New system set to lift Mumias Sugar sales, says analyst

Mumias Sugar Company (MSC) is aiming to raise output and sales this year due to improved rainfall and better cane production system.

Mumias, which is Kenya’s largest miller, aims to boost cane output by 25 per cent. Heavy rains have pounded western Kenya this year, results of which are expected to show in the current financial year.

Mumias Sugar chief executive Peter Kebati said the company has been replacing old sprouts with higher-yielding ones to boost production in the coming months.

“We should see yields improving because of better rains and planting methods. We have been replacing old ratoons (sprouts) that do not meet the required standards,” said Mr Kebati.

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In the six months ended December 31, 2011 Mumias Sugar crushed 803,345 tonnes, a 27 per cent drop from 1.09 million tonnes over a similar period a year before.

On a national level, data from the Economic Survey 2012 indicate that Kenya produced 5.33 million tonnes of cane in 2011 from which it had 487,022 tonnes of sugar.

Analysts at Sterling Capital say faster-maturing cane and better rainfall should see firms increase output to 69 tonnes per hectare from the current 55 tonnes and this is expected to increase the national average.

“The ongoing improvement in sugar yield means output per hectare could rise by an average 25 per cent (our estimation) from the current 55 tonnes per hectare while early maturing cane variety will increase to a national average of 28 per cent,” says Sterling Capital’s report.

The Kenya Sugar Board, the industry regulator, estimates that output will increase this year thanks to better farming methods, with their estimate standing at 13 per cent.

The increase should help fill the shortfall that exists between local production and importation of normally cheaper sugar.

Annual demand stands at around 720,000 tonnes with a 300,000 deficit plugged by sugar imported from Comesa’s free trade area, which is cheaper due to lower production costs.

It costs $210 to produce a tonne of sugar in Malawi compared to $450 in Kenya. Imported sugar is taxed at 100 per cent to protect local millers but this is expected to be waived in 2014 which should reduce the cost of the imported commodity.

Comesa countries are allowed to sell 200,000 tonnes in the Kenya market duty free. Mumias Sugar accounts for 48 per cent of Kenya’s production and opening the market will raise competition. But Sterling do not anticipate a meltdown.

Francis Mwangi, a research analyst at Standard Investment Bank, said better rains should see production expand for Mumias but yields will vastly improve when farming shifts to new regions which are better suited to grow faster-maturing cane.