Economy

How private sugar millers flourish as public factories squirm in debt

cane

The fact that the sugar industry in Kenya is undergoing one of the most turbulent times is not in doubt. FILE PHOTO | NMG

The fact that the sugar industry in Kenya is undergoing one of the most turbulent times is not in doubt.

In their heyday, public millers comfortably supported the livelihoods of more than 600,000 farmers and 80,000 workers as they crushed over 35,000 tonnes of cane per day.

But the situation has taken an unexpected turn with the millers having sunk into huge debts running into a combined Sh100 billion as the once lucrative sector is fast crumbling due to mismanagement and alleged corruption.

As uncertainty surrounds the resuscitation plans of State-owned firms, the private sector has progressively taken advantage of the situation to occupy the space that was previously occupied by the big industry players who monopolised the trade in western Kenya.

Most of the public-owned companies have been performing dismally for lack of sufficient capital, outdated machinery, mismanagement and political meddling.

On the other hand, private millers have installed new machines that are producing efficiently and optimally, and they also enjoy a strong financial muscle.

A properly functioning machine is expected to produce one tonne of sugar for every 10 of the raw material delivered.

The reverse holds for public mills with some firms churning out one tonne for every 26 tonnes of cane.

State-owned millers are steeped in debt amounting to Sh100 billion mainly attributed to mismanagement. To get out of the woods, the government needs to pump a similar amount.

Nzoia Sugar Company owes Sh37 billion, Miwani Sugar Company (in receivership) Sh28 billion, Muhoroni Sugar Company (in receivership) Sh27 billion, Chemelil Sugar Company Sh5 billion and Nyanza Sugar Company Sh3 billion.

Compared with the same capacity miller, public millers have bloated wage bill which could amount up to four times compared with their private counterparts.

The current predicament has pushed the government to back privatisation of State-owned milling companies to strategic investors in order to allow for the injection of new capital and stem their loss making.

The government plans to sell a 51 per cent stake in these companies to strategic investors and reserve another 24 per cent for farmers and employees.

It will then sell the remaining 25 per cent in the milling companies through an initial public offer once the factories are profitable, said the plans which has received opposition from a section of stakeholders.

But why have the private millers found relative success when public millers have faced existential crises?

Efficient strategies

Coast-based sugar firm Kwale International Sugar Company Ltd (Kiscol) attributes this to a raft of measures including enhancing efficiencies and adopting the “appropriate” production strategies.

“Doing things in the correct way has ensured our success,” said assistant general manager at Kiscol Anil Mahagribsing citing prompt payments to suppliers and workers for instance.

Mr Anil said the miller which is backed by Mauritian giant, Omnicane has also benefited from focusing on productive growth methods.

“We have invested in irrigation technology and dams to support what we do. We are also in the right area as cane grows in a period of 12 to 14 months compared to 24 months in western Kenya,” Mr Anil added.

Official statistics as of last year show Kiscol had 9,477 hectares of cane production with 4,791 hectares under a nucleus model and 4,686 hectares under an out grower model.

Private companies in Western Kenya hardly own any nucleus and the reason for the downward trend of sugar production.

Kiscol which has been in operation for three years recorded the fastest growth in expanding their nucleus estate.

Also in contention is another Mauritian owned local sugar miller Transmara Sugar Company, which is also making similar strides as rivals flounder.

Established in 2011, Transmara Sugar chief executive Rajesh Bhargava said the firm has invested heavily in cane development enabling it to have a constant supply of the raw material for sugar.

“We have set aside an annual allocation of Sh500 to Sh600 million for cane development and a further Sh200 million for road development,” said the boss of the firm.

Additional data shows West Kenya, the processor of Kabras brand, has been leading a group of private producers that have overshadowed financially-troubled State-owned corporations in terms of production volumes.

In the five months to May 2018, West Kenya Sugar Company, produced 53,000 tonnes of sugar an increase from 40,000 tonnes produced in corresponding period last year according to data from the Sugar Directorate.

West Kenya was followed by its bitter rival Butali, which produced 32,765 tonnes and Transmara at 24,851 tonnes in the period.

Another private miller Kibos, produced 24,668 tonnes.

Some State-owned millers such as Nzoia and Sony sugar outdid a handful of private millers.

Nzoia Sugar Company, for instance, produced 17,000 tonnes of the commodity in the period under review, with Sony milling 14,817 tonnes of the sweetener outperforming the coastal based Kwale International Sugar Company which did 13,914 tonnes.

Mumias Sugar, majority owned by the government, and for longest time Kenya’s biggest miller, produced only 4,768 tonnes, during the period.