Every year, kenya needs 160 million tonnes of sugar, a production quota the country does not currently meet. Why are local sugar companies inefficient and bedevilled with myriad challenges?
BY VICTOR ADAR
Kenya has 14 sugar factories with a total milling capacity of 41,000 tonnes of cane per day, according to a sugar industry strategic plan by the Kenya Association of Manufacturers (KAM) from 2021 to 2025.
In the blueprint, manufacturing experts break down challenges facing the sugar industry, key among them high-cost of production, acute cane shortage, low productivity, inefficiencies across the value chain, weak regulatory framework, high indebtedness, weak extension support, low value addition initiatives, cyclic markets, uncontrolled and illegal sugar imports, poor governance, aging equipment, obsolete technology, delayed payment to cane farmers and frequent calls for Government intervention, among others.
The road to a liberalized sugar market is long and bumpy – only by addressing gaps and strategically managing various value chain components will the industry be efficient. This involves sealing policy and infrastructure gaps and meeting the domestic demand while producing a surplus for export.
“The sugarcane industry seeks to find new ways to reposition itself competitively. This requires it to go beyond sugar production towards valuing sugarcane and exploiting market opportunities presented by multiple sugarcane products. This strategic plan seeks to put new pressure on the industry to invest its resources in this new direction,” says Joyce Opondo, chairperson of the KAM sugar sub-sector.
Ms. Opondo maintains that their strategic plan is focused on improving policy and advocacy, research and innovation, as well as the value chain and industry development to “enable the sugar sub-sector to realize its goals.”
For a miller to produce over 40,00 tonnes, the KAM report says, it requires over 9.8 million tonnes (MT) of cane a year, which translates to 1.09 million tonnes of sugar, exceeding the annual “table sugar” demand.
In 2018, local sugar mills produced 490,704 tonnes, accounting for 57% of the domestic requirements of table sugar. Current demand stands at 850,000 tonnes, a drop from 639,741 tonnes in 2016, representing a 23% decline.
Official figures also show that, in 2019, only 440,935 tonnes were produced against the consumption of 1,038,717 tonnes, resulting in a 58% deficit. What is interesting to note is that, at the moment, the country cannot produce 160,000 tonnes of refined sugar, which is an annual requirement; thus, the deficit of both table and refined sugar is met through imports from the Common Market for Eastern and Southern Africa (COMESA) region, and globally.
The plan is expected to help the industry position itself strategically as it acknowledges the dynamism of the operational environment. As such, the environment will shift from time to time, either rapidly and/or significantly.
“The subsector must continuously reinvent itself to adapt to the changes. The subsector will strive to ensure efficient processes through resource utilization and effective stakeholder management to achieve institutional sustainability, and consequently, the core mandate,” says the report.
Over the last three decades, sugar consumption in Kenya has grown steadily, outpacing domestic production. Despite government investment in some sugar mills, the country has yet to reach self-sufficiency in the commodities’ production, as several mills continue to operate inefficiently and below capacity.
A case in point is Mumias Sugar Company, which is enmeshed in controversies and bedeviled with many challenges – from receivership to pending court cases, the once thriving brand has failed to shine.
It was in 2021 when KCB group appointed receiver manager Ponangipali Venkata Ramana Rao to help revive the once-thriving sugar brand. It was placed into receivership because its total liabilities outstripped total assets by Sh14.39 billion – the receiver manager was meant to inject the much-needed capital into the business.
Sarai group’s 20-year lease offer of Sh20 million per month, which was given to the sugar miller in July last year, does not make sense because it is too long, and it is unclear what happens if the company clears its debts before the lease period expires. People abreast with the sugar value chain say the lease also ignored the interests of other creditors and shareholders.
Leasing out the Mumias mill to Sarai Group, owned by Sarbjit Singh Rai, brother to billionaire Jaswant Rai, who owns Rai Group of Kenya, a big player in the sugar industry, is a bad idea. There is more than meets the eye when an important sub-sector is dominated by a private sector player, especially a family-owned business.
“I have worked on the value chain in the past, and the main challenges are the high cost of production because of sugar varieties that take more than double the time what others do elsewhere and yield less than half the amount per hectare that our competitors do. Also, farming sugar on the small land parcels we have in Kenya is not economical as it is not commercially viable. Land fragmentation and urbanization only compound the situation,” says economic analyst Ephraim Njega.
The mismanagement of sugar factories and governance issues have also contributed to inefficiencies across the sugar/sugarcane value chain. Most of the state-owned sugar mills are operating below capacity. They are burdened by massive debt, with inefficient, poorly maintained machinery, which suffers frequent breakdowns, further aggravating the production capacity and quality of the mills.
Unable to improve productivity and efficiency to satisfy domestic demand, state mills’ Boards of Directors and managers have perennially whipped up sugar imports as their excuse for the industry’s problems and operational performance.
For instance, farmers’ cane is unharvested for long periods, and farmers are not paid on time. Lousy farming practices cause chaos in ane supply. It is also unclear whether the sugar Mumias is milling is from Kenyan cane or imported from Uganda. Add to the persistent factory breakdowns that lead to low downtime, and you realize the malpractices destabilize the sugar industry.
The sugar industry falls under the agro-processing sector, comprising 14 sugar companies spread across Western, Nyanza, Rift Valley, and Coastal regions. In Kenya, sugarcane farming began in the early 1900s – the crop was introduced around Lake Victoria by Indian laborers who, at the time, were engaged in constructing the Kenya-Uganda Railway. The first sugar factory was established at Miwani, Kisumu County, in 1922, followed by Ramisi in 1927 (Kwale County, coastal region).
A decline in average plot sizes in most sugar zones, mainly attributed to population pressure on land necessitating continuous land subdivision and land conversion to produce other crops such as maize, soya beans, cassava, and sorghum, is a significant challenge.
At the farm level, sugar productivity is low due to poor seed of long-maturing varieties, smut disease, high costs of inputs, and delayed payments to farmers. Land fragmentation is another factor causing a decline in sugarcane production, per the KAM report.
According to the KAM report, the government has pumped in Sh21 billion in grants for infrastructural sugar roads and bridges and sugar research, as well as soft loans at 5% interest for cane development and annual factory maintenance.
The outgrower institutions (contract farming) also benefit from cane development loans at the same interest rates as infrastructure grants. Then, there are the persistent farmers’ arrears grants. These grants and loans were previously channeled through Sugar Development Fund at Kenya Sugar Board. The contract, for example, is drawn and administered by the factory without input from farmers.
Amid the challenges, there is profit to be gained should the sugar value chain be well aligned.
“There is a lot of potential to grow cane at the Coast where maturity can be reduced to less than a year, and yields doubled. Producing cane using irrigation the way Kwale International Sugar Company is doing represents a huge opportunity to grow the country’s sugar output,” Njega explains.
