I attended an event in Nairobi on Thursday convened by the Kenya Sugar Board and billed as a ‘consultative stakeholder meeting’ on the availability and use of locally refined white sugar.
I expected a routine discussion on agricultural policy. Instead, I found what looked like an attempt to legitimise a glaring contradiction: a punitive tax regime that shields one private enterprise while imposing crippling costs on Kenya’s wider food and beverage manufacturing sector.
For months, manufacturers that employ tens of thousands of Kenyans, buy from local farmers and compete in regional markets have been absorbing a massive fiscal shock.
The government has imposed a Sh40 per kilogramme levy on imported refined sugar used as an industrial input. Add the Import Declaration Fee, Railway Development Levy and import duty, and the total burden approaches 70 percent.
The consequences will eventually reach consumers through the price of bread, beverages, confectionery and dairy products. For manufacturers, however, this is not an abstract tax issue. It is a question of competitiveness and, ultimately, survival.
Yet one company appears to stand apart from this regime: Mombasa Sugar Refinery Limited (MSRL), owned by the Chatte family and based at Kibos, Kisumu County.
Let us be clear about what the Kibos refinery is.
Its advantage does not come from processing Kenyan cane. Nor does it come from some superior technological breakthrough. Kenya has a structural cane deficit and simply does not produce enough brown sugar to sustain industrial-scale production of refined sugar from local raw material.
Kibos imports raw bulk sugar, typically from surplus-producing countries such as Brazil and South Africa, refines it locally and sells it under government-granted excise exemptions.
Calling this ‘local sourcing’ stretches the meaning of the term beyond recognition. The raw material is imported. What happens locally is refining. So why should heavily invested Kenyan manufacturers pay a tax burden approaching 70 percent while one relatively new refinery enjoys bespoke fiscal privileges?
That is not how you build a domestic agricultural value chain. It is how you redistribute market power and financial rents from established, tax-paying manufacturers to a protected processor.
And not a single additional shilling of this arrangement goes to a cane farmer. Nor does the refinery appear to be operating anywhere close to the capacity for which it was built.
Kibos told Thursday’s meeting that in its first four months of operation it had sold only 7,700 metric tons against an annual capacity of 150,000 tonnes.
That translates to roughly 15 percent of the capacity theoretically available during those four months.
This raises a basic question: if an industry requires exceptional tax protection to compete, what happens when that protection fails to translate into meaningful market uptake?
The conduct of the Sugar Board was even more troubling. Much of the discussion revolved around ‘uptake’, ‘volume’ and ‘quality specifications’. But the regulator appeared to move from neutral referee to advocate, openly appealing to established manufacturers to demonstrate patriotism by buying from Kibos.
Patriotism is not a procurement specification. Industrial manufacturing does not run on patriotic appeals. It runs on consistent quality, strict ICUMSA specifications, reliable supply and competitive pricing.
A manufacturer supplying regional markets cannot simply gamble with product quality or production schedules because a regulator wants a particular supplier to gain market share.
And if that supplier’s price competitiveness depends on selective tax exemptions, the government is no longer simply facilitating competition. It is distorting it.
There is a straightforward way out.
The Kenya Sugar Board and the Kenya Revenue Authority have administered controlled industrial-use arrangements for years. The machinery for distinguishing sugar consumed as an industrial input from sugar intended for ordinary consumption already exists.
What is missing is equal treatment.
Registered food and beverage manufacturers should immediately receive equivalent relief from excise duty on refined sugar used strictly as an industrial input.
If Kibos can receive an exemption because it refines sugar locally, then established, compliant manufacturers that employ thousands of Kenyans and generate substantial industrial output should not be treated as tax targets.
If the government genuinely wants to protect Kenya’s domestic value chains, it should begin where the chain actually starts: in the cane fields.
Raise yields. Pay farmers on time. Improve cane productivity. Expand irrigation. Fix the dysfunctional sugar-milling system.
The issues raised at Ole Sereni therefore goes beyond sugar. Do we create a predictable, rules-based environment in which businesses compete on a broadly level playing field?
Or do we create islands of privilege in which selected investors receive fiscal advantages while established manufacturers carry the cost?