Why sugar cane farmers are a worried lot

By John Oywa and Kepher Otieno

The clock is ticking amid rising anxiety as Kenyans await the fall of the hammer in the anticipated privatisation of the sugar industry.

Farmers are gnashing their teeth as they ponder the implications of a divestiture that shall transfer all the six public sugar firms into private hands.

But even though the State has promised to allocate them 31 per cent of the shares in each of the sugar companies, cane farmers are worried.

The once robust out-grower companies and co-operative societies that offered them credit and bonded them with the industry are in financial disarray. One has died and eight others are on the brink of collapse.

Experts now fear farmers could be reduced to mere spectators in the management of the industry, if nothing is done to resuscitate the out-grower firms and cooperative unions.

The institutions include the South Nyanza Out-grower company, the Mumias Out-growers Company (Moco), The Chemelil Out-growers Company, the Nandi escarpment Out-growers Company and the Soin Out-growers Company.

Others are the Nzoia Out-growers Company, the West Kenya Out-growers Company, the Miwani Out-growers Company and the Busia Out-growers Company.

Closure of Moco, the largest in western Kenya this month, has left farmers deeply worried as it signaled the coming of hard times ahead.

Shut down

Moco shut down operations on Thursday last week over financial difficulties, taking with it dreams of many farmers. The Mumias Cane Farmers Co-operative Union was expected to take over its roles.

The out-grower body claimed Mumias Sugar Company owed it over Sh6 billion but the miller quickly denied this, saying it was the farmers’ institution that owed it money.

Observers now say the out-grower firms, which have been vital links between farmers and the millers, may all collapse before the planned privatisation of the sugar companies.

The out-growers were established 28 years ago. They signed contracts with farmers, ploughed their farms, supplied them with cane seed and not only transported their produce to factories but also ensured they were paid on time.

To keep the out-growers afloat, the farmers paid pay Sh1/ per tonne of sugar cane delivered on check-off system. The companies also received loans from the Kenya Sugar Board’s Sugar Development Fund kitty.

Their yards teemed with tractors and the offices had the latest facilities. Today, the out-grower companies have become case studies of the rot in the sugar industry.

Sony, for example, which was the best-managed out-grower institutions in the 1990s with state-of-the-art cane hauling machinery and well-paid staff, now lies in ruins.

It was put under receivership five years ago after its management collapsed following heavy indebtedness.

Its assets were carted away by corrupt staff and by the time the Kenya Sugar Board sent a senior manager to help rescue it, it had become an empty shell.

Investigations by The Standard have established how the out-grower institutions are today choking with huge debts from the Kenya Sugar Board.

KSB executive officer Rosemary Mkok says the board was contemplating placing more of the out-growers institutions under receivership due to the heavy burden portfolio.

Debt level

The out-grower firms owed the board Sh7.8 billion by October last year, and had attracted an outstanding interest of Sh1.5b, from a debt level of Sh9.3 billion.

For instance, Muhoroni Out-growers Company had received Sh36, 873, 968.90 that attracted accrued principal interest of Sh43,423,644.19 against a debt level of Sh280,297,613.09.

Miwani Out-growers Company received Sh11,111,557.20 that had accumulated interests of Sh3, 057,048.15 million against the debt level of Sh14,168,605.35.

Chemelil Out-growers Company is not spared either as it’s loan of Sh191,313,028.95 attracted outstanding interests of Sh36,985,437.23 million.

Similarly, Nandi Escarpment Out-growers Company owes Sh 140,010,998.93 inclusive of Sh24,828,179 accrued interest.

In Nzoia, the out-grower company owes Sh396,817,750 inclusive of Sh76,160,447.53 interest.

The Busia Out-growers Company formed more than ten years ago despite the stalling of the Busia Sugar Factory was lent Sh65,895,511.20 that has spiraled to Sh78,622,263.93.

Mumias Out-growers Company (Moco), which for a long time remained one of the best-managed farmer’s institutions, owes KSB Sh216,875,282.

It has also been embroiled in war of words with Mumias Sugar Company over alleged debts.

Privately owned West Kenya Out-growers Company received Sh84,481,845.85, which has since increased to Sh89,098,976.

The troubled Soc was loaned Sh375,448,563.40 just before it got into trouble while Soin Out-growers got Sh116,510,007.00 million.

Others who got the huge share of the loans which have not been recovered to date include Lubao Jaggery factory, which got Sh1,116,480.00 as principal, against outstanding interests of Sh212,821.02 million and a debt base of Sh1,329,301.02.

Muhoroni Multipurpose Co-operative Union got Sh20,935,213.00. Interests accrued was debt of Sh2,455,565.67 million while the debt was Sh23,390,778.67 million.

The story of Soc is even more intriguing. Three years ago, KSB injected a fresh capital of Sh17 million to revive the company.

This was part of the solution deemed viable by the board after it was placed under receivership upon declaration it technically insolvent by KSB. Three receiver managers have been posted to Soc and replaced, with very little change realized.

Receiver managers

Some farmer’s now claim the receiver managers were only brought to hoodwink the public that all was well yet the company may have sank beyond repair.

"The decision to send the receiver manager came too little, too late’ and could not salvage the company," says Mr Ezra Okoth, a farmer’s trade unionist. Okoth blames KSB for continuing to pump millions in limping companies even after they raised the red flag over alleged gross mismanagement.

A former Sony outgrowers’ company receiver manager Maurice Selebwa says the money pumped at the firm was not sufficient to revive it. Mr Joseph Digoro, a farmer, says making the company limited by shares would make it viable for cane farmers.

"We want the company to be limited by shares. The Government must also act on corruption reports and surcharge individuals who have mismanaged the company," Digoro says.

Gave proposals

A former KSB director Adero Omonge says they have forwarded proposals to the board and assured farmers Soc would be turned into a company owned by shares.

A taskforce appointed by the then Agriculture Minister Kipruto Kirwa in 2003 to investigate the crisis in the sugar industry identified mismanagement as a key issue and recommended insolvent out-grower institutions be liquidated by the KSB Sugar Board. This proposal is yet to be effected.

A damning report on Sugar Industry by researcher and political scientist Peter Wanyande says the out-grower firms and other farmers’ co-operative societies were founded on shaky grounds, hence the continued mismanagement.