Hasten State’s exit from sugar industry

Once again, Kenyans are being treated to the annual circus of artificial sugar shortages that materialises like magic every time State-owned millers are primed to shut down for maintenance.

It is that time again for the so-called sugar barons to smuggle, hoard or import the commodity, exploiting consumers and rural cane farmers.

Why this perennial disruption in the supply of sugar in the domestic market has been allowed to persist still begs more questions than answers.

Currently, the local sugar market is protected from cheaper imports from the Common Market for Eastern and Southern Africa (Comesa) through taxation and quota safeguards.

But there are fears that with the local industry yet to trim its bloated, inefficient systems, the market will be flooded by imports come 2012 when the Comesa safeguards are lifted.

It is against this background that the slow pace of reforms in the sector should be viewed, and urgent measures taken to fast track the process.

The artificial sugar shortage, similar to the one being experienced currently, is a symptom of an industry in ill health and still in the high dependency unit.

Although reports from Kilimo House indicate that plans to privatise the seven functional sugar factories are on schedule, the Privatisation Commission appears to be shooting in the dark and is yet to decide on the best exit for Government from the sector.

Bygone era

While Muhoroni and Miwani factories are under receivership, Sony, Nzoia and Chemelil factories are operating below capacity. Most of the factories, with the exception of Mumias Sugar, are so indebted they remain unattractive propositions for investors.

Presently, the sugar industry is one of the most heavily taxed in the form of Value Added Tax, Cess and the Sugar Development Levy. The result is that gains for farmers and millers are eroded by this punitive tax regime.

Even as Government prepares to exit the sugar sector, it will be leaving behind machinery from a bygone era when sugar production was heavily manual in nature. This implies that it could take a while before the factories are modernised to compete with the rest of the world. Local millers need to move into industrial economics of producing sugar and its by-products, such as energy, fertiliser and power alcohol.

We hold the view that selling off Government-owned factories might not resolve current problems in the sugar sector.

Any reform road map should take cognisance of the fact that the industry still faces numerous challenges that have negatively impacted on its performance.

They include heavy losses incurred by the industry’s institutions, delay in payments to farmers by the millers, high cost of production, unpredictable rainfall pattern and poor institutional governance.

It is tragic that while plans to revive the sugar sector are well documented in Government policy papers, the pace of implementation remains painfully slow.

Total collapse

Although President Kibaki mandated key stakeholders to develop a ‘Marshall plan’ for the sub-sector way back in July 2003, little has moved with the ministry, Kenya Sugar Board and all other stakeholders taking a nap as the industry collapses.

To respond to numerous challenges faced by the industry, and in view of the significant socio-economic role played by the sugar sub-sector in our national economy, it is prudent that the Privatisation Commission moves with speed to sell off these sugar factories to private investors.

Ultimately, the Government must quickly move out to allow the private sector drive the reform agenda.

Until then, political interference and partisan decision making by a politically-inclined Kenya Sugar Board will continue to take centre stage as sugar barons take advantage of a chaotic industry to fill up their pockets.

The clock is ticking. A total collapse of the local sugar market is the end result when the country finally opens up to competition from foreign players.