Sector reels in uncertainty as Comesa deal nears end

As the clock ticks towards next year’s removal of the protection for Kenya’s sugar sector from cheaper imports, Agriculture Cabinet Secretary Willy Bett is a worried man.

While Mumias Sugar Company’s privatisation was supposed to offer a roadmap on how to revive the industry, it has become the laughing stock of the sector.

“We are ashamed of Mumias because they negated our principle that privatisation is the key to keeping the sector alive. We are really very sorry about Mumias,” he says.

Even with that classic failure, Mr Bett still thinks that privatisation is the panacea for the woes of the struggling factories, weighed down by ineptitude, lack of cane and corruption.

Others think the sector should encourage block farming first and reorganise itself before privatisation.

“We must first change the model of sugarcane farming to lower the costs of production before rushing to privatise. Even if you give the farmers shares in the privatisation, it will not be advantageous to them unless you change the structure of production. That is where we ought to have started,” says Kisumu Senator Peter Anyang’ Nyong’o.

Countries that export sugar do not rely on rain-fed smallholder schemes but have huge irrigated plantations, which are cheaper to mechanise.

The most notable are Uganda’s Kakira, Sudan’s Kenana, and South Africa’s Illovo sugar plantations.

How Kenya will survive the entry of sugar from these highly mechanised plantations, and how the living-in-penury peasant farmers will compete with these multinationals is difficult to fathom.

In a few months, Kenya’s sugar industry will witness the end of the Common Market for Eastern and Southern Africa (Comesa) protectionist measures and traders will be free to bring in cheaper sugar following the expiry of the quota tariffs.

This will make local sugar uncompetitive in the market and create a political and social uproar.

It might also lead to the death of the rain-fed sugar industry in Kenya as we know it.

Should Comesa fail to renew the extension, then a free market will put farmers at risk of losing their livelihoods given that there will be a few surviving factories, which might be strained by increased supply against low milling capacities.

“Our factories, especially the state-owned ones, are not ready for the competition because of our high cost of production that has made the sector uncompetitive,” says Agriculture and Food Authority (AFA) director general Alfred Busolo.

SELLING STAKE

The agriculture regulator says the sector is still vulnerable and might not survive if Comesa window is closed next year. There is a reason for this.

According to Mr Busolo, the cost of producing sugar in Kenya is about $800 (Sh80,000) per tonne compared to Egypt where the cost is $400 (Sh40,000).

While Mr Busolo says that the sugar directorate is currently working to lower the cost of production, it might be too late for the sector given that Kenya has sought extensions from Comesa for the last 13 years.

The maximum allowable limit of safeguard, according to Comesa rules is 10 years.

Last year, Kenya invoked the infantry clause— Article 61 of the Comesa Treaty — that calls for the protection of the emerging factories, limiting competition from other states until that time when they will be considered to have matured for competition.

Although Kenya was given a raft of conditions by Comesa over a decade ago to prepare for liberalisation of the sugar sector, the privatisation of the state-owned millers having been hampered by a court injunction stopping the sale and lack of political goodwill.

The process of selling these factories has been delayed due to ongoing legal battle between the county and the national governments.

The governors are opposed to the proposed share allocation. 

The government plans to sell a 51 per cent stake in Sony, Chemelil, Nzoia, Muhoroni and Miwani companies to strategic investors and reserve another 24 per cent for farmers and employees.

The government will then sell a remaining 25 per cent stake in the milling companies in an initial public offering once the factories are profitable.

But most of these factories are in a dire state and on the verge of collapse.

Another condition was the introduction of the early maturing sugarcane. However, this cane is meeting resistance from farmers with a number of them arguing that though it matures faster, it does not give much yields.

NEW PLAN
Mr Wycliffe Abuko, an extension officer at Kibos Sugar Factory, says the new cane variety-KEN-83-737 has not produced good yields for farmers as it was widely expected.

Similarly, Mumias Sugar Company’s diversification has not generated enough revenue to keep the miller afloat.

Recently, the firm leased out its water plant in what chief executive officer Johnston Eroll says was precipitated by high production costs.

“The water plant did not meet our expectation as we are far from the market, making our cost of production high,” said Mr Eroll.

Private miller Kibos seems prepared and has put up a production plant for industrial sugar expected to produce about 150,000 tonnes annually, becoming the only miller in the region to manufacture this product.

The miller is also venturing into paper making using the sugarcane waste as well as starting a distillery for ethanol.

West Kenya Company has started installing a co-generation plant expected to produce 30 megawatts as they target to sell about 28 to the national grid and use the rest for their production. 

Mr Godfrey Wanyonyi, the managing director of Nzoia Sugar, says the downturn in the sector is as a result of the pricing of sugar.