial aid to the company adding another KES 500 million in August 2017.10 The mismanagement of Mumias Sugar has political implications at the highest level as the previous governor of Nairobi, Evans Kidero, is accused of having systematically siphoned money out of the company to fund his political campaign while he served as manager of Mumias11 (Rawlence 2016: 236). These irregularities and the high production costs of Kenyan sugar meant that locally milled sugar in 2014 sold for up to Sh133 a kilo, whereas smuggled sugar went for as little as Sh60 a kilo (JFJ 2015).12 With these price differences in mind it is easy to see the potential for profit in repackaging and selling smuggled sugar as if it were Mumias sugar.
Sugar cane is mainly grown in the western parts of Kenya. Although there is some government support for the industry, historically the government excluded smallholders from industrial sugar production in the 1960s and later it stalled reforms effectively to benefit only the state and the agribusinesses they supported (Ochieng 2010: 139). Opposition politicians from Western Kenya have often claimed that the continuous exclusion of Western Kenyan smallholders and industries from accessing the market was part of a deliberate political attempt at marginalising opposition supporters.
All these elements influence the possibilities for control and governance of the flow of sugar into Kenya whether it comes through Somalia, Uganda or through the port of Mombasa. They also create incentives for illegal import when tax barriers and caps on imports mean that demand exceeds available stock.
In November 2014 I interviewed an investigator from the Kenyan Anti-Counterfeit Agency (ACA), which two days prior to our meeting had made their hitherto
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biggest find of repackaged sugar in a warehouse in Nairobi.13 I found the investigator from the agency in a talkative and good mood when I met him. He explained the difficulties of his work of protecting the commercial and intellectual property rights of Kenyan and international companies to me. ‘It is evidence!’ he explained as he held up an empty bag of sugar between his thumb and index finger and waved it before me, as if he were a detective in a Hollywood movie showing the crucial piece of evidence in a murder case.14
The investigator explained how his unit, in collaboration with the Kenyan Revenue Authorities (KRA) and the Kenya Bureau of Standards (KEBS), had planned the raid of a warehouse in an industrial area of Nairobi. They had found tons of processed Brazilian sugar allegedly smuggled into Kenya via Somalia, and it was now being repackaged from 50 kilo sacks into 500 gram and 1 kilo bags bearing the Kenyan brand Mumias Sugar and with added stickers from KEBS showing that the product meets Kenyan standards of production and quality. The repackaged sugar is – when not confiscated by the authorities – sold to retailers as refined Kenyan sugar at a huge profit. In 2014 a one kilo sugar bag sold for KES 133 in Nairobi supermarkets, and by May 2017 prices had gone up to KES 170 with some supermarkets rationing it to one package per customer.
This haul of illegal sugar was important for the ACA. It is a relatively new agency, founded in 2008 under the Anti-Counterfeit Act with limited resources, as is illustrated by an estimated annual resource gap of between KES 50 to 200 million from 2016 to 2022 and a staffing level of only 19% of the proposed staffing (ACA 2016: 28–30). The ACA’s ability to combat industrial forgeries often relies on the help of KRA and the police. But the KRA and the police are often overburdened with other tasks and tend not to hand over cases to the anti-counterfeit units as officers on the ground are seldom aware of the agency’s existence. Furthermore, multi-agency coordination is seen as an obstacle as the Kenyan police are often faced with criticism for not being efficient enough in their handling of ‘real’ crime and violence. Therefore, as the investigator reiterated to me, the media and public attention attracted by this haul would hopefully boost awareness of the work of the agency, although he expressed limited confidence that things would change in the border regions. Here, his counterparts in the police and the KRA seem to have ‘other interests’ as he diplomatically phrased what, in the wider public, would be called vested interests.
The mandate of the ACA is to protect Kenyan commercial interests, like securing the market shares of local farmers and the copyrights of national producers like Mumias Sugar and protecting the state’s interests in terms of revenue and employment. When it comes to food products, health issues linked to quality control and standardisation are also considered part of the mandate, although this clearly overlaps with mandate of KEBS, just as issues concerning revenue fall under the jurisdiction of the KRA. In a haul like the one in Nairobi in November 2014, KEBS is the main complainant because the violation of the copyright law, the unauthorised use of its stickers and the counterfeiting of a standardised brand can be immediately proved. This is how a confiscated batch of sugar bags becomes ‘evidence’.
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At a previous visit to KEBS two officers told me that the interdepartmental collaboration with KRA and other units like the ACA was good, partly due to political prioritisation of the KRA and increased monitoring/control of the main port in Mombasa. Despite the fact that goods, ranging from used Japanese car parts, oil and petrol from the Middle East, clothes from China, and electronics from Dubai and the Far East, are still being smuggled through the port, the officers claimed ‘that things are improving’.15 Their statements are supported by a KES 150 million haul of contraband at Mombasa port in December 2016.16 In the KEBS officers’ view, the main challenge for the protection of intellectual property rights and copyrights is not the smuggling. The increased and uncontrolled circulation of forged or re-distributed KEBS stickers, which are then applied to all kinds of unauthorised products, also undermines state control and standardisation. During fieldwork I witnessed how copied and stolen KEBS stickers were added to products by low-end traders in Nairobi’s Eastleigh neighbourhood. Eastleigh is a hub for Somali traders in the region and characterised by trade that to a large extent bypasses state regulation (Carrier 2016: 10). By adding the KEBS stickers, traders added an element of quality assurance to their often low-quality and counterfeit products, gaining an opportunity to demand a higher price. The same process is at play when smuggled sugar is repackaged into bags from Kenyan millers, when it is attributed with local quality control and value.
However, for KEBS officers sugar is not a key priority, as the majority of the smuggled sugar is not repackaged and branded as Kenyan but sold in bulk in northern Kenya and distributed in this part of the country. Or at least that is how it used to be. By 2014 the bureau had noted an increase in the repackaging of sugar in Nairobi, which it interpreted in the context of the decrease in domestic production combined with a growing national demand for sugar.
According to the ACA investigator in Nairobi, the arrestees from the warehouse in the November 2014 haul can expect a costly fine for repackaging and for breaking copyright laws. However, they are less likely to be charged with smuggling, because KRA cannot prove that the sugar has entered the country illegally, though tests on the goods show similarities with the processed Brazilian sugar that typically enters and transits through Kismayu port in Somalia. As such, the haul only disrupts the business at the farthest end of the supply chain. The ACA investigator hinted at an explanation for the limited impact of his unit’s operations when we talked about the dangers of his job: ‘if you get a container that belongs to a politician…’ He stopped mid-sentence, took a deep breath, and made a quick slicing motion from left to right in front of his throat with his stretched out thumb. The stakes are high in the illegal sugar business, whether one is a driver, a police officer, a businessman, a politician, or even a government official working for the ACA.
The sugar haul in Nairobi reveals the complexity of interdepartmental collaboration in the governance of illegal and counterfeit goods and commodities. Furthermore, it illustrates how industrial policies and practices, both formal and informal, as well as regional trade agreements do not only shape the incentives for cross-border trade; these processes also connect the border zones to the centre in intricate ways through the flow of goods, thereby making border work and the protection of
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national interests and sovereignty a concrete issue at the centre, in Nairobi (see Chalfin 2001; Roitman 2005; Scheele 2012).

sugar imports analysis includng the exemption period

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