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SUCAM REPORT: SUC06-NOV222001
THE SUGAR BILL LOBBY MEETING
THE MEMBERS OF PARLAMENT, INTERNATIONAL COMMUNITY AND SUGARCANE FARMERS
ORGANIZED BY SUCAM
HOTEL INTERCONTINENTAL, NOVEMBER 22, 2001. TABLE OF CONTENTS
Mr. Peter Kegode, EACT & SUCAM
Mr. Francis M. Waswa, KESGA & SUCAM
Mr. Gichira Kibara, Centre for Governance and Democracy & SUCAM
Dr. F. N. Owako, Nyanza Professional Caucus & SUCAM
Sugarcane Farmers - SUCAM
Members of Parliament
Donors
Other stakeholders
Suggested Amendments
Moderators:
Kathleen Openda, KTN
George O. Okech, Basic Rights Campaign and SUCAM
Peter Kegode, AGOA and SUCAM
STRATEGIC IMPORTANCE OF THE SUGAR SECTOR.
By Peter Kegode – EACT & SUCAM
The sugar industry has a multi functional role to play in the resuscitation and improvement of the economy to ensure economic growth. Sugar is a strategic agricultural commodity after tea and coffee. It contributes to GDP growth. It supports 5 million households and is a major source of employment. It is a key strategic provider of social infrastructure such as schools, churches etc. It contributes in excess of Ksh. 3.0 Billion in taxes to the exchequer. The industry provides raw materials and inputs to subsidiary industries such as the manufacturing sector.
Multi-Functional Role Of The Sugar Industry
It provides economic engine for growth and also plays a key role in Poverty Reduction Strategy paper (PRSP) process. However, the Kenyan sugar industry has failed, why is this so? Why has other sugar regimes been successful? The following countries are successful Sugar Success stories:
Mauritius, Swaziland, South Africa, Malawi, Sudan
"The strategic importance of the Sugar industry should be captured by the proposed bill. In its present form these attributes of the industry have been ignored."
International Sugar Regime
International Sugar regime shows how sugar is traded globally. It is important to have clear facts about the following:
-USDA TRQ – 1,288,983 Metric Tonnes
-ACP/EU Protocol – 1,305,000 Metric Tonnes
Projections for production in the year:
Kenya has been a victim of surplus sugar. There are other protocols that control the sugar trade. These arrangements have made Mauritius very successful. For Kenya, a lot of strategies to utilize the arrangements are required.
International Agreement & Tarrif Regimes
WTO Tariff Bindings:
Kenya’s Bound rates 100%
Current threshold 95%
25% Customs Duty – 70% suspended duty.
Under the liberalization, countries can only reduce and not raise the bound rates. So liberalization is done from the bound tariff rates.
Comparative Analysis
Bangladesh 200%
Switzerland 211%
Tanzania 120%
Tunisia 190%
Nigeria 150%
Finland 493%
"The global sugar regime is replete with high structure of tariffs for protection purposes, Pakistan recently increased tariffs on sugar by 20%"
Sugar Marketing Arrangements
"The proposed Sugar Bill is silent on the sugar marketing arrangement that will give maximum benefits to the industry players"
Sugar Importation Program
The average annual Production is 450,000 metric tones with a projected consumption of 650,000 mt. The annual deficit is between 150,000 – 200,000 metric tones. Industrial sugar deficit is between 80,000 – 100,000 metric tonnes. There are 30 companies that utilize refined sugar in their manufacturing process. These are in beverages, confectioners, Pharmaceuticals, baking & canning industry. There are different tariffs that apply, which include the Comesa zero tariff, refined Sugar, Raw sugar and White sugar tariffs.
"The Sugar Bill is silent on the need for the coherent policy and enforcement mechanisms for sugar importation"
Industry Safeguards
The following measures should be taken to safeguard the industry from the negative effects
of globalization and liberalization:
- Anti-Dumping Legislation.
"The bill should provide safeguards against exigencies of negative effects of globalization policies and impact of liberalization"
Industry Efficiency Parameters
International Benchmarks for factory time efficiency is 91.7%. The following apply for the Kenyan Factories.
High Costs Of Production
Some of the factors that are responsible for the high costs of production include;
- High costs of cane Procurement. 70 % of cost of production goes to procurement.
"For our Sugar Industry to be competitive we must address the high cost of producing sugar and the inputs that go into the process the Sugar bill and accompanying policy should provide the impetus necessary for the reforms in the sector"
Proposed ways to mitigate high costs of production
Key Institutions – Industry Organs
"The bill should institutionalize these vital structures within the scope of the bill"
Proposed Kenya Sugar Board Representation
Other structures should accompany the Bill in reform.
"The Sugar Bill should address the representation of farmers on the KSB"
Infrastructure Development
Other structures should accompany the Bill in reform. The Bill should address developmental aspects in the industry, which should include
"The bill is silent on development of infrastructure platform necessary for an efficient sugar industry."
The sugar draft sugar Bill does not take into account the strategic interest of the sugar industry.
Urgency for debating and enacting the sugar BillMr. Francis M. Waswa, KESGA and SUCAM
Executive Officer, Kenya Sugarcane Growers Association – KESGA and SUCAM
Debating and enactment of the sugar bill should be treated as a matter of urgency. The Kenya Sugar Authority operates more on personal lines than as a regulator of the industry. The crisis in the industry could therefore be attributed to the lopsided operation of the KSA. Over the last nine years, the KSA has collected roughly Kshs. 20 billion from the Sugar Development Fund, which has not been ploughed back into the industry for factory rehabilitation, or payment for cane deliveries to the farmers or even to salvage the collapsing factories, two of which have been put in receivership. The sad state of affairs could have been mitigated had there been a strong and independent regulator. It is saddening that the KSA does not have the power to borrow funds domestically and externally, which is why the Kenya Sugar Board that is to replace the KSA should be empowered to source for funds internally and externally, and use these to improve the sugar industry. The Board should be a strengthened and independent organization vested with power to regulate the industry according to the law. The importance of sugarcane growing to farmers cannot be underestimated. This calls for the creation and the institutionalization of strong institutions to act as pillars on which the industry rests on.
The bill is envisaged to provide for proper contract between the millers and farmers to replace the existing flawed ones that has ensured that the farmers are exploited to the maximum. For instance, presently the agreement between the cane cutters and the millers is to charge Kshs. 94 per tonne, yet the deductions at the factory exceed Kshs. 200 per tonne. Some of the deductions are highlighted below; transportation takes 20 %, cane cutting 20%… In total, 75% of the farmers’ proceeds are deducted as costs. 25% go to the management of the farms so that the farmer is left with nothing.
The Bill should strengthen and give the farmer the latitude to negotiate costs with the millers and other stakeholders in the industry. The irony in the industry is that the negotiations between the millers and farmers that were there in the 80s and early 90s, no longer exist, the weakness of KSA then and now as a regulator notwithstanding. Between 1994 to date, there has been no meeting between the farmers and the millers, and therefore the methodology of arriving at the costs/deductions is curious. The last meeting at Kisumu fixed the price of sugarcane at Kshs. 1730 per tonne, and no revisions have been made to date.
The absence of regular meetings has been more by design, with the industry being run more on common sense and personal whims than by law.
Analysis of the Sugar Bill 2001Mr. Gichira Kibara – Center for Governance and Democracy and SUCAM
Introduction
An examination of the suitability of any legislation must start with the following questions.
The answers to these questions are often a good indicator as to whether the legislation is appropriate or not. They tell us whether the promoter of the legislation has given serious thought to the relevance and effectiveness of the legislation. An examination of the proposed bill reveals a lot of weaknesses in the legislation that betray either a casual attitude to the problem being addressed by the legislation or an attempt to hoodwink the stakeholders that the problems are being addressed while in reality they are not.
The primary problem that the legislation purports to address is the poor performance of the sugar industry that has led to poor returns and impoverisation of the farmers. The reasons for the poor performance of the sector are well known. The main one is mismanagement due to political interference through appointments on patronage basis of incompetent managers by the government.
Others problems have been identified by experts on the sub-sector are:
In June 2001, The Center for Governance and development (CGD) organized a stakeholder workshop in Kakamega that brought together key stakeholders in the sugar industry. The problems of the industry were discussed at length and possible solutions explored. Some of the stakeholders’ views, which were elaborated in the working groups, are summarized in annex 1.
See Annex 1 for Sugar Industry working Group Reports (NOL)
The policies that ought to inform the legislation are:
Realities and assumptions
Regulatory Organs Proposed by the Bill
The Kenya Sugar Board (S.3)
Membership:
Total membership - 12 (ex officio)
Quorum - 7
Tenure - Three years renewable.
Terms per appointment instrument, (not known until appointment time).
Functions
The CEOs (s.10)
The CEOs are appointed by the board which also determines the terms and conditions. The Board also appoints other officers and staff on its terms and conditions.
The function of the board is the day-to-day management of the board.
Annual General Meeting (s24)
The representatives of the growers and the millers meet once a year, but the Board may convene special meetings.
The Functions of the AGM is to consider the annual report and accounts of the Board.
Minister of Agriculture
Functions of the Minister of Agriculture includes the following:
Sugar Arbitration Tribunal
The board should be composed of a chairperson, who must be a person qualified to be a judge, and two other members / persons with expert knowledge on matters likely to come before the tribunal, and who are not persons with direct interest in the sugar industry - all appointed by the minister in consultation with the Attorney General. The tenure is three-year term renewable for one more term of not more than five years. The terms and conditions are determined by the appointment instrument. The function of the tribunal is to arbitrate on disputes arising between any parties under the Act.
Weaknesses of the Bill
i) Governance control of the Board
The board is not controlled by the primary stakeholders- the farmers and farmers organizations. It has a membership of 12 and farmers elect only 4. Since the quorum of the Board is 7, it can be constituted without the farmer representatives. Its decisions are made by a simple majority, which means that the farmer representatives cannot stop any decision of the board because they can be outvoted. The board meets 4 times a year unless on special requisition, the requisition must be by at least 5 members meaning that the farmer representatives have no capacity to convene a special meeting on their own (First schedule 2).
Given the composition of the board, the government will have effective control of the board through its direct representatives and the miller representatives who make up half of the membership of the new board. Through the overrepresentation of the government in the board, the primary objective of the Bill, which is to give autonomy to the sub-sector, will be defeated. Both the Chairman and the chief executive will be determined by the government through the said board control.
ii) Poor and ineffective dispute resolution mechanism – the Sugar Arbitration Tribunal
(SAT)
There is need for an independent and effective dispute resolution mechanism. The bill proposes to set up a sugar Arbitration Tribunal to arbitrate disputes arising between the parties. Unfortunately, it proposes a defective and inadequate tribunal. Some of the weaknesses that will render the bill ineffective include:
Lack of independence from the executive
The tribunal it sets is unfortunately controlled by the government through the appointment and removal of its members by the minister. The members of the tribunal have no security of tenure and can be removed at any time the minister wishes. They are susceptible to political pressures.
It is common knowledge that the sugar industry has suffered serious damage due to political interference by the government through the appointment of its political allies to manage the sub sector. Disputes that involve the government versus the farmers are bound to arise. Obviously, a tribunal that is controlled by the government through the appointment of the politically correct individuals is unlikely to be unbiased in the arbitration disputes.
Confused nature of the tribunal
The nature of the tribunal set up under section 29 is unclear. It is purported to have powers of the high court with respect to some procedural issues and powers of a commission of inquiry with respect to some issues.
No exclusive Jurisdiction on the disputes it is set up for
Failure to give the tribunal exclusive jurisdiction on the matters it is supposed to handle will make it impossible to stop parties from filing the same disputes in court and getting orders stopping the tribunal from arbitrating on the disputes. Under both the Co-operative Act and the Rent Restriction Act (s.37) exclusive jurisdiction is created to enable the tribunals to operate without interference from the courts.
Inability to enforce orders
Enforcement of the orders of the tribunal is not provided for making the proposed tribunal a toothless bulldog. Under the Rent Restriction Tribunal, there are provisions for the enforcement of the tribunal’s orders by the courts. Under other tribunals such as the rent restriction tribunal, the Chief Justice is given powers to make rules prescribing the procedure of enforcement of orders and also for appeal purposes.
There is no provision for appeals and no indication that the decision is final
There is need to provide for the status of the decision made by the tribunal whether it is final and if not, how the aggrieved party will be heard.
iii) Continued government control of the sector
The Bill envisages continued government control of the industry by giving a lot of power to the minister. Democratization of the sector by tipping the balance of power in the industry to the producers has not been addressed. The annual general meeting is a formality instead of being a powerful voice of the stakeholders. The minister can remove both the board members and the tribunal and the farmers have no say in the matter.
Recommendations
Dr. F. N. Owako – Nyanza Professional Caucus & SUCAM
General Comments
The much awaited sugar Bill was published nearly three months ago, for presentation to the Parliament for debate and enactment. Unfortunately, since being published, the bill has not attracted public debate from the major stakeholders in the sugar industry, namely the sugarcane farmers. Neither has it attracted debate from the public in the manner coffee, tea and rice sectors have done. The reasons for this are many, and to mention only a few:
The Bill was therefore prepared by the ministry of agriculture, AG’s office, millers and KESGA, with hardly any input from farmers. Attempts to involve the farmers through stakeholders meetings to discuss the draft bill failed to achieve the desired results through unwillingness of KSA to involve other sugarcane farmers other than members of KESGA in the discussions. A few farmers who attended the first meeting of the stakeholders in sugar industry held in March 2000 at Kisumu through the courtesy of the PS agriculture, were never invited for the subsequent meetings. Neither were they sent the proceedings of the first meeting.
However, notwithstanding the above shortcomings, the bill cannot be condemned in its entirety, since there are a few good points in it. But these are few, and are far outweighed by the bad ones which tend to perpetuate the status quo, and are therefore not in the interest of the sugarcane farmers.
The positive aspects include:
The negative aspects of the Bill include:-
Regional agreements, and in particular COMESA and WTO rules must be reviewed, so as to enable Kenya to attain self sufficiency in sugar production, before opening the doors too imported sugar. The current practice of imposing tariffs on imported sugar after the market has been flooded with imported sugar is self-defeating exercise and a half hearted measure in dealing with the sugar problem. The COMESA and WTO agreements must be reviewed, if the sugar industry is to be revived.
The proposals are timely as the sugar bill is soon to be debated in parliament. Given the time constraint, it would be prudent for the presenters and SUCAM to be bold and present the proposed amendments to the Parliamentary Committee on agriculture. It is worth noting that the meeting is the first of its kind between the members of Parliament, the farmers and members of the diplomatic corps - among the stakeholders who can support the industry.
Sugarcane must be regarded as a type of grass that must be properly nurtured to grow properly. The Kenya Sugar Authority and the industry must fulfill all the requirements for this to be realized. This calls for among other things, the irrigation of sugarcane farms so that the yields, i.e. the sucrose contents can be controlled and further to ensure that sugar is produced at low cost as possible. The future board of the sugar industry will need a lot of assistance in research.
It is clear that there is confusion about assumptions of the government in the industry especially with liberalization of the industry and privatization of Mumias sugar factory. The allocation of the 30% shares to the farmers may appear fair, as the 30% is internationally popular, but the pertinent question to pose is whether it automatically leads to the empowerment of the farmer. The benefits could be accrued with the improved farmer participation in the industry, which means that the farmers must have a say on how their sugarcane is milled. The sugarcane grower should be the owner of the factory as the most important stakeholder. As at now, the relationship between the miller and the grower is not that of partnership as the miller dictates the terms to the growers.
The above notwithstanding, concrete suggestions according to the clauses that should inform the sugar Bill should be made to the parliamentary committee on agriculture. The Bill should be looked at in two parts;
Growers, Millers & Consumers as stakeholders. Among the growers are two stakeholders, the farmers and the labourers. The growers are organized into institutions. These are the outgrower institutions. Therefore the questions arising are:
It is important to note that the SDF has not been used properly. It has five components that include research, cane development, factory maintenance and management. Perhaps, the answer as to why it has not been put into proper use is to look at who the players are in terms of board composition. They have been more amenable to political manipulations and vested interests. The need to improve the farm machinery, cane variety and research cannot be gainsaid, as these are some of the critical factors in ensuring that the farmers maximizes on their produce.
Suggested AmendmentsThe board members should comprise majority farmers in the context of all farmer organizations. Other organizations should also be included in the pricing committee; among these are the Kenya National Sugarcane Growers, employers’ organizations etc. There is a strong case of majority farmer representation, as the board will be funded by the farmers and not from the exchequer. However, effectiveness of representation must be ensured through vetting, which could be structured on minimum qualifications that cut across ethnicity, parties and regions. The expectation is to do away with do the problem of a miller centred sugar industry that had been the case. It is curious that KSA does dispute the statistics of SDF as given by SUCAM and Parliamentarians, yet they seem to be unsure of the total amount collected since 1992.
There is a strong foreign threat to the sugar sector, yet the Bill tends to focus on domestic threat only. The Bill should have a mechanism of addressing the foreign threat, by also putting in place strategies to exhaust the domestic demand. There must be a deliberate underwriting of the domestic produce.
The Bill also ought to address the licensing of millers. This would be critical in checking on the exploitation of the farmers by the jaggery factories most of whom do not weigh the sugarcane. Farmers in essence sell their sugarcane without knowing the weight or value of the cane. Concomitant to this is instituting the standards of entry into the industry, such as minimum capitalization among others, which millers and other players must adhere to, in order to safeguard the interests of the farmers. Zoning of the farms must also be looked into in terms of the radius to be considered. This should go further to address the problem of who is liable in case of oversupply in a particular zone. For example, there are 113 jaggeries in West Kenya alone. This has led to poaching of sugarcane by the jaggery owners. The Bill therefore should address the question of circumstances in which Zone A get cane from Zone B. The definition of the mill must be brought to bear as well.
The Bill should thoroughly define grower and outgrower institutions so as to be clear on whom the farmer representative is, and their terms of reference thereto. This is important, as presently the outgrower institutions are not representative of the farmers. In this context, the contracted farmers and the trade unions should be included. The zonal committees should be instituted at the grassroots so as to sort out the problems at the local level. Pricing of sugarcane should still be based on weight rather than the sucrose content. However, weighing should be done at the farm and the miller made to bear the loss arising from spillage.
The above notwithstanding, the Bill should address the problem of the high and unrealistic deductions by the miller. It must be clear on how licensing will be done. In addition, it must also be clear on whether controlling the marketing of sugar should be a prerogative of the board, presently it is open to all. The research component should be restructured to be managed by the board, it is currently a major conduit for corruption. The tribunal is weak on enforcement, and it should be strengthened to make awards as well.
The object of the Bill is reverse, that is, it intends to regulate, develop then promote the industry. This is reverse order, and it should be amended to promote, develop and regulate the industry. In this context, the Kenya Sugar Authority or the Kenya Sugar Board headquarters should be transferred to the sugar belt (Western Kenya) preferably Kisumu. There should be strict criteria for recruitment and the qualifications for the board members. Presently, the way the KSA board is composed leaves a lot to be desired, as most of the members are not qualified for the posts they hold, and none of the officers come from the sugarcane growing areas.
The Bill is therefore for execution. The by-products must be included in the pricing, and the sale proceeds should be shared between the farmers and the millers. The bill is blind to the following institutions:
It should therefore be clear to all who care that farmers have formed a coalition to fight terrorism in the industry.
Report Prepared by Shem Ochola – African Academy of Sciences and SUCAM
THE SUGAR CAMPAIGN FOR CHANGE