An increase in the illegal outflow of molasses into Uganda is hurting Kenyan distillers and alcohol manufacturers with the price of the raw material rising sharply in the last one year.
The price of molasses — critical for making spirits — rose nearly 10 times since July last year even as some exporters illegally diverted most of this raw material to Uganda.
A tonne of molasses—used in the production of ethanol which is then used by alcohol firms to produce spirits such as wine, gin and whisky—is going for Sh50,000 up from around Sh5,000 in July last year.
At a forum convened by the Sugar Directorate, it emerged that some millers close to the Uganda border preferred selling molasses to exporters.
"Some millers with proximity to the Uganda border prefer selling molasses to exporters because of reduced transport cost," reads the document.
The millers operating close to the Uganda border include Olepito Sugar Factory, which is owned by Rai Group's West Kenya, and Busia Sugar.
In February, the government was forced to suspend exports of molasses even as it occurred that the limited supply of this raw material would have a ripple effect in the sensitive pharmaceutical industry.
Ethanol is also used in the manufacture of products such as anaesthetics, antiseptics, and drugs.
Documents seen by the Business Daily show how complaints by the distillers and the Kenya Revenue Authority (KRA) about the drastic loss of their revenues due to increased exports of molasses forced the Sugar Directorate to assess the root cause of the problem.
“Findings from the investigations through surveillance audits by the Directorate unearthed several malpractices, which led to the suspension of molasses exports from 6th February 2023,” reads the report.
Malpractices that emerged include the use of falsified documents, under-declaration of quantities and cost of molasses, re-use of approved export permits, and smuggling of the raw material.
But the suspensions were lifted a month after exporters lobbied on account of losing revenues during the ban.
Increased export of molasses into Uganda has been aggravated by a drought that swept across the region last year that saw the government order the closure of millers when some of them started asking farmers to harvest immature cane.
From late last year, distilleries and exporters raised concerns about the access of molasses with the former, who consume 80 percent of local production, complaining about the high prices since most of it was being diverted to Uganda.
The government requires that 80 percent of molasses be sold to local distillers while the remainder is shared equally between farmers and exporters.
Major distillers such as Agro-Chemical and Food Company Limited (ACFC) have been forced to suspend operations due to the limited supply of molasses.
Since ACFC supplies hand sanitisers and surgical spirits to agencies such as Kenya Medical Supplies Authority (Kemsa), the pharmaceutical sector is feeling the pinch of the scarce raw material. ACFC, a State corporation, also supplies baker’s yeast used as a leavening agent in baking.
But it is manufacturers of alcohol such as East African Breweries Limited that is likely to take a bigger hit, with the listed brewer getting close to 80 percent of its ethanol from Agro-Chemical and Food Company.
KWAL, another alcohol manufacturer, also gets almost all of its ethanol from local distillers who, besides ACFC, include Kisumu-based Kibos and London Distillers.
The alcohol manufacturers report occasionally being forced to adjust upwards the price of some of their spirit brands to cover for the rally in the cost of ethanol.
When the supply of molasses is at its peak, ethanol is sold at Sh100 per litre but the price can rise as high as Sh230 for the same quantity during a molasses drought.
ACFC, a significant player in the industry with a production capacity of 18 million litres per annum, is producing a paltry 1.2 million litres.
This huge drop has not only hurt spirit production but has also hit the taxman’s revenues from excise duty and value-added taxes collected from ethanol.
