Change

in the

Sugar Industry

 

 

Submission by the Sugar Campaign for Change

to the Sugar Industry Task Force

 

May 2002

 

The Sugar Campaign for Change (SUCAM)

P.O. Box 4572, Kisumu, Kenya

Telephone: 0722 691 900/ 057 40033 / 404665

Email: sucam@kenyalink.org

Website: http://www.kenyalink.org/sucam

Kenyatta Avenue, KNA Building, 6th Floor

 

 

5461-18-422101-1023

SUMMARY BRIEF

 

BACKGROUND

 

VIABILITY OF THE INDUSTRY

 

SUGAR AS A SPECIAL COMMODITY

 

  1. REDUCING COSTS OF PRODUCING CANE

SUGAR INDUSTRY AGREEMENTS

 

  1. REDUCING THE COSTS OF MILLING CANE

EFFICIENCY AT FACTORY LEVEL

 

  1. MARKETING REFORM

RETAINING INDUSTRY WEALTH

 

  1. CANE PRICING DEBATE

“Painting a body without an engine”

 

  1. CORRUPTION IN THE SUGAR INDUSTRY

“Sugar industry has been the most corrupt agricultural sector in Kenya

 

  1. SUGAR ACT, 2001

 

  1. REGIONAL AND INTERNATIONAL TRADE--SUGAR IMPORTS

 

  1. INSTITUTIONAL ANALYSIS AND REFORM

 

    • Out Grower Institutions

 

    • Kenya Sugarcane Grower’s Association (KESGA)

 

    • KESREF

 

    • KSSCT

 

    • Sugar Mills

 

    • Kenya Sugar Board

 

  1. FUNDING AND INFRASTRUCTURAL DEVELOPMENT

 

  1. INTER-MINISTERIAL COORDINATION

 

  1. DEVELOPING CONSENSUS AND BLUEPRINT FOR REFORM

 

CONCLUSION

 

Background

 

The sugar industry in Kenya is in chaos.  The current state of sugar industry is primarily as a result of destructive political economy that has seen corruption, mismanagement, and lack of goodwill, vision and direction institutionalized not only in the sugar sub sector 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 liberalization trade policies leading to an influx of imported (often dumped) sugar into the local markets.  The sugar industry requires radical reform by all stakeholders.  This brief highlights some of the key areas of reform required in the industry.  This brief is a summary format and should be used as a guiding document only.

 

Viability of the industry:

 

Under efficient management sugarcane is one of the most viable crops to grow economically compared to other crops.  (See Graph Below)

 

(Notes:        Source ISOL Survey – Crop Comparisons – Standardized Index)

 

Field costs can be reduced on smallholdings.  India currently has the second lowest sugarcane growing field costs after Australia despite an average land acreage size of .72 ha. Topography of cane growing regions is similar to those of Kenya.

 

The number of by products from sugarcane far outweighs other commercial crops.  We have potential to save foreign exchange on energy costs both from cogeneration and power alcohol, amongst other effective utilization of by products.

 

The first premise for radical reform in the industry believes in the viability of the sugar industry.  If technocrats handling the sugar docket in the MoA for example do not believe in the viability of the sugar industry they can do little to reform the industry.  Similarly if factory management or out grower management do not believe in the viability of the industry there will be little incentive to innovate and   strive for efficiency.  It is imperative that all stakeholders in the industry, particularly growers, millers, government technocrats and policy makers agree on a common and mutual beneficial vision and blueprint for reforming the sugar industry.

 

Sugar as a Special Commodity;

 

“The SADC protocol on trade provides for the free movement of goods and services. Exempted from this is free movement provision are “sensitive products” which were selected on account of their strategic importance, peculiar characteristics or high profile in the economies of the countries concerned.”  [DPRU][1]

 

Sugar is considered a sensitive product on the basis of three major considerations:

 

1.     The existence of severe distortions in the form of tariff and non-tariff barriers surrounding various markets in different parts of the world. In the world market, sugar trade is not governed by price signals generated by the normal forces of supply and demand this distortion requires us to view sugar from a different lens when we consider our negotiations in WTO and COMESA.

 

2.     Sugar is a political commodity.  At a basic level, people need something sweet to make food palatable (basic need); otherwise there would be a lot to complain about ultimately casting the government of the day in poor light. At a higher level, sugar features prominently in the policy making of sugar producing countries, irrespective of stage of development.  Even one of the most advanced in the region (South Africa) is on record as having stated that it will not fold its arms and allow its sugar industry to be driven to the ground by cheaper sugar imports from neighboring countries.

 

3.     More importantly, sugar industry plays (or has potential to play) crucial strategic role in respective economies.  They promote economic growth through contributions to national output, savings in foreign exchange and government revenues out of which social services are provided.  They promote economic diversification through forward and backward linkages with other sectors. They promote human development through incomes generated from both direct and indirect employment.

 

It is because of these three social, economic and political reasons that the sugar industry in Kenya needs to receive much more serious commitment to reform and restructuring and be viewed differently.  Changing our views on sugar will affect our perceptions to textbook liberalization and force us to question more seriously issues such as sequencing of policies.

 

Given a common understanding on the inherent viability and special nature of the sugar commodity it is possible to address the reform agenda in the industry.

 

What needs to be done to restructure the sugar industry?

 

Reforms on the sugar industry must focus on achieving low costs of production and high levels of efficiency that will firstly mutually benefit the two primary stakeholders: growers and millers, and secondly influence economic growth and job creation at national level.

 

1.     REDUCING COSTS OF GROWING CANE: SUGAR INDUSTRY AGREEMENTS

 

Shifting from an ad hoc unplanned farming system to a predictable, planned, cost effective and efficient system

 

Efficiency and low cost production at farm level

 

Sugar industry agreements must be seen as a means of increasing productivity and improving yield management and cost reduction strategies in the farming system up to the point of delivery and payment of sugarcane to the mill.

 

Effective sugar industry agreements should institutionalize predictable farming, harvesting, transportation and payments programmes, ensure long term planning and sustainability of farming sugarcane, and rationalize roles of key stakeholders  / institutions at farm level (out growers institutions, service providers, transporters, millers, KESREF Extension, MoA Extension etc)

 

Some of the issues that sugar industry agreements should consider:

·          Quota farming system for greater planning and efficiency by building economies of scale

·          Cane variety rollouts, technology transfer and yield maximizing agronomy and husbandry practices. (16 m/var) (New varieties cannot be introduced in an ad hoc system)

·          Harvesting schedules that optimize sucrose content and reduce double preparation costs.

·          Input and service procurement standards and benchmarks to encourage greater transparency, accountability, competitiveness, and cost effectiveness in service provision and diminish opportunities for rent seeking

·          Payment schedules and systems for farmers including an equitable pricing formula.

·          Institutionalizing stronger trust relationships   between millers, out grower’s institutions and farmers.

·          Specifying roles, responsibilities, and relationships of stakeholders and accountability systems particularly for OGIs. This shall also present duplication of roles and thereby reduce costs.

·          Intercropping and additional income opportunities to enhance food security at household level.

·          Rationalizing field costs, including tax charges, interest rates, service charges etc.

 

Draft sugar industry agreements (SIAS) are currently in circulation. These are drafts and need significant input from KESREF, Technologists and need to be widely discussed with farmers and millers before institutionalization.  SIAs must not be imposed on farmers and should not be implemented for political expediency.  The spirit of SIAs should be facilitative to create incentives and room for innovation for farmers and ensure the long-term viability of the sugar industry.

 

If SIAs are to be effective it is crucial that delayed payments owed to farmers be cleared and payment systems be streamlined within 30 days.  This is part of recreating the incentive and trust system necessary for efficient farming. SDF funds must be used to clear farmers’ debts before funds are used for any other purpose.

 

2.     REDUCING COSTS OF MILLING CANE: EFFICIENCY AT FACTORY LEVEL

 

Due to the structure of the political economy that Kenya has been operating in, most mills have been forced to operate within the inherent inefficiencies of the political economy.  There is no doubt that several mills have been used as conduits for corruption and mismanagement at the expense of development of the industry.   Measures need to be taken to address efficiency levels in the mills.  These include;

 

a)     Addressing management and accountability structures of all mills

·          Professionalizing management boards and enhancing accountability. Removing patronage based appointment systems completely

·          Developing management contracts for mills based on Kenyan requirements. Many management contracts provide no room for innovation, growth and improving performance and instead provide opportunities for rent seeking at the expense of developing the sugar industry.   Many contracts have been awarded based on political patronage and therefore terms of contract have been skewed. All management contracts in the sugar industry should be reviewed and redrafted with stringent performance criteria   and time lines for development.  Management contracts will only be effective and efficient if backed with long-term government commitment to restructuring the sugar industry.

·          Adopting open accounting systems of all mills providing accurate data on financial systems in use to public for scrutiny (for mills that have large government and farmer stake).  It is imperative that independent audits   be carried out for all mills and procurement and tender systems   be monitored and evaluated.

 

b)    Diversification

§          It is embarrassing that over 30 years on since the first sugar industry was started in Kenya, our sugar industry has not diversified production.  This is largely as a representation of the existing political economy, which provided no direction for growth or innovation in the industry.

§          If the industry is to survive we need to move beyond sugar production to effective use of co-products

o       Electricity

o       Processed molasses (current processing system of molasses provides little plough back to the sugar industry)

§          Government policy must create an incentive structure for diversification—beyond contract specification. (Tax incentive schemes etc)

 

c)     Debt Restructuring

§          Sugar mills have incurred huge debts.  Again most debts incurred in a political economy that encouraged corruption and mismanagement.  Current government is faced with a dilemma: how do you deal with huge debts incurred largely through mismanagement, knowing that those involved in corruption will not pay back debts.

o       There has to be prosecution and conviction of all those involved in corruption and mismanagement

o       As an immediate concern a debt portfolio should be opened where all debts are transferred, cleaned and analyzed.  This will enable a cleaning of balance sheets of mills, as bad debts will have been offloaded to a separate portfolio. Analysis of bad debts will determine those that can be written off, those that can be scrapped based on how debts were incurred.  Initially, creating a debt portfolio will have no budgetary implications.  Once analysis of bad debts is complete then it will be possible to determine what budgetary support is required to clean debts. At immediate stages however, clean balance sheets will enable new interests from investors.

 

d) Factory Maintenance 

§          SDF funds have been often misused resulting in poor factory maintenance. Further more, there have been incidences of money being availed to maintenance crew whereby they are asked to carry out annual repairs and maintenance for a month or so.  This is criminal for a factory that has to get spares from overseas. Local fabrications and machining need several months of preparation.  There must be an adequate planning and time for preparation.  Rushed contracts will be expensive, often inefficient and promote rent-seeking behavior.  (Muhoroni sugar company case)

 

e)     Efficiency Parameters

§          Industry benchmarks and incentive systems need to be set that encourage performance and innovation within mills.  Performance enhancing incentive structures can include tax relief incentives.

§          Should there be a crashing period? Is it efficient for factories to crush continuously? With proper planning, it is possible to maximize returns from a shorter crushing period and thereby reduce processing costs?

 

3) MARKETING REFORM: RETAINING INDUSTRY WEALTH

 

There is an urgent need for the marketing structure in the sugar industry to be reformed for the following reasons:

 

§          There is too much information asymmetry on the demand and supply of sugar in Kenya.  This is evident by the fact that nobody in Kenya really knows the true demand, supply and actual deficit of sugar.  It is clear that the 200,000 metric tonnes deficit cited by the government is not accurate and has created a loophole in the industry to benefit sugar importers.  The industry needs to have accurate data on sugar demand, supply and actual deficit inflows in order to increase certainly and efficacy reforms in the sugar industry.  There is no point of reducing the price of sugarcane without addressing the information asymmetry and hence regulating imports effectively.

§          Apart from imported sugar, a second major problem in the marketing system is the fact that domestic millers are also engaged in price wars amongst themselves as opposed to fighting against cheap imports as an industry.  Preliminary findings from research that we are currently conducting amongst distributors shows that much of the price instability in the sugar industry is as a result of undercutting by millers aggravated further by imported sugar.

§          Sugar marketing strategies must be based on cost effectiveness through examining the demand elasticity of the commodity in relation to marginal costs.  Given the highly inelastic nature of sugar demand, it may be economically inefficient and unnecessary for millers to invest heavily in marketing of sugar.  This is an excessive burden to millers as the current marketing system forces millers to move a way from their core function of producing sugar and utilizing by-products effectively.  This structure also creates a conflict of interest between millers and traders.

§          Lastly, the current sugar marketing arrangement profits sugar traders more than it profits millers and farmers.  Proceeds from sugar trade are not being ploughed back into the industry.  If the industry has to move forward with new investments it is crucial that trading profits are retained within the industry, to provide for growth and robust sugar industry.  Estimates show that approximately Kshs 5 billion is lost out of the sugar industry to sugar traders.

 

It is for these primary reasons that we call for a single channel marketing system that will add greater coordination to marketing and distribution of sugar in the country, whilst at the same time encourage millers and farmers to be competitive on reducing costs of production so as to maximize profits in specific milling zones.  The single channel marketing system will prevent dumping of imported sugar and ensure effective regulation of domestic demand and supply.  It will also ensure retention of trading profits within the industry.

 

As in other major sugar growing countries, primary stakeholders—the millers and the farmers as an economic entity free from political manipulation, must manage a single channel marketing system. (We don’t want to create another KNTC). This arrangement has been widely adopted in sugar industries worldwide.  A strong single channel marketing system should operate on a tariff quota auction system for greater transparency and monitoring of local and imported trade.  For more empirical evidence on the cost effectiveness of single channel marketing read: Gill Lavers report on cost effectiveness of sugar marketing (Swaziland Sugar Authority).  It is interesting to note that during the last weeks, the price of consumer sugar has increased a midst cheap imported sugar and plus stocks.

 

In the short run, a single channel marketing system will retain much-needed funds for the industry development, particularly in areas such as irrigation and cane variety research.

 

4)  CANE PRICING DEBATE: “Painting a body without an engine”

 

The cane pricing debate has overshadowed many of the core structural reforms that are required in the industry.  The cane pricing debate can be likened to painting a car without an engine. There are several preconditions that need to be met before cane-pricing debates are heard. These include:

 

·     Clearing delayed payments.  Current case of farmers from Nzoia best example. How do you increase cane prices without creating incentive prices for farmers?

·     Putting in place sugar industry agreements – which if efficient will actually lower cost of producing cane thereby allowing a parallel reduction in the price of cane with no significant negative change on the farmers net incomes.

·     Putting in place systems that will allow payment of cane based on sucrose.  We need to develop simple but efficiency driven price formulas that encourage yield and quality increases at farm level, but also factor in factory efficiency and performance. Current pricing formula does not create factory efficiency incentives, resulting in farmers paying for factory inefficiency.

·     Bringing marketing and import regulation under stricter scrutiny.

 

Further more, the pricing debate is hampered due to lack of impartial data from which formulas can work.  Every stakeholder gets a different pricing result depending on the parameters used, and therefore as such every stakeholder is right.  Pricing debates will depend on the kind of parameters and data sets one uses.  We need independent data to be able to develop farmer-sharing ratios.  The current ratio of 50-50 is historical and not empirical.  Most sugar producing countries have farmer-sharing ratios of over 63%.  The lack of independent impartial data is a failure on the part of the former KSA/KSB and this problem must be rectified.

 

There is no point reducing or increasing price of cane if structures to facilitate cost reduction are not put in place. E.g. several farmers would continue to be paid “chuth ber”

 

The cane pricing formula should be discussed and debated with much more technical input from KESREF, KSSCT using robust data.

 

5) CORRUPTION IN THE SUGAR INDUSTRY:

“The Sugar industry has been the most corrupt agricultural sector in Kenya

 

·     PIC reports, independent audits, EMU all point to the fact that sugar industry has been used as a major conduit to promote self seeking behavior

·     Some observations:

o       Lack of government commitment and lack of commitment to reform by technocrats is evident in the amount of time it took to release the EMU report and the implementation of the requisite restructuring even within KSB. People chose to maintain the status quo. As a result no radical changes as such.

o       PIC reports to date have not been acted upon.

o       Several institutions not audited/exempted from audit

o       Funds have been disbursed to institutions which have not had the capacity to absorb the funds (OGIs)

o       All stakeholders have operated in a corrupt political economy turning a blind eye/ participating in corruption in one way or another.

o       Loopholes and avenues for corruption continue to exist.

 

·        As a matter of urgency:

o       People involved in corrupt activities must be prosecuted and convicted with harshest penalties possible

o       Independent audits carried out of all allied institutions to establish a clean bill of health

o       Measures should be put in place to seal all loopholes to corruption

a.      Procurement and sourcing systems (fertilizer, machinery, single sourcing etc)

b.     Consultancy and contract management systems

c.     Systems that prevent conflict of interest (e.g. marketing agent and trader, policy makers and service provision etc)

d.     Management capacity of all allied institutions to be enhanced using open accounting systems.

 

 

 

 

 

 

6) SUGAR ACT, 2001

 

Implementation Status:

 

The sugar Act 2001 has faced resistance to implementation largely from the same quarters that have not wished to see significant change in from the status quo.  Lack of good will to operationalize the sugar Act and implement even the major positive aspects of the Act has marred any positive change in the industry.  Many stakeholders have used the minor loopholes in the act as a scapegoat to implementing stronger positive reforms.  It is important to note that Acts, like constitutions are not cast in stone and require refining and amendments to make them better.  This does not mean that Acts are not workable.  The sugar act will not work if people do not want it to work.   Many of the amendments proposed or raised by stakeholders are semantic as opposed to operational amendments.  Many of the proposed amendments are located in the second schedule of the Act, which can be reviewed by the Minister for Agriculture.

 

Operating Amendments

 

The only major operating amendment that some stakeholders have pushed for is a decrease in the farmer representation on the board or an increase in miller representation.  Others have argued that farmers should not be allowed to have directly elected representatives to the KSB and rather KSB directors should be appointed.

 

The composition of KSB has been the most contentious issue of debate.  Farmer representation should not be reduced especially during restructuring, as farmers need a strong voice in the apex body.   In fact it is this voice that has helped bring up many debates in the sugar industry to the forefront.  Farmer representation should continue to be based on direct elections to encourage greater accountability to farmers and the quality of representation will continue to increase as farmers become more informed.  It is true that elections for KSB were conducted with lack of political goodwill, and lack of clear election rules or farmer registers.  Representation of millers and government must be seen to in the context of the fact that currently most mills are government owned and as has been evident government and mill positions have often been similar—as a result it is possible to note that representation at KSB is largely balanced at this point in time. (This structure should change once government divests to play a more impartial role in the management of the sector.)

 

The sugar arbitration tribunal (SAT), as provided for by the Act has not been constituted. This again is a representation of lack of political goodwill to implement the Act.  The SAT must be impartial and have high technical input to provide equitable judgments during disputes. An independent arbitration tribunal is imperative for ruling on grievances that cannot be resolved by consensus.

 

Semantic Amendments  

 

·          Most amendments proposed are semantic. These include issues of radius, weighing on site etc.

·          Most amendments can be done without taking Act to parliament through ministerial gazettment

·          Other amendments such as the 51% farmer shareholding were placed due to lack of clear privatization framework. Divesture of Mumias Sugar and the manner in which farmers shares were issued and bought, and the planned divesture of Chemelil and the manner in which deductions were taking place from farmers require review.

·          KSB roles, functions and powers can be enhanced.

·          Pricing formula: the spirit of quality based testing is acknowledged.  Sucrose testing is the way to go but Act must facilitate for preconditions for an efficient farming and processing system to be put in place before sucrose testing is adopted.

 

There is no doubt that semantic amendments should not have stopped the KSB and stakeholders from striving towards efficiency.  What is clear is that people wishing to maintain the status quo have largely used the sugar Act as a scapegoat.

 

7) REGIONAL AND INTERNATIONAL TRADE – SUGAR IMPORTS

 

As stated earlier, Sugar needs to be recognized as especial commodity.  Our trade negotiations must encompass the special nature of the sugar commodity.  Beyond this however we have to recognize and admit that our costs of production are high and that we need to restructure the industry.  If we expect the premise that our costs of production are high largely due to political economy as opposed to natural constraints our challenge is to rectify the political economy to lower costs of production.  Restructuring the Industry requires regulating imports, particularly dumped products that can stifle local growth and change.  No sugar producing country in the world has opened up its sugar markets the way Kenya has.  This is largely due to our lack of understanding and total embracement of the liberalization concept without proper sequencing.  We should be asking for serious time to restructure the sugar industry – COMESA Rules and Safe Guard recognize and provide for long term safeguards against injury.  The problem with Kenya is that even with safeguards, due to poor controls and poor data excess sugar entered local markets.

 

Beyond safeguards however, as is the case with SADC countries, our approach towards Sugar should not be inter country competition, but should rather be a coordinated trading system that is externally focused.  (See DPRU Paper).  The challenge is for Kenya to strengthen its negotiating capacity and to use COMESA to coordinate sugar trade.

 

In the mean time, due to domestic sugar shortfall it is recommended that Kenya adopt a tariff quota auction system as is used in other sugar producing countries such as the United States, to effectively monitor and regulate imports and generate revenue through the auction system as opposed to imposing tariff barriers.

 

8.                 INSTITUTIONAL ANALYSIS AND REFORM

 

Outgrower Institutions (OGIS)

 

i.                    Overhauling and Capacity Building of several out grower institutions is required.  Most have become too politicized resulting in lack of trust and support from farmers.  As noted earlier, the trust relationship is critical if farming is to be efficient and innovative.  Apex institutions in the sugar industry – KSB must be given powers to coordinate restructuring of OGIs to become more representative of farmer interest and ensure de-politicization of institutions and greater professionalism particularly in front-desk services.  Many farmers, particularly in the western sugar belts are faced with OGI monopolies preventing choice or competition for services.  Several OGIs have been involved a political economy that endorsed corruption and in turn incurred debts or audit queries.  Independent audits and assessment of OGIS and capacity building needs are required. 

 

Questions need to be asked about OGIs – roles and responsibilities:

a)     What sort of services should OGIs carry out

b)    How do OGIs become more accountable to their farmers

c)     Should OGIs carry out services such as transportation

d)    What sort of capacity building (non-financial) is required for OGIs to become more sufficient?

e)     Due to weak OGIs, it has been possible to exploit farmers (weak information systems etc)

f)      What are optimal size of OGIs – that can maximize on marginal costs

 

Kenya Sugarcane Growers Association (KESGA)

 

§          Farmer representation at national level has been weak.  KESGA continues to lack grassroots support and recognition, and top management has been largely politicized by a few individuals at expense of grassroots democracy.  KESGA elections are supposed to be carried out this week, yet most farmers are unaware of process of elections.  If KESGA is to have any meaningful representation for farmer, it must have truly democratic grassroots elections with all farmers involved.  KESGA Should not be a representative if OGIs, but should provide checks and balances to the performance of OGIs on behalf of farmers.  The Kenya Sugar Board (KSB) was supposed to coordinate impartial elections of KESGA but has failed in its duty.  There needs to be amore representative of farmers with strong forward and backward linkages.  KESGA should not receive any monetary support until grassroots elections are facilitated with majority farmers participating in direct elections to constitute a strong collegiate.

 

Technological institutions:

 

-                     KESREF

 

o       The potential of KESREF to drive the industry a head is immense, particularly over low cost technologies.  This research function must be given much greater priority, as is the case in other major producing countries.

 

-                     KSSCT

-                     The technologists in the region also have huge potential of driving industry policy direction and development.  It is advisable to recognize KSSCT in the Sugar Act and provide support for technologists to guide industry development.

 

Either of the technological institutions should be mandated to ensure impartial data collection for effective policy making.

 

 

 

 

 

-                     Sugar Mills

 

i.                    Management systems and board structures need to be reviewed.

ii.                  Mills need to coordinate trade and industry development more as opposed to undercutting each other and creating price instability.

 

-                     Kenya Sugar Board

 

i.                    KSB need to exert itself more and de-politicize itself.  There has been too much infighting in KSB due to many factors, which include the fact that lack of political goodwill to implement the Sugar Act resulted in partisan and camped sugar Board.  All KSB directors need to work together in building on consensus and drop the negative attitudes and perceptions each have created of each other.

ii.                  The role of government in the Kenya Sugar Board has been unclear, largely due to negative attitudes and perceptions towards the sugar industry and lack of goodwill to implement the Sugar Act or reform the industry.  Government positions needs to come out clearly and positively.

iii.                Authority and Management systems need to be redefined with clear demarcation and distinction between executive management and its accountability to the Board directors.  Management capacity of Kenya Sugar Board needs to be reviewed, strengthened and made more professional.

iv.               KSB by now should have prepared a blue print for reform.  Unfortunately in the 12 months of its constitution there is very little to show in terms of a solid reform agenda. We need to ask ourselves what impeded KSB to perform- many of the answers lie in our own attitudes and perceptions.  All stakeholders should be striving towards one goal: making this industry work – we have more in common than differences.

v.                 KSB must adopt open accounting systems and open information systems to create greater transparency and accountability in the industry.  All loopholes for corruption and financial wastage must be sealed.

vi.               KSB directors must be accountable to an AGM. This is to provide checks and balances and ensure that all stakeholders understand problems and challenges faced by AGM and the support or changes by all stakeholders.

vii.             The potential for KSB to drive reforms in the industry is immense but this requires goodwill from all sides and constant accountability and information feedback.  There is no doubt that KSB far out marks the former Kenya Sugar Authority. KSB however should not be compared to its predecessor but instead to apex institutions in other sugar producing countries.

 

 

-                     Sugar Parliamentary Committee (SUPAC)

 

                                                                   I.      SUPAC needs to be strengthened and provided with continuous information to enable lawmakers to effectively lobby for the interest of the sugar industry and adopt reform agenda.

 

9.                 FUNDING AND INFRASTRUCTURAL DEVELOPMENT

 

-                     The deterioration in sugar industry is immense.  Reforming the industry to become efficient will require capital investment for road rehabilitation and development of cost reducing infrastructure.  Reforming the industry will also require expenditure in clearing debts.

-                     SDF should continue to be used as a funding source for new development (not operational expenditure), however SDF management must change to concentrate more on agricultural development and efficiency as opposed to factory maintenance.  (Factory maintenance should be planned for and be part of normal factory operational costs).

-                     More funding will be available through the single channel marketing system – even beyond the annual SDF collection.  This trade money should be used for capital expenditures and supporting diversification in the industry.

-                     All funding must be strictly monitored to prevent abuse of funds as previously experienced.

 

10.            INTERMINISTERIAL COORDINATION

 

-                     The Ministry of Agriculture alone cannot do the restructuring of the sugar industry.  There needs to be string inter-ministerial coordination and commitment to reforms in the sector.  The following ministries are key to the success of reforms in the sugar industry:

                                            i.       Ministry of Agriculture (Overall coordination)

                                          ii.       Ministry of Finance (debt Restructuring and Industry Development Fund Management)

                                        iii.       Ministry of Trade and Industry (Trade negotiations and regional trade coordination)

                                       iv.       Ministry of Energy (Diversification – Cogeneration)

                                         v.       Ministry of Water (Irrigation and water control)

                                       vi.       Ministry of Public Works and Roads (Ground Infrastructure)

                                     vii.       Ministry of Transport and Communication (Transport reforms – Kenya Railways)

                                   viii.       Ministry of Environment (Sustainable Agriculture and Development)

                                       ix.       Ministry of Local Government (Local Authorities and Cess Utilization)

 

-                     The commitment of all key ministries mentioned is necessary for the achievements of a coherent and comprehensive strategic policy in the sugar sub-sector.  An inter-ministerial task force must be formed to effectively implement the reform agenda.

 

11.            DEVELOPING A CONSENSUS AND BLUEPRINT FOR REFORM

 

-                     This Task Force will not come up with answers.  The Task Force must guide the way for all stakeholders to develop through participation and consultation a common consensus and blue print for reforming the sugar-sub-sector.  That way, all parties will trust each other and commit themselves to the reform agenda.  We currently have no coherent policy of framework for reform.  Ad-hoc reforms need to stop.  Long Term reform programs need to be instituted.  In the short term the task force must recommend measures to correct past wrongs, the most important of which being clearing delayed payments owed to farmers and embarking on restructuring institutional structures to be more professional and efficient and secondly put in place structures to increase development funding through SDF and single Channel Marketing.

 

CONCLUSION

 

The Sugar Industry is viable and can be made to work in Kenya.  The first change must be with ourselves as individuals in the industry to begin believing in the industry and becoming more bold in demanding for reform and facilitating reform.  Self-interest must be put aside.  If we fail to reform the sugar industry we will fail in reforming the agricultural sector as a whole.

 

This document has been released by the

 

Sugar Campaign for Change (SUCAM)

 

A full detailed copy of the taskforce report and other documents related to the sugar industry are available for viewing to the public at the SUCAM library in Kisumu.  Additional documents may also be available online.

 

For more information:

 

Visit:

 

The Sugar Campaign for Change

6th Floor, KNA Building, Kisumu

Wing B

 

Call:

 

057 40003 / 40665

 

Write:

 

P.O.Box 4572

Kisumu,

Kenya

 

Email:

sucam@kenyalink.org

 

Website:

http://www.kenyalink.org/sucam

 

 

 

DOCUMENT REFERENCE

5461-18-422101-1023

 

The Sugar Campaign for Change is an independent lobby and advocacy committed to positive change in the sugar industry in Kenya.  Our Mission is to ensure that sugarcane farmers in Kenya enjoy a life that is just, fair and free of poverty.

 

 



[1] Quoted from Key Issues Facing Sugar Industries In SADC, Michael Matsebula, May 2001, Development Policy Research Unit, University of Capetown.