Summary
With sugar sector reforms again stalled Kenya has once again secured an extension of its COMESA sugar sector safeguards, despite rising sugar imports from non-COMESA sources. Tanzania is also facing problems in effectively managing sugar imports in the interests of domestic production growth. This provides the context for the ongoing expansion of EU sugar exports to sub-Saharan Africa which has been underway since 2014. These expanding EU sugar exports are not only linked to the abolition of EU sugar production quotas and the consequent removal of WTO constraints on exports but also EU systems of agricultural support both decoupled direct aid payments and voluntary coupled supports (VCS). VCS may shortly be reclassified in the WTO as a production and trade distorting form of support. These trade trends could pose challenges to African regional trade integration efforts in the agro-food sector. Challenges which will not only need to be addressed in the implementation of African regional trade integration schemes, but also in the implementation of EU EPAs and the design of future EU-Africa trade, development and economic cooperation arrangements in the context of the post-Cotonou ACP-EU negotiations.
- Stalled Reforms in Kenya Sees COMESA Safeguard Extended
Kenya has once again successfully sought from COMESA a further two year extension of its sugar safeguard measures, which will now run until February 2021 (1). Kenya has sought to repeatedly renew these safeguard measures since their introduction in 2004 (1).
The most recent request was made in a context where Kenya had imported sugar from outside of the COMESA region, after the Kenyan government ‘scrapped duty on sugar following a sharp decline in production that saw the price rise to Sh400 per two-kilogram packet’ (2). Against this background COMESA members have insisted on the establishment of a joint committee that will oversee the implementation of the safeguard measures and report back on the progress made in preparation for removing the safeguards (3).
Local Kenyan economists have insisted there is little point in extending the safeguard measures if the Kenyan government continues to avoid addressing the underlying issue of the sugar sectors lack of competitiveness. Efforts by the Kenyan government to privatise its State-owned mills, introduce an early maturing cane variety, and pay farmers based on sucrose content have all stalled (1). This leaves production costs at around $600/tonne, in a context where ‘procuring sugarcane alone accounts for 52 per cent of costs’ (4) (ISO 15 day average global sugar price 24 October 2018 equivalent to $295.02/tonne).
Unfortunately ‘all five State-owned milling firms are operating using obsolete milling machineries that drastically hamper efficiency and production capacities’ (4), making them a less than attractive proposition for private investors. Competition from privately owned mills meanwhile is gobbling up what little locally produced sugar cane is available. According to analysts ‘perennial delays in payments to farmers for cane delivered, coupled with low producer prices of cane between Sh 3,500 and Sh 4,500 per tonne enormously eroded farmers’ confidence in the crop, as many turned to alternative products’ (4).
The Kenyan sugar sector is further plagued by ‘weak legislation governing the sub-sector’. This has been exploited by sugar importing cartels, with it being reported that by the end of the financial year ‘more than 800,000 tonnes was imported (4).
Following the COMESA decision Kenya’s Trade Principal Secretary Dr. Chris Kiptoo acknowledged ‘it is very unlikely that the sector would have implemented the conditions set by Comesa at the end of the two years because of the structural problems facing the sugar millers’ (3).
- Import Management Problems in Tanzania
Meanwhile in neighbouring Tanzania pressure is mounting on the government to take stronger action to curb illegal sugar imports, with local producers claiming they are ‘struggling to sell their own stockpiles’ in the face of illegal imports. The Chair of the Tanzanian Sugar Producers Association (TSPA) Ashwin Rana said in the face of accumulated stockpiles of imported sugar local producers ‘will find it difficult to sell the 348,989 tonne sugar harvest scheduled for the 2018/19 season. It was maintained that some traders were exploiting the lower duty for ‘industrial sugar’ to import sugar which was then sold as direct consumption sugar to consumers. Tanzania has a major shortfall in sugar production with a domestic direct consumption demand of 630,000 tonnes and an industrial sugar demand of 145,000 tonnes (4).
This situation in the EAC sugar sector provides the background to expanding levels of EU sugar exports.
- Expanding EU Sugar Exports to Africa and Beyond
The EC reported that by the 18th September 2018 total extra-EU sugar exports had reached 3,220,000 tonnes, a level above earlier projections with almost two weeks left to run until the end of the 2017/18 season. This increase took EU exports to levels 149% above the 5 year average (6).
This expansion in EU export volumes has occurred despite the almost 50% decline in global sugar prices between October 2016 and August 2018. The EC notes ‘the excess supply has put severe pressure on world prices, which have fallen steadily over the last two years from a peak of EUR 540/t in October 2016 to EUR 274/t in August 2018, the lowest level since 2007’(6). A number of analyst however have noted the unique contribution the EU is making to this situation of excess supply on world markets, given the combined effects of its expansion in export volumes and reduction in import demand on what is a residual market.
Table: EU Sugar Exports to Main Sub-Saharan Africa Destination markets first 9 months 2017/18 Season
| Total EU Sugar Exports 9 months 2017/18 season: 2.710,000 tonnes | ||||
| Country | Tonnes | Country | Tonnes | |
| West Africa | Southern & Eastern Africa | |||
| Mauritania | 109,225.0 | South Africa | 40,450.9 | |
| Ghana | 66,913.7 | Tanzania | 34,342.4 | |
| Senegal | 50,716,.6 | Sudan | 36,498.7 | |
| Cameroon | 48,814.3 | – Sub-Total | 111,292 | |
| Guinea | 37,217.5 | Total Main SSA Destinations | 465,168 | |
| Togo | 40,988.9 | Total Extra-EU | 2,710,000 | |
| – Sub-Total | 353,876 | % share Main SSA Destinations | 17.16% | |
It is against this background that some 9 African countries were among the top 24 destinations for EU sugar exports in marketing year 2017/18 season, with smaller volume also being exported to other ACP destinations. Nine months into the season these destination were taking around 500,000 tonnes of EU white sugar exports, with exports for the whole of the season likely to be substantially in excess of this level. In the first 9 months of the 2017/18 season the EU exported 3 times more sugar to sub-Saharan African markets than in the whole of the 2016/17 season.
While West African countries were the main destinations for these EU sugar exports, growing volumes also went to the sugar surplus region of Southern and Eastern Africa (5). The leading origins for these EU sugar exports were Belgium and France which accounted for around 59% of total EU sugar exports in the 2017/18 season, with Poland someway behind with around 16%, followed much further behind by Germany, the Netherlands, Denmark and the United Kingdom. Marginal sugar export volumes also took place from 16 other EU member states (around 3% of the total) (5).
This needs to be seen against the background of the most recent trends in EU sugar exports to these top 9 Sub-Saharan African countries. Between 2013 and 2017 an almost 9-fold increase in EU sugar exports occurred (+319,817 tonnes).
EU sugar exports to top 9 Sub-Saharan African countries 2013-2017 (tonnes)
| 2013 | 2014 | 2015 | 2016 | 2017 | |
| Mauritania | 62 | – | 1 | 45 | 118,330 |
| Ghana | 2,178 | 3,187 | 4,586 | 9,192 | 42,441 |
| Senegal | 18,825 | 9,568 | 11,690 | 10,717 | 22,054 |
| Guinea | 1,907 | 2,668 | 1,570 | 1,679 | 7,649 |
| Togo | 2,947 | 1,940 | 12,385 | 5,282 | 19,070 |
| Cameroon | 14,735 | 26,368 | 22,292 | 38,356 | 54,524 |
| South Africa | 249 | 203 | 4,480 | 30,822 | 15,768 |
| Tanzania | 48 | – | 4,231 | 3,020 | 24,184 |
| Sudan | 74 | 4,050 | 2,383 | 30,314 | 56,822 |
| – Sub-Total | 41,025 | 47,985 | 63,618 | 129,428 | 360,842 |
Source: EC Market Access Data Base
This forms part of a broader picture of expansion of EU sugar exports across African regions.
Trends in Extra EU Sugar exports to Sub-Saharan Africa by region and total extra-EU Sugar exports (tonnes)
| 2013 | 2014 | 2015 | 2016 | 2017 | +% 2013-17 | |||
| Total West Africa | 63,853 | 55,754 | 54,949 | 52,842 | 280,913 | +339.9% | ||
| Total Central Africa | 30,303 | 35,515 | 32,090 | 63,598 | 64,613 | +113.2% | ||
| Total Eastern Africa | 870 | 4,862 | 7,782 | 35,547 | 89,144 | +10,146% | ||
| Total Southern Africa | 261 | 257 | 4,483 | 30,823 | 26,605 | 10,093.5% | ||
| Total Sub-Saharan Africa | 95,287 | 96,388 | 99,304 | 182,810 | 461,275 | +384% | ||
| Total Extra-EU | 1,411,291 | 1,523,870 | 1,322,704 | 1,369,367 | 2,178,337 | +54.4% | ||
| % share Sub-Saharan Africa | 6.7% | 6.3% | 7.5% | 13.3% | 21.2% | |||
| West Africa: Mauritania, Ghana, Senegal, Sierra Leone, Togo, Benin, Mali, Niger, Guinea, Burkina Faso, Nigeria, Liberia, Gambia, Cape Verde, Ivory Coast, Guinea Bissau Central Africa: Cameroon, Angola, Equatorial Guinea, ,Gabon, Chad, DRC, Congo, CAR Eastern Africa: Sudan, Tanzania, Kenya, Somalia, Uganda, Comoros, Madagascar, Ethiopia, Burundi, Rwanda, Mauritius, Eritrea Southern Africa: South Africa, Namibia, Mozambique |
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Source: EC Market Access Data Base
| Comment and Analysis The long standing problems faced in the Kenyan sugar sector highlight the profound problems faced in not only promoting competitive sugar production in sectors which have traditionally been protected but also the problems faced in fostering regional free trade in sensitive agricultural products such as sugar. The issues faced in Kenya are not only technical linked to mill management, cane varieties and payments systems but increasingly political given the geographical distribution of sugar production, the politicisation of ethnicity within the electoral process and subsequent de-centralisation of government decision making to provincial authorities.From a trade policy perspective however what is of most concern is the inability of the Kenyan government to effectively manage its nominal trade policy and harness it to the process of necessary production restructuring. The problem of managing trade in sensitive products such as sugar is also apparent in Tanzania. Without an effective capacity to manage trade flows, structured and managed moves towards regional trade integration are likely to be held back and disrupted. This provides the context in East Africa to the dramatic increase in EU sugar exports which is underway.The almost 9-fold expansion in EU sugar exports to sub-Saharan African countries which occurred between 2013 and 2017 needs to be seen in a context where sub-Saharan Africa is a net sugar surplus continent. This also needs to be seen against the background of the intensification of efforts to create both regional free trade areas and a pan-continental free trade area. The danger exists that the growing volume of EU sugar exports (and high sugar content food products) could complicate this process of regional trade integration in the African sugar sector. This could get particularly complicated when the global corporate strategies of EU sugar companies, which have invested in sub-Saharan African sugar production since 2004, are taken into account. These strategies seek to position the companies concerned so as to have a diversified source of sugar production to meet rising demand in Asian markets, with value added processing commonly taking place in Europe not at the point of production. By the end of the 2017/18 season the EU will be once again exporting substantially more sugar to Sub-Saharan Africa as a whole (including destinations outside the top 24 markets) than it imports from Sub-Saharan Africa. While by 18 September in the 2017/2018 season some 521,000 tonnes of sugar had been imported from ACP/EBA countries (excluding South Africa), some 49% of these imports came from non-African ACP countries, namely Belize (27%), Fiji (13%) and Guyana (9%). This rapid expansion of EU sugar export has occurred despite the collapse of global sugar prices and the greater inherent efficiency of production of sugar from sugar cane compared to production of sugar from sugar beet. In this context it should be recalled EU production levels and trade outcomes cannot be divorced from the deployment of EU agricultural support payments, notably the underlying system of decoupled direct aid payments which makes a major contribution to farm incomes and since the abolition of EU sugar production quotas the maintenance of voluntary coupled support payments for sugar producers in member states where the production of sugar beet is less competitive (see companion epamonitoring.net article ‘The June 2018 CAP Reforms: Part 2 – Importance of CAP Instruments to EU Agriculture and Issues Arising for the ACP’, 13 September 2018). This has led to a situation where production has increased in more efficient sugar production zones of the EU but with no corresponding decline in sugar beet production in the less competitive production zones of the EU. It was this that resulted in record EU sugar production in the 2016/17 season (see companion epamonitoring.net article ‘Sugar Substitution Gaining Pace in EU Amid Falling EU Import Demand’, 5 November 2018). African governments individually and collectively will need to explore just how they are to manage the trade distortions which arise as a result of EU agricultural support policies in the sugar sector as they seek to promote closer intra-African market integration as part of the AfCFTA process. A major problem faced in this regard is that these distortions are so deeply entrenched within the EU agricultural production system that they are not commonly mistaken for the simple operation of market forces. This is likely to mean that any African efforts to address the sugar sector trade distortions will meet with strong resistance from the European Commission and EU member states, all of which are looking to use the economic partnership agreements and the post-Cotonou EU agreements with African, Caribbean and Pacific countries to more effectively promote EU trade and investment interests (for details of recent EU initiatives in this regard, specifically the ‘new Africa-EU alliance for sustainable investment and jobs’ initiative, see companion epamonitoring.net article ‘EU Sees Mauritania’s EPA signature as Stepping Stone to an EU-Africa FTA?’, 25 October 2018). This is going to throw up complex challenges for African governments not only in their relations with the EU but also in their relations with each other as they seek to operationalise their commitments to the creation of an African Continental Free Trade Area (AfCFTA), not only in the sugar sector but across a multiplicity of sensitive sectors. |
Sources
(1) People Daily, ‘Sugar safeguards dilemma’, 17 July 2018
http://www.mediamaxnetwork.co.ke/451555/sugar-safeguards-dilemma/
(2) Business Daily , ‘Kenya seeks fresh Comesa sugar import safeguard’, 13 July 2018
https://www.tralac.org/news/article/13264-kenya-seeks-fresh-comesa-sugar-import-safeguard.html
(3) buisnesdailyafrica.com, ‘Relief for Kenya as Comesa team endorses sugar import safeguard’, 16 July 2018
https://www.businessdailyafrica.com/markets/commodities/Comesa-team-endorses-sugar-import-safeguard-Kenya/3815530-4665714-w7mueo/index.html
(4) IPPmedia, ‘Govt urged to get tougher over illegal sugar imports’ 13 July 2018
https://www.ippmedia.com/en/news/govt-urged-get-tougher-over-illegal-sugar-imports
(5) EC, ‘Sugar Market situation’, AGRI G 4 Committee for the Common Organisation of Agricultural Markets, 27 September 2018
https://ec.europa.eu/agriculture/sites/agriculture/files/market-observatory/sugar/doc/market-situation_en.pdf
(6) EC, ‘Short-term outlook for EU agricultural markets in 2018 and 2019’, Autumn 2018
https://ec.europa.eu/info/sites/info/files/food-farming-fisheries/farming/documents/short-term-outlook-autumn-2018_en.pdf