Koskei: We’ll bail out Mumias but officials must pay

Agriculture remains the backbone of Kenya’s economy but the sector is bedeviled by numerous challenges.

The Jubilee government has set a number of targets for this important sector aimed at making Kenya food-secure as well as to nurture a sustainable agro-processing industry that produces for the export market.

The Business Daily sought out Agriculture secretary Felix Koskei for answers on a wide range of issues. Here are the excerpts.

You (the government) recently doled out Sh500 million to help rescue Mumias Sugar from collapse. How far are you prepared to go in this mission?

The government has agreed to spend Sh1 billion on this plan. The Sh500 million you reported is the first tranche of the loan that was disbursed through the Sugar Development Fund.

The Treasury is in the final stages of releasing the remaining Sh500 million. Mumias said it needs Sh3 billion to fully recover and we have agreed that the Sh2 billion balance be raised through a rights issue – which as you know is subject to shareholders’ approval.

As a lead shareholder, the Treasury is talking to other stakeholders for an extraordinary general meeting to agree on the way forward.

What are the terms of the bailout?  

Mumias should demonstrate a clear turnaround roadmap. They have to address issues that have nearly brought the miller to its knees – including management of cane farmers, efficiency of factory operations and a transparent process for the recruitment of distributors.

A handful of former top managers have been sacked and there are indications that some may be charged with corruption offences. When should we expect legal action against those implicated in the forensic report by KPMG?

My position is that all those who have been implicated in the report should be charged on the account of their crimes. We expect a cleanup exercise followed by an independent business review done.

Already a report by the lenders has concluded that Mumias can be profitable but only with a change at policy and management level.

Are Kenyan sugar millers ready to compete with imports as the current window of Comesa safeguards come to an end?

The private millers are ready to compete because their factory efficiency is high, their pricing model is good, governance issues are well laid out and decision-making is fast.

Government millers and Mumias are, however, not ready for competition because of their current status. State owned millers are bedeviled by a number of challenges, including high cost of production and mismanagement.

The country is seeking another extension of the Comesa safeguards. How far has the process gone?

We have requested for a two-year extension to finish the reforms. So far we have made good progress in areas such as changing from weight-based to quality-based mode of paying the farmers.

Privatisation of state-owned factories is underway as well as establishment of new varieties of cane that matures fast. We are waiting for the report from Comesa.

It is two years since the Jubilee administration came to power. One of the mega projects was the Sh14 billion food security programme that would apply irrigated farming techniques to a million acres in Galana Kulalu within the first five years. How far has the project gone?

We are currently working on 10,000 acres which is the first phase of the project and is expected to inform work on the entire one million acres. We have already laid the pipes and other irrigation equipment and expect to harvest the first crop from this scheme in March.

Phase two of the project, which involves 200,000 acres will commence as soon as the model firm is complete, sometime next year, while phase three is expected to put the entire acreage to work.

What are the volumes expected from the irrigation scheme and how will it impact on the cost of food?

The feasibility study indicates that we can get a minimum of 80 bags of maize per acre in a year. We are targeting 500,000 acres that should yield about 40 million bags annually from the two seasons.

We estimate that the project will cut the cost of flour from the current average of Sh90 to Sh70 for two kilogramme packet. We are improving the road network in the area to link it to the standard gauge railway to cut transport costs even further.

The government setting of cereal prices through the National Cereals and Produce Board has been criticised by both the millers and the World Bank because of the distortions it causes in the grain market. What is your position on this?

I agree that it is not right for the government to be setting the prices in a free market. We are trying to move away from this practice and instead address the high cost of production.

Plans are afoot to establish an organised warehouse receipting system where farmers can store their crop and wait for the price to stabilise before selling.

The legal framework for warehousing has been drafted and it is currently with the Attorney General. We are also in the process of creating a commodity exchange for which we have hired a consultant. Once all this is in place, the market price will be allowed to play.

The ministry had plans to import tractors and other machinery from Brazil. When should we expect these to arrive?

We are taking mechanisation of agriculture seriously as part of the effort to ensure food security.

We have finalised technical negotiations and are waiting for the National Treasury to sign the financial agreement with the Brazilian government so that production and shipment of these assorted machines can start.