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Can cane farmers expect win-win deal?

By | July 20th 2010

Tectonic plates in the sugar industry are quickly shifting and those not prepared or ready for the radical changes are in for a rude shock.

Cane farmers will now be paid through a new system, once the new proposal is adopted.

The new payment system will be based on sucrose content.

The revolutionary proposal is heartening given that farmers will now be treated equally. The planned shift to a sucrose content-based payment system was one of the conditions given to Kenya even as it won a four-year moratorium from Comesa in 2007, so as to prepare the local sugar market for liberalisation by 2012.

The system will mainly benefit farmers who cultivate quality cane. By this, we mean those farmers who invest heavily on farm inputs such as fertilisers and cane husbandry.

However, the bad news in the shift in payment is that the bulk of the country’s farmers are technically ill-equipped and lack the necessary capital to meet the high standards required of them under the new system.

They stand to lose out in a big way, as their guaranteed earnings regardless of the quality of the crop will be seriously threatened by the new system.

But for farmers, who spend plenty to take care of the crops, it is the best reward, as the system recognises their hard work and rewards their investment.

Millers, apart from getting supply of high sucrose content crop, will also have enough raw materials to drive the energy sector, mainly in the areas of co-generation and bio-fuel production.

Cane that matures early is said to have high sucrose content. Production of quality cane will increase competitiveness in the sector since it will promote growth in the energy sector.

Sucrose content

Contributory factors to poor cane quality include ageing infrastructure, high production cost, and a long maturing cane variety with low sucrose content.

These have bogged down the economic power of the Western Kenya sugar belt, giving room to millers to compete for land in the Coastal basin, where cane can grow at a shorter period.

Millers are also positioned to benefit from the new system, bearing in mind that they will lock out sub-standard cane and reduce the cane trash levels, which stand at 12 per cent, a rate that is too high and erodes profit margins.

But the big losers to the new implementation are farmers, who when supplied with the key farm inputs like fertiliser, sell it or convert them to other farming activities. But under the proposed system, these rogue farmers would be forced to channel their resources to the right use or face an almost nil return.

Currently, Kenya produces an average of 500,000 metric tonnes of white milled sugar against a consumption demand of about 700,000 metric tonnes annually.

The cost of production Kenya is still relatively high compared to other regional producers, and if Comesa were to implement sugar reforms that are meant to liberalise the sector, it would spell doom for the industry, as it would result in collapse of many sugar factories.

The Government and stakeholders in the sugar industry have argued that the sector is not developed enough to compete effectively in a liberalised market, and the changes would instill competitiveness, taking into account the expected improvements in quality of cane being delivered.

This means Kenya will see a steady rise in the sugar import quota, in tandem with a graduated fall in duty, a process expected to embrace impending liberalisation of the market by 2012.

And it will result in a gradual exposure of the local industry to competition from duty-free imports reducing the pressure the local millers will succumb to once liberalisation sets in.

Negative impact

However, this new system should discourage farmers’ exploitation and promote farmers wealth. It is now upon the sugar regulators, millers and researchers to educate farmers on how to maximise benefits from the new system.

This will shed more light on the role they are supposed to play in helping elevate the industry’s standing in the regional market.

Many farmers still fear losing out because of what has happened in the past, but Government should ensure that when the system is effected, they are protected and cushioned against the initial negative impact normally associated with such changes.

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Exchange rates - 20/07/10
Exchange rates - 20/07/10
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