The faceless barons making a kill from high sugar prices

Kenya’s biggest miller, Mumias Sugar Company, has about 1,000 bags of sugar in its giant warehouse. These bags are only meant for emergencies, its internal consumption and State House. They do not have even a single crystal sugar for wananchi.

“We supply State House directly and the rest of this emergency sugar is used internally by the company or can be supplied to the Government for special functions. We have no sugar for the rest of the market,” a source at the firm told Weekend Business.

Price changes

The firm’s machines went silent last month and will remain so for another two months. The impact of this closure is being felt across the country and hundreds of kilometres away from the now quiet town of Mumias.

It is 1pm on Friday 12, 2017. A team of five Standard Group reporters visited one of the supermarkets in Nairobi to understand what is happening in the market. This one has only three brands of sugar, but only one has a price tag. There is no local sugar.

Not even the Kabras brand and Sony Sugar were available last Friday when the reporters went out into the market.

A two kilogramme sugar packaged by Tuskys Supermarkets is retailing at Sh375 on this day. When we ask one of the attendants for the price of the other brands of sugar, he, inadvertently, gives us a different price for the Tuskys brand.

“This one is going for Sh390,” he tells us as he violently tears away the Sh375 price tag from the shelf. “Sh375 was the price in the morning. But when the suppliers brought new stock the price jumped to Sh390,” he adds. That was 9am.

So, in a span of four hours, the price of a two-kilogram sugar dramatically shot up by Sh15. The spike in the prices of the sweetener is alarmingly fast and punitive that most consumers can’t keep up. The other available brand, Nutrameal, is retailing at Sh415, up from an average of Sh280 less than two weeks ago.

And popular brands such as Mumias Sugar, Nzoia Sugar and Sony Sugar are conspicuously missing from the shelves. “I haven’t seen Mumias Sugar for almost a year now,” says the attendant.

Mumias Board Chairman, Kennedy Ngumbau Mulwa, told Weekend Business that the firm should be up and running in another two months now that it has already been closed for a month. But even when running, this brand has not been seen by consumers. “We closed down for maintenance and this is also the out of crop season. It is a good time to do maintenance as we wait for the crop to mature. It is also raining and therefore not a good time to transport cane,” Mr Ngumbau said.

Meanwhile, in some retail stores, shoppers are being restricted to two packets of the basic commodity, as the sweetener quickly turns into yet another luxury.

Institute of Economic Affairs-Kenya (IEA-Kenya) Chief Executive Officer Kwame Owino says that some retailers might be taking advantage of the shortage which has pushed people’s demand of the commodity to some desperate levels. “They are responding to the demand, and some are in the process taking advantage of the situation,” says Owino.

Mr Alfred Busolo, the Interim Director General for the Agriculture and Food Authority, last week blamed the middlemen for being part of the problem.

He said besides drought which affected cane production in the country, wholesalers and distributors have been holding sugar making an already bad situation worse.

Busolo said the Government has enhanced imports and in the next 2-3 weeks State will receive 40,000 metric tonnes of sugar from the Common Market for Eastern and Southern Africa (Comesa) countries. A further consignment of 60,000MT is expected in the next two months to address the shortage.

Hoarding commodities

Solomon Odera, the head of sugar directorate, said market fundamentals do not support the current situation, insisting that the shortage of sugar and the resulting price increase were purely artificial. According to him, distributors are holding on to huge stocks in various stores around the country.

“If you look at quantities that have been released to the market, both imports and local stocks, you will realise that distributors are withholding sugar. This is because what they take from factories and from imported consignments is not reflecting in the market,” Mr Odera told a local daily.

Retailers, under the aegis of Retail Trade Association of Kenya (Retrak), have moved swiftly to exonerate themselves.

“Formal retail traders are not engaging in hoarding of essential food commodities, as implied in sections of the media. We as the intermediary between suppliers and the retail customers, we continue to suffer poor and acutely erratic deliveries,” said the association in a statement given by its chairman Wahome Muchiri.

Then who is responsible?

Some observers have said that conditions are fertile for people to make quick cash by artificially creating shortage of sugar. The drought, which has depressed cane harvests, is a perfect environment for greedy cartels.

And although experts have been quick to rule out relationship between a spike in sugar prices and electioneering, there has been a significant rise in prices of sugar and other basic commodities around election times.

In 1990, after a long period in which retail prices of sugar had been reducing, retail prices suddenly increased by 30 per cent in October of that year. There was outcry as a kilogram of sugar retailed at between Sh9.70/12.40. Elections were to be held in December.

In July 1992, the product is said to have gone back to the normal price having risen to Sh35 per kilogram. In in the second multiparty elections held in 1997, after the prices of sugar had been decontrolled in a bid to stabilise the market, there was yet another storm in the sugar industry.

In July 1997, 13 Opposition MPs mostly drawn from sugar growing regions, sued 11 people including Government officials, for smuggling sugar into the country. “The country has suffered colossal loss of revenue. The damage to growers and sugar industry is huge and irreparable. Yet certain individuals continue to make lucrative business,” said the MPs in a statement.

Back then, just as Mumias Sugar today, Muhoroni Sugar Company, closed down for two months due to what was described as “technical faults on machinery.” The maintenance exercise, just as that of Muhoroni, was supposed to restore its maximum crushing capacity.

Prices also rose in 2012, a year to election, in what most economists have blamed on the 2011 drought. In 2017, three months to elections, the prices have rallied up. And the blame is on drought, once again.

“The bitter truth is there is no cane to be crushed into sugar: without cane there is no sugar,” says Patrick Ojera, a senior lecturer at Masinde Muliro University who has dedicated a significant part of his academia studying the country’s sugar industry.

Dr Ojera says that in the month of April and May 2016, there was no water for irrigation and so companies did not develop their own cane. They, thus, relied on outgrowers who, however, find cane growing with its costly inputs quite expensive.

Normally, the millers support farmers with fertiliser, ploughing, and weeding. But now, the millers too are broke. Farmers are helpless.

And with the long rains, delivery of canes from wet shambas is also tricky. “Tractors get bogged down, break down thus taking longer turnaround time,” says Ojera. Indeed, last year, a few farmers abandoned sugar cane farming, resulting into reduced area under cane from 223,605 hectares in 2015 to 220,998 ha.

And although harvest was good, production went down from 7,164,790 tonnes to 7,094,619 in 2016 due to “inadequate rainfall and harvesting of young cane,” according to the Economic Survey 2017.

Kenya’s largest sugar miller, Mumias Sugar Company, which supplies about 40 per cent of locally produced sugar has switched off its machines in what the management has described as maintenance exercise. The rest of the millers, though still active, are bogged down by erratic cane deliveries and rickety machines.

Cane has disappeared even in the neighboring country Uganda, cutting off one of Kenya’s first source of imports whenever there is a shortage of this vital foodstuff. “So, the guys who get the little will hoard it,” said Ojera. Ironically, as Kenyan’s suffer the highest prices of sugar locally, the global sugar prices are at its lowest in two years.

Country is in the mess

United Nation’s Food and Agriculture Organisation’s (FAO’s) Sugar Price Index led the decline of its Food Price Index, dropping 9.1 per cent this month as large export supplies from Brazil met with continued weak global import demand. In fact, global prices of sugar have hit a two-year low.

It is no secret that imported sugar, at all times, is far cheaper than locally produced sugar- indeed Kenya is one of the most inefficient producers of sugar in the Comesa.

A 2005 study by FAO showed that while a kilogram of sugar landed at Sh23 Cost, Insurance and Freight (CIF) consumers still paid between Sh63 and 76 per kilogram same to sugar produced locally.

In Mombasa, importers sold to wholesalers at Sh48 per kilogram after paying duties and other costs.

“Consumers do not benefit from the relatively cheaper imported sugar: the importers appropriate approximately a 45-49 per cent marketing margin,” said the report by FAO. “This appears to be the reason why there has been an increasing trend in the nominal prices of sugar in the face of increasing trend in sugar imports since the beginning of the 1990s,” added the report.

Yet there is no other way out of this mess except for the country to import sugar. According to Owino, the country is in the mess, in the first place because the Government did not quickly license importers to curb the situation.

But the Government was reluctant fearing the backlash that might result from a pronouncement to import. Sugar producing areas, mostly in Western Kenya, would see this as a scheme by a Jubilee Government to ‘finish them’ economically. And the Government would not risk this at a time when elections are just around the corner.

But Kenyans are hurting. Their patience with the Government getting thin with each day they go to the supermarkets and find the price of sugar has jumped, or miss the commodity on the shelves.

Dr Ojera is calling for “managed importation” so that faceless sugar barons do not hijack the process and make a kill at the expense of consumers.