Local millers will be banking on a sustained global sugar deficit to cushion them from a fresh onslaught of competition after the country ushers in a new window of larger duty-free imports from the Common Market for Eastern and Southern Africa (Comesa).

Based on a deal between Kenya and the Comesa secretariat in December 2007, Kenya is scheduled to allow some 300,000 tonnes of duty-free sugar into the domestic market between now and March 1, 2011 with any consignments outside the quota attracting a 40 per cent duty charge.

This marks a significant shift from last year when the country was scheduled to allow into her market some 260,000 tonnes with any shipments outside the ceiling being slapped with a 70 per cent charge.

Luckily for local companies, importers licensed to bring in the commodity last year only managed to secure supplies estimated at just 25 per cent of the targeted volume as producers diverted consignments to the better paying global markets.

"It was lucky for local producers because a huge portion of last year's quota did not come through. That has lapsed and nobody can point accusing fingers because no one was prevented from bringing sugar into the Kenyan market. The sugar was simply unavailable," Mr Richard Sindiga, head of the Comesa desk at the Trade ministry told Business Daily.

And in a tactful move to avoid any form of reprimand from the Comesa secretariat in the wake of such lucky escape for local millers, the State has since moved to drop its controversial import right auction system that was introduced by the Agriculture minister William Ruto in 2008 in a bid to lock out dominant cartels.

"By dropping the import right auction system, we have technically locked out any excuses from anyone as to why sugar may not have come in last year. International market fundamentals worked in our favour and we must avoid giving excuses to people out there to force sugar in here," an official at Kilimo House said.

Prohibited subsidy

Mr Sindiga confirmed that the import regulations had reverted to the old ones where importers and exporters are required to register with the Kenya Sugar Board (KSB) and the Ministry of Agriculture and thereafter apply to make shipments from Comesa on a first-come-first-served basis.

Kenya may not be directly linked to global markets but the shortage experienced on the international scene reflected locally in that suppliers in traditional import sources of the commodity such as Comesa opted for the more lucrative and better-rewarding outlets where sugar prices hit 29-year highs.

Estimates showed that ordinary shipments into Kenya are priced at about Sh30,000 per tonne compared to the global average of Sh45,000 per tonne - offering producers a reason to divert supplies.

And with the sizeable 300,000 tonnes set to enter the local market, most millers are hoping to ride on the situation on the international market front.

"Our prayer is that things remain the way they are so that we have some breathing space to make some money. The import quota for this year is huge and will get even bigger next year before the industry opens up to an all-out competition in 2012 when the market is fully liberalised," the managing director of a western Kenya based miller said.

Mumias Sugar Company managing director Evans Kidero shared similar sentiments when he addressed an investor briefing in Nairobi saying: "We don't expect the fundamentals in the global front to change much. Prices of sugar will remain robust"

Failed weather in leading sugar producers such as India means the situation in the global market is unlikely to change.

Besides, a latest feud between the EU and Thailand, Australia and Brazil over a 500,000 tonne of out-of-quota is also likely to see prices of the commodity stay high.

extra exports of the commodity in the current 2009/10 marketing season, arguing that its ceiling, provided for under WTO agreements, had since increased by close to 100,000 tonnes after its membership went up to 27 from the previous 15 countries.

Its opponents, however, said if more than the agreed quota of such sugar was exported, it amounted to a prohibited subsidy under WTO rules.

The three countries further said the planned extra exports were subsidised and such a move would be tantamount to dumping - a claim the EU denies.

Analysts said extra shipments from the EU would have substantively helped ease the pressure on global prices of the commodity, especially at a time when production continued to tumble in leading producer countries such as India because of poor weather conditions.