Professional Documents
Culture Documents
Resource
Mobilisation & Monitoring
Utilisation
Implementation
Strategy Evaluation
Reporting
Annexes....................................................................................................................... 48
T
he sugar industry is a major contributor to the agricultural sector which is the mainstay of the
economy and supports livelihoods of at least 25% of the Kenyan population. The subsector
accounts for about 15% of the agricultural GDP, is the dominant employer and source of
livelihoods for most households in Western Kenya comprising Nyanza, Rift Valley and Western
Provinces.
In 2008/2009, the industry produced close to 520,000 tonnes of sugar operating at 56 percent of the
installed capacity. The industry has the potential of producing over 1 million tonnes of sugar if operated
at 89 percent of the installed capacity. This would meet the domestic needs, currently standing at about
700,000 tonnes, and provide a sustained surplus for export.
By February 2012, the industry will begin operating under a liberalized trade regime after the COMESA
safeguard measures lapse. In such environment, the industry will have to enhance its competitiveness
along the entire value chain and reduce production costs by at least 39% to be in line with EAC partner
states and COMESA sugar producing countries.
At the moment, the industry is facing several challenges including capacity underutilization, lack of
regular factory maintenance, poor transport infrastructure and weak corporate governance. Consequently,
most factories have accumulated large debts amounting KSh. 58 billion. In the new Plan, the industry
will require KSh 51.1 billion. KSh. 15.3 billion will be used to initiate power co-generation projects in
various factories. KSh. 12.8 billion will be used to initiate ethanol production projects. The remaining
KSh. 23 billion will be used to carry out other activities outlined in this Plan.
As a matter of urgency, the Government through the Privatization Commission has appointed Transaction
Advisors to work out the final details for the privatization of all publicly owned factories. Alongside the
privatization, the Government will initiate a programme for financial restructuring of indebted public
factories. This will be in addition to the continued Government support in the development of essential
infrastructure such as roads, irrigation as well as basic research and extension.
The 2010-2014 Kenya Sugar Industry Strategic Plan is intended to be the basis of facilitating the
transformation required in the sugar subsector. It sets out the framework that will enable the industry
achieve its vision of being a world class multi-product sugarcane industry in the next five years. Despite
the challenges the industry faces, this Plan underlines the industrys commitment of being efficient,
diversified and globally competitive.
It is my hope that the objectives, strategies and activities recommended in this Plan will be implemented
fully to revamp and resuscitate the sugar industry. I am therefore pleased to launch the Kenya Sugar
Industry Strategic Plan 2010-2014.
T
he formulation of the Kenya Sugar Industry Strategic Plan 2010-2014 comes at a time when
the industry needs to rethink its direction as it approaches the liberalization of the sugar trade
regime in 2012. The industry needs to find ways of repositioning itself competitively. This
would require that the industry goes beyond sugar, think more about sugarcane as a whole and exploit
market opportunities that the broader sugarcane industry provides.
The sugar industry stakeholders have been at the forefront in championing for a better, efficient and
diversified sugarcane industry. It was through their efforts that considerable achievements were realised
in the outgoing plan. It was also due to their participation and concurrence that the formulation and
preparation of the incoming Plan became possible.
First, I wish to thank His Excellency the President of the Republic of Kenya, Hon. Mwai Kibaki,
EGH, MP and the Right Honourable Prime Minister of the Republic of Kenya, Hon. Raila Amollo
Odinga, MP for their unwavering support for the sugar sub-sector. I am also grateful for the Minister for
Agriculture, Hon. William S. Ruto for his robust support and vision for the development of the sugar
industry.
Secondly, I would like to thank the Board members and management team of Kenya Sugar Board for
their invaluable contributions in setting the agenda for the new Plan. Special thanks to Ms. Rosemary
Mkok, Chief Executive Officer, Kenya Sugar Board and her management team for the leadership they
provided in the preparation of this Strategic Plan.
Thirdly, I wish to express my deepest gratitude and appreciation to all industry stakeholders for their
active participation in the preparation of this Strategic Plan.
Lastly, I thank Log Associates consultants for facilitating the review and preparation of this Plan. I am
confident that this Strategic Plan will serve as the industrys framework for decision making, planning,
resource mobilisation and performance monitoring in the next five years.
Thank you.
Z. Okoth Obado
Board Chairman, Kenya Sugar Board
Besides the socio-economic contributions, the industry also provides raw materials for other industries
such as bagasse for power co-generation and molasses for a wide range of industrial products including
ethanol. Molasses is also a key ingredient in the manufacturing of various industrial products such as
beverages, confectionery and pharmaceuticals.
II. Methodology
In preparing this Strategic Plan, the consultant adopted a participatory and collaborative approach and
methodology comprising Literature Review, Key Informants Interviews (KII), Focused Group Discussions
(FDGs) and Stakeholder Consultative Workshops. Consultations were held with industry stakeholders in
structured discussions as well as personal interviews with key informants. The consultant also held a validation
workshop and discussed the recommendations of the Draft Strategic Plan 2010-2014. The validation workshop
was attended by board members and management team of the Kenya Sugar Board.
1. The Plan goals of creating a world class sugar industry were ambitious and had not been
realized, having been set at a time when the industry was still a high cost producer
2. The consumption-production gap still persists and growing, delaying the industrys goal of
being a net exporter
3. Yield levels declined from a modest yield level of 73 tonnes per hectare to about 70 tonnes
per hectare over the last five years.
4. Farmer support services provided by outgrower institutions and contractors were inadequate
in quality and timeliness including seed cane, fertilizer supplies, and cane harvesting and
transportation.
Overall, even though the goals of the 2004-2009 Strategic Plan were ambitious, the Plan instrument
assisted in getting the industry stakeholders to seek a common ground for the good of the industry.
The Plan provides a framework for setting goals, defining key actions, and mobilizing resources for
funding programmes in the industry. It is a unifying instrument at the strategic level for industry
stakeholders, who otherwise are autonomous operators. It lays the ground for enhanced performance of
the sugar industry premised on a rational utilization of all resources in the sector.
Vision
The new vision for the industry is to be a world-class multi-product sugarcane industry.
Mission
The new mission of the industry is to facilitate a multi-product sugarcane industry that is efficient,
diversified and globally competitive through: enhanced industrys competitiveness through cost reduction
strategies and efficiency improvements, expanded product base, improved infrastructure and strengthened
regulatory framework.
Strategic Goals
The formulation of this Plan came at a time when the industry needs to rethink its direction as it
approaches the liberalization of the sugar trade regime in 2012. The industry needs to find ways of
repositioning itself competitively. This would require that the industry goes beyond sugar, think more
about sugarcane as a whole, and exploit market opportunities presented by multiple sugarcane products.
This Plan will therefore put new pressure on the industry to find and invest resources in the new direction
where the industry needs to go. In the light of the above, the 2010-2014 Strategic Plan is intended to
seek a more limited but achievable set of goals. The stakeholders have identified and endorsed four
strategic goals.
1. Enhancing Competitiveness in the industry in order to transform it to a leaner, lower cost industry
that can take on its competitors through:
2. Expanding the product base to take advantage of opportunities created in the production process
and increase factory profitability through value addition and product diversification by:
n Initiating power co-generation projects
n Initiating ethanol production projects
n Producing industrial sugar and alcohol
n Encouraging intensification to increase food security
In pursuit of the above goals, the Government established five additional factories in the 1960s and
1970s: Muhoroni (1966), Chemelil (1968), Mumias (1973), Nzoia (1978), and South Nyanza (1979).
Later, several more were to come on stream: West Kenya (1981), Soin Sugar Factory (2006) and Kibos
Sugar & Allied Industries (2007), bringing the total number of milling companies to ten (10). The two
older factories ceased operations: Ramisi sugar factory collapsed in 1988 and Miwani sugar factory was
put under receivership.
The establishment of the publicly owned factories was predicated on the need to:
n Achieve self sufficiency in sugar with a surplus for export in a globally competitive market
n Generate gainful employment and create wealth
n Supply raw material for sugar related industries
n Promote economic development in the rural economy and beyond through activities linked
to the sugar industry
In support of the above goals, the Government invested heavily in sugar factories, holding about 83% of
the equity, later reduced to 70% after it divested 36% of its interest in Mumias Sugar Company. These
resource injections into the subsector were in addition to the resources from the Sugar Development
Fund (SDF), set up in 1992, that has contributed about KSh. 11 billion into the industry for cane
development, factory rehabilitation, research and infrastructure development.
These investments did not, however, help achieve the self-sufficiency in sugar as consumption continued
to outstrip production. Total sugar production grew from 368,970 tonnes in 1984 to 520,000 tonnes
in 2008 leaving Kenya a net importer of sugar with imports rising from 4,000 to 220,000 tonnes over
the same period. The deficit is being met through imports from the COMESA region and other sugar
producing countries including Brazil, United Kingdom and Mexico. Figure 1.1 shows production and
consumption status since 2001.
In 2003, the Government set up a Task Force on the Sugar Industry Crisis1 whose objective was to
examine the problems facing the sugar subsector and make recommendations for revitalizing the industry.
1 Otherwise known as the Amayo Task Force Report dated 1st July 2003
80
60
Tonnes (x10000)
40
20
0
2001 2002 2003 2004 2005 2006 2007 2008
Year
Concurrent with the structural reforms the Government was implementing, the industry continued to
expand its processing capacity: Kenya Sugar Board (KSB) registered three new mill white sugar factories,
namely: Butali, Kwale International Sugar Co. Ltd and Trans Mara Sugar Companies with a combined
potential capacity of 5,000 TCD. It is also expected that an additional mill would be established in the
Tana River basin, with a potential capacity of 9,000 TCD. With the operationalisation of these new
factories and the upgrading of the existing mills, the industrys capacity would be close to 38,000 TCD,
which would result in a production of about 1 million tonnes of sugar per annum.
Apart from the regular sugar mills, there are four licensed and operational jaggery millers, namely:
Lubao, Shajanand, Farm Industries and Homa Lime Jaggeries, who have a combined capacity of about
300 TCD. There are also in excess of three hundred informal and mostly mobile jaggeries, each of which
crushes between 3-35 tonnes of sugarcane per day.
The sugarcane industry provides raw materials for other industries such as bagasse for power co-
generation and molasses for a wide range of industrial products including ethanol. Molasses is also a
key ingredient in the manufacturing of various industrial products such as beverages, confectionery and
pharmaceuticals.
By far, the largest contribution of the industry is its silent contributions to the fabric of communities and
rural economies in the sugarcane belt. Farm households and rural businesses depend on the injection
of cash derived from sugarcane. The survival of small towns and market places is also dependent on the
incomes from the same. The industry is intricately weaved into the rural economies of most areas in
Western Kenya.
2 Bracing for COMESA: Kenyan Sugar industry, Mumias Sugar Company Bulletin 2008
3 Kenya Sugar Board Strategic Plan (2008-2012) and Year Book of Statistics (2008)
(vi) Millers/Jaggeries
The role of the millers is to make fair return on investment through efficient operation of the sugar mills
or jaggeries for the production of sugar and other products for sale and making timely payments to cane
growers. The millers operate under an apex institution known as the Kenya Sugar Manufacturers Association
(KESMA). Millers are a critical node in the sugarcane industry because of the role they play in value addition.
The profitability and hence strength of the industry depends on how efficiently they operate.
1.5 Methodology
In reviewing the strategic plan, the consultant adopted a participatory and collaborative approach
comprising Literature Review, Key Informant Interviews (KII), Focused Group Discussions (FDGs) and
Stakeholder Consultative Workshops.
Agricultural Sector: The sugarcane industry already accounts for about 15% of agricultural GDP. In
the Vision 2030, Kenya aims to build an agricultural sector that is innovative, business oriented and
modern through:
To realise the above objectives, the Vision has identified seven flagship projects for implementation
by the year 2012. Three of the projects that are relevant to the sugar subsector include irrigation
development along the Tana River Basin; development and implementation of a 3-tiered fertilizer
cost reduction programme; and development of an Agriculture land use Master Plan.
Manufacturing Sector: Kenya aims to have a robust, diversified and competitive manufacturing
sector through:
n Restructuring local industries that use local materials but are currently uncompetitive e.g
sugar and paper manufacturing
n Exploiting opportunities in value addition to local agricultural produce
n Adding value to intermediate imports
With fuller exploitation of forward linkages in the value chain, the industry has an opportunity
to increase significantly its contribution to the manufacturing sector.
Financial Sector: The 2030 vision for financial services is to create a vibrant and globally
competitive financial sector in Kenya. The sector is expected to create jobs and promote high
levels of savings to finance investment needs. One of the most urgent steps towards creating a
competitive financial environment in Kenya is introducing legal and institutional reforms that
will enhance transparency in all transactions, build trust and make enforcement of justice more
efficient. This will be achieved by:
n Undertaking legal and institutional reforms to make Kenya more competitive as a financial
centre
n Consolidation of banks to make them larger and stronger
n Introduction of credit referencing
n Strengthening informal and micro-finance institutions and SACCOs
n Deepening financial markets by raising institutional capital through pension funds,
expanding bond and equity markets as well as tapping external sources of capital
The reforms are also expected to strengthen the regulatory and oversight authority which
in turn will help increase investor confidence in the economy and thus increase investment
opportunities in the sugarcane sector as well. Increased investment in the sector will lead to
higher production of sugar and co-products, which will then contribute to the realisation of
the envisaged 10% GDP growth rate.
To fully utilize the potential in the sugarcane industry, some essential reforms have been
identified in the Agricultural Sector Development Strategy 2009-2020 to complement the
broad reforms envisaged under Vision 2030, these include:
Developments envisaged in the social pillar will be important in providing opportunities for
social safety nets and greater mobility in the social space. The sugar industry will contribute
significantly to the social development through provision of employment opportunities and
wealth creation in the rural areas of Kenya. As a social tool, a vibrant sugar industry will act
as a catalyst for raising the standards of living in various rural households through direct and
indirect incomes. The sugar industry will also contribute to the realisation of the goals of
the social pillar through its corporate responsibility activities in health, education, water and
sanitation, and recreation activities.
The European Commission (EU) trading block, despite cutting prices by 36%, will still be an
attractive sugar export destination. At an average price of 22 cents per pound, the EU price is
still 4 cents above the open trade price.
International competition from low cost sugar producers is a big challenge to the local sugar
industry. The average cost of sugar production in 2006/07 in Kenya was KSh. 42,192 (USD
680) per tonne. The world average cost of production for the same is USD 263 per tonne. As
a result, importers view Kenya as an attractive market. Kenya needs to bring its cost structure,
i. Rising sugar import quota in tandem with a declining tariff as shown in Table 2.1
ii. The Government adopts a privatization plan within the first 12 months and takes
verifiable steps to privatize the remaining publicly owned factories by 2011
iii. The industry to implement cane payment system based on sucrose content instead of
weight
iv. The Government adopts an energy policy aimed at promoting co-generation and
other forms of bio-fuel production that will contribute to making the industry more
competitive
v. Kenya Sugar Board (KSB) to increase funding for research on high yielding and early
maturing varieties and spearhead its dissemination by farmers
vi. The Government to increase funding for road infrastructure
vii. The Government to submit twice yearly performance reports to the COMESA Council
on all measures, activities and improvements on the sugar sectors competitiveness
Sugar prices in Kenya need to drop by at least 39% to be in line with COMESA levels. Such
a price drop in less than 3 years is drastic and requires major cost reduction strategies for the
industry. Although there are eight sugar mills in production, industry sources indicate that
only West Kenya, Mumias and Kibos & Allied Industries would survive if the safeguards were
to be lifted now because they can produce sugar at costs similar to other COMESA countries.
These factories are equipped with modern facilities that can process sugarcane efficiently4.
4 KSB (2008), Cost of Cane and Sugar Production and Personal Interviews
While Tanzania is not a member of COMESA, Uganda is not a signatory to the COMESA
Free Trade Agreement. Consequently, the two countries can and do import sugar from outside
COMESA. These sugars find their way into Kenya through Informal Cross Border Trade
(ICBT), which poses an unfair competition to the local sugar producers. Similar problems also
occur through transhipment of sugar via other COMESA countries (such as Egypt) from non-
COMESA countries (such as Brazil).
These adverse trends have led to considerable disparities in development among the
different regions of the country, which is posing a serious challenge to national cohesion and
development. In addition, insecurity in neighbouring Somalia coupled with homegrown
criminality, including the emergence of organized gangs and militia and availability of illegal
firearms have combined to create an adverse investment climate and have put considerable
pressure on state resources.
Corporate governance has been a challenge for the industry for a long time. The sugar industry
needs to transform itself to profitability and efficiency path through sound management practices.
There is need to develop and implement policies that would ensure that the principles of good
governance are instituted and maintained. This would ensure competitiveness, transparency,
accountability and sustainability of the industry.
Land is an important factor of production as it provides the foundation for all other activities
such as agriculture, water, settlement, tourism, wildlife and forestry, and infrastructural activities.
However, over the years, administration and management of land has been a challenge due to
lack of a comprehensive land tenure policy. This has led to fragmentation of land into small and
uneconomic land units. Small land sizes has led to strong competition for land between food
crops and sugarcane, which has increased food insecurity. The agricultural sector is developing
a National Land Use Policy and Master Plan, which will provide guidelines regarding the use
of land.
Development projects recommended under Vision 2030 will increase demand on Kenyas energy
supply. Currently, Kenyas energy costs are higher than those of her competitors. Kenya must,
therefore, generate more energy at a lower cost and increase efficiency in energy consumption.
To help meet the energy needs, the industry will invest in co-generation with the aim of selling
surplus power to the national grid.
3.2 Achievements
A review of the outgoing Plan revealed that the level of implementation of activities was only about 30%
of what was intended, many of the activities are work-in progress. The poor implementation of the plan
was attributed to the fact that the objectives were way too ambitious, not SMART5 hence extremely
difficult to implement and monitor. Implementation of some activities was delayed by lack of funds.
158,568
Area under cane (Ha)
147,730
144,765
131,507
122,580
126,826
117,131
Cane Varieties
In 2008, cane variety CO 945 occupied 35.72% of the total area under cane. Varieties CO 421,
CO 617 and N14 occupied 28.4%, 13.29%, 10.95% of the total area respectively. KESREF
developed four new cane varieties (KEN 82-062, KEN 82-472, EAK 73-335 and D8484)
in 2007. However, the area under cane for Kenyan bred varieties remained just under 5% of
the gross area. The slow adoption rate to Kenyan varieties is attributed to inefficient factory
utilisation capacity that translates into delayed harvesting which raises the risks to the farmers,
and to some extent weak research-extension-farmer linkages. Most farmers do not want to
adopt early maturing cane varieties because they deteriorate faster and the factories do not have
the capacity to harvest in good time.
6 Source: Kenya Sugar Board Strategic Plan (2008-2012), Year Book of Sugar Statistics
75
73
Average yield (Tonnes/Ha)
71
69
67
65
63
2001 2002 2003 2004 2005 2006 2007 2008
Year
Cane Deliveries: Total cane deliveries for the year 2008 were 5,125,821 tonnes against
4,660,995 tonnes in 2004, representing a cane supply increase of approximately 10% over
the planning period. The best supply was recorded in 2007 at 5,204,214. The decrease in cane
supply in 2008 was attributed to poor rains, post election related violence including a spike in
cane burning cases which affected operations at the farm, transportation and factory levels.
Cane Yields: The average cane yield for the year 2008 was 72.9 TC/Ha against 73.8 TC/Ha
in 2004 representing a decrease of 1.2% (Fig. 3.3). The mean yield for the entire planning
period was 70.4 TC/Ha with a standard deviation of 3.1. Highest cane yields were recorded in
SONY sugar belt (five-year average, 86.0TC/Ha) followed by Nzoia Sugar company (five-year
average, 83.6TC/Ha) then Mumias Sugar Company (five year average, 70.9TC/Ha). Lowest
yields were recorded in Chemelil (five-year average, 60.3TC/Ha). The challenge remains in
respect of raising cane yields.
7 Source: Kenya Sugar Board Strategic Plan (2008-2012), Year Book of Sugar Statistics
Thousands
59
55
53
51
49
47
2001 2002 2003 2004 2005 2006 2007 2008
Year
Fig. 3.3: Average Yield, Tonnes/Ha8
Quality of sugarcane crushed deteriorated during the outgoing planning period. In 2008, the
weighted average pole % cane as a measure of cane quality reduced to 12.7% from 13.2% in
2004 (Fig.3.4). This was still lower than the industrys long-term target of 13.50%. The average
fibre % cane rose to 17.72% from 17.46% in 2004 (Fig.3.4). The long-term industrys target
for fibre is 15.50%.
18.0
17.0
Cane quality (%)
16.0
15.0
14.0
13.0
12.0
2001 2002 2003 2004 2005 2006 2007 2008
Year
Time Account
During the outgoing planning period, the total gross time available for grinding was 70,112
hours. The actual hours used for grinding over the same period was 40,188 hours representing
57.3% of the gross grinding time. The industry grinding time standard deviation was computed
as417.5 hours (4.8%). Figure 3.5 shows account of the factory time within the planning
period under review.
95
Hundreds
85
75
Time (Hours)
65
55
45
35
2001 2002 2003 2004 2005 2006 2007 2008
Year
Based on the above, none of the sugar factories met the standard for Factory Time Efficiency
(FTE) of 92%. Additionally, all the sugar factories with the exception of Mumias Sugar
Company, failed to meet the industrys standard of Overall Time Efficiency (OTE) of 82%.
Capacity Utilisation
The combined installed capacity of sugar factories in the country is 24,040 TCD. This could
produce about 883,691 tonnes of sugar per year. However, during the planning period, the
average capacity utilised was 13,522.50TCD (56.25%), and even though this was a modest
increase over the previous period, it is still far below optimal (Fig. 3.6). The decline in capacity
utilisation needs to be addressed first before expensive options such as capacity expansion are
sought.
70
65
Capacity utilisation (%)
60
55
50
45
2001 2002 2003 2004 2005 2006 2007 2008
Year
During the outgoing planning period, Mumias Sugar Company was the exception, having
launched a co-generation plant to generate electricity to supply the national grid. Some sugar
factories such as Muhoroni, despite their indebtedness, were giving out bagasse freely to small
business entrepreneurs for the production of briquettes and soft boards. Currently, no feasibility
study has been carried out on the production of ethanol and other cane products.
Industry records indicate that production of power alcohol was undertaken for sometime at
the Agro-Chemical and Food Company for blending with petrol. This programme could not
be sustained because there was no policy and legal framework to regulate its use. In addition,
there was resistance from the multi-national petroleum companies who feared a reduction in
their market share.
Stakeholders Concerns:
1. There are no concrete steps towards
diversification
2. Needs to accelerate its intensification programme
e.g. introducing sweet sorghum in the farming
community as a way of complementing
cane farming
Work in progress:
i. The basic framework for OGIs has been prepared. It envisages OGIs that will become
effective service providers.
The industry was not able to establish an accountable and specialized procurement body to
help stakeholders reduce costs through economies of scale. Each industry institution insisted
on its own procedures to maintain control of the process. In addition, Parastatals mills are
bound by the public procurement procedures, which are cumbersome and costly.
The useful lessons drawn from the implementation of the same were:
i. Due to lack of a well-institutionalised monitoring, evaluation and reporting system, many
stakeholders did not report diligently on their operations both current and planned. As a result
there was no reliable empirical information for accurate forecasting beyond a quarter or two. This
meant that the data that informed internal decision-making was not the same as was shared during
the Plans quarterly implementation review meetings. This denied the planners the opportunity
to gather information that would have been essential in facilitating the design and redesign of a
longer-term strategy for the transformation of the industry.
ii. Lack of a proper implementation framework was a major shortcoming in the outgoing Plan.
This made it difficult to implement the strategic actions. Additionally, the objectives were not
SMARTEST12, which made it difficult to measure performances against targets.
iii. There was no linkage between Plans strategic objectives and the national agenda. Thus the
implementation of the Plan was done in isolation.
iv. Lack of funds and/or delayed funding led to delays in the implementation of some of the strategic
objectives.
v. There was no harmony between the Strategic Plan, work plans, performance contracts and
budgetary provisions. This reduced efficiency and effectiveness of strategy implementation.
vi. The role of KSB in carrying out monitoring and evaluation of the Plans implementation was full
of challenges. The Board was not able to enforce and supervise its implementation.
vii. Lack of a risk mitigation mechanism in the outgoing Plan was a major set- back in the realisation of
the strategic objectives. Some of the declining outputs were as a result of risk that could have been
anticipated and mitigated.
viii. There were extremely high expectations at the onset of the Plans implementation. Some of the
stakeholders had expected the Plan to be an instrument through which the Government would
ix. High indebtedness by most of the factories led to lack of implementation of some of the strategic
objectives as some of the funds for implementation were to be from internal sources. This increased
pressure on the Sugar Development Fund (SDF), which was already inadequate.
Based on the foregoing, the incoming Strategic Plan (2010-2014) has been formulated taking cognisance
of the above lessons.
The 2010-2014 Strategic Plan will be used to maintain and build on the successes achieved in the 2004-
2009 Strategic Plan. The revised Plan will aim at consolidating the gains made, identify new options to
improve efficiency and increase the industrys competitiveness. It will also take cognisance of the lessons
learnt in the last five years.
The Plan will provide a framework for setting goals, defining key actions and mobilizing resources to fund
programmes that will achieve agreed goals. It will also provide an opportunity for the exchange of ideas
by a wide array of stakeholders in the industry. It will increase awareness of industry-wide limitations
and opportunities leading to a greater appreciation of actions to be undertaken. Consequently, there will
be greater willingness to share information, gather new ideas and more correctly situate local area issues
in an industry context.
The periodic consultation forums to review status of the Plans implementation will provide opportunities
for all industry stakeholders to learn from the leaders and innovators in the industry. The Plan will be
an empowerment tool for internal lobby groups to press their demands for resources and better quality
services. In addition, it will lay ground for enhanced performance of the sugarcane industry premised on
proper utilisation of resources, arising from clearly identified goals, targets and verifiable indicators. The
Plan will set strategic objectives that will help achieve the vision and mission of the industry.
Above all, the formulation of the sugar industry Strategic Plan 2010-2014 comes at a time when the
industry needs to rethink its direction as it approaches the liberalization of the sugar trade regime. The
industry needs to find ways of repositioning itself competitively. This requires that the industry goes
beyond sugar, think more about sugarcane as a whole and exploit market opportunities that the broader
sugarcane industry can provide. It also puts new pressures on the industry to find and invest resources
in the new direction where the industry needs to go.
4.2.2 Mission
The new mission of the industry is to facilitate a multi-product sugarcane industry that is
efficient, diversified and globally competitive. This will be realised by enhancing industrys
competitiveness through cost reduction strategies and efficiency improvements, expanding
product base, improving infrastructure and strengthening the regulatory framework.
1. Product and Service Excellence: through excellent product and service delivery it will
strive to exceed customer expectations
2. Stakeholder Partnership: to optimise synergies in order to meet set goals by consciously
and deliberately nurturing team spirit, collaboration and consultation
3. Integrity: to uphold virtues of integrity through honesty and fairness in all operations
4. Accountability: to strive to be responsible custodians of all resources entrusted to the
industry in a professional and transparent manner
5. Social Responsibility: endeavour to be socially responsible to society and pursue industry
goals though socially acceptable practices that preserve the environment; promote
socio-economic development, support vulnerable groups and HIV/AIDS and Malaria
programmes
6. Gender Mainstreaming: embrace principles of gender equity, fairness and balance across
gender
CHALLENGES
High cost of Delayed and Irregular routine fac- High taxation Imports
inputs uncoordinated tory maintenance Strong cartel cheaper
Weak research- harvesting Low crushing capac- of sugar Incapacity
extension-farmer Labour intensive ity importers to process
linkages Dilapidated Low sugar extraction Limited value industrial
Low adoption of infrastructure rates addition sugar
high yielding cane High post Slow adoption of and product Poor
varieties harvest losses new and appropriate diversification product
Excessive land (cane spillage, technology Inadequate quality
subdivision poaching etc.) Lack of industrial funding SDF Lack of
Delayed payments Inappropriate research consumer
to farmers trailer designs High cost of sugar representation
Limited irrigation Inadequate production in SDF
Inefficient OGIs funding (SDF) High indebtedness committees
Drought, Cane Poor cane yard Narrow product base
fires, diseases management Dilapidated process-
Long maturity Small and ing equipment
periods uncoordinated Inefficient factory
Inadequate planting and operations
funding (SDF) harvesting units Wastage in cane yard
Lack of collateral Inadequate funding
Food insecurity (SDF)
Limited irrigation
STRATEGIC ISSUES
Enhance Competitiveness Enhance Enhance Enhance
Competitiveness Competitiveness Competitiveness
Reduce cost of farm inputs Improve cane yard Intensify industrial and Harmonise marketing
Increase supply of quality management applied research pattern
seed cane Reduces post- Increase processing Increase market
Increase adoption rate of harvest losses efficiency research
new technology Increase research Reduce cost of sugar Branding
Intensify farm level funding production Maintain adequate
research Modernise and Factory rehabilitation stock levels
Invest in irrigation promote the use of and modernisation Modernise and
Increase research funding ICT Embrace condition promote the use of
Encourage good maintenance ICT
husbandry practices Modernise and
Modernise and promote promote the use of ICT
the use of ICT
Expand Product Base Expand Product Base Expand Product Base Expand Product Base
Encourage intensification Increase income Feed in tariff
to increase food security streams from expanded Implement legislation
product base on blending
Implement legislation
on blending
Improve Infrastructure Improve Infrastructure Improve Infrastructure Improve Infrastructure
Rehabilitate rural roads Consider other Invest in ICT
modes of transport Embrace e-commerce
Increase transport and e-procurement
units
Invest in road
improvement
Regulatory Framework Regulatory Framework Regulatory Framework Regulatory Framework
Pass the Sugar Establish a sugarbelt Encourage good Enforce measures to
Amendment Bill roads management corporate governance eliminate tax evasion
Gazette Sugar General committee
Rules
Harmonize all sugar laws
Finalise and implement
regulations to restructure
outgrower institutions
Table 4.1a: Actual and Required Cost Reduction in Cane Production per tonne
Cost (KSh/Tonne
Base year 2009/10 2010/2011 2011/2012 2012/2013
Item
PC R PC R PC R PC R PC R
Land development 316 43 316 43 316 43 316 43 316 43
Seed cane 269 0 269 0 269 0 269 0 269 0
Cane maintenance 362 315 362 315 362 315 362 315 362 315
Harvesting and 206 206 189 189 172 172 150 150 150 150
loading
Cane transport (24km 600 600 530 530 450 450 400 400 400 400
radius)
Total 1,753 1,164 1,666 1,077 1,569 980 1,497 908 1,497 908
USD* 22.9 15.2 21.8 14.1 20.5 12.8 19.6 11.9 19.6 11.9
Table 4.1b: Actual and Required Cost Reduction in Sugar Production per tonne
Cost (KSh/Tonne)
Item Base year 2009/2010 2010/2011 2011/2012 2012/2013
Factory Cost 5,909 5,023 4,269 3,757 3,306
Other business support 26,873 22,841 19,415 17,085 15,034
costs
Total 32,782 27,864 23,684 20,842 18,340
USD* 428.2 364.0 309.4 272.3 240.0
13 Calculations based on figures from Cost of Cane and Sugar Production 2008 by KSB
Source: Log Associates, 2009, Projected Area under Cane and Yields
ii. Developing the use of and financing irrigation for sugarcane production: There exist
vast potential to increase irrigated sugarcane production in Kenya particularly in the Tana
River Basin, Nyando Basin and Nzoia Basin. While estimates vary, the potential irrigable
land in these three basins alone is in the range of 700,000 hectares. In the incoming
period, the industry will expand cane area under irrigation by about 40,000 hectares
annually to reach an estimated total of 2000,000 hectares by the end of the Plan period.
Studies indicate that yields from irrigated fields range from 120-150 TCH compared to
the 70-100TCH from rain-fed fields. Therefore, 200,000Ha irrigated cane field would
produce 40,500,000 tonnes of sugarcane. In such controlled growing conditions, the
sucrose content in the sugarcane can be boosted to an average of 15% compared to
13.5% for rain-fed conditions. During the planning period 2010-2014, the industry will
iii. Creating an insurance scheme to cushion the farmers from losses arising in the
industry: Sugarcane farmers continue to suffer from unforeseen calamities occasioned
by unpredictable weather patterns with erratic and prolonged periods of drought. Cane
fires and theft have also become increasingly frequent. During the planning period,
the industry will pilot and if successful, expand sugarcane crop insurance working in
collaboration with private sector partners.
Table 4.4: Annual Targets for Proportion of High Yielding Cane Varieties
Year Proportion (%)
2008/09(Base Year) 5
2009/10 10
2010/11 25
2011/12 40
2012/13 45
2013/14 50
vi. Ratooning: Farmers need to make a fair return on investment. Studies have shown that the
margins are small for plant crop. Subsequent ratoons, if well maintained, bring good profits
to the farmer (Table 4.5). Currently, there are only two ratoons in the industry. Tanzania,
whose production cost is the lowest in EAC region, has 5-8 ratoons. Brazil, which is the least-
cost cane producer (USD20/t) in the world, has only 20% of the total area under cane on
new plantings. The remaining 80% is under ratoon crops. Top sugar producing countries are
known to produce over 10 ratoons, while marginal producers hardly go beyond two ratoons
hence sustaining losses due to high production costs17. To increase earnings from cane farming,
farmers will be encouraged to increase the number of ratoons to five or more.
i. Improving cane yard management: Losses related to a poor transport system are
translated into unavailability and inefficient movement of sugarcane in the cane yard. This
leads to capacity underutilisation in the factory. The losses due to capacity underutilisation
are huge. Good cane yard management is needed to reduce the uneconomically lengthy
turnaround times by cane haulage units. Efficient cane yard operations will also lead to
reduced staleness and mitigate losses to the farmer. To improve efficiency of operations,
cane yards will be rehabilitated, automated and modernised. The monitoring benchmarks
will be reduced staleness index (Table 4.6) and increased cane delivery trips.
ii. Reducing post-harvest losses: Sugarcane farmers lose huge amounts of revenue as a
result of post-harvest losses. A 5% loss in 2008 was equivalent to 258,289.3 tonnes of
sugarcane. The cost of sugarcane ranges between KSh. 2,500-3,100 per tonne. This
implies that farmers lost approximately KSh. 646-800 million. The industry will reduce
post-harvest losses to less than 2% through stronger oversight, improved trailer designs
and infrastructure development (Table 4.7).
Source: Log Associates, 2009, Proposed Time Lapse between Cane Maturity and Harvesting
i. Increasing sugar production through efficient processing: All factories need to operate
optimally through efficient modern style management and carry out regular condition
maintenance. Valuable time is lost while extensive maintenance is being undertaken.
In the incoming plan period, sugar production will be increased by 122% by the year
2014, recovery levels and capacity utilisation increased to 11.5% and 89% respectively
(Table 4.9). Other efficiency performance benchmarks such as FTE and sugar co-product
production per tonne will also be monitored. Currently, all the efficiency benchmarks are
lower than those of major competitors. The various efficiency benchmarks are presented
in Annex V.
Source: Log Associates, 2009, Proposed Factory Level Targets over the next Five Years
ii. Creating economies of scale: Apart from Mumias and the proposed TARDA sugar
company, all the other sugar factories are below 4,000TCD (Annex VI). As the industry
seeks to become more efficient and competitive, all options for achieving economies
of scale will have to be considered. The envisaged privatization programme offers an
opportunity to increase economies of scale through factory mergers in the Western and
Nyando zones. Other opportunities for achieving economies of scale will be realised
through the construction of a new, larger capacity factory in Tana River Basin. Investing
simply in rehabilitation and upgrading of mills, while necessary, is not sufficient.
In order to deliver on the vision and mission setout in this Strategic Plan, the industry will
recruit, train, promote and retain its staff, to effectively deliver quality services to all the
stakeholders. In this regard, staff will sign performance contracts with respective institutions
binding them to deliver on targets. To ensure availability of skills, talents, and knowledge
required, the industry will carry out the following activities:
i. Undertaking a sugar industry Training Needs Assessment (TNA) and implementing its
findings
ii. Preparation of a staff retention strategy though better remunerations, staff motivation
and workforce compensation
iii. Signing Performance Contracts;
iv. Implementing a Performance Appraisal System (PAS)
v. Strengthening industrys collaborations with training institutions/universities
Sugar Cane
Industrial Paper
Industrial uses Stillage
Fertilizer
Methane
ii. Initiating ethanol production projects: Kenyas fuel consumption stood at 1.4 and 3.3
million litres of petrol and automotive diesel respectively per day in 2006 with an average
Currently, Kenya requires 85 million litres of ethanol per year for a national 10% (E10)
blend. At current consumption levels, this would need to grow to 93 million and 148
million litres by 2014 and 2030 respectively.
It is estimated that a tonne of molasses can be converted into 220 litres of ethanol. In
2008, the sugar industries produced approximately 180,000 tonnes of molasses, which
would have produced 39.6 million litres of ethanol. The current ethanol prices in the
world are between KSh. 30-35 per litre. In Kenya, the price of ethanol is in the range of
KSh. 55-70 per litre24. This would have translated into KSh. 2.178 billions. It is expected
that the construction of Tana Integrated Sugar Project would produce 22 million litres
of ethanol, which would be equivalent to KSh. 1.21 billions.25 With cane deliveries
proposed in this Plan, it is possible to realise considerable amounts of revenue as shown in
the Table 4.11. A conventional ethanol plant capital costs about KSh. 1.6 billion26. This
implies that eight operational sugar factories would require 12.8 billion to initiate ethanol
production projects.
Source: Log Associates, 2009, Projected Ethanol Production Potential and Revenues
iii. Producing industrial sugar and industrial alcohol: Projections of sugar consumption
indicate that the demand for industrial sugar is expected to continue to increase. Currently,
the Kenyan sugar industry does not have the capacity for processing industrial sugar and
industrial alcohol. Miwani was the only factory that could process these products. In the
2010-2014 Strategic Plan the industry will revive its capacity for producing refined sugar,
industrial sugar and industrial alcohol. The distillery and sugar refinery at Miwani Sugar
Company will provide a starting point but the industry as a whole will diversify into these
products.
iv. Encouraging intensification to increase food security: To reduce exit from cane farming
due to pressure from other agricultural produce, the industry will encourage intercropping
and mixed farming amongst farmers.
Strategy 3.2: Modernise and Promote the Use of Information and Communication Technology (ICT)
There are numerous opportunities for the application of ICT in the sugar industry including
business process improvement in sugarcane production, office operations, management of OGIs,
strategic management, performance monitoring, research and information sharing. Despite such
array of uses, the industry has not fully invested, modernised and promoted the use of ICT.
Apart from Mumias Sugar Company that has invested in the Agricultural Management
Systems (AMS) to coordinate planting, harvesting, transport and milling operations, the ICT
infrastructure in most of the sugar factories is still at infancy stage. To tap these opportunities,
the industry will modernise and promote the use of ICT by:
i. Establish a sugarbelt roads management committee comprising KSB, Millers, OGIs and
GoK departments responsible for roads.
Strategy 4.5: Development of a comprehensive policy on co-generation and exploitation of bio-fuels
and other sugarcane products
The Energy Act, 2006, sets out the National Policies and Strategies for short, medium and
long-term energy development in Kenya. The Minister for Energy has the mandate through
the Act, to promote co-generation by sugar millers and sale of the same to the national grid;
and promote the production and use of gasohol and biodiesel. However, there is still no
comprehensive policy and legal framework to regulate the production and use of these products.
In the incoming period, and working closely with the Ministry of Energy, the industry will:
Factories
OGIs
KESREF
Other Stakeholder Representatives
Unit Committees
corrective action
The cost inherent in implementing activities outlined in the strategy will be huge. The industry requires
at least KSh. 23 billion to implement the activities recommended in this Plan (Annex VII), 15.3
billion to invest in co-generation and 12.8 billion to invest in ethanol production. The industry needs
a further KSh. 58 billion to clear all debts on sugar factories and OGIs balance sheets. (Annex VIII).
Funding this Plan will require a public-private partnership comprising budget resources, government
devolved funds, internally generated funds and loans, grants from development partners and joint
venture agreements as discussed below.
Cane development
KSB administration (17%)
(35%)
Infrastructure
(7%)
At the present state, the sugar industry requires funding on a much larger scale than can
be met by the SDF. The funding gaps will be bridged through alternative financing.
iv. Loans
The sugar industry is already attracting donor funds from a variety of sources including
the European Union (EU) and CFC. The subsector can attract more funds from a range
of initiatives including energy, environment, water and sanitation, and rural roads, all of
which have a direct impact on sustainable development and MDGs. The industry will
therefore prepare and present proposals to willing donors for the purposes of sourcing for
funds for its development.
v. CDF/LATF Funds
The sugar industry will collaborate with institutions implementing the CDF and LATF
funded projects to harness the resources directed towards infrastructural development in
the sugarbelt.
5.3 Accountability
Accountability for the implementation of this Plan and the use of resources will critical since it will
require proper utilization of financial, human and material resources. This demands that all stakeholders
in the sugar industry and other sectors take responsibility and be accountable for their use. All institutions
using industry resources will account for the same in accordance to the laid down regulations and
procedures.
i. Failure to Realize the Privatisation Process: The survival of the Kenya sugar industry appears
directly pegged to privatization and subsequent private sector participation in increasing efficiency.
Failure to divest GoK shareholding in the industry portends doom.
ii. Poor Plan Implementation: All of the participating institutions need to diligently carry out the
actions identified in Chapter 4. Failure to carry out the changes needed to make the industry more
28 Corporations like Mumias, Ken-Gen just to mention a few, have already signed carbon credit agreements through the Clean
Development Mechanism (CDM). The CDM is a support scheme under the United Nations Climate Convention and the Kyoto
Protocol.
iii. Lack of Political goodwill: Political goodwill is necessary for the implementation of this Strategic
Plan. If political goodwill is lacking, there remains the risk of failure in implementing the same.
iv. Lack of resources: Resources are essential for the implementation of the activities highlighted in
this Plan. Inadequate human, financial and other resources pose risks to the implementation of
these activities.
v. Insecurity: Insecurity is both a threat to human life and a major risk against the objective of
attracting investment. It also often causes disruption of planned activities, leads to business losses
and increases business costs. For meaningful private sector investment, the industry must operate
in a conducive and secure environment.
vi. Poor Communication: The absence of an effective and agreed communication strategy may result
in poor information flow and thereby delay decision-making. This will result in a risk of failure
and/or delay in the implementation of the Plan.
vii. Lack of Ownership: The lack of ownership by the stakeholders, for instance farmers, may lead to
failure in the implementation of the strategic plan.
viii. Resistance to change/negative attitude: Resistance to change by farmers, transporters, millers and
outgrower institutions may result in failure or delay in the Plans implementation.
6.2 Evaluation
The Plan will be subjected to four evaluations, which are two Internal Annual Evaluations; Mid-
Term Evaluation and Review; and Final Evaluation. The evaluations will be done using the indicator-
monitoring tool provided in Annex X.
Effectiveness (Impact): The extent to which the implementation of activities met the
stated strategies and objectives
Sustainability: Assesses the sustainability of the achievements made
Lessons Learnt: Document lessons learnt
Terms of Reference (TORs): Prepare the TORs for the next strategic plan.
6.3 Reporting
Reporting the progress of implementation will be critical in adjusting strategic directions and measuring
performance. Progress reports will be made on quarterly basis. The reports will outline in summary form
projected targets, achievements, facilitating factors and challenges. The reports will be prepared and
submitted by unit committees to the SRF, where a summary report will be prepared and submitted to
the MC for review. Issues that will require policy interventions will be forwarded to the NICC through
the KSB Board.
6.5 Conclusion
The revised Kenya Sugar Industry Strategic Plan 2010-2014 focuses on objectives, strategies and
activities that will enhance industrys competitiveness. If truly implemented, it will lay a firm foundation
for the industry to become efficient, diversified and globally competitive.
Political World focused mostly on Governance Piracy along the Somalia coastline Regional crises diverting attention and Uncertain investment climate
and Conflicts (Darfur Crisis, Southern Sudan, resources from local needs
Human Rights Eritrea/Ethiopia) Lack of a long term roadmap for the
Terrorism development of the sugar belt
Ministry of Agriculture starting to focus
but it needs to be structured
Economic Increasing Oil prices Increasing food prices Economic crimes (money laundering, Unfair competition
Increasing food price Obligations under Regional corruption, fake currencies), A disenabling investment climate
Counterfeiting Agreements Increasing Oil prices Strong competitive pressure
WTO) agreements on bilateral trade And Standards Food insecurity Need for increased efficiency in the
Standards Non-Tariff Barriers (NTBs) Poor enforcement of tax laws and sugar industry
Non-Tariff Barriers (e.g Minimum World Trade Organization (WTO) International Agreements and Need for increased funding for market
Residue Limits) agreements on bilateral arrangements Standards development
Sanitary and Phytosanitary standards Counterfeit goods
High inflation
Underdeveloped export market access
for sugar
Low funding for export market
development
Social Language barriers resulting in Language Barriers High population growth rate Language barriers and insecurity
additional transactional costs High HIV/AIDS prevalence Low literacy levels increase costs of doing business
Drug trafficking and Drug abuse Regional conflicts High HIV/AIDS and malaria prevalence Diseases leading to absenteeism and
leading to reduced productivity Language barriers low labour productivity
Human trafficking and brain drain High crime rates Drug abuse reduces productivity
Technological High cost of advanced technologies Low funding for Research and Private Mills (Mumias, West Kenya, Soin Lack of competitiveness
Low negotiation capability Development and Kibos) have invested in upgrades, Need for an injection of capital to
Low adaptability of advanced but parastatals Mills are mired in debt assist in Mill modernization through
technology and unable to upgrade or even carry privatization and dilution of public
out routine maintenance capital holding in sugar factories
Low funding for Research and
Development
49
50
Legal High legal costs National Ratification of Regional Weak institutional capacity in the sugar Need for simplification of regulations
Treaties industry Need for increased corporatization
Bureaucratic regulatory and Need for stricter contract enforcement
administrative framework Performance standards needed for
Few qualified personnel on commercial Judiciary
law (both bench and bar)
Informality of businesses
High legal costs
Environment Climate change and desertification Climate change and desertification Rapid degradation of water towers, Climate-dependent sectors such as
Stakeholders Responsibilities Comparative Advantage Target What they can do to the sugar industry
Government Sector coordination and policy Policy formulation Overall sector Link to the government
(MoA) formulation Provide policy direction in the sugar
sub-sector
Kenya Sugar Regulate, develop and promote the Regulation Efficient, effective quality service Issue licenses
Board sugar industry Coordination delivery Provide regulations, procedures
Coordinate activities within the Strategy setting and guidelines on various areas of
industry Advisory operation in the industry
Facilitate equitable access to benefits
and resources
KESREF Breeding appropriate cane varieties Research Enhanced research-extension Conduct more research into new
KIRDI Recommending appropriate Innovation farmer linkages early maturing seed varieties that
fertilizers High and sustained technology are disease resistant and have high
Appraising, studying, developing adoption rates sucrose content
and monitoring technologies Increase farmer training
Pest and diseases, agronomic Increase research on irrigation,
packages, farm machinery, processing, harvesting , transport
environment and safety issues in and marketing
sugar.
Carry out industrial research
Farmers To produce quality cane with high Cane Production Increased cane production To be business oriented
sucrose content Competitive return to land and Ensure food security through
Adopt recommended crop labour intercropping, border cropping
husbandry practices Reduce land subdivision
Elect competent representatives
Outgrower Coordinate all cane growing Input supply Must seek to satisfy farmers, Must become key partners in the
Institutions activities transporters drive for efficient sugar production
Supply quality seed cane
Harvest and transport cane
Sugar Millers Purchase and mill sugarcane Processing Increased sugar and co-products Increased efficiency in sugar
Market sugar and its by-products production processing
Grow, harvest and transport cane
Other Advocacy for outgrowers and millers Advocacy Effective service delivery to farmers Encourage technology adoption and
Institutions: Efficient supply chain management its implementation
KESGA,KESMA, Advocate for efficient supply chain
management
Transporters Cane Transport Transportation Reduced Transport cost Provide transport services
Reduce on-transit cane losses
Consumers Buy sugar Feedback on sugar quality Good quality sugar at competitive Demand quality and competitive
prices prices
Universities Training Science, technology and innovation Highly trained personnel Innovate new products and
and Research Research Increased collaboration technologies of sugar production
Institutions Innovations Broaden product base
Market intelligence
Benchmarking with international KSB, Millers, OGIs Best practices International standards adopted 2014
standards
Enhanced Human Undertaking training needs assessment KSB, Millers, OGIs, KESREF Number of Staff trained Efficient, effective and motivated 2011
Resource Capacity and implementing its findings staff
Optimal staff levels retained
Preparation of staff retention policy Millers, KSB, OGIs Optimal staff levels Number of staff retained 2010/
continuous
Signing of performance contracts Millers, OGIs, KESREF, KSB Optimal performance Number of performance contracts 2010/
signed continuous
Implementing a performance appraisal Millers, OGIs, KSB, KESREF Good Performance Level of targets being achieved 2010/
system continuous
Strengthening industry collaboration with Millers, KESREF, OGIs, Universities Increased skilled human Collaboration agreements 2014/
training institutions resource pool reached continuous
Streamlined corporate Conducting periodic Customer Satisfaction KSB, Millers, OGIs, KESREF, Consumers Report on quality service % of customers receiving quality 2012
governance Surveys(CSS) delivery service
Ensuring the undertaking of International Millers, KSB, Consumers Quality standards ISO Certification 2012
Organization of Standards (ISO)
certification
Sensitization of industries on quality Millers, KSB, Consumers Quality Standards % of customers receiving quality 2012
standards and certification requirements service
Advocacy on governance, security, high All stakeholders Good corporate governance % of factories that are self 2012
cost of doing business, among others sustaining
Improvement of communication amongst All stakeholders Efficient communication Rate of information flow 2012
industry stakeholders and the rest systems
Training on prudent financial management All stakeholders Efficient financial Profit margins 2012
management
55
and M&E system M&E system
56
Development of Establish a sugarbelt roads management KSB, Millers, MoR, MoLG, GoK Framework for coordination Functioning committee 2012
an institutional committee of roads maintenance
Framework for
Coordination of Roads
Maintenance in the
sugarbelt
Development of a Support measures to develop a KSB, MoA, MoE Comprehensive policy 2012
comprehensive policy comprehensive policy on co-generation
on co-generation and and exploitation of bio-fuels and other
Time Account 1 Annual & mini maintenance, Days - 124 126 170 45 42
Crop length (Average) Days 251 241 239 195 320 323
2 Mill Numbers 15 3 2 2 1 7
1. Chemelil 3,360
2. Muhoroni 2,200
3. Soin 100
5. Miwani 800
6. Mumias 9,200
7. Nzoia 3,360
9. SONY 3,120
Total 39,440
57
58
Annex VII: Plan Implementation Cost Estimates
Strategic Objective 1: To Enhance Sugar industry Competitiveness
Estimated Costs (KSh. Millions)
Strategy Activities 2010 2011 2012 2013 2014 Total
1. Reduction in Farm Level Risks Increasing efficiency in sugarcane production 10 15 20 20 20 85
Developing the use of and financing irrigation 200 250 300 300 400 1450
2.
GoK loans Financial Institutions Non performing SDF Loans SDL Statutory payments e.g. Farmers Performing Other Total
Loans Taxes Arrears SDF Loans Creditors
Year Cumulative
Indicator Target Achieved Variance Scorecard* Comments Improvement Action Achievement to Date Mean Scorecard
The price for seed cane should be at a premium, higher than that of cane for milling. This will
motivate selected farmers to produce adequate good quality seed cane.
There is need for training of seed certification officers and field inspectors for quality
assurance.
Procedures for certification must also be developed and documented. KESREF must play a
leading role in this process, backed by the sugar companies and OGIs.
Standard variety composition should gradually be restored to 20:40:40 for early, mid and late
maturing varieties. The seed cane for this restoration should be established in the nucleus
estate, where all the required standards for seed cane preparation will be adhered to.
Fertilizers are applied mostly manually on top of the ridges and are usually washed away when
applied in the rainy season. Urea is a volatile fertilizer and is less effective when applied on
top of the ridges. For better effectiveness, fertilizer should be incorporated into the soil using
fertilizer ridgers or by hand in small furrows adjacent to the cane stools, then covered with
soil.
In the MSC zone especially, efforts to stem diversion of fertilizer to sale for cash, could be
supplemented by:
Cane Yard management at the factory is key to reduction of the uneconomically lengthy turn-
around time by cane haulage units.
Cane transportation rates account for 30-37% of the total cost of sugarcane production. In
order to minimise on this cost, it makes business sense to increase productivity of existing cane
areas rather than expanding cane catchment areas to uneconomically distant zones.
High cane spillage especially in the Mumias Sugar Zone could be mitigated by having the
trailer baskets fitted with all round expanded metal and secured with rope or cargo netting.
In areas where farmers have smaller cane plots, it is worthwhile considering animal drawn carts
to ferry cane from the fields to a collection centre. This would save on costs and protect the
plots and cane stools from destruction.
The following sources of funding have been identified for long-term sugar roads maintenance:
The Central Government through the ministry of public Works and the Kenya Roads
Board, from taxes and fuel levy
The local authorities through Cess funds levied on sugarcane sales
Funds generated internally by the sugar companies
Grants from the Sugar Development Fund.
In a liberalized market, the use of sugar company resources in maintaining sugar roads, which
are public roads, is not desirable as it increases production overheads and ultimately adds to
the cost of sugar.
It is proposed that the management of sugar roads be placed under a committee comprising
KSB, millers, outgrower representatives, local government and the Kenya Roads Board.
Currently, there exists a Cane Pricing Committee which under the law comprises representation
from KSB, KESGA and KESMA and has the function of reviewing sugarcane prices which
Paragraph 8 of the 2nd Schedule of the Sugar Act 2001 demands that it be determined on the
basis of sucrose content.
The importance of cane pricing in providing growers with quality incentives and protection
from poor mill performance cannot be over-emphasized.
The preferred payment system must be backed by the law and governed by strict and clear
regulation. In this regard, there must be a neutral and professional arbitration body to police
the regulation and deal with any queries arising.
The farmers and millers must be fully enlightened on the system, its implications and what is
expected of them for the growth of the industry.
The preferred cane payment system must be one that provides the farmer and the miller an
equitable share of the industrys earnings based on their respective costs of production, plus a
reasonable return on their investments.
The system must encourage and reward the farmer for supply of good quality cane to the
mills.
The system must encourage and reward the factory for operating at optimal efficiency.
1.6 Ratooning
Unless in exceptional cases where sugarcane husbandry is of high quality, farmers hardly make
any profit from the plant crop. Subsequent ratoons, if well maintained to sustain high yields,
bring good profits to the farmer. Emphasis must therefore be placed in ratoon maintenance
through selection at planting of varieties with high ratoonability, cane husbandry practices
such as ridging which stimulates cane growth and proper fertilizer application.
MSC is a high input use scheme attributed to a centrally planned management system. With
the exception of hired labour, the level of use of inputs is determine and paid for by the miller.
The profits earned by the farmer are an implicit land rate for leasing out their land. Since the
inputs are supplied centrally, the farmer has lower leverage in bargaining for better prices. The
input costs are also higher due to mark up costs for the transactions. In the absence of choice
of input use, cases of diversion, especially of fertilizer are high.
1.8 Research
KESREF was incorporated in January 2001 with the principal objective of conducting sugar
research and undertaking technology transfer. Low levels of funding, poor and inadequate
infrastructure, and reliance on SDF as the only source of funding which is not adequate
limit the performance of the Foundation. To enable the Foundation effectively carry out its
mandate, there is need to increase research funding, develop bankable projects proposals to
attract financial support from donors and venture into other sources of income generation.
Current R & D activities have concentrated on agronomic and socio-economic research while
farm mechanization, sugar milling and processing are almost non-existent. Potential research
capacities that can be exploited exist at KESREF, KIRDI29 and local universities.
Improved road network to improve haulage and reduce transportation costs; and
Equitable division of proceeds through the cane pricing formula.
A study undertaken by the ISO has identified the following four possible strategies for further
development of smallholder/ outgrower cane production:
29 Collaboration MOU between KESREF and KIRDI was signed in August 2006. This led to a joint study involving KSB on the Assessment of
Industrial Research and Development needs of the Kenyan Sugar industry.
KBLPs initial analysis revealed that it was necessary to increase outgrowers access to finance
and assist farmers to improve crops, adopt new technologies and view their farms as profit
making operations. Under KBLP, the KSCL aimed to provide a reliable and stable market for
outgrower cane while all other services such as land preparation, weeding, cane loading and
infrastructure maintenance, is provided by the community for the community.
The following were identified by KBLP as priority areas to achieve the objectives:
The success of this project is hinged on supporting partners and a market to outgrower
production, all driven by clear economic objectives.
As a result of continuous plots, roads, drainage and other necessary infrastructure can be
more easily constructed and maintained
Easier to provide extension services for improved husbandry and higher productivity
Reduced incidence of accidental fire because the grid road network acts as a firebreak
Planting lines will be more uniform, ensuring more accurate and easier application of
herbicide and fertilizer
Easier harvesting due to uniform maturity period and easy accessibility to cane. Harvest
efficiency also improved because cane loaders no longer have to travel long distances
when loading cane into trucks
Cost per unit of cane planting and maintenance operations will decline through the
exploitation of economies of scale
While improved cane varieties can increase productivity in O/G farms, sustainability will only
be guaranteed by better cultural practises and a business sense. The incentive to use treated
seed cane, proper zone specific varieties and good crop husbandry can only be sustained by the
following factors:
The ISO and CFC (providing grant financing) approved a project submitted by the Sugar
Board of Tanzania aimed at addressing the problems of low productivity and profitability in
the smallholder sector in East Africa (Tanzania, Kenya and Uganda) through importation and
evaluation of superior sugarcane varieties, multiplication, production, use of certified seed cane
and promotion of proper practices of crop husbandry and management. The project is also
expected to overcome the current short falls of lack of clean planting material by introducing
certified seed cane production systems which will ensure healthy seed cane and effective control
over the spread of diseases and pests.
(d) For effective operation of outgrower institutions, they must be focused on the farmers
needs at the grass root and be accountable to the grower members who shall be
shareholders of the company. Essentially then, the outgrower bodies shall be governed by
the Co-operatives Act.
(e) Outgrower bodies must be run by competent management, based on sound commercial
principles with proper checks and balances in place to ensure that set targets are achieved.
KSB could play a coordinating role ensuring that the controls are in place and that the
institutions so established take advantage of the existing community strengths.
(g) The OGIs need to develop and adhere to a risk management policy to enable them
identify, assess and manage risks in order to minimize the negative impact thereof.
(h) There is a programme supported by the World Association of Beet and Cane Growers
(WABCG) to strengthen sugarcane and beet producers organizations in developing
countries (undertaken by Agricord). The basic premise of the programme is that grower/
miller relationships determine the level of income generation by a smallholder farmer.
The organizational degree of outgrowers determines the degree of bargaining power and
the way proceeds are shared.
ii. Promote rehabilitation, modernization and expansion of the factories to maintain sufficient
capacity for the production of sugar to meet domestic consumption requirements at all times and
surplus for export;
iii. Promote the development of new factories in viable regions of the country by the private sector;
iv. Support industrial and applied research. Seek in-house support for mill maintenance e.g. enlisting
the services of institutions such as KIRDI and Numeric Machining for fabrication of mill parts.
vi. Guard against diseconomies of scale as introduced by overheads from dominant functional
departments and systems rigidity as may be evident in the local best of the breed companies
compared to regional competitors.
vii. Empower managers through-out the company to approach cost containment differently by
modifying the manner in which they produce, report, supervise, control, appraise and market
products and services.
viii. The industry must identify and eliminate low value-adding tasks, which increase overheads but
must limit the frequency of cost cutting activities as they wear down morale.
ix. Tune corporate structure to emerging conditions of lean innovative and balanced production
systems.
x. Carry out assessment of the working patterns in the industry that lead to high costs and encourage
modification of such factors to reduce costs.
xi. To avoid impaired decision making, the industry should standardize its accounting reports and
monitor its cost data more consistently to reduce irrelevance, inaccuracy and issuance of misleading
information.
xii. Industry must modify its decision making process to cut down paper work, filing etc., without
diluting the management of financial and staff resources. Effective use of IT by senior managers in
finding out the accurate details of occurrences and making decisions must be encouraged. It must
receive equal attention as labour, materials and overheads.
xiii. The industry must map out its value chain in order to quantify value added by each activity and set
out equitable rates and prices for all inputs to support sustainability for the benefit of all players.
xiv. Probably allow the Agriculture Department to run the nucleus estate as a semi autonomous business
selling its cane to the company to help assess the real cost of cane and due returns. This may further
encourage other growers contracts, such as leases, where grower practices are wanting.
xv. De-link the cost of cane handling (harvesting, loading, transport e.t.c) from the growers proceeds.
In any case all such services are secured by contracts between the millers and service contractors
without consulting the grower. A review of value addition activities in these operations among the
accountable parties should bring down the costs.
xvi. Embrace condition maintenance at the factory to pre-empt breakdowns and ensure that valuable
time is not lost while extensive repairs and maintenance are being undertaken.