Why agreement signals trouble for sugar companies in Western Kenya

Faced with competition from cheap sugar imports from Uganda, sugar factories in Western Kenya will find it difficult to stay in profitable business as they are still struggling with management challenges, old technology and inefficient processes that make their commodity far more expensive.

The deal allowing sugar from Uganda into the Kenyan market spells fresh trouble for the local millers already weighed down by high production costs. The fears come as the Kenya Sugar Board (KSB), in its latest figures seen by The Standard, shows that the country will fail to meet its target of sugarcane by 900,000 tonnes, translating to about 88,000 tonnes of processed sugar.

While Kenya is not sugar sufficient, the bilateral agreement with Uganda is likely to upset the local economy in Western Kenya, which is littered with nearly a dozen sugar factories, all catering for the local demand. In Kakamega, there are at least four factories – Mumias Sugar, West Kenya, Kabras Millers and Butali Sugar. In Bungoma, there is Nzoia Sugar.

Unless the Government comes up with radical measures to shore up the factories in the face of the cheap imports likely to flood the local market from Uganda, their looming death due to the competition from cheap imports will spell doom for the economy of the region, affecting at least four million residents.

The chairman of the Finance, Planning and Trade Committee in the National Assembly Benjamin Langat (Ainamoi), who has studied sugar production in the country and the factories, said it will be impossible for the Government to continue deploying protectionist measures to keep cheap sugar out, while the local factories were unable to meet the demand.

PRIVATISE SECTOR

Langat, whose committee pushed the National Assembly to approve the privatisation of the sugar sector, said the whole idea behind the privatisation of the five sugar factories: Chemilil Sugar, Muhoroni Sugar, Sony Sugar, Nzoia Sugar and Miwani Sugar, was to make them ‘financially viable’.

“The best thing to do is to privatise. It is a long-term decision meant to make the companies efficient so that they become competitive. What we have is inefficient companies that are suffering because of poor decisions. The cost of production is simply too high, that is why imports can come all the way from Brazil and cost much lower than what we produce,” said Mr Langat in an interview with The Standard yesterday.

According to KSB, in 2013-14, Kenya imported 50,970 tonnes of table sugar (used in tea), which is just a fraction of the total imports of 172,924 tonnes of sugar.

Policymakers are convinced that the sugar millers in the local market, who are saddled with huge debts, have to be merged or simply privatised, so that they operate efficiently without the comfort of government bailouts.

At the request of the Treasury, Parliament approved that Sh33.7 billion of the debt owed by sugar companies should be written off.

Treasury and MPs are banking on investors to bring in new efficient technologies with privatisation, to the extent that it will make sugar production cheaper within the country.

“Improved performance of the sugar industry will in turn increase incomes and improve the standard of living for the populations that rely on sugarcane as their main source of livelihood,” a report adopted by MPs in June noted.