Why Mumias Sugar woes point to sector in trouble

Winding up: A local commercial bank wants Mumias wound up over Sh93 million debt

The events that have pushed Mumias Sugar Company from its lofty heights when its annual revenues topped Sh19 billion and its share price hovered around Sh50 each, is the stuff that makes good case studies of how not to run a company—private or public. The share has since dipped to around Sh2.50.

At first glance, the current crisis revolves around the company’s inability to pay a Sh93 million debt owed to a local commercial bank. That, according to this narrative, is the result of the company’s double payment made to Kenana Sugar Company for sugar worth Sh460 million. But a second look reveals that the company owes about Sh5 billion and has difficulty meeting its repayment obligations.

The only logical conclusion to be drawn from this is that either the investments on which the bank loans were spent were flawed or the current expenses have ballooned beyond reasonable expectations.

Viewed in this light, claims by past management that the company is in a bind because it is struggling to access sufficient sugarcane for crushing after tonnes of the crop were stolen from its nucleus farms and the dumping of cheap sugar imports cannot be taken seriously. After all, Mumias’ decision to pay a unscrupulous third-party importer to bring in sugar from Kenana suggests that the company should bear the greatest responsibility for its woes.

There is also reason to believe that Mumias’ troubles might be traced back to previous management teams’ tenure when the company recorded phenomenon growth and seemed it could do no wrong.
This is when the company’s plans to produce ethanol, cogenerate electricity from bagasse and develop 16,000 acres of sugarcane in the Tana River Delta was music to the ears of eager investors some of whom took bank loans to own part of the then fast growing firm. But that was then.

Plight of farmers

Today, many of these investors would be hard-pressed to know just what happened and would be forgiven if their growing sense of loss and betrayal turned to anger heightened by Mr Coutts Otolo, the sugar company’s acting Managing Director.

Otolo, recently told a parliamentary committee that the board of directors refused him authority to share with them the findings of a forensic audit carried out by a consulting company.

If this did not amount to gross impunity, it is hard to come up with a better incident in the history of public companies. How on Earth the directors hope to get away with it, beats all logic in the light of the fact that Mumias is both a private and public company.

Perhaps, it is not too much to expect that the respective private and public watchdogs will take up the issue that has captured public attention and ensure they do not only get to the root of the problems, come up with solutions and implement them. While they are at it, the watchdogs should also compel the carrying out of further credible investigations, which will lead to bringing to book all the people involved —irrespective of their past and current positions.

The country would also be well served if it initiated an honest and open conversation with itself on the controversies surrounding the sugar industry because it is clear some sections are reaping huge profits while others — particularly the small-scale sugar growers are languishing in endemic poverty. The current plight of the sugarcane farmers, for example, makes it difficult to understand why national and county leaders are still licensing and supporting the setting up of sugar factories in Western and Nyanza region.

While Agriculture Cabinet Secretary Felix Koskei, may be lauded for recently warning farmers in Homa Bay against relying on sugarcane alone and advising them to diversify into growing food crops to enhance their own, and the national, food security, the sad truth is that he fell short of what is expected of a national leader. To his credit, Koskei is not alone. He was, like most of his Cabinet colleagues, only following a script written way before the country became independent when sugar was first introduced from the then colonial West Indies.

Horror stories

The irony of growing a crop that produces such a sweet substance using slaves captured in Africa and indentured labourers recruited from India, seems to have been lost when the plant crossed the Atlantic Ocean. Whereas the large-scale sugar plantations benefited owners in the islands and mainland Britain, the level of poverty and degradation it brought about was the stuff on which horror stories were written and movies made then, and now.

Yet to survive, the industry still required imposition of quotas and protectionist laws, which resulted in large-scale smuggling. But the fact that this sad state of affairs is a world-wide phenomenon should not be an excuse for the national and county leadership to continue beating the same drums.

Yes, it is right and necessary to stop importation of cheap sugar whose duties are usually not paid. Yet, it should be clear that the plight of farmers will only get worse next year when the protection the country enjoys under the Comesa regime is ended. The time for a national audit of the industry should be now.

The national government should begin the conversation by explaining to farmers in the sugarcane-growing region why Lake Victoria should continue giving their counterparts in Sudan and Egypt the water they need to produce commodities that adversely compete against their own while also constraining them from doing the same thing.

The county authorities should also fulfil their responsibility by guiding their electorate in the tapping of existing rivers and rain-harvesting to grow the crops they need to meet their own food requirements and have a surplus for sale.

Needless to say, this would be best done by example with the local leadership setting up demonstration farms on their own land. That would, hopefully, persuade the local leader to seek and utilise the best farming practices beginning with soil testing, using suitable farm inputs including well-tested seed varieties and finding the markets.

Or is that too much to ask?

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