Introduction
On
The
Terms of Reference of the Task Force were:
-
Review the role and
functions of stakeholders in the industry and make appropriate recommendations;
-
Review the policies on
Sugar Industry development and make recommendations;
-
Review the pricing and
funding mechanisms and suggest how they can be improved;
-
Address the production
of sugarcane, marketing of sugar and importation of sugar aspects and prepare
better modalities to achieving economic growth and development in the industry.
-
Review the Sugar Act,
2001 and prepare proposals for amendment of the same
-
Address any other
issue(s) that may revitalize the Sugar Industry.
The Task
Force handed over its report to the Ministry of Agriculture on
This
booklet highlights some of the key recommendations made by the task force on
the revival and restructuring of the sugar industry and provides readers with
an opportunity to assess the performance of the Government of Kenya and
relevant ministries and institutions in implementing the recommendations
prescribed by the task force. Whilst the
Kenya Sugar Board (KSB) is yet to develop a strategic, detailed and specific
blueprint to facilitate the implementation of the recommendations, it is vital
that all stakeholders assess the implementation status of these recommendations
as often as possible and question the government and the Kenya Sugar Board on
the status and challenges of implementing the recommendations.
The
first part of this booklet provides a summary of recommendations and rational
behind these recommendations, whilst the second part of this booklet provides selected
assessment criteria from which the performance of this Government and relevant
stakeholders can be judged with regards to restructuring and improving the
sugar sub-sector in Kenya.
This
summary is based on verbatim transcripts from the task force report. Readers are advised to refer to the full
report for more detailed analysis[1].
This
document is published in the interests of public disclosure and information
sharing.
Part One
The Potential and
Viability of the Sugar Industry
The
importance of the sugar industry in
“The sugar
industry has played a vital role in providing livelihoods and national
revenues, incomes, employment and foreign exchange savings to the country. It is an industry of approximately KShs 12
billion annually, providing over 500,000 direct and indirect jobs, and
supporting the livelihoods of over 6 million people.”
“The
Sugar sub-sector has been a major enterprise in the Western and Nyanza areas
and potential exists in the Eastern and Coastal belts. Further improvement of this vital industry
will help alleviate unemployment through backward and forward linkages with
inputs from suppliers, support services, marketing and distribution of sugar
and by-products.”
“This
committee (task force) is convinced that the Kenyan sugar industry is
viable. The Government needs to
de-politicize the sub-sector and intervene decisively in its endeavor to
revitalize this industry”
Summary of Key
Recommendations from the Sugar Industry Task Force
è Delayed
Payments owed to farmers:
Problem:
Delayed payments have led to lack of
incentives amongst farmers and increased disillusionment in the industry. Current delayed payments amount to KShs 1.7
billion.
Recommendation:
Delayed payments for farmers must be cleared immediately.
è Cane
Pricing:
Problem:
Cane pricing issues have taken center stage
and overshadowed sugar industry reforms required before embarking on pricing
for an optimum benefit to the industry.
There are several problems at farm level which need to be addressed
before pricing is debated. These include
delayed and unplanned harvesting, poor seedcane supply and lack of varieties
and choices, inadequate farmer representation, poor yields, lack of well
defined contractual obligations, high interest charges, poor procurement and
service delivery systems.. Several
pre-condition are required before an appropriate pricing system is put in place.
Recommendation:
The following preconditions must be put in
place before any discussion on cane pricing take place:
Ø
Timely payment for cane deliveries;
Ø
Sugar Industry Agreements between growers, millers and
service providers;
Ø
Systems for payment based on sucrose;
Ø
A viable sugar production and marketing strategy;
Ø
Repairs and maintenance of sugar roads and other
infrastructure;
Ø
Improving factory, farmer and outgrower institution
management;
Ø
Provision of tax relief on inputs, machinery, equipment,
sugar and sugar by products;
Ø
Diversification of product lines from sugarcane and its
residues;
è Trade, Import and Export of Sugar
Problem - Sugar Imports
In the Mid 1990s, the government started
liberalizing trade thus exposing the local producers to competition from
external more competitively produced imports.
The problem was not the liberalization and price decontrols but the
opening up of the market before sufficient development had been carried out to
make our local sugar competitive.
Over the last decade, the sugar industry has
faced a major crisis as a result of the poorly managed liberalization process,
which exposed the local industry to unexpected competition when ill
prepared. At the same time, the industry
suffered greatly due to the effects of large-scale poor management, poor factory
maintenance, delayed upgrading of production technologies and bad
governance. This resulted in
accumulation of arrears for cane deliveries to farmers, loan defaults and
arrears to suppliers by factories. In
the end all factories ran huge debts and are presently insolvent. Only one small but privately owned sugar
factory is turning profit. Even the
recently privatized Mumias Sugar Company is experiencing cash flow problems. As they stand the factories cannot be
privatized or commercialized until the debt situation is resolved. In the meantime more pressure is exerted by
the importation of sugar.
Recommendation
- Imports
Ø
Ø
Ø
Instead of applying one year safeguards which are
insufficient to restructure the sugar industry to competitiveness,
Ø
The
Ø
Sugar must be treated as a strategic agricultural commodity
as is the case in most other sugar producing countries.
Problem - Sugar Exports
Recommendation
–Sugar Exports
Ø
Efforts should be made to re-access EU Protocol Sugar Quota
with long term arrangements.
è The National Sugar Policy
Problem
The Sugar Policy was established in line with
the national objectives of national food policy which are self–sufficiency,
food security, employment creation, income generation, foreign exchange
earnings, rural-urban balance, poverty alleviation and overall economic growth.
Unfortunately the National Sugar Policy has
not been implemented
Recommendations
The task force recommended that the National
Sugar Policy is still relevant with a few amendments required to make it more
relevant to future needs.
è Sugar Act - 2001
The
task force received presentations from the primary stakeholders who agreed that
there is a need for legislation in the sub-sector. However, there was a general agreement that
the Act has some limitations in its present form which need to be
harmonized. There were aspects of the
Act that had not been implemented. Some
of the areas identified by the Task Force that need attention included:
Composition of the Board - Problem
The government was over represented on the
Board given the fact that government own most of the sugar mills.
Composition
of the Board - Recommendation
It was suggested that the Ministry of
Agriculture be represented by one member and not both the Permanent Secretary
and Director of Agriculture. It was
therefore found necessary to do away with one government seat resulting in a
reduction of the total number on the Board to 12 seats or giving the extra seat
to millers.
Sugar Arbitration Tribunal – Problem
It was evident that much of the unrest and
disputes among the stakeholders could have been speedily resolved by the
Tribunal. Unfortunately to date, the
Sugar Arbitration Tribunal had not been constituted.
Sugar
Arbitration Tribunal - Recommendation
The Sugar Arbitration Tribunal as stipulated
in the Sugar Act, 2001 must be constituted immediately
Ø
There was very little evidence on the ground that this
organization has much impact at all on the farmers’ activities.
Ø
Its role is also not spelt out in the various roles of the
stakeholders as provided for in the schedule to the Act or in the primary
legislation.
Ø
It is not defined amongst the interested parties or among
the outgrower institutions
Ø
It has a legal function in the most crucial committee
established under the Act in the Cane Pricing Committee. Despite this important role, the organization
has suffered from numerous court battles amongst the officials, political
wrangles and confusion.
The Task Force has recommended elsewhere the
deletion of the
è Institutions
Outgrower Institutions - Problem
Ø
The Outgrower Institutions (OGIS) include Outgrower
Companies, Societies, Unions and SACCOS.
The Institutions are supposed to draw their membership from sugarcane
farmers who grow and supply cane to the affiliated or particular sugar
factories in their zones. They were
created by the Government as channels for mobilization of farmers and for the
supply of credit from SDF. They have
unfortunately not performed well the tasks for which they were created. Millers have, consequently, taken over some
of their roles such as cane development, harvesting and cane transport.
Ø
OGIS received very large amounts of SDF loans since the
fund was set up in 1995. However the disbursements
of many of those loans seem not to have been used for intended purposes. Loans for purchase of tractors and trailers,
fertilizer and chemicals were not transparently tendered for. Orders and payments on behalf of the
outgrower companies were made direct to favored suppliers. For example, some tractors destined for Sony
Outgrowers Company have not been delivered to date. The Outgrower Companies still have those
loans plus penalties outstanding as loan arrears to the SDF of Kshs 1.7
billion.
Ø
All but one of the outgrower firms is technically
insolvent. They have low net revenue
bases as most activities are undertaken on their behalf leaving them with only
a small margin. Management is weak,
audited accounts for several years are in arrears, the companies are in need of
financial restructuring, but are unable to attract financial resources from any
quarter, even the SDF.
Ø
Farmers in some areas indicated a need to opt out of the
outgrower companies. Since outgrower
companies are middlemen making a markup on every activity, services through
them, from land preparation, credit and fertilizer, and due to poor management,
outgrower companies have not managed to utilize the economies of scale from
collective bargaining to bring down costs.
Outgrower
Institutions – Recommendation
Ø
Investigative audits must be carried out of all outgrower
companies with a view of litigating and prosecuting those who have plundered
these institutions.
Ø
Viability and Capacity needs of outgrower institutions to
be determined.
Ø
Process of restructuring Outgrower Institutions to be
instituted.
Ø
KESGA is recognized in the Sugar Act, the Second Schedule,
Part 2, 5 (g) and (h). It is mentioned
under the functions and roles of outgrower
institutions as the body through which they negotiate prices with millers and
lobby for favorable policies.
Ø
KESGA is also supposed to be an organization made up of
individual grower members organized through branches with a National apex that
would be the primary spokesperson and advocate of the sugarcane growers. This has not happened.
Ø
The battles over leadership of KESGA are tearing the
organization apart and rendering it irrelevant to the needs of its supposed
members. Outgrower companies attempted
to change the KESGA articles of Association to ensure that it represents them,
rather than individual members. As a
result of having indirect membership through Outgrower Companies, KESGA lacks
grassroots support, members, or recognition among growers. Top officials revolve around small competing
cliques that have not been subjected, or endorsed by democratic grassroots
elections involving all farmers. In fact
leadership of KESGA is contested through competing delegate’s lists in courts
of law. The roles of KESGA are clear,
but its functions and operations, staffing and funding are not. The political wrangling of KESGA has harmed
effective representation of farmer interests in the sugar industry.
Ø
Removal of KESGA from Sugar Act and creation of a new
farmers apex body with direct grassroots farmer representation
KNSGEA is registered as a Trade Union. Set up in 1999 after a falling out over the
selection of KESGA directors, it has grown to a reported 16,000 to 18,000 paid
up members. KNSGEA is strongest in SONY
zone where it is reported to have 7,000 members. Members agree to have the association receive
1 percent of their proceeds in return for it being a farmers advocate in
disagreements between the farmer and either the factory or the outgrower
institution KNSGEA feels farmers interests can best be served in such disputes
where a non-trading body represents the farmer as the dispute may involve the
farmers representative in a case where an outgrower company, for example, is
party to the dispute. The Association
wishes to be recognized in the Act so they can have an official and permanent
place at the Tribunal. However, this is
a splinter group from KESGA and should be disregarded likewise.
KSSCT is an affiliate of both the International,
and East African Societies of Sugarcane Technologists. It is a non-partisan technical organization
for those involved in sugar production, manufacture, direct consumption,
transportation and handling of sugar and its by-products. Unfortunately KSSCT has not received adequate
support or recognition to provide sound technical guidance and direction to the
sugar industry
KSSCTs technically based input should be used
more to diffuse crises in the sugar industry.
The
Kenya Sugar Board was established under the Sugar Act, 2001. It was established to regulate, develop and
promote the sugar industry co-ordinate the activities of individuals and
organizations within the industry to facilitate equitable access to the
benefits and resources of the industry by all interested parties.
The
Board should be industry driven and should constitute the grower and miller
representation at the Apex with Governments role being facilitation and policy
creation.
Ø
Staffing and management systems in KSB to be rationalized
to ensure clear distinction between management and their accountability and
relationship with directors
Ø
The current state of representation in the board should be
retained with grower directors being elected directly by farmers.
Ø
KESREF was incorporated under the Companies Act with the
principle objective of promoting research and investigating all problems
relating to sugar in
Ø
The problem is that KESREF’S menu is large, but its
financial base is small. Delayed
remittances by sugar millers combined with closed factories and low prices have
had a negative effect on KESREF cash flows.
Ø
KESREF should require greater and consistent funding and
support
Ø
KESREF should be adequately financed to enable it intensify
research and develop appropriate cane varieties for each region. It is imperative that farmers are prepared in
this way to engage them in quality crop husbandry as the payment by sucrose
content is actualized.
Ø
The Extension Officers from the Ministry of Agriculture
should liaise with KESREF in this cane development
Millers - Problem
Mismanagement, debt burdens, uneconomical
factory capacities and acute cane shortages (in certain instances) have
adversely affected the productivity in the industry. This has been made worse by old dilapidated
machinery which has rendered the extraction process uneconomical and
unprofitable. The companies have a
history of mismanagement both under local and expatriate management.
Millers
- Recommendation
Ø
Government should write off past debts owed to it by Sugar
Mills and defer interest on arrears to reconstruct balance sheets. This will place the factories on a positive
footing for ultimate privatization.
Debts owed by sugar companies be converted to equity as a precursor to
clearing of Balance Sheets.
Ø
Internal management mechanisms in factories should be streamlined. The procurement of goods and services by
management must be geared towards reducing overall costs of production. The
management and Human Resources of Sugar Companies must undergo a restructuring
programme and be competitively sourced from the market.
Ø
Factory Board appointees must establish early warning
systems to monitor performance and efficiency. Timely internal and external
audits must be conducted. Mills should
maintain leaner top management in cost reduction. Future engagement contracts must clearly
spell out contractual obligations to performance.
Ø
Investigative Audit of all the books of accounts of sugar
companies should be carried out immediately.
è Taxation
Problem:
Sugar sector is currently subjective to a
punitive tax regime that stifles growth.
Recommendation:
Sugar should be reclassified as a basic food
for the purposes of taxation. Taxes and
tariffs relating to production should be zero rated.
The management of the Sugar Development Fund
to be managed by a technical Board of Trustees and the lending function
relegated to a financial institution.
è Corruption and Mismanagement
Problem:
Corruption and Mismanagement has been responsible
for negative growth in the sector. As
the task force noted: “The industry is suffering the effects of many years of
neglect and lack of goodwill and forward planning. The sector has been plagued by mismanagement
and corruption. Many financial scandals
and wastage occasioned by non adherence to procurement procedures has brought
the industry to its knees”
Recommendation:
Ø
Investigative audits be carried out on all sugar companies
and outgrower institutions with a view of litigating those who have plundered
these institutions.
Ø
Similar action to be taken with the
Ø
All those involved in the past in tax evasion on sugar
imports to be apprehended.
Ø
Public Investment Committee (PIC), Public Accounts
Committee (PAC), Audit Reports such as EMU to be released and implemented
fully.
Ø
All those involved in corruption to be prosecuted
Ø
All future appointments in the sugar industry should be
competitively sourced.
è Marketing of Sugar
Problem:
The sugar marketing system in
Due to lack of coordination, there are
disputes about figures on domestic consumption and demand resulting in
instability in supply and demand trends and subsequent flooding of imports.
At least 5 billion shillings is lost annually
to a few traders through the current uncoordinated marketing system.
Recommendation:
This will ensure adequate demand and
consumption data and allow for effective regulations on sugar imports and
exports. Single desk marketing system
will also retain much needed industry wealth for capital investments in the
industry.
The key aim for single desk marketing systems
is not to stifle competitiveness amongst millers, but rather to coordinate marketing
more efficiently and minimize non-essential costs. The efficacy of the single desk system will
depend largely on management and subsequent institutional structures that are
put in place to ensure transparency at all levels.
è Product Diversification
Problem:
The Sugar Industry has not diversified beyond
sugar production. There is significant
opportunity to diversify and make use of the two core by-products of sugarcane
– Bagasse and Molasses.
Bagasse can be used for co-generation to
generate electricity. In
Molasses has a significant number of
by-products. At present the industry
disposes of the final molasses at a nominal value for the onward
utilization. There is potential to
utilize by-products more effectively including use of fuel ethanol for blending
with petrol or diesel.
Recommendation:
The advantages of the diversification and or
commercial utilization of the by-products are as follows:
Ø
Reduced oil imports and their reliance
Ø
Improved trade balances
Ø
Reduced air pollution and better environmental conservation
Ø
Better can prices for farmers
Ø
Direct and Indirect job opportunities
Ø
Savings in fossil fuel.
The Government should formulate the necessary
policy to facilitate supply of Co generated electricity to the National Grid
and provide investor friendly incentives geared towards the investment in
Co-generation.
Government to formulate the necessary policy
to allow for the blending of fuel ethanol to gasoline and to provide incentives
for the use of blending gasoline against non-blended gasoline.
è Irrigation
Problem:
Cane production under irrigation has not been
fully developed. Cane production under
irrigation can increase production and reduce the fluctuations in cane supply
as production can be scheduled for processing.
Recommendation:
Development of irrigation in Nzoia, Nyando
and
Part Two
The
recommendations of the Sugar Industry Task Force need to be implemented immediately if restructuring of the
sugar industry is to be successful.
Effective implementation will lead to a more competitive, efficient and
productive sugar sub-sector that promotes employment creation and economic
growth. The recommendations must not be
shelved like previous reports or recommendations.
All
Kenyans must assess the performance of this government by examining whether the
government has addressed and implemented the recommendations prescribed by the
task force. The following pages provide
a short performance assessment sheet which the reader can mark whenever the
government has implemented a recommendation.
The more ticks you have the better the performance of this government
and relevant institutions. Each
recommendation is listed with key ministries and institutions that will have to
be involved to ensure effective implementation.
Keep questioning your Member of Parliament and relevant government
ministries and industry institutions on the status of implementation. As is evident the key to implementing these
recommendations is political good will.
Please
tick (ü) or make a mark each time
you feel a recommendation is being implemented and the time period within which
the recommendation has been implemented.
NB: This check list is a
preliminary checklist based on the recommendations of the Sugar Industry Task
Force.
|
Recommendation: |
2003 |
2004 |
2005 |
2006 |
2007 |
|
Example: Has
the task force presented its findings and recommendations to the Ministry of
Agriculture and industry institutions Ministry of Agriculture | |
ü |
|
|
|
|
|
Has
the Kenya Sugar Board developed a strategic and feasible industry reform blueprint
based on task force recommendations? KSB |
|
|
|
|
|
|
Have
farmers delayed payments amounting to Kshs 1.7 billion been cleared? Ministry of Agriculture |
Ministry of Finance | KSB |
|
|
|
|
|
|
Have
sugar industry agreements between farmers, millers and outgrower institutions
been put in place? Ministry of Agriculture |
Ministry of Cooperative Development | KSB |
|
|
|
|
|
|
Have
there been attempts to restructure and improve the management of outgrower
institutions? Ministry of Agriculture |
Ministry of Cooperative Development | KSB |
|
|
|
|
|
|
Have
investigative audits been carried out for all outgrower institutions? |
|
|
|
|
|
|
Has a
new farmer’s apex body been put in place with democratic grassroots
representation? Ministry of Agriculture |
Ministry of Cooperative Development | Registrar of Societies | KSB |
|
|
|
|
|
|
Have
all necessary preconditions been put in place before cane pricing matters are
discussed? Ministry of Agriculture |
KSB |
|
|
|
|
|
|
Recommendation: |
2003 |
2004 |
2005 |
2006 |
2007 |
|
Has
the government ensured that imported sugar does not flood the local market
during the restructuring period? Ministry of Trade and Development |
Ministry of Finance | Ministry of Agriculture | KSB |
|
|
|
|
|
|
Have
attempts been made to renegotiate sugar as a sensitive product in regional
and international trading arrangements? Ministry of Agriculture |
Ministry for Trade and Development | KSB |
|
|
|
|
|
|
Have
long-term COMESA safeguards on sugar been put in place? Ministry of Agriculture |
Ministry for Trade and Development | KSB |
|
|
|
|
|
|
Has a
single desk marketing system been put in place? Ministry of Agriculture | Ministry for
Trade and Development | Ministry of Finance | KSB |
|
|
|
|
|
|
Have
Kenya Revenue Authority and the Kenya Police put in place strong border
controls of illegal sugar imports? Ministry of Finance | |
|
|
|
|
|
|
Have
long term arrangements been put in place to access EU Sugar Protocols export
quotas? Ministry of Trade and
Development | Ministry of Agriculture
| KSB |
|
|
|
|
|
|
Has
the amount of government representation in the Kenya Sugar Board been
reduced? Ministry of Agriculture |
Members of Parliament |
|
|
|
|
|
|
Has
the Sugar Arbitration Tribunal been put in place? Ministry of Agriculture |
Ministry of Justice and Constitutional Affairs |
|
|
|
|
|
|
Has
the Kenya Sugar Board rationalized management structures? Ministry of Agriculture |
KSB |
|
|
|
|
|
|
Has
the Kenya Sugar Research Foundation (KESREF) been given more funding and
support? Ministry of Agriculture |
Ministry of Finance | KSB |
|
|
|
|
|
|
Are
Ministry of Agriculture Extension officers working closely with KESREF
officers? Ministry of Agriculture |
KESREF | KSB |
|
|
|
|
|
|
Have
debts accrued by mills been restructured so as to clear the balance sheets of
these mills? Ministry of Agriculture |
Ministry of Finance | KSB |
|
|
|
|
|
|
Has
the Ministry of Agriculture waived arrears to the Sugar Development Levy in
order to improve the balance sheets of sugar companies? Ministry of Finance |
Ministry of Agriculture | KSB |
|
|
|
|
|
|
Have
internal management mechanisms in factories been streamlined and competitive
sourcing introduced? Ministry of Agriculture |
KSB | Auditor General (Corporations) |
|
|
|
|
|
|
Have
factory boards established early warning systems to monitor technical
performance and efficiency of mills? Ministry of Agriculture |
KSB | Auditor General (Corporations) |
|
|
|
|
|
|
Have
factory operations improved efficiency? KSB |
|
|
|
|
|
|
Have
jaggeries been registered with cane contracts with farmers? Ministry of Agriculture |
KSB |
|
|
|
|
|
|
Recommendation: |
2003 |
2004 |
2005 |
2006 |
2007 |
|
Have
timely internal and external audits of mills been conducted? Ministry of Agriculture |
KSB | Factory Boards | Auditor General (Corporations) |
|
|
|
|
|
|
Have
investigative audits of all the books of accounts of sugar companies been
carried out? |
|
|
|
|
|
|
Have
all those involved in corruption and mismanagement in the sugar industry been
prosecuted? Ministry of Justice and
Constitutional Affairs | Attorney General | Ministry
of Agriculture | KSB |
|
|
|
|
|
|
Has
the Efficiency Monitoring Unit Report been released to the public? Ministry of Agriculture |
Office of President | |
|
|
|
|
|
|
Have
the recommendations of the Parliamentary Investments and Accounts Committees,
and other audits been implemented? Ministry of Agriculture |
Parliament | |
|
|
|
|
|
|
Has
sugar been reclassified as a basic food for purposes of taxation? Ministry of Agriculture | Ministry of
Finance | Ministry of Trade and Development | KSB |
|
|
|
|
|
|
Has
the government facilitated and promoted diversification into cogeneration and
electricity supply? Ministry of Energy |
Ministry of Finance | Ministry of
Agriculture | KENGEN | KPLC | KSB |
|
|
|
|
|
|
Has
the government facilitated and promoted diversification into bio-fuels and
effective molasses use? Ministry of Energy | Ministry of Environment | Ministry of
Agriculture | KSB |
|
|
|
|
|
|
Have
measures been put in place to irrigate existing and potential sugar growing
areas? Ministry of Water | Ministry of
Agriculture | Ministry of Finance | KSB |
|
|
|
|
|
|
Have
sugar access roads been improved through budgetary allocations from the
infrastructure budget? Ministry of Roads and
Public Works | Ministry of Finance | Ministry of Agriculture | KSB |
|
|
|
|
|
|
Has the
National Sugar Policy been discussed and relevant amendments made by
stakeholders? Ministry of Agriculture |
Parliament | KSB |
|
|
|
|
|
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,
Wing B
Call:
057 40003 / 40665
Write:
Kisumu,
Email:
Website:
http://www.kenyalink.org/sucam
DOCUMENT REFERENCE
‘ŽŸŒŽŸŽ”‹ŸŒ‹Ž
The Sugar Campaign for Change is an
independent lobby and advocacy committed to positive change in the sugar
industry in