Sale of millers should be a sweetener to the farmer


The story of sugar production in Kenya is a mixture of agony, lost opportunities, shattered families, mismanagement and primitive accumulation of wealth by a cabal through exploitation of farmers.

In fact, there is both a business and moral question in management of the sugar industry.

While farmers suffer losses due to the high cost of production and delayed payments the factory managers make a killing through theft.  This is largely to blame for the near collapse of the sugar industry, especially in Western Kenya where it is the source of livelihood for thousands of families. Lack of predictable income and frustration has forced hundreds of farmers to uproot the crop and seek alternatives.

Then there is the cartel that conspires to create artificial shortage to allow for massive importation of sugar beyond the prescribed quota, exposing the local factories to risk.  This partly explains the current status of the state-owned Nzoia, Miwani, Muhoroni, Chemelil and Sony Sugar millers. They are broke. Miwani is under receivership.

A decision was reached to privatise the companies but there were bottlenecks.  First, the firms were highly indebted. This means any possible investor would have to inherit the debt, making the assets expensive.

Second was the issue of the land the millers occupy as well as the role of county governments in the process and thirdly, farmers maintained—and justifiably so—that the mode of sale must allow them to hold stake and have a say in management of the companies.

Kisumu governor Anyang’ Nyongo has consistently argued the issue of cane development had to be addressed before the millers were to be sold. He also maintains the government has to first put structures to ensure the burden on farmers is sorted and address mismanagement of the industries.

The initial clamour was for the firms to be handed over to county governments because agriculture is devolved. The financial implications of such an arrangement must have dimmed the noise.

Gladly, after protracted negotiations and even court cases, consensus was last month reached amongst the stakeholders and the process of selling the firms has started. It is planned to end in August.

To address the biggest challenge, the government intends to write off Sh38.5 billion in debts.

How about stake distribution? According to the agreement, a 51% stake will go to a strategic investor, 24% to the farmers while the national government will retain 21%. The county governments will be the custodians of the farmers’ interests as well as the trustee for nucleus land for the local community. Under the new arrangement, farmers and county governments will have a role in management of the companies once sold.

It was also agreed that sugarcane growing areas be zoned to prevent poaching by private millers, farmers be provided with inputs and be paid promptly and infrastructure be upgraded.

To address the issue of cartels, there was consensus that sugar imports be checked. Latest reports indicate that Kenya’s sugar imports increased by 130% in the first quarter of the year.

Politicians from the sugar growing regions have also been pushing for reintroduction of the Sugar Development Levy to help farmers in cane development. That is laudable.

If executed well, the privatisation of the millers will not only be a great boost for the agriculture sector but will also tremendously transform the lives of the affected farming communities.  Significantly, it could restore the dignity of the Kenyan sugar farmer. Besides creating thousands of direct and indirect jobs, it will improve family incomes and infrastructure.

However, we must proceed with caution. The privatisation process must be executed in a transparent manner that will give confidence to prospective investors and other stakeholders. It should not be an opportunity for individuals in government, lawyers as well as consultants from the private sector to make a killing. It should be devoid of corruption and safeguard the farmers’ best interests.  It does not help that the Agriculture ministry, which is at the centre of the conversation is stinking with scandals. Its handling of maize sells has not been particularly endearing. This will call for vigilance by all interested parties throughout the process.

However, it is noteworthy that privatization will not be the panacea for problems in the sugar sector. We must address the issue of governance, regulation especially on block farming to prevent vulture competition, taxation on inputs and political interference in management of sugar companies.

Take the case of Mumias Sugar Company. An audit revealed that successive managers colluded to embezzle nearly Sh2.8 billion, bringing the company tumbling down. It took the intervention of government to inject new life into Kenya’s largest sugar crusher.

There are also reports that lawyers colluded with senior managers to defraud SONY sugar millions of shillings by filling fake compensation claims.

Chemilil sugar owes Sh802 million, a debt largely attributable to financial malpractices. And in all this, the farmer is the net loser.

That is why the sale of the five millers should not be another lost opportunity to restore the hope of sugar farmers. It should be a sweetener.   

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