Why Kenya Must Lease Its Ailing Sugar Parastatals to Private Investors

Following the rejection of privatization agenda after public participation and legislative review, the choice of leasing of government sugar factories has come with its fair share of challenges in western Kenya. Questions pertaining to how, to who and for how long remain unanswered. In this writing though, I delve into the why it's necessary.

The year is 1999 and our 10-acre cane farm, a ratoon of 1997, has overgrown beyond 24 months and the whole village has descended upon it with cows and goats as a grazing field. This is very vivid and memorable because on one occasion, in the company of elder cousins, a swarm of bees taking residence in a mole made hole was disrupted by the foot of one of the cows. Hell broke loose.  The animals and the shepherds were both subjected to the receiving end. Traffic stopped as we all ran across Eldoret Malaba highway to find safety home.  In the late 90s and early 2000`s I witnessed lots delay in cane harvesting. I recall farms that we would descend upon as pupils going home for lunch and chew them to the last crop standing.

Sugar mill leased to private investors as workers hold signs expressing concerns and seeking answers.

The other challenge was the zoning idea. In Bungoma, for instance, Tachoni is not just one of the 18 Luhya subgroups. It does also refer to the sugar cane middlemen who would buy cane from farmers at an instant price then go on to sell to the best buyer they can find. With zoning, Tachoni lorries were razed down by those that purportedly protected the cane belonging to Nzoia. I recall an incident in 2005, when I had to spend the night on the farm guarding already cut cane to await the lorry owner to maneuver his way through for the safest routes and time. The cane was loaded at 2 AM. Majority of them used to sell to West Kenya Sugar Company.

 During the discussions of the current sugar act, as a bill then, I was anti zoning for reasons of experience as such highlighted above and denial of liberty to the farmer to get value for his harvest without being tied down to a particular factory. But why would a farmer who has spent his money to buy seed, prepare land, see through his cane to maturity be subjected to such crude conditions to earn a living from his private farm? Isn`t that economic insubordination at the most grassroot level? 

A weary farmer from the Nzoia region holds a crumpled "Payment Due" slip, embodying the financial strains of his family. His spouse comforts their child, who clutches an unpaid school fees notice, while their other teen repairs a motorbike with borrowed parts, symbolizing resilience amidst hardship.

For years families have suffered the brunt of a loss making and generally deteriorating financial conditions of sugar parastatals. Farmers in Nzoia sugar belt for instance, upon harvesting, get subjected to endless assurance of the factory to pay in a month or two. Buoyed by this promise, they often take credit to settle obligations, say school fees or auto repair with hope that the pay will come. Often, it never comes on time and by then, they are drowning in debt that can’t be sufficed by the proceeds. Former UNCTAD secretary general, Dr Mukhisa Kituyi, a colleague farmer in Bungoma, recently stated that he tries as much as possible to keep government away from his farm because its design is for nothing short of loss for a farmer.  In his case, he delivers to Rai Sugar Naitiri.

15 years ago, Nzoia sugar factory had the 2nd largest market share at a paltry close to 70k MT of production. Mumias sugar was the leading then at 270,000 tons that amounted to 53% of the market share. West Kenya had only 23000 tons in production. Kenya entirely produced a total of 548,207 tons of sugar that year. The country imported up to 185000 MT of sugar to cover the deficit.  Five years later, at the close of 2014, West Kenya had risen to 73000 tons, Mumias had fallen to 117000 and Nzoia stayed at 66000 tons keeping its 11-12% market share. For 10 years, government owned factories have faced consistent dwindling fortunes to the detriment of the dependent citizenry. Today sugar parastatals are struggling with inefficiencies like never before. They’ve drawn from the exchequer so much more than they have contributed to it. On the other hand, today West Kenya boasts a market share of 30% which is the highest amongst the rest. 

 Lately, when politicians rise to say that Kenya is no longer importing sugar, which is a good thing, the farmer thinks otherwise because it’s way worse today than it was back in the day. The non-going concern status of sugar parastatals was an awakening call for government to privatize and move away from spending the already limited resources where there’s no return or value for the money.

World over, privately run sugar factories has been key in driving up production, efficiency and innovation. Brazil, the most significant player in the industry globally, has private factories in plenty running the show. Out of the up to 400 millers, major players in production of sugar, renewable energy and ethanol are privately run. Biosev, Copersucar,Raizen just to mention but a few are part of the factories key in the drive of technology, innovation, and sustainability practices.

The leasing of Nzoia Sugar to the West Kenya proprietor should be exciting news for farmers in Nzoia sugar belt. Rai is an investor in the food sector who has excelled in sugar industry particularly. He has been instrumental in the rise and expansion of West Kenya Sugar Mills in Kakamega County. Started in 1981, less than 10 years after Nzoia, the factory has grown in leaps and bounds giving birth to Naitiri Mills in Bungoma. Apart from Rai, other private sugar companies have been on the rise in the region. Jayant Patel`s Butali Sugar established in 2011 has been excellent in its operations despite lying within a 25 Kilometer radius. Ali Ahmed Taib is fairing equally well with Busia Sugar Mills. He, in fact won the tender for the leasing of Sony Sugar. As sugar entrepreneurs, their main goal would be to restore these high potential capacity plants to a progressive profitability path and expand their market shares.

Even with the dwindling production levels of sugar parastatals, Kenya had the highest production of sugar in history in 2024 at 830000MT. Despite that, the country still stands at an up to 400,000 MT deficit to cover in local consumption alone. That is high given that the highest single miller production was by Mumias Sugar at 27800MT over 10 years ago. The deficit provides a major opportunity for any entrepreneur and that means Rai has a chance to flex his muscle in the game by exploration of this niche. At his disposal, is the largest cane farm any single miller possesses in Kenya. This farm alone, coupled with the private farmers` supplies should be adequate to sustain high supplies for production. Did you know that the shortage of sugarcane alone sent Rio Grande factory in South Texas, USA closing shop recently? Thank God, we do not face those natural challenges in Kenya.

From a Pareto perspective, the biggest problem today is the payment issue to customers both internally(employees) and externally(suppliers). With a tune of over KES 5 billion assured for the start, this is good enough to inject the necessary financial force to better the operations. Nzoia has been delaying payments for as long as over a year after delivery of cane. On the other hand, West Kenya, sugar suppliers get paid as fast as one week after delivery. As such, the settlement of payments owed to farmers will be critical in restoration of the much-needed faith and trust in both plants. The factory and the crop. My hope and prayer are that we rescue the factory before it goes dodo as was with desolate pan paper and Mumias. The best time was yesterday, the second best one is now.

The idea of pay for farmers and employees has been a song of old that political leaders have kept hopping across the region changing tunes by retaining the message. Every time government has dipped in its coffers to facilitate the commercial parastatal, each one has run to claim credit. This is not sustainable. The hand over has happened. I am optimistic, it shall be well for the farmer and well for the country. With serious private investors taking up the job and roaring the plants to life across the country, we look to a competitive spell of production soon. It's crucial and timely.

About the Writer:

Chrisantus Wamalwa is a skilled operations management practitioner with 10 years of diverse  experience in logistics, sustainability and manufacturing systems management.