The economics of sugar in Kenya provides an illustration of the challenges facing agriculture in the country. Kenya has good natural conditions for growing sugar cane, and low labour costs, yet the price of sugar in the country is around twice that on international markets. One of the reasons is poor productivity. An average of around 60 tonnes of sugarcane is harvested per hectare in Kenya, compared with 113 tonnes in Zambia.
One of the reasons for low productivity is the small sizes of Kenyan farms, which are growing smaller in order to accommodate more landowners. As a result, farmers are unable to take advantage of economies of scale, and their income is not sufficient to afford inputs required for the most efficient forms of farming. Because Kenyan farmers are entirely reliant on rainfall, there is a significant risk associated with crop failure due to unseasonal weather.
Kenya currently produces 500,000 tonnes of sugar per year, but demand in the country is for 800,000 tonnes, and growing. Kenyan sugar producers are currently protected by government trade barriers, but they are due to be removed within 2 years, exposing the sector to lower-priced competition from imports. Some sugar factories are poorly managed and will need to improve significantly if they are to survive.