Barons run the show in sugar sector, admits Mumias boss

“There are only three types of barons in the world: Drug barons, oil barons, and sugar barons. We are in the clutches of sugar barons,” says Mumias Sugar Company chief executive officer Peter Kebati in an interview.

After more than a decade in the industry, Mr Kebati gives insights into Kenya’s troubled sugar industry.

After a heavy sigh, he says that heading a sugar firm is perhaps the most challenging job that any manager can ever get.

“Perhaps I took the helm of this company at the wrong time in the industry… I have been in management both locally and internationally before but this is a tough industry,” he says with a wry smile.

Asked to justify his statement that the sugar sector is in the tight grip of sugar barons, he sits upright and looks me straight in the eye.
And instead of answering my question he asks me another question:

“The Comesa trading bloc is a net sugar importer, meaning demand far outstrips supply. Why do we have so much sugar coming to Kenya from Comesa countries?” he asks.

He says international sugar barons ship sugar from large producers like India and Brazil into Kenya through Egypt.

The 50-year-old took the helm of the country’s largest sugar miller in 2011, replacing Evans Kidero, who is currently the Nairobi County Governor.

Kebati had previously served as the finance director of the company for nine years. His other previous assignments included director of finance, strategy and business development at Metropol E. Africa.

QUESTIONS RAISED

He was also the head of credit consumer banking at Standard Chartered Bank, a senior manager, internal auditor East and West Africa (Standard Chartered Bank), and audit manager at PriceWaterhouseCoopers.

But even with such an impressive background, Mr Kebati could not stop Mumia’s Sugar’s Sh1.67 billion loss for the full-year ending June 2013, his first full year in charge. The performance of the company was adversely affected by a decline in cane supply and factory inefficiencies
Because the company had made a Sh2 billion profit after tax the previous year, questions started were raised about the future of the company.

The negative results led to poor and delayed payments as the company battled a fierce raw material war with new entrants who paid farmers better prices.

“We had invested a lot in expanding our capacity but we were caught in a situation where raw materials supply was decreasing, thus pushing us into a difficult cash territory,” he says.

Perhaps the fact that he used to play rugby, considered a game of the brave, is the reason he has held on to the “tough” job.

“I played rugby even for Mean Machine but now the obligations are too many to let me enjoy the sport,” says Mr Kebati with a laugh.

So what are the major problems facing our local sugar industry and why can’t the barons redirect the sugar to other Comesa members?

Mr Kebati spells out several reasons. One, he says, is the high cost of production that makes the Kenyan market attractive. Secondly, the country’s porous borders make it easily accessible.

Thirdly, the country’s laws are not punitive enough to deter the vice.

“The Kenya Sugar Board should have done a better job by insisting that new entrants develop cane before beginning operations to curb competition for raw materials,” he says.

In the six months to December 2013, the sugar company recorded a Sh73.4 million loss compared to the Sh1 billion loss made in 2012. The reduction in loss last year was therefore 14 times less.

Mr Kebati says the turnaround strategy is paying off. He cites improved factory efficiency and diversification strategies that have begun to yield results.

An influx of sugar into the local market has also made it difficult for competitors to pay more for cane deliveries, the major cause for cane poaching, raising hopes of a bright future for the listed miller.

“Poaching is unsustainable in the long run since the perpetrators were not investing in cane development and now it has dawned on them that the vice can only go so far,” he said.