Cane farmers’ sigh of relief as State embarks on bailout plan

Simon Odhiambo bends over to tend his maize crop in Koru, Kisumu County.

The mid-day heat is having its toll on the 38-year-old father of four. He stops every now and then to wipe off the sweat on his forehead with the back of his hand.

The determination written all over his face is palpable – the resolve to finish the work before the end of day, even as the lowly hanging dark clouds show an impending downpour.

All the signs that this would be a good season are evident in the dark green leaves of the maize crop. The weather has been good with plenty of rainfall lately and the farmer expects a good harvest.

“Last season was a disaster and all I got from my three acres was two bags of maize,” he says. “This time round if the good weather holds I expect at least 25 bags.”

Yet five years ago, Odhiambo was an ardent sugarcane farmer with more than 15 hectares of the crop to his name. But he dropped the industry like a hot potato when the returns started dwindling after Muhoroni Sugar Company took too long to harvest the cane – and even longer to pay for cane proceeds.

“Growing sugarcane was not a profitable venture anymore and I could no longer rely on the industry to feed and educate my children. I had to find alternatives,” he says.

Budget speech

However, there is no doubt in his mind sugarcane would afford him better returns if a conducive environment to grow the crop was put in place. The move by the Government to write debts for the industry in this year’s budget speech may have sounded like sweet music in the ears of famers like Odhiambo.

The Government has allocated Sh1.5 billion to write-off farmers’ debts in the sugar, rice and coffee sectors. Finance Minister Njeru Githae said farmers across the country are overburdened by debts, arising from past mismanagement of production and marketing institutions.

Agriculture remains Kenya’s single largest sector contributing 24 per cent of the Gross Domestic Product (GDP). But the farmers cannot begin to celebrate already after it emerged the write-off could be a drop in the ocean – or worse still, a token political gesture. Indeed the Kenya Sugar Board (KSB) wrote to the Treasury last week seeking to know how the write-off will work.

“We have written to Treasury to ask which sector the Sh1.5 billion was meant for and to understand the modalities of the debt write-off,” said Rosemary Mkok, CEO of KSB. “Was it meant for sugar, rice or coffee sector because if that is the case it would seem like a drop in the ocean,” she added.

The sugar industry is indebted to the tune of Sh58 billion, which include Sh47 billion owed to KSB by sugar millers – and other Government debts, statutory debts and farmers’ debts.

State-funded

Muhoroni Sugar Company alone owed Sh6 billion as at June 31 2005 when it was declared technically insolvent. The deficits were funded by the Government through KSB and other institutional loans to the tune of Sh6.8 billion.

The current joint receiver managers were mandated to revitalise the company and to search for strategic investors in addition to other objectives of receivership.

To revitalise the company, management adopted a balanced business strategy that covered all the aspects of the business including people development, establishing lean and efficient operations, making an impact in the Kenya market and ensuring the delivery of financial imperatives. However, it remains to be seen if these strategies will bear fruit.

Before it went under in 2003, Miwani Sugar Company owed Sh8.7 billion, including unpaid farmers’ dues for cane delivery. Other companies like Sony Sugar, Chemelil and Nzoia have barely been limping on – saddled with huge debt, obsolete technology and emerging competition from privately owned firms.

“It would be important to understand the modalities of this write-off to be able to charter a clear course for the industry. For me the urgent need is to write-off farmers debt because the debt burden on the sugar farmers have prevented them from access loans from financial institutions thereby hampering cane development,” the Sugar Board official says.

“There is also the need to inject new capital into the industry to mordernise production and improve efficiency. We are working to reduce the cost of production by 30 per cent to put as at par with other producers worldwide. Kenya’s cost of production stands at $650 USD, which would be unfeasible once the Comesa safeguards are removed.”

Political interests

Policy experts termed the debt relief by the Government for the sugar sector a strategic ambiguity, which serves political expediency more than sorting the industry’s mess.

“If the industry is sagging under a Sh58 billion debt and the Government is allocating Sh1.5 billion across three sub-sectors then I do not see how this is a relief to farmers and millers alike,” says Jeremiah Owiti, Executive Director at Centre for Independent Research.

“Which loan portfolio is being referred to here? Is it for the farmer, the miller or for both?”

Owiti adds: “The minister’s Budget speech implies the money is to be divided across the three sub-sectors of sugar, rice and coffee, which amounts almost to nothing. Even if it is for farmers – in the sugar sector alone, this is hardly enough because farmers across all the sugar belts collectively owe in excess of Sh11 billion in loans.”

The policy expert says other than writing the industry’s debts, the Government should institute far-reaching reforms in the sector to spur growth.

“The Government needs to move quickly and privatise the industry to allow for private sector investment and introduce competitiveness,” he says.

He says there are significant challenges in the sugar sector, which need to be address. For instance, he says, price collusion between millers is hurting farmers.

“The factories keep fixing the price of the cane at Sh3,500 per metric tonne, which is the gross pay because they would have to deduct cost of transport and harvesting the farmer remains with nothing despite the high cost of production,” he explains.

“Moreover, the farmer is alienated from other by-products of sugarcane like ethanol and baggasse, which fetch more returns than even the sugar itself.”

He says the Sugar Act should be amended to give the farmer more say in the industry process with the miller’s only mandate being the milling itself.

“The power the sugar millers wield in the industry is immense. We should devise a regime where the farmer is more in charge of the processes,” he adds.

KSB, which regulates, develops and promotes the sector, is actively encouraging private investment in the sugar industry, and has made recommendations to restructure or privatise Government-owned mills.

Mkok says the board is currently pushing for the review of the Sugar Act to align to it the new Constitution and specifically on devolution.

“The Act was written before the new Constitution but now the supreme law has strict provision on stakeholder expectation which we must adhere to,” she says.