Why The KSh150 Million First-Ever Cash Bonus To Mumias Sugarcane Farmers Is A New Dawn For Kenyan Farmers
President William Ruto, accompanied by his deputy Kithure Kindiki, Agriculture CS Mutahi Kagwe, Agriculture PS Dr. Kiprono Rono and other leaders hand over a bonus cheque to Onesmus Fibada Simali, during the handover of the inaugural KSh150million bonuses to farmers contracted by Mumias Sugar Company in Mumias yesterday
By Hez Gikang’a
Worth Noting:
- The firm was listed on the Nairobi Securities Exchange (NSE) in 2001, cementing its premier status as a corporate success story.
- But through a series of challenges, from internal mismanagement to competition from other sugar-producers within the Common Market for East and Southern Africa (COMESA), it fell on hard times over the last decade and survived on government bailouts.
- The firm has been operating under a lease agreement between Sarrai Group and the Kenya Commercial Bank (KCB) Group since 2021, an arrangement that has worked out well as the firm avoided liquidation, a development that would have had disastrous effects on the socioeconomic status of the Mumias sugar belt and its environs, given the extensive forward and backward linkages that sugarcane farming has.
As President William Ruto embarked on an extensive development tour of Western Kenya yesterday, the issuance of a first-ever bonus of KSh150 million to sugarcane farmers contracted to Mumias Sugar Company marks a significant milestone in the fulfilment of his pledge to uplift the economic fortunes of farmers across the country.
It is also, markedly, the inaugural activity by Mutahi Kagwe, the newly-appointed Agriculture and Livestock Development Cabinet Secretary, who during his vetting last week, pledged to tirelessly work with all stakeholders, leverage technology and innovative business models to increase farmers earnings and make agriculture profitable.
Mumias Sugar Company has had a special place in Kenya’s agricultural sector. Mooted by the government in 1967, and formally established in 1973, it was once Kenya’s success story in agriculture, producing 250,000 tonnes of sugar annually, which was 60% of Kenya’s domestic consumption then, and byproducts like energy from cogeneration and ethanol, and contracting up to 50,000 farmers with the nucleus and out grower zones, thereby sustaining hundreds of thousands of households across the country through nationwide value and distribution chains.
The firm was listed on the Nairobi Securities Exchange (NSE) in 2001, cementing its premier status as a corporate success story.
But through a series of challenges, from internal mismanagement to competition from other sugar-producers within the Common Market for East and Southern Africa (COMESA), it fell on hard times over the last decade and survived on government bailouts.
The firm has been operating under a lease agreement between Sarrai Group and the Kenya Commercial Bank (KCB) Group since 2021, an arrangement that has worked out well as the firm avoided liquidation, a development that would have had disastrous effects on the socioeconomic status of the Mumias sugar belt and its environs, given the extensive forward and backward linkages that sugarcane farming has.
Notably, today’s milestone is testament to the efficacy of the public-private-partnership model as the future of state-owned sugar firms, and indeed the agricultural sector.
Through the lease model, Mumias, through Sarrai Group, has been dutifully servicing the KSh50 million monthly loan to the bank, undertaken major upgrades that have increased milling efficiency and capacity, and has been paying farmers for cane delivered on time.
In September 2019, KCB Group, as a protected creditor, had placed Mumias under receivership for a KSh3.5 billion debt. Mumias also owed other creditors close to KSh10 billion.
These positive developments for sugarcane famers are not accidental.
They are part of the fundamental reforms that President Ruto and the Kenya Kwanza administration envisaged under the Bottom-Up Economic Transformation Agenda (BETA), and have been implemented in the last two years.
Cognizant of the huge potential that agriculture and livestock value chains have in addressing Kenya’s unemployment and household incomes challenges, the BETA manifesto identified agriculture as the leading pillar that will lead Kenya’s economic transformation and inclusive growth.
The plan prioritized, sequenced and identified this sector as the one with the highest multiplier effect on all other sectors of the economy, the highest employment creation potential, the highest and quickest value-add potential, and the highest potential for imports substitution to save on scarce foreign exchange resources.
However, for this vision to become reality, and for government to address extreme hunger, vulnerability and poverty, bold, and difficult policy and political decisions have had to be made.
One such decision is the enactment of the Sugar Act 2024, signed into law by President William Ruto on November 1 last year. This move has started bearing fruit, as the bonus payment would not have happened without it.
The Act clarifies roles by creating institutions in the sector and defining their mandates, in an effort to boost production, quality, and farmers’ incomes; and increase transparency, accountability and efficiency in this most important sector.
It therefore creates the Kenya Sugar Board (KSB) as a separate entity from AFA to regulate, develop, and promote the sugar industry; co-ordinate value chain actors; and facilitate equitable access to the benefits and resources of the industry to all stakeholders.
The Act also establishes the Kenya Sugar Research and Training Institute (KESRETI), the Sugar Development Fund (SDF), the Sugar Development Levy (SDL), and the Sugar Arbitration Tribunal (SAT); introduces the Sugar industry safeguard measures to guide on sugar imports; speaks to the appointment of Sugar Crop Inspectors; delineates sugarcane catchment zones; guides the corporate governance of the KSB; issues guidelines on agreements between parties; and for compliance reasons, requires the mandatory registration and licensing of players and speaks to subsidiary regulation to operationalize the Sugar Act.
Since enactment of the Act, less than three months ago, immense progress has been made – the Kenya Sugar Board (KSB) members, Chair and CEO are in place; the subsidiary regulations on the Levy, grower and miller representation on the board, and the general regulations on production have all been drafted and are awaiting public participation; while financial and operational independence from the Agriculture and Food Authority (AFA) are at an advanced stage and will be completed by the end of next month.
Further, President Ruto has, through the appropriate government institutions and requisite processes, written-off all the debts owed by the state-owned sugarcane firms, amounting to KSh117 billion, and okayed the revival of the five millers – Nzoia, Miwani, Muhoroni, Sony and Chemelil – through a Public Private Partnership (PPP) leasing model like the one with Mumias.
To protect the local sugarcane farmers and processors, the government has also constituted a Sugar Pricing Committee (SPC) and is financing Sugar Research and Training institute to the tune of KSh600 million this financial year.
As a consequence of better agronomic practices, quality and quantity is growing, and through government investment in supply-side interventions like the 700,000 bags of subsidized fertilizer allocated to the sugarcane sector last year, better processing equipment and enabling infrastructure, all of which cumulatively contribute to better earnings for both farmers and millers, local sugarcane production is rising.
Last year, production was 832,000 metric tonnes (MT) against an aggregate demand of 1.1 million MT, meaning that imports dropped to 300,000 MT. New and additional zones have come under sugarcane cultivation in Trans Mara, and the Tana River, bringing in an additional 42,000 acres, and the target is a total of 200,000 acres.
The demand-supply gap is also narrowing, and by next year, Kenya will be a net sugar exporter.
The sum total of all these developments is lower sugar prices for the domestic and industrial consumers, better returns for farmers and other investors, government savings on scarce forex resources on account of lower imports, assured food security for Kenyans, and more jobs created locally.
Revival of the agricultural sector is revival of people’s livelihoods.
The Kenya Kwanza government is committed to making farming profitable again!
Hez Gikang’a is a Nairobi-based political strategist and strategic communications professional. Email: hezgikanga@gmail.com
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