In recent years, no other crop in Kenya has received political attention to the degree that sugarcane has. However, the complex nature of the myriad challenges facing the sub-sector has left every successive government unable to turn around its economic fortunes and those of the millions of people who rely on it.
The report of a 2019 Sugar Industry Stakeholders’ Task Force formed by then President Uhuru Kenyatta returned a harsh verdict, observing that the sub-sector, which has witnessed a turbulent history, would require a strong-willed government to revive it. The report was no different from a similar one issued by another task force in 2003.
In a recent and welcome move by President William Ruto, and following parliamentary approval, the Kenya Cabinet agreed to write off KSh117 billion worth of debt owed by public sugar mills to pave the way for the private sector to play a greater role in the efforts to revive the sector. The millers owed KSh65 billion to the banks, another KSh50 billion in taxes, and nearly KSh2 billion in farmers’ dues. But this is just the beginning of a tough journey with many economic and political ramifications that the new president has embarked on, and whose outcome is uncertain given the industry’s history and past trials.
Five governors from sugarcane growing regions were part of Uhuru Kenyatta’s 21-member task force that submitted a report with far-reaching recommendations that were, however, not implemented until October 2022 when the proposed Sugar Bill 2023 was put before parliament.
The report described the sugar subsector thus:
“The sugar subsector is facing unprecedented challenges that have drastically affected cane and sugar production. Key among them include high cost of production, acute cane shortage, low productivity, inefficiencies across the value chain, weak regulatory framework, high indebtedness, weak extension support, low-value addition initiatives, cyclic markets, uncontrolled and illegal sugar imports, poor governance, aging equipment, obsolete technology and delayed payment to cane farmers.”
This state of affairs has prevailed for many years. Making its submission to the 2003 task force, the lobby group Sugar Campaign for Change said,
“The sugar industry in Kenya is in chaos. The current state of the sugar industry is primarily a result of a destructive political economy that has seen corruption, mismanagement, and lack of goodwill, vision, and direction institutionalised not only in the sugar subsector alone but also in the agricultural sub-sector as a whole. The result has been a systematic increase in poverty amongst farmers and a subsequent decline in the sustainability and efficient growth of the sub-sector. The situation has been exacerbated more by non-sequenced trade liberalisation trade policies leading to an influx of imported (often dumped) sugar into the local markets. The sugar industry requires radical reform by all stakeholders.”
The sugar industry has grown largely unregulated since 2013, with many competing interests emerging that Ruto’s reforms agenda will now be seeking to dismantle. Today, there are 15 millers and huge sugar imports by various traders to bridge the demand gap.
In its report to the house on the proposed Sugar Bill, the Parliamentary Departmental Committee on Agriculture and Livestock observed that the majority of those who made their submissions on the bill during the public participation had observed that the sugar industry took a nosedive from 2013 when the Kenya Sugar Board (KSB) became defunct following the repeal of the Sugar Act. The industry was placed under a sugar directorate in the Agriculture and Food Authority (AFA) created in 2013, which had no impact for the industry stakeholders, according to the Committee. The new bill seeks to reinstate the KSB as the industry regulator.
The sugar industry has grown largely unregulated since 2013, with many competing interests emerging that Ruto’s reforms agenda will now be seeking to dismantle.
The 2019 task force report also noted that several challenges related to weak policies and legal, regulatory, and institutional frameworks existed. The industry has operated without regulations since 2001. This, the task report observed, has created disorder in the sector, non-adherence to existing laws and standards, and failure to honour contracts and obligations, making it difficult for the industry to be competitive.
It further noted that some of the existing laws relating to the sugar subsector are inadequate in addressing current and emerging challenges, while others do not align with the constitution. On the other hand, it has been observed that there is a need for stand-alone legislation for the sugar sector that provides for a legal regime, an independent regulator, and a research institute.
Kenya’s sugar industry has a chequered history. The first sugarcane factory was established in 1922 in Miwani, Kisumu District, and was followed by Ramisi in the coastal region in 1927. These two factories were privately owned by Indians who sourced their cane from their nuclear estates. Africans were not allowed to grow cane commercially during the colonial period. However, after independence, the government expanded its vision of the role and importance of the sugar industry through Sessional Paper No. 10 of 1965. The government sought to accelerate socioeconomic development, redress regional economic imbalances, promote indigenous entrepreneurship and foreign investment through joint ventures.
For Western and Nyanza provinces, cotton and sugarcane took the lead as the main cash crops. Between 1966 and 1973, three more milling factories were set up in Muhoroni, Chemilil, and Mumias. Kenya attained self-sufficiency in sugar for the first time in 1980 and 1981 by producing 401,239 metric tons against a demand of 299,514 in 1980, and 368,970 metric against a demand of 324,054 in 1981. The demand gap has since increased and has over the years been filled through imports from regional and global markets, in a move that has generated more heat than light in the growth of the cane industry. Sugar imports by uncategorised traders have taken a large share of the blame for the woes facing the industry today.
Increasing production and productivity is key to the reform agenda to reduce sugar imports, but there are no quick fixes to achieve this. Since the total collapse of the public-owned sugar millers, the sugarcane industry has shown some signs of recovery but there is still no clear regulatory mechanism in place, which has encouraged numerous malpractices. According to the AFA Year Book of Statistics 2022, the total area under cane as at 31 December 2021 was 223,006 hectares compared to 200,513 hectares in the same period in 2020, an 11 per cent increase. Cane deliveries in the period between January and December 2021 amounted to 7,659,120 tons against 6,810,898 tons in the same period in 2020, a 12 per cent increase.
The increase is attributed to improving cane availability in most of the sugar zones and, according to the AFA, and aggressive cane development initiated by various sugar companies, including West Kenya, Butali, and Sukari sugar companies in synchrony with their increasing milling capacities. Prompt payment for cane delivery by privately owned mills has motivated farmers to expand the area under cane. In addition, increased sugarcane prices and regular review by the Sugarcane Pricing Committee have borne fruit.
Sugarcane production and productivity are a key element in sugar reforms. The country has the lowest cane yield in the COMESA region. The sugar industry reported cane yields of 69.95 tons per hectare in 2021 compared to 61.85 tons per hectare in the same period in 2020, representing a significant increase of 13 per cent. At a recovery rate of between 9 and 11 per cent, Kenya’s sugarcane performance is among the poorest in the region. Zambia, for instance, is one of the lowest-cost producers of sugar globally, with yields standing at 120 tons per hectare.
The country has the lowest cane yield in the COMESA region.
Zambia has adopted large-scale farm production and irrigation to benefit from economies of scale and the ability to control production. The average cost of producing one ton of sugar is US$400. This is very low compared to US$800 in Kenya and in other African countries. The high production cost is associated with the inefficiencies across the entire value chain, right from cane development, harvesting, transport, milling and marketing to the high cost of inputs, labour, and credit, among others.
The 2019 task force report notes,
“The average cost of producing a ton of sugar is USD 800 compared to an average Cost Insurance Freight (CIF) value of USD 550 from the region or USD 450 from the global market. The inefficiencies contribute to the overall cost of production and ultimately the cost of sugar. This not only renders the industry uncompetitive but makes Kenya an attractive destination for imports from the region and globally.”
Kenya is currently a net importer of sugar – duty-free, mainly from COMESA countries. This has in the past led to oversupply, dampening the prices of local sugar and affecting local prices. Moreover, as Kenya does not produce refined sugar, it meets this needs through importation, creating an opportunity for diversion of the same to the consumer market. The task force report also notes that a sizeable amount of uncustomed sugar is smuggled into the country through porous borders.
Millers in Kenya have also been allowed to import sugar during periods of shortage, which creates a conflict of interest where the millers now tend to concentrate on sugar importation rather than milling. This explains why there is depressed miller investment in cane development, the task force report noted.
The value of sugar imports in 2021 stood at KSh25.86 billion compared to KSh56.12 billion, the value of locally produced sugar. It is worth noting that the value of locally produced sugar increased by 26 per cent from the KSh44.44 billion achieved in the previous year. The increase was due to more sugar being produced in 2021 and was well supported by the rising sugar prices.
In the short-term, the 2019 task force recommended that control measures be put in place to ensure imports do not exceed the deficit and to inhibit illegal imports through porous border points. This will be achieved by developing an effective regulatory framework and stakeholders’ engagement in coordinating sugar import/export in compliance with COMESA safeguards. The task force also recommended that millers be prohibited from importing sugar to meet the national deficit.
“In the medium term, the task force recommends that all the available production capacities be utilised efficiently to meet the national shortfall and have a surplus for export. The imports from low-cost producers dampen sugar prices creating financial constraints when the local mills cannot offload locally produced sugar,” said the report.
Some millers wanted the proposed bill amended to bar other traders from importing sugar to bridge the demand gap, which stands at between 40 and 50 per cent. The bill proposes that the KSB determine which private sector players should import sugar into the country. Most of the sugar sold in supermarkets is not branded and it is difficult to tell the origin or the expiry date.
Kenya is a signatory to the COMESA Free Trade Agreement which provides for quota-free and duty-free access to all commodities from member states. Kenya applied for protection for the sugar sector by way of safeguards under Article 61 of the COMESA Treaty so that sugar exports from COMESA to Kenya are subject to customs duties.
The safeguard was first implemented in March 2002 for an initial period of 12 months and subsequently renewed nine times by the Council of Ministers. Their primary objective was to accord Kenyan sugar producers protection for a period of time during which industry stakeholders, in collaboration with the government, were expected to address the constraints leading to the non-competitiveness of the sector by undertaking 10 strategic interventions. However, two have not yet been implemented: payment of farmers’ cane deliveries based on sucrose as opposed to weight and privatisation of publicly owned mills.
Most of the sugar sold in supermarkets is not branded and it is difficult to tell the origin or the expiry date.
Organising farmers into producer groups is another critical area for the success of the crucial reforms. Without producer groups, millers have been constrained in developing cane fields due to the difficulty of enforcing contract farming. Also, farmers lack bargaining power for better prices and do not benefit from credit facilities or other farm inputs in this capital-intensive venture, relying on millers for the transport of cane.
Some of the factories have invested in value addition but farmers do not benefit from the proceeds of the sale of value-added products. In addition, the determining the costs of inputs, services, and credit to the farmer is unilaterally done by the service providers to the exclusion of the farmer, the task force report noted.
“The report recommends that the industry expedites the transition to quality-based payment, the pricing mechanism provides for benefit sharing between farmers and millers of proceeds from sugar and value-added products and the scope of the sugarcane Pricing formula be expanded to include pricing mechanisms for all cane-related charges paid by the farmer.”
Before the establishment of the Sugar Development Fund (SDF), cane production was financed by millers and individual farmers. With the introduction of the Sugar Development Levy (SDL) in 1992, the fund grew to become the single largest source of funding for research, cane development, factory rehabilitation and infrastructure development. It was, however, degazetted in 2016.
Stakeholders who presented their views to the parliamentary committee were in support of the levy. They, however, differed on the allocation of the SDL. Some proposed that some of the monies collected be used for sugar development while others observed that public milling companies, who were accused of fund misuse, benefit from the levy. The 2019 task force report recommended that the levy be reinstated as a source of affordable credit to support the industry’s financial needs.
There is also the issue of taxation. In October 2023, the National Treasury said that it was working on waiving tax penalties and interest within 30 days as agreed by the Cabinet. Sugar is not classified as a basic food item and therefore attracts Value-Added Tax (VAT) – currently at 16 per cent. In 2002, the government introduced 16 per cent VAT on transportation thereby increasing the overall cost of cane transport. This tax is often passed on to the farmer, further reducing his profits from sugarcane production.
Before the establishment of the Sugar Development Fund (SDF), cane production was financed by millers and individual farmers.
In 2014, as the government raced to take advantage of the extension of COMESA safeguards, it also indicated that it had plans in place to shift sugarcane farming from western Kenya to the coastal region. In the proposal, the government would consider the introduction of alternative but high-yielding crops in the western region.
“This is a decision we have to make. We were not given an extension so that we can do things as we have in the past,” Mr Felix Koskei, then in charge of the agriculture docket.
The nucleus estate accounts for only 9 per cent of the total cane land area, whereas outgrowers occupy 91 per cent of the total land area under cane. Kakamega and Bungoma counties registered the highest area under sugarcane with 44,268 hectares and 39,430 hectares, respectively, the two counties representing 38 per cent of the total area under cane.
Cane is a capital-intensive crop that is ill-suited to small-scale farmers. Kwale International Sugar Company Ltd (KISCOL) – which relies on irrigation – is harvesting over 130 metric tons per hectare from its nuclear farm. The harvest from smallholder farmers in Kwale stands at 60 metric tons per hectare.
It takes 10 to 12 months for cane to mature in the coastal belt. Moreover, the coastal region has vast swathes of land unlike western Kenya where the size of family land has shrunk over the years due to redistribution and fragmentation. Family landholding in Nyando, for instance, is about 2 acres compared to up to 50 acres in Ramisi.
Cane is a capital-intensive crop that is ill-suited to small-scale farmers.
Tana Delta is also fit for cane production. It has fertile loam soils that hold water much better than the sandy soil in Ramisi. In 2008, Kenya’s conservationists prevented Mumias from developing an irrigation-supported sugarcane field of over 20,000 hectares, arguing that it would interfere with the existing water-based ecosystem.
It is commendable that the Ruto regime is taking steps to revive the sugar sector but in so doing he will need to work closely with the county governments and the private sector. The devolved units should help in mobilising farmers and the government with support from private resources. However, Ruto will require strong goodwill to succeed where his predecessors have failed.
