State-owned sugar firms in trouble

What is happening in the sugar-growing zones today is as saddening as it is unacceptable.

The way things are, state-owned sugar millers might perish sooner than we thought!

The orchestra of this is nobody other than the regulator himself.

While it can be argued that the interventions that have been put in place have the interest of the millers at heart, the introduction by the Agriculture and Food Authority (Afa) of the payment of farmers based on the minimum average selling price of the 50kg bag of sugar in a month, for example, is good news to the farmer, but a big strain on the miller.

PROGRESSIVE RELATIONS
What it means is that as millers increase their profit margins, they have to give this to the farmers even though they have to deal with high overheads and a huge wage bill.

There seems to have been a lot of emphasis on the welfare of the farmer at the expense of every crucial factor in the milling chain such as the cane to tonnes sugar (TCTS) ratio, government bureaucratic processes, and sectarian interests.

In the past, zoning of regions under each miller has marked the areas within as expected to develop their own raw materials and work with farmers without defilement by a rival.

ZONING MODEL

I call it defilement because since the Afa did away with zoning, which observed a 40km radius between millers -- even though some millers have co-existed within a radius of 25km -- there have been cases of blatant thuggery by millers harvesting underage mill and seed canes at the doorsteps of their competitors under the guise of contracting.

It is immoral to harvest immature cane, as this compromises the quality of sugar as well as that of sugarcane for milling.

The zoning model has been fought by the Sugar Directorate, which argues that it restricts farmers to a specific miller who rides roughshod over them, squeezing them dry while fattening his coffers.

POACHERS

From that perspective, it is fine.

However, the directive has overlooked other factors such as ownership, unfavourable regulations, and the investments made on farms by millers before harvesting.

The wars that have resulted in deaths in some areas have been attributed to the effects of the abolishment of zones as well as due to lack of strong anti-poaching laws.

These should have been enacted to protect every miller from poachers who have to deliver cane to the willing buyer by hook and crook.

Nothing comes in the way of the cane poachers that is not vanquished at lightning speed.

PRIVATE MILLERS

Without proper interventions such as a well-thought-out privatisation model, efficient use of resources, a lean wage bill, state-of-the-art equipment that guarantees a low conversion ratio, self-sustaining nucleus, low transport costs and a level playing field for all millers, the state-owned millers cannot effectively compete with the private millers.

The scrapping of zoning has sparked the scramble for the raw material.

Practically, a farmer in Kwale at the Coast cannot be signed by a miller in western Kenya though the directive makes it possible.

REVIVING COMPANIES
The goodies promised or given recently by President Uhuru Kenyatta to the millers are a welcome reprieve to the farmers.

Mumias Sugar Company, for example, got Sh2.6 billion.

Sony Sugar also got a few millions for maintenance while Nzoia Sugar Company has been promised Sh300 million for payment of farmers’ arrears.

However, the firm is in need of another Sh300m for its annual maintenance without which, the farmers’ problems will be far from over.

ADEQUATE MARKET

By the time Nzoia farmers get their dues, the money will be spent before they reach home to cater for their wives and children.

The solution to the problems state-owned millers are facing lies in taking very bold steps.

It does not lie in throwing money at farmers whenever they cry for it.

An efficient factory can pay farmers, well provided there is a market for sugar.

It is a shame that even with the fifth extension of Comesa safeguards, the situation is going from bad to worse because the players fear to take bold steps to ensure the viability of these millers.

CONTRABAND
The porous national borders have not made the situation any better as the sugar that comes in, even though not the best, always retails at lower prices than the brown sugar produced locally, effectively giving euthanasia to millers.

Initiatives such as irrigation, extension services, mixed cropping, our grower investment and efficient boards will cure the the millers’ headache.

Mr Awino is a communications expert on sugar matters. [email protected]