Government plans to privatise ailing millers to boost efficiency and cut production costs to return to profitability
Sugarcane farmers will be paid within seven days after the crop is harvested and delivered to millers if new proposals are adopted.
The national sugarcane task force report, handed over to President Uhuru Kenyatta a fortnight ago, recommends farmers be paid within seven and not 30 days after harvesting as has been the tradition.
Previously, farmers signed an agreement with the millers to pay them a month after cane delivery. But some millers took longer to release the money. This resulted in court cases with millers losing millions of shillings in fines for breaching contracts with farmers.
Kenya Federation of Sugarcane Farmers Secretary General Ezra Okoth said millers owe them billions of shillings in arrears for cane delivered.
“If the proposals are ratified, it would end delayed payment and farmers support the envisaged reforms,” Mr Okoth told Sunday Standard yesterday in Kisumu.
The farmers thanked President Kenyatta for his commitment to revive the State-owned sugar factories as recommended by the sugar task force.
Farmers in Awendo, Nyando and Muhoroni sugar belt also backed plans to privatise the ailing sugar factories.
They said this will boost efficiency and profit margins.
Okoth said private companies will have a profit incentive to cut costs and boost efficiency.
“This is what we expect to see now in the sugar industry. We hope to see them back to business and profitability,” he said.
The report proposes to develop and implement an industry cost-cutting strategy along the entire value chain to reduce cost of production and increase efficiency.
However, critics argue that private firms can ignore wider social costs, which Okoth told would-be investors to guard against.
Generally, farmers are happy with the recommendations in the report including plans to auction all State-owned mills to boost their efficiency.
Kenya National Alliance of Sugarcane Farmers Association chairman Saul Busolo said proposals of the task force were good save for some few areas.
Mr Busolo opposed zoning saying it defies the free market economy, but Okoth argued the proposed regional zoning would discourage cane poaching.
Some factories haul cane from as far Migori to Kakamega.
“This is not cost effective,” Okoth said.
Busolo said they were free under a liberalised economy, saying its the farmers choice driven by better pay offers.
The sugar task force report notes that the cost of production, especially in public owned mills, is high due to ageing and obsolete equipment.
This includes inefficiencies along the value chain, low value addition initiatives, inadequate cane supply, poor infrastructure, harvesting immature cane, bloated workforce, high cost of credit and poor governance etc.
The task force recommended that the public-owned mills invest in value addition to widen the revenue base to cut costs.
The cost of cane production ranges between Sh100,000 to Sh120,000 per hectare. This includes land development, input supply and credit.
“At an optimum yield of 65 tonnes of cane per hectare, the sugarcane cost of every ton of sugar is Sh38,000 (USD 380) which is higher than the cost of sugar in some of the competing countries within the region,’’ the report notes.