Kenyan sugar industry seeks way to navigate end of Comesa safeguards

FMCG SUPPLIER NEWS

The-Star.co.ke - Jul 26th, 11:33

The Kenya Sugar Board has developed a five-year strategic plan that advices the industry to rethink its direction as it approaches the liberalisation of the sugar trade regime expected next year.  

The industry needs to find ways of repositioning itself competitively as the Common Market for East and South Africa safeguard period comes to an end next year, the plan notes.

The industry is still faced by challenges of high costs of production, inefficient factory operations, inadequate sugar cane supply, incomplete privatisation and low product diversification that make the future of the industry bleak as liberalisation beckons.

The plan says the parastatal set-up needs to be re-organised for the industry to survive since the cost of production in state owned sugar companies is higher compared to the privately owned ones.

The plan identifies poorly maintained and outdated factory equipment, debt burden of government mills, high fibre cane grown over large area, poor transport infrastructure, weak corporate governance, inadequate and uncoordinated funding and lack of performance monitoring and evaluation system as major weaknesses for the industry.

The plan routes for enhanced efficiencies, diversification initiatives, farmer-focused strategies and introduction of effective performance management systems for the sector to remain relevant beyond 2014.

To enhance factory related effectiveness, the industry resolved to move towards a cane payment formula based on sucrose content as opposed to weight of the cane delivered.

This will have the spin-off effect of encouraging the uptake of high sucrose, early maturing varieties.

However, progress towards this has been slow, with only Nzoia and Sony moving towards piloting this through financing from SDF for Nzoia and a European Union grant for Sony sugar.

Stakeholder understanding and ownership of the quality based cane payment system is critical to the success of this transition.

Equally, Mumias Sugar has launched its co-generation project, effectively diversifying its product base and readying for the liberalised market. Mumias generates 38 megawatts of electricity through its co-generation project.

The plan says the weighted average cost for the industry is US$ 870 per metric tonne of sugar produce which compares unfavourably with regional champions such as Malawi and Swaziland, who boast costs as low as US$ 350/MT.

In an endeavour to expand sugarcane catchment areas, Mumias, Kibos and West Kenya Sugar companies have invested in cane buying centres, characterised by a weighbridge and cane yards and cane development programmes.

Under the arrangements, farmers from far away uneconomic distances deliver their cane to the buying centres and the miller then transports the cane to the factory.

According to the plan, frequent factory breakdowns, mainly attributed to old machinery/equipment and delays in the acquisition of the relevant spare parts has lowered the factory average time efficiency to 75.69 per cent in Kenya compared to the world average at 91 per cent.

Lower cost imported sugar is priced at par with domestically produced sugar due to the activities of cartels in the business. From The-Star.co.ke