NAIROBI, July 17 (Reuters) - Kenya's raw sugar production jumped 20 percent in the first-half of 2014, aided by improved supply of cane and factory capacity, the industry regulator said on Thursday.     East Africa's biggest economy has an annual sugar deficit of around 200,000 tonnes, which is usually filled by imports from other producers in the Common Market for Eastern and Southern Africa (COMESA).     Kenya is struggling to improve output due to relatively high production costs and poorly funded sugar factories.     "The total sugar production between January and June 2014 was 321,945 tonnes compared to 267,915 tonnes in the same period last year," Kenya Sugar Board chief executive Rosemary Mkok told Reuters in an email.     KSB said Kenya crushed 3.52 million tonnes of cane over the six months to June compared to 3.11 million in the same period of 2013.     "The increase in the volume of cane crushed is attributed to improved cane availability as a result of expansion in area under cane in most sugar zones," Mkok said.     Improved prices of cane, expanded factory capacity and timely payment to farmers has spurred interest in cane development, the regulator said.     Mkok said the east African nation's raw sugar production for 2014 is expected to climb by a revised 7 percent to 640,614 tonnes compared to 600,179 tonnes realised in 2013.      "This projection is based on the assumption that the half-year performance in 2014 will double," the official said.     The regulator had previously projected the country's 2014 raw sugar production to climb 17 per cent to 700,000 tonnes.     Kenya has an installed factory crushing capacity of 30,109 tonnes of cane per day and expects an additional 3,000 tonnes to be added when a factory being constructed near the port city of Mombasa starts operations.     The factory - Kwale International Sugar Company - is 25 percent owned by Mauritius' Omnicane.     Kenya plans to sell a 51 percent stake in five sugar millers to strategic investors starting this month as it looks to complete reforms aimed at making its sugar industry more competitive.     The regulator estimated the cost of producing a tonne of sugar at about $570 in western Kenya compared with $240-$290 in rival producers such as Egypt.     The east African nation in February was granted a one-year extension of safeguards that limit sugar imports from COMESA to allow the country to improve the competitiveness of its sugar industry.     The tariffs were scheduled to fall to zero in March, but Kenya sought an extension until 2015 to conclude reforms in its sugar industry.     Mkok said improved surveillance has helped curb illegal importation of sugar into the country that threatens the cash flow of millers.     "Importation of illegal sugar has eased out as evidenced by improved sugar sales by our mills and significant decrease in the stock levels. For instance, total sugar sales in January to June 2014 were 325,812 tonnes against 254,091 tonnes in a similar period 2013," the official said.   (Editing by Drazen Jorgic)  ((george.obulutsa@thomsonreuters.com)(Tel: +254 20 499 1232)(Reuters Messaging: george.obulutsa.thomsonreuters.com@reuters.net))  Keywords: KENYA SUGAR/