Sunday, May 3, 2009

Kenyan Sugar industry in bitter wars ahead of Comesa date

Written by Walter Menya - Business Daily [Kenya], April 30, 2009

For close to a decade now, players in the sugar industry have watched as the promised better days come and go.

The recent mass action against the management of Mumias Sugar Company over cane pricing was just a tip of the iceberg of the frustrations that have set in with more protests planned across the sub-sector.

Farmers’ representatives are digging in for a fight with the millers, who in turn are taking the battle to the Kenya Sugar Board’s doorstep in the vicious cycle.

“Farmers are not taking anything lightly,” warned Muhoroni Sugarcane Out growers Company (MUSOCO) chairman, Mr Kilion Osur.

“We are going to join our brothers, the cane farmers in Mumias to keep pressure on the millers,” he added in reference to the strikes that have plagued Mumias lately.

But looking at the big picture, the question is, “Will the Kenya sugar industry survive the post-Comesa safeguard era?”

By 2002, the industry had reached a state of near destruction due to non-sequenced trade liberalisation and malignant political economy that institutionalised corruption, mismanagement and lack of goodwill.

The result was a systemic increase in poverty among farmers and a subsequent decline in sustainability and efficient growth of the sub-sector, argues a lobby, Sugar Campaign for Change (Sucam).

However, the passing of new laws, the establishment of industry Task Force appointed in March 2003 and negotiations on the first six-year long-term safeguards once again raised hopes and farmers were given greater voice in management.

The safeguards recommended privatisation, co-generation, research into early-maturing and high-yield cane varieties and infrastructure development. Six years down the line, though, little has been achieved to take out the industry from its woes.

Comesa imports increased to 270,000 metric tonnes this year and the volume is expected to rise to unlimited levels after 2012.

Many agree the sector needs help to become competitive before 2012. It is capable of generating approximately Sh20 billion annually, providing over 500,000 direct and indirect jobs, and supporting the livelihoods of over six million people.

Sucam, in a survey it conducted last year, says the industry needs quick rescue plans to entrench efficiency and eliminate the rising deficits if it hopes to meet the Comesa deadline.

“The companies are now finding it difficult to invest in factories and cane development because a lot of resources are required in these exercises,” said Sucam boss, Mr Peter Kegode.

Arising from inadequate resources, he says, machines are obsolete because they have not been serviced for a long time.

Kenya Sugarcane Millers Association (Kesma) is, however, confident that they are ready to face the post-Comesa safeguard era.

Kesma chairman, Dr Evans Kidero, who is also the Mumias managing director, at a recent Press conference, said millers were ready to compete with duty-free sugar from Comesa states.

“We recognise that we are in the second last year of the Comesa safeguards. As an organisation of millers, we are thinking long-term,” said Dr Kidero, who was flanked by chief executives of five other state-owned and private millers.

Among the projects the millers want to take are diversification into co-generation and ethanol production, and expanding crushing capacity.

So far, only Mumias, with 9,200 tonnes per day has made strides into co-generation with a budget of $54 million (Sh4.32 billion) and ethanol production.

In December last year, the company board chairman, John Bosse, announced to shareholders that the company was undertaking feasibility studies on the viability of setting up an ethanol plant.

The company has a capacity to produce up to 40 million litres of ethanol annually accounting for about 70 per cent the country requirement, said Mr Bosse.

Imminent death

Poor state of factories in other companies point to the weight of the Sh50 billion debt the industry is carrying occasioned by a history of mismangement and illegal imports.

Sugar Board chairman, Zachary Obado, says implementing the recommendations as outlined in the Sugar Act would kill the industry.

“The government-owned millers are in the red and we would be accelerating their debts,” says Mr Obado. While the government has listed five state-owned millers for sale, the slow pace of salvaging them has delayed the process with just two years left to the Comesa deadline.