Nairobi — Government support to state-owned sugar companies is undermining fair competition in the sector, a new report shows.

The World Bank and the Competition Authority of Kenya (CAK) say state-owned mills continue to receive extensive financial backing despite being loss-making and inefficient, disadvantaging private-sector players.

"State-owned sugar mills constitute roughly 15 percent of the market in Kenya and are generally loss-making and inefficient, dragging down Kenya's overall sector performance and hurting farmers and consumers alike," the report notes. "They are insulated from market competition by these protections as well as direct financial support provided by government."

In 2023 alone, the government wrote off Sh117 billion in debts owed by state-owned millers, including Sugar Development Fund loans and tax penalties--following a similar Sh62 billion write-off in 2020.

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The state has also extended repeated grants to struggling mills, including a Sh150 million payment to Mumias farmers and a Sh166 million non-reimbursable grant to Muhoroni in 2022 to pay farmers and suppliers.

To boost competition, the report recommends reducing trade barriers, including relaxing non-tariff restrictions enforced by the Sugar Board, which currently limits imports by individual companies.

It further proposes easing duty-free caps on COMESA sugar and reconsidering Kenya's 100 percent tariff on non-COMESA imports.

The report also urges the removal of farmgate price controls and cane catchment restrictions, arguing that allowing farmers to choose buyers freely would improve fairness and enable more efficient mills to grow.

"Enhanced access to finance for inputs and transparent, enforceable contract farming agreements should accompany these measures to prevent unfair poaching," the authors add.