Tough time for local sugar millers as smugglers and imports rule market

A recent study conducted by the Danish Institute for International Studies (DIIS) has attributed the illegal sugar imports in the Kenya–Somalia borderlands to the slow death of local sugar firms.

Cheap illegal sugar entering Kenya via Somalia

Dubbed ‘sweet secrets: sugar smuggling and state formation in the Kenya- Somalia borderlands’, the study details how a well connected web of the Kenyan Defense Forces, revenue agencies, politicians and truck drivers are colluding with a terror group in Somalia to import at least 150,000 tonnes of illegal and cheap sugar in the country every year, hurting local producers

‘’The trading and smuggling of sugar in the Kenya–Somalia borderlands is a dangerous, lucrative, and highly political business. In 2014, at least 230 tracks each carrying 14 tonnes of sugar left Kismayu every week, amounting to more than $400 million ( aproxx Sh41.4 billion) revenue divided between KDF, Alshaabab, politicians, local businessmen and truck drivers,’’ says the report

The study indicates that whereas sugar consumption in Kenya is growing, local production is declining. In 2011 domestic production covered 70 per cent of local consumption, this reduced to 62 per cent in 2015 and it is feared that it will hit 50 per cent mark by 2019 if illegal trade and high import is not contained

Local sugar firms feeling the heat of high imports

Already, Mumias Sugar Company Limited, the largest sugar manufacturing company in Kenya, which accounts for close to 60 per cent of national sugar output is feeling the pinch of high import, recording billions in after tax loss, five years in a row.

The firm’s after tax loss has been on upward trend since 2013 when it recorded Sh1.67 billion. Last year, Mumias Sugar’s after tax loss rose to Sh6.7 billion compared to Sh4.7 billion posted in 2016

The miller which has been wrecked by financial irregularities and corruption, repeatedly putting the production temporarily on hold since 2012 saw its production drop five folds last year to 50,000 tonnes against its normal capacity of 250,000 tonnes, this, despite frequent government bailout totalling to Sh3.7 billion in the past two years.

Mid last year, Mumias Sugar managing director Nashon Aseka disclosed that the listed miller need at least Sh5.1 billion to return to normalcy.

Mumias Sugar reopened in October this year after five months of closure due to accumulated debts owed especially to sugarcane farmers in the region who are uprooting canes to grow maize, further sinking the firm’s survival chances.

…the study details how a well connected web of the Kenyan Defense Forces, revenue agencies, politicians and truck drivers are colluding with a terror group in Somalia to import at least 150,000 tonnes of illegal and cheap sugar in the country every year, hurting local producers

Disgruntled sugarcane farmers who are owed millions in arrears dating back three years are now uprooting, further sinking the firm’s hopes of gaining its lost glory. Mumias Sugar reopened in October last year after five months of closure to accumulated debts owed to its suppliers

”My family which has been supplying canes to Mumias Sugar almost 30 years was forced to turn to maize in 2015 when it could no longer harbor the pain of waiting for payments. Other cane farmers have waken to reality that Mumias is sinking and are now uprooting. It is sad,” said Luke Wanga

On July 5 last year, Bungoma based sugar miller, Nzoia Sugar was forced to temporarily ground operations due to an acute cane shortage and accumulated debt owed to farmers, days after President Uhuru Kenyatta promised it Sh300 million to settle debts owed to farmers.

According to Kenya Sugar Directorate, Nzoia Sugar crushed less than 2000 tonnes of cane per day last year against its capacity of 3000 tonnes per day.

Other local sugar millers like Chemelil, Muhoroni, Sony and Miwani has not been spared either even after the state wrote off Sh33billion of their Sh59 billion accumulated debt to make them attractive to investors

While Miwani Sugar which was producing up to 20,000 tonnes of sugar in its heydays is dead, Chemelil on other hand is in dire need of Sh500 million to stay afloat even after receiving Sh300 million from the government in November last year. It owe its employees more than Sh330 million in unpaid salaries.

The Danish Institute study decried the poor management of Kenya’s sugar firms, citing deep rooted corruption and poor sugar policies to safeguard local producers from unfair competition

‘’A central factor behind the flourishing and growing cross-border sugar trade is the extent to which national sugar production has been mismanaged for years, while policies to protect domestic production in the Kenyan market have made it uncompetitive in the regional and global markets,’’ the report notes

Doese the government really care?

In early October last year, activist Okiya Omutatah was forced to move to court to challenge a gazette notice issued on October 4 allowing three month importation of duty free sugar in the country. The notice had not specified quantities of sugar to be imported, a loophole that could see unlimited tonnes of sugar imported in the country, further crippling local millers. High court suspended the notice.

In late November last year, Privatization Commission announced plans to sell five public-owned sugar firms to strategic investors by August next year in an effort to improve management of sugar firms in the country.

Even so, imported sugar continue to pile at the Mombasa Port, with the recent consignment of 50,500 metric tonnes from Brazil by Southern Nyanza Sugar Company blocked from being offloaded by the court

Omutatah who on December 28 last year moved to court to block the imported sugar from being offloaded said that if the company is allowed to sell the sugar in the country it would disenfranchise local farmers

Justice John Mativo ordered that the sugar aboard the MV Holy, should not be processed, cleared or released pending the hearing and determination of the case. The case will be heard on today

Little hope in the wilderness

Kenya Sugar Board chief executive officer Solomon Odera is however optimistic that the local sugar industry will be out of the current turbulence in the next two years

He said that local millers led by Mumias have initiated outreach programmes within cane growing zones to persuade farmers back to cane farming.

He believes that the good rains witnessed in the country last year and the 21 new high and fast yielding sugar varieties released in the market will yield to steady supply of raw materials to millers and guarantee high returns for farmers

He is also basking hopes in the expected privatisation plan of five local sugar firms which he believe will improve sugar management

In late November last year, Privatization Commission announced plans to sell five public-owned sugar firms to strategic investors by August next year in an effort to improve management of sugar firms in the country.

The commission’s chair Henry Obwocha said that engagements with key stakeholders to find an amicable solution that will pave way for the sale of the five firms which include Chemelil, Miwani, Muhoroni, Nzoia and Sony Sugar were ongoing pending court cases opposing the initiative

…drought saw Kenya record a cane deficit of 2.9 million tonnes, that could have yielded up to 290,000 tonnes of sugar. This led to a sugar deficit of close to 300,000 tonnes, considering the country’s annual consumption of 900,000 tonnes.

It is expected that strategic investors will have 51 per cent of shareholding in each of the five sugar companies.

The remaining 49 per cent will be divided into two, where a trust – to be formed by farmers and employees, will hold 24 per cent and the government will hold 25 per cent, which they currently hold temporarily.

Odera rubbished the Danish study that is linking low sugar production in Kenya to smuggling, stating that the low sugar production in Kenya since last year is as a result of the prolonged drought witnessed in several parts of the world including Kenya which run into the the first quarter of the year

He explained that the drought saw Kenya record a cane deficit of 2.9 million tonnes, that could have yielded up to 290,000 tonnes of sugar. This led to a sugar deficit of close to 300,000 tonnes, considering the country’s annual consumption of 900,000 tonnes.

”Am not aware of any illegal imports from Somalia. We have always sourced our deficit within East Africa Community and COMESA. Since the drought affected this regions, we had to outsource the deficit from Brazil, ” said Odera

Even so, local producers can barely find market , leading to stock piling as imports take toll on local sales. A report by the Sugar Directorate shows that local stocks beyond 11,000 tonnes in mid December were hurting revenues for local players.

The Sugar Directorate report has attributed the slow movement of locally produced sugar in the market to duty-free sugar, which is sold at as low as Sh3000 per 50 kilogramme bag. Locally produced sugar is selling at Sh3750-Sh4000 per bag

The Danish Institute study for instance describes sugar processing in Kenya as outdated, slow and expensive, resulting in production costs that are 50–60 per cent higher than in neighbouring countries of Uganda, Tanzania and Ethiopia.

It added that producers are left with the option of slashing prices in order to compete with imports or close shop altogether


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