1. business and industrial
2. agriculture and forestry
3. agriculture

KENYA SUGAR INDUSTRY
STRATEGIC PLAN, 2010–2014
Resource
Mobilisation &
Utilisation
Implementation
Strategy
Monitoring
Evaluation
Reporting
Enhancing Industry Competitiveness
Strategic Plan, 2010-2014
i
ii
Kenya Sugar Industry
Table of Contents
Acronyms.......................................................................................................................ii
Foreword.......................................................................................................................iv
Acknowledgements.....................................................................................................v
Executive Summary....................................................................................................vi
Chapter 1: Introduction
1.1
1.2
1.3
1.4
1.5
Historical Background..............................................................................................................1
Importance of the Sugarcane Sector to the Economy................................................................2
Sugar industry Stakeholders......................................................................................................3
Scope of Services.......................................................................................................................4
Methodology............................................................................................................................4
Chapter 2: Kenya’s Development Agenda and Challenges..................................6
2.1
2.2
Attaining Vision 2030 . ............................................................................................................6
Trade Environment for Kenyan Sugar.......................................................................................8
Chapter 3: Review of the Strategic Plan 2004-2009............................................ 12
3.1
3.2
3.3
3.4
Strategic Objectives (2004-2009)............................................................................................12
Achievements..........................................................................................................................12
Lessons from Plan Implementation.........................................................................................21
Situational Analysis.................................................................................................................22
Chapter 4: Strategic Plan 2010-2014..................................................................... 24
4.1
4.2
4.3
4.4
4.5
Rationale for the 2010-2014 Strategic Plan.............................................................................24
Vision, Mission and Core Values of the Sugar industry...........................................................24
Analysis of Challenges along the Sugar industry Value Chain..................................................25
Strategic Goals (2010-2014)...................................................................................................26
Strategic Objectives (2010-2014)............................................................................................27
Chapter 5: Implementation Strategy and Resource Requirements................. 40
5.1
5.2
5.3
5.4
Implementation Strategy.........................................................................................................40
Resource Mobilisation and Utilisation.....................................................................................42
Accountability . ......................................................................................................................44
Implementation Risks.............................................................................................................44
Chapter 6: Monitoring, Evaluation and Reporting.............................................. 46
6.1
6.2
6.3
6.4
6.5
Monitoring ............................................................................................................................46
Evaluation . ............................................................................................................................46
Reporting . .............................................................................................................................47
Information Sharing ..............................................................................................................47
Conclusion ............................................................................................................................47
Annexes....................................................................................................................... 48
Strategic Plan, 2010-2014
iii
Acronyms
ACP
AgGDP
AIDS
AMS
BPO
CDF
CET
CFC
CIF
COMESA
CSR
CSS
CU
EAC
ERSWEC
EU
GDP
GOK
HIV
ICT
ISO
KARI
KECATRA
KenGen
KESGA
KESMA
KESREF
KIRDI
KPLC
KRB
KSB
KSSCT
LATF
M&E
MCI
MDG
MoA
MoASP
MoE
MoF
MoI
MoLG
MoR
MoRDA
iv
African, Caribbean and Pacific Countries
Agricultural Gross Domestic Product
Acquired Immune Deficiency Syndrome
Agricultural Management System
Business Process Outsourcing
Constituency Development Fund
Common External Tariff
Common Fund for Commodities
Cost, Insurance and Freight
Common Market for Eastern and Southern Africa
Corporate Social Responsibility
Customer Satisfaction Surveys
Customs Union
East African Community
Economic Recovery Strategy for Wealth and Employment Creation
European Union
Gross Domestic Product
Government of Kenya
Human Immunodeficiency Virus
Information and Communication Technology
International Organisation for Standardization
Kenya Agricultural Research Institute
Kenya Cane Transporters Association
Kenya Electricity Generating Company
Kenya Sugar Growers Associations
Kenya Sugar Manufacturers Association
Kenya Sugar Research Foundation
Kenya Industrial Research and Development Institute
Kenya Power and Lighting Company
Kenya Roads Board
Kenya Sugar Board
Kenya Society of Sugarcane Technologist
Local Authority Transfer Fund
Monitoring and Evaluation
Millennium Cities Initiative
Millennium Development Goals
Ministry of Agriculture
Ministry of Agriculture Strategic Plan
Ministry of Energy
Ministry of Finance
Ministry of Industrialization
Ministry of Local Government
Ministry of Roads
Ministry of Regional Development Authority
Kenya Sugar Industry
MoT
MoWI
MT
MTER
MTP
NTB
OGC
OTE
PESTLE
PRSP
PS
RRA
SACCO
SDF
SDL
SMART
SMARTEST
STI
SUCAM
SWOT
TARDA
TCD
TCH
TNA
USA
VCC
WTO
Ministry of Trade
Ministry of Water and Irrigation
Metric Tonne
Mid Term Evaluation and Review
Medium Term Plan
Non-Tariff Barriers
Outgrowers companies
Overall Time Efficiency
Political, Economic, Social, Technological, Legal and Environment
Poverty Reduction Strategy Paper
Permanent Secretary
Rural Roads Authority
Savings and Credit Cooperatives
Sugar Development Fund
Sugar Development Levy
Specific, Measurable, Attainable, Realistic, Timed
Specific, Measurable, Attainable, Realistic, Timed, Engaging, Siring, Team
Science, Technology and Innovation
Sugar Campaign for Change
Strengths, Weaknesses, Opportunities and Threats
Tana and Athi Regional Development Authority
Tonnes Crushed per Day
Tonnes Crushed per Hour
Training Needs Assessment
United States of America
Vale Columbia Center
World Trade Organisation
Strategic Plan, 2010-2014
v
Foreword
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 industry’s 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.
Hon. William S. Ruto, M.P,
Minister for Agriculture
vi
Kenya Sugar Industry
Acknowledgements
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 industry’s 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
Strategic Plan, 2010-2014
vii
Executive Summary
I.
Background
The Kenyan sugarcane industry is a major employer and contributor to the national economy. Sugarcane
is one of the most important crops in the economy alongside tea, coffee, horticulture and maize. By far,
the largest contribution of the sugarcane industry is its silent contribution to the fabric of communities
and rural economies in the sugar belts. Farm households and rural businesses depend on the injection
of cash derived from the industry. 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.
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.
III.
Structure of the Report
This Plan is set out in six chapters. After an introduction in chapter one, Kenya’s Development Agenda
and Challenges is outlined in chapter two followed by a review of the 2004-2009 Strategic Plan in chapter
three. The proposed Strategic Plan 2010-2014 is discussed in chapter four. Implementation Strategy
and Resource Requirements is presented in chapter five. The document concludes with a discussion on
Monitoring, Evaluation and Reporting in chapter six. IV.
2004-2009 Strategic Plan Review Findings
A review of the 2004-2009 Strategic Plan showed that:
1.
2.
3.
4.
viii
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
The consumption-production gap still persists and growing, delaying the industry’s goal of
being a net exporter
Yield levels declined from a modest yield level of 73 tonnes per hectare to about 70 tonnes
per hectare over the last five years.
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.
Kenya Sugar Industry
5.
6.
7.
8.
Most the factories, that are the backbone of the industry were struggling in debt and were
unable to maintain effective crushing capacity, carry out routine maintenance and essential
rehabilitation and pay farmers on time.
Funding to the industry was inadequate to meet infrastructural development needs such as
irrigation, roads, research and factories modernization
The safeguards that were put in place to protect the industry including COMESA region
quotas and taxes had many loopholes
Governance in many of the industry institutions including outgrower institutions and
publicly owned factories continued to be a big challenge
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.
V.
The 2010-2014 Strategic Plan
Rationale for the Plan
The Kenya Sugar Industry Strategic Plan for 2010-2014 provides a road map of how the industry intends
to be a “world class multi-product sugarcane industry.” To enable the Government achieve its strategic
objectives of being a middle-income country by the year 2030, this revised strategic plan aims at making
the industry more efficient, diversified and globally competitive to contribute to the overall objective
outlined in the Agricultural Sector Development Strategy (2009-2020) and the Kenya Vision 2030.
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 industry’s 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:
Strategic Plan, 2010-2014
ix
n
n
n
n
n
Reduction in farm level risks
Efficient, reliable harvesting and transport operations
Effective, efficient, milling operations
Enhanced human resource capacity
Streamlined corporate governance
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
3.
Investing more in infrastructure by:
n
Improving road transport
n
Investing in irrigation
n
Investing in and promoting the use of ICT
n
Increasing funding in Research and Development
n
Modernisation of mills
4.
Strengthening the policy, institutional and legal environment by:
n
Improving the management of the sugar import policy
n
Strengthening Corporate Governance
n
Finalising and implementing the Sugar Regulations
n
Finalising the implementation of the privatisation programme
n
Establishing a coordination mechanism for roads maintenance in the sugar zones
n
Supporting measures to develop a comprehensive policy on co-generations and exploitation
of bio-fuels and other sugarcane products
VI.
Implementation Strategy and Resource Requirements
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 UCs 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.
x
Kenya Sugar Industry
Chapter
1
Introduction
1.1 Historical Background
Industrial sugarcane farming was introduced in Kenya in 1902. The first sugarcane factory was set-up
at Miwani 10km north of Kisumu in 1922 and later at Ramisi in the Coast Province in 1927. After
independence, the Government explicitly expanded its vision of the role and importance of the sugar
industry as set out in Sessional Paper No 10 of 1965 which sought, inter alia, to:
n
Accelerate socio-economic development
n
Redress regional economic imbalances
n
Promote indigenous entrepreneurship
n
Promote foreign investment through joint ventures
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
Strategic Plan, 2010-2014
1
Following the Task Force’s recommendations, the Government made the following decisions:
(a) Made changes in the management of all publicly owned milling companies with a view to
improving corporate governance
(b) Reduced lending rates on SDF loans from 10% to 5%
(c) Wrote off KSh. 4.7 billion on accrued interest and penalties on SDF loans
(d) Disbursed KSh. 800 million towards settling arrears owed by milling companies to farmers
(e) Increased research funding from the Sugar Development Levy by (SDL) doubling the
allocation from 0.5% to 1%
(f ) Successfully negotiated for a four-year COMESA safeguard to give the industry time to
restructure and become globally competitive
80
Tonnes (x10000)
60
40
20
0
2001
2002
2003
2004
2005
2006
2007
2008
Year
Production
Consumption
Imports
Exports
Fig. 1.1: Sugar Production, Consumption, Imports and Exports Trends
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 industry’s 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.
1.2 Importance of the Sugarcane Sector to the Economy
The Kenyan sugarcane industry is a major employer and contributor to the national economy. It is
one of the most important crops alongside tea, coffee, horticulture and maize. Currently, the industry
directly supports approximately 250,000 small-scale farmers who supply over 92 percent of the cane
milled by the sugar companies. An estimated six million Kenyans derive their livelihoods directly or
2
Kenya Sugar Industry
indirectly from the industry. In 2008, the industry employed about 500,000 people directly or indirectly
in the sugarcane business chain from production to consumption. In addition, the industry saves Kenya
in excess of USD 250 million (about KSh. 19.3 billion) in foreign exchange annually and contributes
tax revenues to the exchequer (VAT, Corporate Tax, personal income taxes, cess). In the sugarbelt
zones, the sugar industry contributes to infrastructure development through road construction and
maintenance; construction of bridges; and to social amenities such as education, health, sports and
recreation facilities2,3.
The sugarcane industry provides raw materials for other industries such as bagasse for power cogeneration 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.
1.3 Sugar industry Stakeholders
The Kenya Sugar industry has a wide range of stakeholders, each with a role to play.
(i) The Government of Kenya (GoK)
The Government of Kenya (GoK) through the Ministry of Agriculture (MoA) has the overall
responsibility for the industry’s development. The GoK has a role of supporting the industry through
regulation, enhancement of competition and fairplay, and provision of an enabling environment for all
stakeholders. Currently, the GoK is the largest shareholder in the industry.
(ii) The Kenya Sugar Board (KSB)
The Kenya Sugar Board (KSB) is a public body set up by the Sugar Act, 2001, under the Ministry of
Agriculture. The Board is mandated to:
i. Regulate, develop and promote the sugar industry
ii. Co-ordinate the activities of individuals and organisations in the industry
iii. Facilitate equitable access to the benefits and resources of the industry by all interested
parties
(iii) Kenya Sugar Research Foundation (KESREF)
The Kenya Sugar Research Foundation (KESREF) established in 2001, is the scientific wing of the
industry mandated to develop and transfer appropriate technology in the sugar sub-sector. It also
carries out socio-economic studies to enhance the development of sugar as a commercial business.
The Foundation is funded mainly through grants from the Sugar Development Fund (SDF). It has its
headquarters in Kibos, Kisumu with sub-stations in Mumias, Mtwapa and Opapo.
2
3
Bracing for COMESA: Kenyan Sugar industry, Mumias Sugar Company Bulletin 2008
Kenya Sugar Board Strategic Plan (2008-2012) and Year Book of Statistics (2008)
Strategic Plan, 2010-2014
3
(iv) Cane Growers/Outgrower Institutions
Sugarcane farmers (outgrowers) supply 92% of the cane milled. A large number of institutions including
Outgrower Institutions, Societies, Unions and SACCOs represent these farmers. The role of these
institutions is to promote, represent and protect the interest of the farmers. The institutions operate
under the Kenya Sugarcane Growers Association (KESGA).
(v) Cane Transporters
Cane transporters are responsible for provision of cane transportation services in the industry. Transporters
operate under the Kenya Cane Transporters Association (KECATRA).
(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.
(vii) Other Industry Stakeholders
Other industry stakeholders include:
n
Importers
n
Financial institutions
n
Consumers
n
Special interest groups
• Kenya Society of Sugarcane Technologist (KSSCT)
• Sugar Campaign for Change (SUCAM)
1.4 Scope of Services
The scope of services outlined in the Terms of Reference for the preparation of the 2010-2014 Strategic
Plan, were as follows:
i. Review the current strategic plan and other relevant documentation which shall include, but
not limited to the National Vision 2030; the Ministry of Agriculture Strategic Plan 20062010; the Sugar Act 2001; Guidelines for the preparation of strategic plans 2008-2010 from
the office of the Prime Minister, Ministry of State for Planning, National Development and
Vision 2030; and prepare a critique of issues for consideration
ii. Conduct a stakeholders’ workshop to collect views on possible amendment to the current
document
iii. Arising from (1) and (2) above, prepare a draft industry strategic plan 2010-2014
iv. Conduct a workshop for the Board and Management Team to take them through the draft
industry strategic plan 2010-2014
v. Prepare a final draft to be presented to the Board, Management Team and sugar
stakeholders
vi. Prepare and present the final document
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.
4
Kenya Sugar Industry
1.5.1
Literature Review
The consultant reviewed a wide range of published materials and documents in the course of
the assignment, including:
i.
Kenya Sugar Industry Strategic Plan (2004-2009)
ii.
Kenya Sugar Board Strategic Plan (2008-2012)
iii.
Kenya Vision 2030, A Globally Competitive and Prosperous Kenya
iv.
Sessional Paper of 2008 on Revitalisation of Sugar industry (March 2008)
v.
Agriculture Sector Development Strategy (2009-2020)
vi.
Economic Recovery Strategy for Wealth and Employment Creation
vii. Report of the Task Force on Sugar industry Crisis, 1st July 2003
viii. Guidelines for Preparation of Vision 2030 based Strategic Plans
ix.
Report on Cost of Cane and Sugar Production (KSB, 2006, 2007)
x.
Year Book of Sugar Statistics (KSB, 2008)
xi.
Kenya Sugar industry Report (EPZA, 2005)
xii. Working Papers (Millennium Cities Initiative & Vale Columbia Center, 2008)
xiii. National Policy on Sugar industry (GoK, April 2001)
xiv. National Sugar Conference Report (October, 2004)
xv.
Economic Governance Reform in the Sugar Subsector (February, 2005)
xvi. Energy Act, 2006
xvii. Various internet sources
1.5.2
Stakeholder Consultative Workshops
The consultant held two stakeholder consultative workshops in Kisumu. The first workshop
was held on 21 and 22 May 2009. The second workshop was held on 17 June 2009. The
workshops’ participants comprised representatives of Outgrower Institutions (OGIs), Millers,
Transporters, Cane Researchers, Universities, Ministry of Agriculture, KESREF and Kenya
Sugar Board. These workshops were used as discussion forums to gather information on key
issues affecting the industry and the way forward.
1.5.3
Debriefing Workshops
The consultant conducted three debriefing workshops. The first workshop was held on 10 July
2009 with the management team of the Kenya Sugar Board. The second and third workshops
were held on 27 July 2009 and 14 August 2009 respectively with the Board and Management
Team of KSB. The comments and suggestions from the three debriefing workshops have been
incorporated in this report.
Strategic Plan, 2010-2014
5
Chapter
2
Kenya’s Development Agenda
and Challenges
2.1 Attaining Vision 2030
Kenya’s medium and long-term development agenda is set out in the Kenya Vision 2030. The Vision is
built on the foundation of the Economic Recovery Strategy for Wealth and Employment Creation (ERWEC)
2003-2007. It is the country’s new development blueprint covering the period 2008-2030. The vision
aims to transform Kenya into a newly industrialising, middle-income country providing a high quality life
to all its citizens in a clean and secure environment by the year 2030. The Vision is also expected to be
a major vehicle for the realisation of the Millennium Development Goals (MDGs). The vision is based
on three pillars: the economic, the social and the political. These pillars are anchored on macroeconomic
stability; continuity in governance reforms; enhanced equity and wealth creation opportunities for the
poor; infrastructure; energy; science, technology and innovation (STI); land reform; human resources
development; security as well as public sector reforms. The sugar industry will contribute to the
attainment of three pillars through various interventions discussed below:
2.1.1
Economic Pillar
The economic pillar aims to attain an average Gross Domestic Product (GDP) growth rate of
ten per cent (10 %) per annum and sustain it to 2030. The programs envisaged to move the
economy up the value chain are tourism, agriculture, wholesale and retail trade, manufacturing,
business process outsourcing and financial services. The sugarcane industry will play a key role
in the attainment of the goals set for the programmes in agriculture and manufacturing; and
to benefit substantially from programmes envisaged in the wholesale and retail, and financial
services programmes.
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:
n
n
n
n
n
Transforming key institutions to promote agricultural growth
Increasing productivity in the sector
Land policy and land use reforms
Expanding irrigation in arid and semi-arid lands
Improving market access for smallholders through better supply chain management
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.
6
Kenya Sugar Industry
Wholesale and Retail Trade: The 2030 vision for wholesale and retail trade is to move
towards greater efficiency in the country’s marketing system by lowering transaction costs
through institutional reforms. This involves strengthening informal trade (through investment
in infrastructure, training and linking it to wider local and global markets). This is expected
to raise the market share of products (including sugar and co-products) sold through normal
channels such as supermarkets from 5% to 30% by 2012. The envisaged flagship projects
such as creation of wholesale hubs, building of retail markets and a free trade port are market
opportunities that will be exploited by the sugar industry in the incoming planning period.
Manufacturing Sector: Kenya aims to have a robust, diversified and competitive manufacturing
sector through:
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
n
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
n
n
n
n
Undertaking legal and institutional reforms to make Kenya more competitive as a financial
centre
Consolidation of banks to make them larger and stronger
Introduction of credit referencing
Strengthening informal and micro-finance institutions and SACCOs
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:
Land reforms to reduce inequality and increase intensification
Improving efficiencies in the supply chain e.g. enhancing access to input markets, raising
cane yields, reducing post-harvest losses and upgrading factory capacity
n Increasing access to credit facilities particularly for farmers
n Increasing value addition by more processing and product diversification
n Strengthening corporate governance in the sugarcane industry
n
n
Strategic Plan, 2010-2014
7
2.1.2
Social Pillar
The social component addresses issues of equity and social justice; national cohesion, security
and environmental concerns. It lays great emphasis on the development of education and
training, better healthcare, improved water and sanitation, sustainable and better environmental
management as well as vital national attention to gender equity, youth, vulnerable groups,
housing, and poverty reduction.
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.
2.1.3
Political Pillar
The political component aims to realise a democratic political system predicated on greater
economic and political devolution, respect for the rule of law, and protection of rights and
freedoms for all citizens. Under this component, Kenya’s development agenda is to improve
accountability, reduce impunity and begin the real fight against corruption, and thus promote
efficiency in the governance and management of public affairs. Good corporate governance
in the sugar industry is essential in order to create a climate of fairness, transparency and
accountability especially now when major decisions are needed to make the industry leaner,
efficient and more competitive.
2.2 Trade Environment for Kenyan Sugar
2.2.1
Global Trade Environment and Obligations
In the last two decades, the world has witnessed rapid economic growth and expansion of trade,
driven primarily by emerging Asian Tiger economies. The rapid and continued strong growth
in China and India will further put upward pressure on prices of crude oil. This will continue
to cause major challenges to Kenya’s sugar industry that is significantly dependent on fossil
fuel for cane transportation. In addition, there is evidence to suggest that financial market
challenges in the United States of America (USA) and Europe, are affecting global markets
thus impacting negatively on Kenya’s trade performance in goods and services. The overall
effect of the credit crunch will be felt in terms of reduced purchasing power of foreign buyers
of Kenyan goods, and lower domestic access to credit, grants, and donor support. Capital
markets will also be more concerned at the likely impact of reducing global trade flows on the
creditworthiness of countries like Kenya.
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,
8
Kenya Sugar Industry
productivity and quality control to levels comparable to those of its competitors in order to
exploit the opportunities availed by the global market.
Kenya’s is a signatory to World Trade Organization (WTO), the Cotonou Partnership
Agreements (ACP-EU), COMESA Free Trade Agreement and the East African Community
Customs Union. Sugar imports and exports are affected by what happens in these trade
regimes.
2.2.2
COMESA and East African Community Customs Union Obligations
Table 2.1: COMESA Import Quota
The Kenyan sugar industry is protected by COMESA safeguard measures. The safeguards were
first granted in 2004 and were to expire in February 2008. Despite the remarkable progress
made during the safeguard period, the industry was not ready for an open trade regime in
sugar. Kenya therefore sought and was granted an additional four years of protection from
March 2008 to February 2012, with a declining tariff and an increasing quota (Table 2.1).
Year
Quota (tonnes)
Tariff Rate (%)
2008/09
220,000
100
2009/10
260,000
70
2010-2014/11
300,000
40
2011/12
340,000
10
Open market
0
1 March 2012
The extension was granted subject to certain conditions, including:
i.
ii.
iii.
iv.
v.
vi.
vii.
Rising sugar import quota in tandem with a declining tariff as shown in Table 2.1
The Government adopts a privatization plan within the first 12 months and takes
verifiable steps to privatize the remaining publicly owned factories by 2011
The industry to implement cane payment system based on sucrose content instead of
weight
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
Kenya Sugar Board (KSB) to increase funding for research on high yielding and early
maturing varieties and spearhead its dissemination by farmers
The Government to increase funding for road infrastructure
The Government to submit twice yearly performance reports to the COMESA Council
on all measures, activities and improvements on the sugar sector’s 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
Strategic Plan, 2010-2014
9
Table 2.2: Cost of Sugar Production in COMESA and Selected EAC countries
Country
Cost USD/ tonne
Kenya
415-500
Sudan
250-340
Egypt
250-300
Swaziland
250-300
Zambia
230-260
Malawi
200-230
Uganda
140-180
Tanzania
180-190
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 nonCOMESA countries (such as Brazil).
The East African Community (EAC) commenced implementation of a common customs
union in 2005. The Customs Union encompasses the removal of internal tariffs, application
of a Common External Tariff (CET) and elimination of Non-tariff barriers (NTB). The CET
applies zero tariff rates for raw materials, 10% for intermediate goods and 25% for finished
products. Whilst this is a welcome move, it is worth noting that within the EAC, the cost
of sugar production is lowest in Uganda followed by Tanzania then Kenya. The practical
consequence is that even within the EAC; a duty free movement of sugar would imply that
Uganda and Tanzania producers would pose a challenge to their Kenyan counterparts. The
EAC Customs Union also include Burundi and Rwanda who are also members of the EAC.
Ultimately, the custom union might include Southern Sudan and the Democratic Republic of
the Congo in future. Therefore, it is necessary that domestic production be more efficient and
competitive and internal prices be realigned with regional levels for the industry is to survive
the anticipated regional sugar trade liberalization. 2.2.3
National Challenges
The country is facing a monumental task of overcoming poverty: 56% of the population lives
below the poverty line; an unemployment rate in excess of 40%, compounded by an increasing
number of youths leaving school who are looking for white-collar jobs. These problems are
exacerbated by high inequality in income and asset distribution and a deteriorating gender
inequality. The pressure to create jobs in the economy is therefore very high and the sugar
industry is expected to play a significant role.
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.
10
Kenya Sugar Industry
The state of infrastructure is unsatisfactory in terms of adequacy and quality because of years
of deferred maintenance. Roads in particular, require a major effort for rehabilitation and
maintenance; irrigation infrastructure has stagnated at very low levels since the 1970s – the
share of irrigated agricultural output is less than 10% of AgGDP. The limited use of irrigation
has increased farm level risks and hindered a sustainable increase in yields. The infrastructure
problems are likely to persist unless there is a clear plan and programme of implementation
over the medium and long-term. For the sugar industry, the process of seeking to build a
competitive industry will be impeded by an inadequate and poor quality infrastructure.
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 Kenya’s energy
supply. Currently, Kenya’s 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.
Strategic Plan, 2010-2014
11
Chapter
3
Review of the Strategic Plan
2004-2009
3.1 Strategic Objectives (2004-2009)
To turn around the sugar industry, the outgoing Plan identified nine (9) Strategic objectives for
implementation during the period 2004-2009. These objectives and actions are presented in Annex I.
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.
3.2.1 Attainment of the Mission
The Kenya Sugar Industry Strategic Plan (2004-2009) set out the mission of the industry as to:
“consistently achieve self-sufficiency and capacity for export of sugar and related products through
implementation of competitive global industry best practices.” However, this mission was not
achieved during the Plan period. The industry is still a net exporter. The goal of being globally
competitive is still a dream because the industry did not implement the structural measures
that would have brought down costs and increased its competitiveness. But of great concern,
is the focus on sugar and self-sufficiency without regard to profitability and efficiency. It
became clear that the sugar industry could not simultaneously seek self-sufficiency and global
competitiveness. As illustrated by the COMESA conditionality for granting an extension of its
safeguards, the industry needs to become competitive through major structural changes. This
calls for a review of the mission.
3.2.2 Analysis of the Sugar Industry Performance (2004-2009)
I. Increased Sugarcane Production and Productivity
Area under Cane
Area under cane grew from 131,507 hectares in 2004 to 169,421 hectares in 2008 (Fig 3.1),
representing an increase of 28.8%. The increase in cane area was attributed to the addition of
Kibos and Soin Sugar Zones as new cane areas. Additionally, apart from SONY Sugar Company
and Miwani, all the other companies increased areas under cane. Most of the increase was from
the West Kenya zone, which rose by 198.2% (Table 3.1)
5
12
Specific, Measurable, Attainable, Realistic, Timed
Kenya Sugar Industry
169,421
Area under cane (Ha)
158,568
147,730
144,765
131,507
122,580
126,826
117,131
2001
2002
2003
Fig. 3.1: Area under Cane (2001-2008) 6
2004
2005
2006
2007
2008
Year
Source: Year Book of Sugar Statistics, KSB, 2008
Table 3.1: Area under Cane
Year
Company
Chemelil
Muhoroni
Mumias (+Busia Zone)
Nzoia
SONY
Miwani
Kibos
West Kenya
Soin
Total
2004
2008
Ha
10,219
11,146
56,792
19,449
20,941
5,560
7,400
131,507
Ha
13,341
14,259
64,637
23,899
19,322
4,633
2,622
22,070
4,638
169,421
Increase/
Decrease
Ha
3,122
3,113
7,845
4,450
-1,619
-927
2,622
14,670
4,638
37,914
Increase/
(Decrease)
%
30.6
27.9
13.8
22.9
(7.7)
(16.7)
New zone
198.2
New zone
28.8
Source: Year Book of Sugar Statistics, KSB, 2008
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
Strategic Plan, 2010-2014
13
Area Harvested, Cane Deliveries and Cane Yields
Area Harvested: Total area harvested in the nucleus estates and the outgrower farms was
54,465 hectares in 2008 compared to 54,191 hectares in 2004, indicating an increase of 0.51%.
This does not however include the area harvested by non-contracted farmers. The mean area
harvested over the entire planning period was 38.9% of the total area with a standard deviation
of ±3.4. The largest area harvested was recorded in 2007 (Fig. 3.2). However, the best industry
average was achieved in 2002, when 42.6% of the area under cane was harvested.
75
Average yield (Tonnes/Ha)
73
71
69
67
65
63
2001
2002
2003
2004
2005
2006
2007
2008
Year
Fig. 3.2: Area Harvested (2001-2008) 7
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
14
Source: Kenya Sugar Board Strategic Plan (2008-2012), Year Book of Sugar Statistics
Kenya Sugar Industry
Thousands
61
59
Harvested area (Ha)
57
55
53
51
49
47
2001
2002
2003
2004
2005
2006
2007
2008
Year
Fig. 3.3: Average Yield, Tonnes/Ha8
Future Outlook for the Sugar industry:
According to the mini-survey conducted in January
2009, it was revealed that all zones except West
Kenya and Kibos have “excess” cane. The industry is
projected to produce 8,146,913 tonnes against a
consumption of 6,377,453 tonnes leaving an
“excess” of 1,769,560 tonnes (28%)
II. Increased Sugar Production
Cane Crushed, Sugar Made and Recoveries
In 2008, a total of 5,165,786 tonnes of cane was crushed at a sugar recovery rate of 10.03% to
make 518,026 tonnes of sugar. In 2004, a total of 4,805,887 tonnes of cane was milled to make
512,835 tonnes of sugar, giving a recovery rate of 10.67. Some sugar factories such as Chemelil
and Muhoroni are still recording sugar recoveries below the industry standard of 10.1%. The
industry’s long-term target is to achieve recovery levels of 11.5%.
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 industry’s 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 industry’s target
for fibre is 15.50%.
8
Source: Year Book of Sugar Statistics, KSB, 2008
Strategic Plan, 2010-2014
15
19.0
18.0
Cane quality (%)
17.0
16.0
15.0
14.0
13.0
12.0
2001
2002
2003
2004
2005
2006
2007
2008
Year
Pol % cane
Fig. 3.4: Cane Quality (2001-2008)9
Time Account
Fibre % cane
Hundreds
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
as±417.5 hours (±4.8%). Figure 3.5 shows account of the factory time within the planning
period under review.
95
85
Time (Hours)
75
65
55
45
35
2001
2002
2003
2004
2005
2006
2007
Year
Gross grinding time
9
10
16
Fig. 3.5: Factory Time Account10
Source: Year Book of Sugar Statistics, KSB, 2008
Source: Year Book of Sugar Statistics, KSB, 2008
Kenya Sugar Industry
Actual grinding time
2008
Causes of time losses:
i.
ii.
Lack of cane resulting mostly from delays in harvesting and transportation
Frequent factories’ breakdowns due to lack of maintenance
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 industry’s 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.
Capacity utilisation (%)
70
65
60
55
50
45
2001
2002
2003
2004
2005
2006
2007
2008
Year
Fig. 3.6: Average Factories’ Capacity Utilization (2001-2008)11
Future Outlook for the Sugar industry: The
excess cane in the sugar industry has been occasioned
mainly by inefficiency in the utilization of the milling
capacity which currently stands at 56.25%.
Stakeholders’ Concern: ‘Why can’t KSB address the issue
of the factories’ inability to crush existing cane?
11
Source: Year Book of Sugar Statistics, KSB, 2008
Strategic Plan, 2010-2014
17
III. Expanded Product Base
Very little was achieved under this strategic direction. Plans for expanding the product base
were largely tentative. Partly because the industry was beset with debts and pressing demand
for factory rehabilitation. The industry also lacked a comprehensive legislation to undertake
the same. 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.
This strategic direction needs to be pursued in the next planning period.
Challenges to Product Diversification:
i. Co-generation: Uncompetitive pricing mechanism
ii. Limited technology and factory capacities
iii. Weak legal and regulatory framework
Stakeholders’ Concerns:
1.
There are no concrete steps towards
2.
Needs to accelerate its intensification programme
diversification
e.g. introducing sweet sorghum in the farming
community as a way of complementing
cane farming
IV. Policy and Legal Framework
The major achievements under this strategic direction were:
i.
ii.
iii.
iv.
v.
The Cabinet approved the Privatisation Plan
Commenced implementation of the Privatisation Programme
Drafting of the Sugar Act, 2001 Amendment Bill
Drafting of the Sugar (General) Regulations
Classification of sugar as a special commodity under the East African Community
Customs Union hence a CET of 100% or USD 200 per tonne whichever is higher
vi. ISO certification is on going in some sugar factories. Already five factories (Mumias,
Muhoroni, Chemelil, Nzoia and West Kenya) are ISO certified. It should be noted that
ISO certification focuses mainly on the process audits that may not be an indicator of
satisfactory performance in terms of service delivery.
18
Kenya Sugar Industry
Finalization and implementation of all pending policy and legal instruments will be a major
milestone in the incoming Plan. Pending actions include:
i. Passing of the Sugar Amendment Bill
ii. Gazetting of the Sugar General Rules
iii. Reclassification of sugar as a food
iv. Finalisation of regulations to restructure outgrower institutions
Stakeholders’ Concerns: Delay in the
implementation of policy and legal actions
V. Privatisation of the Sugar Industry
During the period under review, the Privatisation Bill was passed by parliament and recently
the Privatization Commission has commenced preparatory work towards offering the candidate
factories for privatization. Speed will be of essence because of the urgency to restructure in
good time to realign factories with the new trade regime expected after the expiry of COMESA
safeguard measures in 2012.
Work in progress:
i.
The basic framework for OGIs has been prepared. It envisages OGIs that will become
effective service providers.
Stakeholders’ Concerns: Mushrooming of
many outgrower institution with minimal service
delivery
VI. Funding for the Industry
The funding of the industry was a challenge. This was exacerbated by poor managerial and
business practices. During the period under review, the industry was not able to attract strategic
investors to inject the much needed capital in the sub-sector. As a result, most millers and
outgrower institutions have severe cash flow and liquidity problems. As a coping mechanism,
some of the millers were not remitting Sugar Development Levy (SDL), which led to greater
default penalties. The low funding has compounded the financial problems of factories that
were already highly leveraged. Despite this, there were some notable achievements, including:
i. Farmer education on the availability of credit facilities
ii. Development of proposals for funding (KESREF/EU)
iii. Development Partnerships (EU awarded 6 million Euros to the industry for structural
adjustments)
iv. Development of proposals for SDF funding that led to increased funding for the
industry
Strategic Plan, 2010-2014
19
Stakeholders’ Concerns: Since its inception
in 1992, SDF has grown to be the largest source of
industry funding. Is the SDF funding sustainable?
VII. Efficient Supply Chain Management
Supply chain management is still a challenge in the sub-sector. For the industry to remain
competitive, improved management actions such as cost cutting and productivity improvements
along the supply chain should continue and intensified in the next planning period. Notable
achievements under this strategy included:
i.
ii.
iii.
iv.
v.
Establishment of quarterly consultative forums
Frequent stakeholder workshops
Adoption of e-commerce in procurement
Development of some cost reduction policies
Simplified Cane Payment Formulae
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.
Stakeholders’ Concerns: Some companies
were ISO certified yet the services to farmers were
still wanting
IX. Socio-Economic Development
The following were achieved during the outgoing planning period:
i. Policy on social corporate responsibility developed but not yet adopted
ii. Community empowerment through awareness creation on HIV/AIDS and Malaria
iii. Environmental health and safety standards developed
iv. Supported sports development
The following were not achieved:
i. Infrastructural development was considered far too modest
ii. Sugar industry business plan was not realised
iii. Brand Kenya initiative was still in the initial stages of conceptualization
20
Kenya Sugar Industry
Stakeholders’ Concerns: Dilapidated
infrastructure leading to high cost of cane and
sugar production
3.3 Lessons from Plan Implementation
Several interviews and discussions were held to determine the salient lessons learnt since the industry’s
Strategic Plan (2004-2009) was formulated and the experiences during its implementation. Overall, all
stakeholders interviewed concurred that the Strategic Plan instrument was good. They also all agreed
that the outgoing Plan could have achieved more.
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 Plan’s 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 Plan’s 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 Plan’s 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 Plan’s implementation. Some of the
stakeholders had expected the Plan to be an instrument through which the Government would
12
Specific, Measurable, Attainable, Realistic, Timed, Engaging, Siring, Team effort
Strategic Plan, 2010-2014
21
identify funding needs and release funds towards the same. Essentially, this group of stakeholders
turned to Government as a lender of first resort and seemed disappointed when they learnt
otherwise.
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.
3.4 Situational Analysis
At the end of the 2004-2009 planning period, the sugar industry is still struggling to transform itself into
a vibrant, efficient, diversified and competitive industry. A SWOT and PESTLE analysis demonstrated
the state of affairs.
3.4.1
Strength, Weaknesses, Opportunities and Threats (SWOT) Analysis
The Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis of the Kenya’s sugar
industry involved the assessment of both the internal and external environment in which the
industry operates. The results are outlined below:
I. Strengths: The following were identified as the industry main strengths:
a.
b.
c.
d.
e.
f.
II. Weaknesses: The major weaknesses of the industry are:
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
Over-reliance on a single product (sugar ) for revenue
Limited irrigation
Weak corporate governance
High level of industry indebtedness
Substantial Government ownership
High post harvest losses (estimated to be at least 5%)
Poor transport infrastructure
Capacity underutilisation (56.25% of TCD)
Low capacity mills (only 12.5% of operating factories above 3,500 TCD)
High costs of production
Inadequate and uncoordinated funding
Lack of performance monitoring and evaluation system
IV. Opportunities: Possible opportunities for exploitation in the Industry include:
a.
b.
c.
d.
e.
f.
22
Vast potential for expansion of area under cane
Unutilized processing capacity
Strong agronomic research capacity
Resilient, hardworking farmers
Stakeholder participation and concurrence
Protected local markets
Ready local and regional markets
Agronomic potential
Government goodwill
Proven opportunities for product diversification (co-generation, ethanol)
Sucrose based pricing and cane payment system
Sugarcane production through irrigation
Kenya Sugar Industry
V. Threats: The threats to the realisation of the vision and mission include:
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
Continued reduction of the SDL
Informal cross-border trade
Strong import competition
Uneconomic land sub-division
High energy costs
High tax burden
Risk of insolvency of some producers
Food insecurity
Risk of slow adoption of new technologies
Political interference in affairs of the industry
Climate change due to environmental degradation
Malaria and HIV/AIDS
3.4.2 PESTLE Analysis
In addition to the SWOT analysis, an analysis of Political, Economic, Social, Technological,
Legal and Environmental (PESTLE) challenges that the Kenya sugar industry faces was done.
The analysis helped in understanding the challenges that might hinder the competitiveness
of the industry. Annex II is a summary of the outcome of the analysis. Overall, the analysis
showed that poor corporate governance creates uncertainties in the investment climate and may
hinder the privatization process. It also pointed to the high production costs and the singular
focus on sugar that had resulted in a non-competitive industry. The analysis also revealed the
ecological risks of environmental degradation and climate change and the consequent negative
impact on water and farming systems.
3.4.3 Stakeholders Comparative Advantage Analysis
The sugar industry has strong linkages with stakeholders identified in section 1.3 of this
report. All these stakeholders play important roles in the industry. The industry recognises that
stakeholders will facilitate the implementation of the incoming plan based on their comparative
advantages. Annex III is a summary of the stakeholders’ comparative advantage analysis.
Strategic Plan, 2010-2014
23
Chapter
4
Strategic Plan 2010-2014
4.1 Rationale for the 2010-2014 Strategic Plan
The Agricultural Sector Development Strategy (2009-2020), and the Vision 2030 emphasize the need
for increasing productivity, commercialisation and competitiveness of the agricultural sector as well as
the need for efficiency and better management in the utilisation of public resources. This is to enable
the Government achieve its strategic objectives of being a middle-income country by the year 2030. The Kenya Sugar Industry Strategic Plan 2010-2014, will be one of the key building blocks for both the
Agricultural Strategy and Vision 2030 goals.
The 2010-2014 Strategic Plan will be used to maintain and build on the successes achieved in the 20042009 Strategic Plan. The revised Plan will aim at consolidating the gains made, identify new options to
improve efficiency and increase the industry’s 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 Plan’s 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 Vision, Mission and Core Values of the Sugar industry
Following extensive consultations and discussions by the industry stakeholders, KSB management and
the Board, it was agreed as follows:
24
Kenya Sugar Industry
4.2.1 Vision
The new vision for the industry is to be ‘a world-class multi-product sugarcane industry’.
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 industry’s
competitiveness through cost reduction strategies and efficiency improvements, expanding
product base, improving infrastructure and strengthening the regulatory framework.
4.2.3 Core Values
To achieve the Vision and Mission of the industry, stakeholders have pledged to uphold the
following six core values:
1.
2.
3.
4.
5.
6.
Product and Service Excellence: through excellent product and service delivery it will
strive to exceed customer expectations
Stakeholder Partnership: to optimise synergies in order to meet set goals by consciously
and deliberately nurturing team spirit, collaboration and consultation
Integrity: to uphold virtues of integrity through honesty and fairness in all operations
Accountability: to strive to be responsible custodians of all resources entrusted to the
industry in a professional and transparent manner
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
Gender Mainstreaming: embrace principles of gender equity, fairness and balance across
gender
4.3 Analysis of Challenges along the Sugar industry Value
Chain
After five years of implementing the Strategic Plan 2004-2009, the original strategic issues and objectives
of the sugar industry broadly remain the same in spite of the marked improvement in addressing them. In
the incoming planning period, the key strategic issues have been derived after a comprehensive analysis
of the challenges and/or gaps along the industry’s value chain (Fig 4.1).
Strategic Plan, 2010-2014
25
Farm level
operations
Pre-Factory
Operations
Processing
Distribution
NUCLEUS
ESTATES
HARVESTING
CANEYARD
OPERATIONS
BY PRODUCTS
INDUSTRIAL
CONSUMERS
SMALLHOLDERS
TRANSPORTATION
MILLING
OPERATIONS
WHOLESALERS /
RETAILERS
DOMESTIC
CONSUMERS
Consumption
CHALLENGES
• High cost of
inputs
• Weak researchextension-farmer
linkages
• Low adoption of
high yielding cane
varieties
• Excessive land
subdivision
• Delayed payments
to farmers
• Limited irrigation
• Inefficient OGIs
• Drought, Cane
fires, diseases
• Long maturity
periods
• Inadequate
funding (SDF)
• Lack of collateral
• Food insecurity
• Limited irrigation
• Delayed and
uncoordinated
harvesting
• Labour intensive
• Dilapidated
infrastructure
• High post
harvest losses
(cane spillage,
poaching etc.)
• Inappropriate
trailer designs
• Inadequate
funding (SDF)
• Poor cane yard
management
• Small and
uncoordinated
planting and
harvesting units
• Irregular routine factory maintenance
• Low crushing capacity
• Low sugar extraction
rates
• Slow adoption of
new and appropriate
technology
• Lack of industrial
research
• High cost of sugar
production
• High indebtedness
• Narrow product base
• Dilapidated processing equipment
• Inefficient factory
operations
• Wastage in cane yard
• Inadequate funding
(SDF)
• High taxation
• Strong cartel
of sugar
importers
• Limited value
addition
and product
diversification
• Inadequate
funding SDF
• Imports
cheaper
• Incapacity
to process
industrial
sugar
• Poor
• product
quality
• Lack of
consumer
representation
in SDF
committees
Fig. 4.1: Challenges along the Sugar Industry Value Chain
4.4 Strategic Goals (2010-2014)
Arising from the stakeholders’ consultations, SWOT and PESTLE analysis, a number of strategic goals
were identified along the sugar industry’s value chain. These issues and proposed actions are summarised
in Fig. 4.2.
26
Kenya Sugar Industry
Farm level
operations
Pre -Factory
Operations
Processing
Distribution
STRATEGIC ISSUES
Enhance Competitiveness
• Reduce cost of farm inputs
• Increase supply of quality
seed cane
• Increase adoption rate of
new technology
• Intensify farm level
research
• Invest in irrigation
• Increase research funding
• Encourage good
husbandry practices
• Modernise and promote
the use of ICT
Expand Product Base
Enhance
Competitiveness
• Improve cane yard
management
• Reduces postharvest losses
• Increase research
funding
• Modernise and
promote the use of
ICT
Enhance
Competitiveness
• Intensify industrial and
applied research
• Increase processing
efficiency
• Reduce cost of sugar
production
• Factory rehabilitation
and modernisation
• Embrace condition
maintenance
• Modernise and
promote the use of ICT
Enhance
Competitiveness
• Harmonise marketing
pattern
• Increase market
research
• Branding
• Maintain adequate
stock levels
• Modernise and
promote the use of
ICT
Expand Product Base
Expand Product Base
Expand Product Base
• Feed in tariff
• Implement legislation
on blending
Improve Infrastructure
Improve Infrastructure
• Increase income
streams from expanded
product base
• Implement legislation
on blending
Improve Infrastructure
Rehabilitate rural roads
• Consider other
modes of transport
• Increase transport
units
• Invest in road
improvement
Regulatory Framework
• Encourage intensification
to increase food security
Regulatory Framework
• Pass the Sugar
Amendment Bill
• Gazette Sugar General
Rules
• Harmonize all sugar laws
• Finalise and implement
regulations to restructure
outgrower institutions
• Establish a sugarbelt
roads management
committee
Improve Infrastructure
• Invest in ICT
• Embrace e-commerce
and e-procurement
Regulatory Framework
Regulatory Framework
• Encourage good
corporate governance
• Enforce measures to
eliminate tax evasion
Fig. 4.2: Strategic Issues
4.5 Strategic Objectives (2010-2014)
A synthesis of the 2004-2009 Plan review and discussions with industry stakeholders led to a recognition
of four (4) key strategic objectives that will be the pillars of the 2010-2014 Strategic Plan. These strategic
objectives are:
1.
2.
3.
4.
Enhancing industry competitiveness
Expanding product base
Improving infrastructure
Strengthening the regulatory framework
Strategic Plan, 2010-2014
27
In order to ensure that the identified strategic objectives are comprehensively addressed, a number of
strategies have been formulated for each objective. A set of activities have been identified for each strategy
in order to work towards the achievement of the desired results. A results matrix has been developed
and presented as Annex IV. The following section therefore presents the strategic objectives, proposed
strategies and activities/actions to be undertaken under each strategy.
4.5.1 Strategic Objective 1: To Enhance Sugar Industry Competiveness
Kenya remains a high cost sugarcane and sugar producer compared to regional competitors.
The average cost per tonne to produce sugar in Kenya is higher than that of its COMESA
competitors. In the 2008/09 season, the average industry sugar production cost per tonne was
USD 428 vs. an estimated cost of USD 263 for its competitors13. These costs are too high to
remain competitive, yet without cost reduction, the industry cannot compete. To bring its costs
in line with its competitors, the industry needs to reduce its costs by a factor of about 39%. In the
incoming planning period, 2010-2014, the sugar industry will reduce sugarcane production cost
by 15% and 22% for plant crops and ratoon crops respectively as shown in Tables 4.1a. During
the same period, sugar production cost will be reduced by 46% as shown on Table 4.1b.
Table 4.1a: Actual and Required Cost Reduction in Cane Production per tonne
Cost (KSh/Tonne
Base year
Item
PC
2009/10
R
Land development
316
Seed cane
Cane maintenance
Harvesting and
loading
Cane transport (24km
radius)
Total
PC
316
269
0
362
315
206
R
2011/2012
2012/2013
PC
PC
PC
43
316
269
0
362
315
206
189
600
600
1,753
22.9
USD*
43
2010/2011
R
43
316
269
0
362
315
189
172
530
530
1,164
1,666
15.2
21.8
R
R
43
316
43
269
0
269
0
362
315
362
315
172
150
150
150
150
450
450
400
400
400
400
1,077
1,569
980
1,497
908
1,497
908
14.1
20.5
12.8
19.6
11.9
19.6
11.9
*Exchange rate – USD 1 = KSh. 76.55; PC – plant cane; R - ratoon
Source: Log Associates, 2009, Proposed Cost Reduction for Plant and Ratoon Crops
Table 4.1b: Actual and Required Cost Reduction in Sugar Production per tonne
Cost (KSh/Tonne)
Item
Factory Cost
Other business support
costs
Total
USD*
Base year
2009/2010
2010/2011
2011/2012
2012/2013
5,909
5,023
4,269
3,757
3,306
26,873
22,841
19,415
17,085
15,034
32,782
27,864
23,684
20,842
18,340
428.2
364.0
309.4
272.3
240.0
*Exchange rate – USD 1 = KSh. 76.55
Source: Log Associates, 2009, Proposed Cost Reduction in Sugar Production
13
28
Calculations based on figures from Cost of Cane and Sugar Production 2008 by KSB
Kenya Sugar Industry
The above tables are illustrations costs in two key stages of the production and value chain
but are not the only areas that require cost reduction. The industry needs to gain production
efficiencies at all stages of the value chain. One of the key elements of value chain enhancement
is the expansion of the product base. In Mauritius for instance, the share of sugar revenue in
the total revenue mix is only about 40%. The remaining 60% is derived from sugarcane coproducts including power generation, ethanol, industrial sugar and other products. The 20102014 Strategic Plan will redirect the Kenya sugar industry in the same direction. To enhance
the competitiveness of the industry, the following strategies will be implemented:
Strategy 1.1: Reduction in Farm Level Risks
Farmers face many risks in the production cycle including unpredictable rainfall, cane fires,
uncertainty in the timing of cane harvesting among many others. These risks ultimately result
in increased sugarcane production costs and diminished returns to the farmer. In the incoming
period, the industry will strive to reduce farm level risks by:
i.
Increasing sugarcane production and productivity through efficient farm operations:
The search for an efficient and competitive sugarcane industry starts with the farmer. Farmers need to increase cane yields through consistent fertilizer application, use higher
yielding and early maturing varieties and where feasible adopt supplemental irrigation and
drainage. With good husbandry practises, farmers can profitably increase the number of
ratoon crops and save replanting costs. The industry will increase the area under sugarcane
by 32% and yield per hectare by 36% (Table 4.2). During the same period, the ERC%
sucrose content in cane will be increased to 87.25%. It is also expected that 20,000Ha of
sugarcane will be planted along the Tana River Basin14.
Table 4.2: Farm Level Annual Targets
Year
14
Area under Cane (Ha)
Yield (Tonnes/Ha)
2008/2009(Base Year)
169,421
73
2009/10
177,892
79
2010/11
196,682
84
2011/12
206,363
90
2012/13
215,290
95
2013/14
224,925
100
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
TARDA Strategic Plan 2008-2012
Strategic Plan, 2010-2014
29
invest in irrigation in the Tana, Nyando and Nzoia river basins. Already, the Ministry
of Water and Irrigation (MoWI) is working on the details of constructing multi-purpose
dams in Nyando and Nzoia basins as a lasting solution to perennial flooding in these areas.
The water from these dams will be used by the industry for irrigation projects. The GoK
has also stepped up campaigns for developing irrigation infrastructure along the Tana River
basin. The sugar industry will support these initiatives to fast track implementation. Table
4.3 outlines the targeted area under cane to be irrigated over the next five-year period.
Table 4.3: Annual Targets for Irrigated Area under Cane
Year
Irrigated Area (Ha)
2008/2009(Base Year)
400
2009/10
44,000
2010/11
84,000
2011/12
124,000
2012/13
164,,000
2013/14
204,000
Source: Log Associates, 2009, Proposed Irrigated Area under Cane
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.
iv. Enhancing results oriented research-extension-farmer linkages to accelerate adoption
rates of high yielding varieties: Adoption rates of new technology at farm level have
generally been in the 30% range. Despite the advantages of high yielding and early
maturing varieties, farmers have shown little enthusiasm for the new technologies. The
extension messages need to be disseminated more aggressively while keeping in mind
that the principle of sugarcane farming as a business starts with the farmer who needs
transparent pricing, and prompt payment to run the farm as a business. In the incoming
period, sugar factories and outgrowers will phase out long maturing cane varieties like
CO 421 while replacing them with varieties such as CO 945, EAK 73-335 varieties,
which are early maturing, rich in sucrose content and resistant to diseases. Table 4.4
outlines the targeted proportional area under high yielding Kenyan cane varieties over the
next five-year period.
Table 4.4: Annual Targets for Proportion of High Yielding Cane Varieties
Year
30
Proportion (%)
2008/09(Base Year)
5
2009/10
10
2010/11
25
2011/12
40
2012/13
45
2013/14
50
Source: Log Associates, 2009, Proposed Proportion of High Yielding Varieties
Kenya Sugar Industry
v.
Implementing a land tenure policy that encourages economies of scale: Land
fragmentation through subdivision is a major threat to plantation crops such as sugarcane.
A mix of population pressure and cultural practises has led to an escalation of land
subdivisions. The sugarcane industry will continue to articulate the risks of uncontrolled
subdivision. It will also design and implement innovative arrangements such as block
farming15 and satellite villages16 that will help increase land sizes under cane cultivation. These approaches are consistent with the recommendations of the Agricultural Sector
Development Strategy 2009-2020 and the Kenya Vision 2030.
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 leastcost 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.
Table 4.5: Profit Margins Plant Crop vs. Ratoon Crop
Sugarbelt
Profit (KSh/Tonne)
Nyando
Plant Crop
310
Ratoon Crop
1,107
Western
621
958
Light soils
669
946
Heavy Soils
572
970
Mean
543
995
South Nyanza
Source: Kenya Sugar Board, 2007, Cost of Cane and Sugar Production Study
Strategy 1.2: Efficient, Reliable Harvesting and Transport Operations
On average, harvesting and transport operations account for 48% of the total cost of sugarcane
production with a range of 37%-52%18. In 2008, harvesting, loading and transport costs
amounted to KSh. 806 per tonne, which translated into KSh. 4.163 billion (assuming all cane
transported within 24km radius19). This huge cost was borne by the farmers. The industry will
seek to reduce this cost to levels in the range of 10%-15% in the next five years by:
i.
15
16
17
18
19
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.
Discussions on Block Farming are presented in XI
Satellite village farming involves consolidating small parcels of land and consolidating farmers into eco-friendly villages
Kegode P, 2005, Economic Governance Reform in the Sugar Sub-Sector
Outgrowers cane production costs, 2007/2008
The true picture is that some cane is transported even at70km
Strategic Plan, 2010-2014
31
Table 4.6: Annual Targets for Staleness Index
Staleness Index (Days)
4
2009/10
2
2010/11
2
2011/12
1
2012/13
1
2013/14
1
Source: Log Associates, 2009, Proposed Reduction in Staleness Index
ii.
Year
2008/2009 (Base Year)
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).
Table 4.7: Annual Targets for Post-Harvest Losses
Year
Percentage post-harvest losses
2008/2009 (Base Year)
5
2009/10
4
2010/11
3
2011/12
2
2012/13
2
2013/14
2
Source: Log Associates, 2009, Proposed Reduction in Post-Harvest Losses
iii. Reducing time lapse between cane maturity and harvesting: The average cane maturity
period is 18 months. Farmers wait for up to 6-12 months before cane is harvested. This has
made cane farming unattractive to most of them. Some have opted out of cane farming.
The delays in harvesting operations are attributed to uncoordinated and unpredictable
harvesting and transport schedules; and inefficiencies in mill operations. All this is
happening due to lack of proper planning. Information and Communication Technology
can provide the tools needed to coordinate transport and harvesting operations. Through
ICT scheduling, the waiting period for harvesting will be reduced to less than a month
(Table 4.8). The industry will also institutionalise harvesting operations to make it more
reliable and predictable.
32
Table 4.8: Waiting Time between Cane Maturity and Harvesting
Year
Time (months)
2008/2009 (Base Year)
6-12
2009/10
4
2010/11
3
2011/12
2
2012/13
1
2013/14
1
Source: Log Associates, 2009, Proposed Time Lapse between Cane Maturity and Harvesting
Kenya Sugar Industry
iv. Promoting the use of other modes of transport: Industry players need to experiment
with different modes of cane transport including light rail and trucks. Animal drawn carts
are suitable for small factory capacities such as those common in India.
v.
Increasing research funding for harvesting and transport: Research in harvesting
and transport is lagging behind as most of KESREF research is agronomic. During
the incoming Plan period, the industry will increase funding to KESREF to explore
mechanised harvesting operations. While mechanical harvesting may save on labour, it
increases post-harvest losses and leads to soil compaction. Soil compaction leads to poor
infiltration, slow drainage and reduced aeration, limiting root growth, nutrient uptake
and crop yields. KESREF while undertaking research towards mechanisation should seek
ways of mitigating such setbacks.
Strategy 1.3: Effective, Efficient and Reliable Milling Operations
The role of the millers is to make a fair return on investment through efficient operation
of mills and/or jaggeries for the production of sugar and other products for sale, and make
timely payments to cane growers. In the next five years, the millers will enhance industry’s
competiveness by:
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.
Table 4.9: Factory Level Targets
Year
Capacity Utilisation
Rendement (%)
Made Sugar(Tonne)
2008/9(Base Year)
50
10.0
518,128
2009/10
61
10.5
565,236
2010/11
70
11.5
670,830
2011/12
75
11.5
813,286
2012/13
80
11.5
982,257
2013/14
89
11.5
1,151,557
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.
Strategic Plan, 2010-2014
33
iii. Intensifying industrial and applied research: The Kenya sugarcane industry needs a
centre of excellence in applied research. This will be achieved through strengthening of
KESREF research capacity and other innovative approaches such as twinning arrangements
between factories and local universities to bring together researchers and practitioners. iv. Benchmarking with international standards: For Kenya’s sugar products to be
competitive nationally, regionally and globally, millers must benchmark their production
processes with international best practices. The industry will achieve this by carrying
out the following activities: (a) Providing information on production technologies and
quality standards and facilitating their application, adaptation and uptake; (b) Providing
information on international best practices for local millers to benchmark themselves;
and (c) Participating in regional and international negotiations on issues affecting the
sugar industry
Strategy 1.4: Enhanced Human Resource Capacity
The twin problems of bureaucratic interference and poor corporate governance have combined
to obscure the efficacy of the human resource development programmes in the industry. Although Kenya has many educational institutions, both private and public, which provide
quality education, the industry still lacks adequate skilled human resources. Arrangements are
underway to create partnerships between the industry and training institutions to produce the
kind of professionals that the industry needs. Already there are ongoing arrangements with
Masinde Muliro University of Science and Technology (MMUST), Egerton University, Maseno
University and Moi University towards the same end. More institutions need to come on
board particularly middle level, diploma type training institutions to supplement these efforts. In addition to the external training programmes, factories and outgrower institutions will
beef up their internal training capacities. To reinforce a strong skill development programme
through training, staff recruitment policies will be strictly merit based. The management styles
will be progressive and results oriented. It is only through a combination of these approaches
that industry will eventually overcome the current human resource constraints. 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 industry’s collaborations with training institutions/universities
Strategy 1.5: Streamlined Corporate Governance
There are major challenges in corporate governance in some of the institutions in the industry. These challenges are pronounced particularly in institutional and supply chain management
both in outgrower institutions and at the corporate levels of publicly owned factories. This was
the result of poor recruitment policies and political patronage. The industry is moving towards
34
Kenya Sugar Industry
ISO certification which may help highlight governance weaknesses and if addressed will help
mitigate some of the challenges. Greater private sector participation in the industry within a
strong regulatory environment will also complement the steps the Government is taking to
improve the same. In order to streamline corporate governance in the industry, the following
activities will be carried out:
i.
ii.
iii.
iv.
v.
vi.
Conducting periodic Customer Satisfaction Surveys (CSS)
Ensuring the undertaking of International Organization of Standards (ISO) certification
Sensitization of industry on quality standards and certification requirements
Advocacy on governance, security, high cost of doing business, among others
Improvement of communication amongst industry stakeholders and the rest
Training on prudent financial management
4.5.2 Strategic Objective 2: To Expand Product Base
Most countries are growing cane and producing sugar with the aim of getting a range of
products and by-products. Cane is cultivated as a strategic product to support industries such
as: Beverages, Confectionery, Pharmaceuticals, Wines, Spirits, Power Alcohol, Animal Feeds,
Energy, Chemicals and Fertilizers. The Kenya sugarcane industry has embraced the market
reality that the industry needs to expand its product base as a means of strengthening its
competitiveness globally. Therefore, backward and forward linkages need to be exploited
to their fullest potential. However, in Kenya, mill white sugar is still the core commodity
produced from sugarcane. Diversification to other co-products such as power co-generation
and ethanol production for sale is still very limited and largely unexploited. Figure 4.3 illustrates
the technical potential for sugarcane products.
Sugar Cane
Sugar/Solids
Mollasses/Juice
Raw Sugar
Refined Sugar
Fertilizers
Industrial uses
Crop Residues
Steam and Electricity
Industrial uses
Commercial Products
Ethanol
Fuel Briquettes
Block Board
Stillage
Industrial Paper
Fertilizer
Methane
20
Fig. 4.3: Potential sugarcane products20
Log Associates, 2001, Financial Restructuring Strategy to Sony Sugar Company
Strategic Plan, 2010-2014
35
The Kenya sugarcane industry has the raw material and favourable market conditions
to substantially expand its product base particularly into power generation, ethanol and
industrial sugar and alcohol. To address this area of concern and to increase profitability and
competitiveness of the industry, the following programmes will be undertaken:
Strategy 2.1: Value Addition and Product Diversification
While the industry will seek to exploit the full range of industrial products from sugarcane and
sugar, the flagship projects under the theme of value addition and expansion of the product
base will be power generation and ethanol production. Before the initiation of production of
co-products, it is important that rigorous technical, financial and economic feasibility studies be
carried out.
i. Initiating co-generation projects: The demand for electricity has in the past continuously
outstripped supply, precipitating a significant level of unmet demand. This shortfall is estimated
to be 380GWh. The shortfall is further exacerbated by frequent drought occasioned by climate
change. The sugar industry has large potential for co-generation that if fully exploited may
help meet some of the power demands. Currently, only an estimated 36.5MW is generated
through co-generation. Apart from Mumias Sugar Company that has initiated a massive cogeneration project to produce 35MW of electricity for their own use and for sale, the rest of
the factories consume all the power they generate. During this Plan period, sugar factories will
initiate co-generation projects and produce sufficient electricity for internal use and for sale
to Kenya Power and Lighting Company (KPLC) to help alleviate the shortfall in the country.
Through the Tana Integrated Sugar Project, it is proposed that 34MW of power would be
produced through co-generation21,22. Chemelil Sugar Company and KenGen have also signed
a MoU to develop a 20MW power plant to generate electrical power using bagasse23. Table
4.10 shows the potential revenue from co-generation.
Table 4.10: Potential Revenue from Co-generation
Miller
Potential
Local
use
Sales
Rate
Hours/
year
MW
Capital Cost
Estimates
MW
MW
KSh
Hours
Mumias
W/Kenya
36.3
5.4
11.4
1.0
24.9
4.4
3000
3000
7,128
7,128
532
94
4,9261
733
Muhoroni
Nzoia
9.5
14.2
1.7
2.2
7.8
12
3000
3000
7,128
7,128
167
257
1,289
1,927
Chemelil
20.0
2.4
17.6
3000
7,128
376
2,714
SONY
13.8
2.4
11.4
3000
7,128
244
1,872
Miwani
13.8
2.4
11.4
3000
7,128
244
1,872
TARDA
36.3
11.4
24.9
3000
7,128
532
4,926
149.3
34.9
114.4
300
7,128
2,446
20,259
Total
Potential
Revenue (KSh.,
millions)
Per annum
KSh, millions
Source: Log Associates, 2009, Co-generation Potential and Projected Revenues
ii. Initiating ethanol production projects: Kenya’s fuel consumption stood at 1.4 and 3.3
million litres of petrol and automotive diesel respectively per day in 2006 with an average
21
22
23
36
Tana and Athi Development Authority, 2008-2012 Strategic Plan
The Tana Integrated Sugar Project is estimated to cost KSh. 24 billion
KenGen, Five Year Business Plan, 2007-2012
Kenya Sugar Industry
growth rate of 2.8% per year. Projections indicate that Kenya will require 1.7 and 4.1
million litres of petrol and automotive diesel respectively per day by 2014. By 2030, the
fuel consumption will be 2.7 and 6.5 million litres of petrol and automotive diesel per
day.
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.
Table 4.11: Ethanol Production
2008/09
2009/10
Tonnes
5,165,786
5,110,632
Tonnes
180,802
182,000
Potential
Ethanol
Produced
Litres
39,776,332
40,040,000
2010/11
5,808,049
203,281
44,721,021
55-70
2.5-3.1
2011/12
6,286,269
220,019
48,404,271
55-70
2.7-3.4
2012/13
7,192,730
251,745
55,384,021
55-70
3.0-3.9
2013/14
8,010,834
280,379
61,683,422
55-70
3.4-4.3
Year
Cane
Deliveries
Molasses
Produced
Cost per litre
Potential Revenue
KSh.
55-70
55-70
KSh, Billions
2.2-2.8
2.2-2.8
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.
24
25
26
Clint Oguya, Agrochemical, personal communications, 31 August 2009
TARDA Strategic Plan 2008-2012
Each factory should effect a comprehensive feasibility study on the same
Strategic Plan, 2010-2014
37
4.5.3 Strategic Objective 3: To Enhance Infrastructure Development
Inadequate, unreliable and poor state of physical infrastructure in the sugar growing zones
has led to low productivity, high production and distribution costs; and uncompetitive
products and service delivery. The industry will improve the state of physical infrastructure by
implementing the following strategies:
Strategy 3.1: Improve Road Transport Infrastructure
This strategy will be achieved by implementing the following activities:
i.
Setting up a mechanism to coordinate utilisation of public funds available for road
infrastructure development
ii. Increasing SDF allocation for infrastructure development
iii. Dedicating 15% of sugar tax revenue to infrastructure development in the sugar belt
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. Improving the ICT infrastructure through networking
ii. Encouraging e-commerce and e-procurement
iii. Increasing training of staff on the use of ICT including the new fibre optic cable
architecture
iv. Increasing information sharing through ICT
4.5.4 Strategic Objective 4: To Strengthen the Regulatory Framework
The passing of the Sugar Act, 2001 went a long way in strengthening the regulatory framework
in the sugar industry. However, some of the supporting regulations have not been approved. A
number of proposals that would have improved the business environment in the sugar industry
including tax proposals are pending approval. To strengthen the legal framework, the following
specific strategies will be undertaken:
Strategy 4.1: Finalise the Policy and Legal Framework Work- in- Progress and Implement them
The review revealed that there were pending actions under the policy and legal framework in
the outgoing planning period. The industry will conclude the pending actions by:
i.
ii.
iii.
iv.
Passing the Sugar Amendment Bill
Gazetting Sugar General Rules
Harmonizing all sugar laws
Finalising and implementing regulations to restructure outgrower institutions
Strategy 4.2: Strengthen the Management of Sugar Import Policy
Illegal and uncoordinated importations of sugar are major contributors to the sub-sector
problems. To address this concern, the industry will:
38
Kenya Sugar Industry
i.
ii.
iii.
iv.
Enhance capacity for a robust assessment of market conditions
Support measures to eliminate tax evasion
Support the implementation of rules of origin
Strengthen its advocacy role with KRA, Ministry of Trade (MoT), Ministry of Finance
(MoF) Ministry of Energy (MoE) and MoA
Strategy 4.3: Strengthen the Framework for Corporate Governance
Weak corporate governance has been a problem in the industry for a long time. The sugar
industry needs to transform itself to profitability and efficiency path through sound management
ethics. To address corporate governance challenges, the industry will:
i.
ii.
Ensure prompt payment to farmers
Strengthen the management of OGIs, through governance and institutional capacity
building programmes
iii. Sign sugar industry agreements between millers, growers and other service providers
iv. Conclude privatisation of sugar factories
v. Establish and implement the framework of implementation and M&E system for the
2010-2014 Strategic Plan
Strategy 4.4: Development of an Institutional Framework for Coordination of Roads Maintenance
in the sugarbelt
There exists an opportunity for the sugar industry, through KSB, to collaborate with central
and local government in the utilisation of the petroleum and the local government cess funds,
CDF and LATF for road maintenance and rehabilitation. To ensure efficient utilisation of
these funds, the industry will:
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:
i.
Support measures to develop a comprehensive policy on co-generation and exploitation
of bio-fuels and other sugarcane products.
Strategic Plan, 2010-2014
39
Chapter
5
Implementation Strategy and
Resource Requirements
5.1 Implementation Strategy
Implementation responsibilities of this strategy will be devolved to all levels in order to allow for
maximum participation of all the relevant stakeholders. Formal existing institutional structures including
the oversight bodies that undertake regulatory responsibilities will be charged with carrying out their
appropriate roles. Stakeholder institutions such as millers, OGIs, Cane Transporters, KESREF, KSB and
farmers will be accorded their rightful say in the implementation of this strategy.
5.1.1
Implementation Framework
Successful implementation of the Plan will depend significantly on a practical implementation
framework, which is easy to coordinate. The Kenya Sugar Board (KSB), having the dual legal
mandate to develop and regulate the industry should exercise its authority towards the same. KSB needs to remain as the voice of the industry in consultation with all stakeholders. Given
the matrix nature of industry decision-making organs, the Plan’s implementation framework
will have a wide spectrum of players.
5.1.2
Institutional Structure
The implementation of the 2010-2014 Strategic Plan will be the responsibility of the following
institutional structures:
National Inter-ministerial Coordinating Committee (NICC)
The Committee will comprise MoF, MoE, MoA, MoT, MoWI, MoR, MoPW, MoLG and
MoRDA. It will deal with policy and legislative issues affecting the industry. The NICC will be
convened and chaired by the Permanent Secretary, Ministry of Agriculture from time to time as
need arises.
Monitoring Committee (MC)
The industry will establish a Monitoring Committee (MC) through a legal notice by the
Minister of Agriculture to monitor the implementation of this Strategic Plan. The committee
will sit twice yearly. Structured reports will be prepared and presented to the Committee by
Monitoring and Evaluation Officer who will be stationed at the Kenya Sugar Board headquarters
in Nairobi. The Committee will assess progress on the status of Plan’s implementation focusing
on the industry adjustment and preparedness for a liberalized trade regime. The Committee
will comprise chief executive officers or chairpersons of KSB, KESMA, KESGA, KECATRA
and KESREF, representatives from MoA and consumers. The committee will be convened and
chaired by the Chairman of KSB Board. The MC will report to the NICC through the KSB
Board.
40
Kenya Sugar Industry
Stakeholders Review Forum (SRF)
The Stakeholders Review Forum (SRF) will comprise senior managers of stakeholder
institutions. The Chief Executive, Kenya Sugar Board, will chair it. The SRF will sit quarterly
to review the progress of implementation of the Plan based on reports prepared by the M&E
Officer.
Unit Committees (UC)
Factories’, OGIs’ and other stakeholders’ level committees will comprise Unit Committees. These committees will be set-up at respective stakeholder units and will meet monthly. The
committees will carry out the specific activities of the Plan and report progress to senior managers
sitting at the SRF. The composition of the UCs will be senior technical and managerial staff of
the various stakeholder institutions. Figure 5.1 outlines the proposed institutional structure
and the implementation framework.
Ministry of Agriculture, PS (Chair)
Ministry of FinanceMinistry of Energy
Ministry of Water and Irrigation
Ministry of Trade
Ministry of Public Works
Ministry of Roads
Ministry of Local Government
Ministry of Regional Development Authority
National Inter-Ministerial Coordinating Committee
KSB, Board Chairman (Chair)
KESMA
KESGA
KESREF
KECATRA
Representative MoA
Consumer Representatives
KSB, Board
Monitoring Committee
KSB, CEO (Chair)
M&E Officer
Senior Management of
Stakeholder Institutions
Stakeholders Review Forum
Factories
OGIs
KESREF
Other Stakeholder Representatives
Unit Committees
M&E
Measure targets, outputs,
corrective action
Implementation
Allocate resources and
carry out activities
Resources
Match Resources and strategies
Review the appropriateness
of chosen strategy
Strategic Objectives
Fig. 5.1: Institutional Structure and Implementation Framework
Strategic Plan, 2010-2014
41
5.1.3
Private Sector Participation
The implementation of this Plan calls for close collaboration and participation of the public
and private sector. While privatization is not a panacea, private sector participation brings
with it increased financial discipline; capital injection; new management styles; a stronger
commercial orientation and some insulation from political interference. The privatization of
the Mumias Sugar Company, and the subsequent improvement in performance, is a case in
point. In the interim, any decisions made on factories’ rescue, should be synchronized with
the proposed privatization actions to avoid investing in low priority interventions. The drive
towards diversification and value addition is also likely to be realized if done in the context of
wholly or largely privatized sugar subsector.
5.2 Resource Mobilisation and Utilisation
The resources required for the Kenya sugar industry to implement the 2010-2014 Strategic Plan include,
financial, human and physical resources. Successful implementation of the same will not only depend on
the quality and commitment of the stakeholders, but also on the availability and efficient utilisation of
resources required to undertake the various activities. Weak corporate governance, high debt burden and
lack of funds for investment continue to plague the Government owned mills. This was manifested in
delayed farmer payments; lack of routine and preventive maintenance; failure to invest in new machinery;
and the overall degeneration of effective processing capacity. The resources from internally generated
sources and the Sugar Development Levy are inadequate to meet the scope of activities proposed in this
Plan. Table 5.1 is a summary of financial resources requirements for implementing the same.
Table 5.1: Plan Implementation Cost Estimates
Strategic Objective
Enhance sugar industry
Competitiveness
Expand product base
Enhance infrastructure
development
Strengthen regulatory
framework
Total
2009/10
2,905
Years (KSh, millions)
2010/11
2011/12
2012/13
2,984
5,725
5,745
Total
2013/14
950
18,309
58
607
55
1,007
55
1,007
9
1,007
5
607
182
4,235
77
77
25
25
25
229
3,647
4,123
6,812
6,786
1,487
22,955
Source: Log Associates, 2009, Plan’s Implementation Cost Estimates
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.
5.2.1
Funding Sources
To realise the objectives of the 2010-2014 Strategic Plan, there will be various financial sources
as briefly explained below:
42
Kenya Sugar Industry
i.
Internally Generated Funds at Factory Level
Most of the sugar companies with the exception of Mumias, Soin, Kibos and West Kenya
Sugar Companies are barely making surpluses. The scope for factory generated funds is
thus limited for publicly owned factories. These publicly owned factories are looking for
grants and soft debt financing. Nevertheless, the funds generated from internal sources
will be utilized for factory maintenance, modernisation and rehabilitation.
ii.
Sugar Development Fund
A sugar development levy of 4% of the ex-factory price is charged by the Kenya Government
on all sugar sales. This levy is collected by the Kenya Revenue Authority and is managed
by KSB as the Sugar Development Fund (SDF). After 17 years of implementation, SDF
has grown to become the single largest source of funding for the industry. The fund
utilisation per component is shown in Figure 5.2.
KSB administration
(35%)
Research and extension
(23%)
Cane development
(17%)
Infrastructure
(7%)
Factory rehabilitation
(18%)
Fig. 5.2: SDF Allocation per Component27
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.
iii. Soft loan financing and Grants
Given the importance of the sugar sub-sector in poverty reduction, infrastructure
development, environmental conservation and energy, the subsector will continue to
attract concessional funding from development partners. The industry will also continue
seeking for financial grants from the GoK.
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.
27
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.
KSB, SDF Operational Manual, February 2006
Strategic Plan, 2010-2014
43
vi. Carbon Credits
Carbon credits are a key component of national and international attempts to mitigate
the growth of concentrations of greenhouse gases. One carbon credit is equal to a tonne of
carbon. The sugar factories through cane farming, co-generation and ethanol production
will produce environmentally friendlier energy sources, which will allow them to enter
into agreements with Carbon Finance Companies around the world, through Clean
Development Mechanism (CDM). These credits will be exchanged for hard currencies to
help finance some of the activities in this Plan28.
viii. Joint Venture Agreements
Joint ventures are strategic weapons used by organisations to enhance competitiveness. A
joint venture is an agreement formed by two or more parties to undertake an economic
activity together. The parties agree to contribute equity, share revenue, expenses and
control the enterprise. In the incoming Plan period, the industry will enter into joint
venture agreements with like-minded organisations/corporations to undertake some of
the strategies/activities highlighted in this Plan. Possible areas for such agreements are
power-cogeneration, ethanol production and irrigation.
5.2.2
Human Resources
Whilst there are many skilled personnel in the country, the industry has excess unskilled staff.
The industry lacks human resources capacity to carry out the wide range of research that the
industry needs. Most of the farmer institutions have also failed to provide essential extension
services to the farmers. To meet the human resources gaps, the industry will carry out staff
rationalisation to determine the level of human resource requirements under the strategy for
enhanced human resource capacity.
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.
5.4 Implementation Risks
There are several risks to the implementation of this Strategic Plan, including the timely availability
of resources and political goodwill. This requires that possible risks be analysed to take precautionary
measures in good time and prevent failure of the Plan’s implementation. The following are some of the
major risks identified for consideration:
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.
44
Kenya Sugar Industry
efficient and competitive, will pose a major risk to the industry. Individual institutional plans that
are intended to help achieve the global industry objectives need to be developed and implemented
diligently.
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 Plan’s implementation.
5.4.1
Risk Mitigation Framework
The matrix below gives a list of the risks, their ranking and suggested mitigation strategies.
Table 5.2: Risk Mitigation Framework
No.
Risk
Priority
Mitigation Measure
1.
High
Accelerate the ongoing privatisation efforts
2.
Failure to realise privatisation
process
Poor Plan Implementation
High
3.
Lack of Political goodwill
High
Close monitoring and tie funding to agreed
performance outcome
Strong lobbying for political goodwill and
issue-based decisions
4.
Lack of resources
High
Design and implement a Sugar Restructuring
Programmes
5.
Insecurity
High
6.
Poor Communication
Medium
Liaise with Provincial Administration to
address insecurity concerns in the sugar subsector
Prepare and implement a communication
strategy to ensure effective information flow.
7.
Lack of ownership
Low
8.
Resistance to change/
Negative attitude
Low
Consultation and involvement of
stakeholders at all stages of strategy
formulation and implementation
Create awareness of the intended changes in
good time through active participation and
discussions with stakeholders
Strategic Plan, 2010-2014
45
Chapter
6
Monitoring, Evaluation and
Reporting
6.1 Monitoring
The successful implementation of this Plan will depend largely on how the activities and outputs are
effectively monitored and evaluated. The Plan’s monitoring will be through the institutional arrangements
defined in section 5.1.2 of this report. Monitoring will be done using the instrument provided in Annex
IX. The instrument has expected outcomes, indicators and annual targets for gauging performance.
Monitoring will help determine whether the implementation is on track; establish the need for any
adjustment in light of the changes in the sugar subsector and political environment.
6.1.1
Monitoring Mechanism
Institution Strategic Plans
For ease of monitoring, the sugar industry stakeholders will align their objectives and strategies
with the Kenya Sugar Industry Strategic Plan 2010-2014. The individual strategies should have
clearly defined activities with specific timelines for implementation. The realisation of the
individual strategic plans will feed into the overall objectives of the sugar industry.
Supervision
The KSB will carry out supervision of the overall Plan’s implementation and prepare quarterly
reports. This will require the cooperation of all industry stakeholders. Findings from the
supervision missions will be presented to the MC and follow-up actions discussed. KSB will
ensure prompt submission of the reports.
Service Delivery Surveys
The MC will organize surveys on the quality of service delivery. The information from such
surveys will be disseminated to all the stakeholders.
Quarterly Review Meetings (QRM)
Stakeholders review sessions will be held quarterly with stakeholders’ representatives. This is
will keep the Plan’s activities and outputs on track during implementation, and enable the
stakeholders to identify and take necessary actions to address emerging challenges. This is will
give the industry a chance to interrogate what is being done. The QRM will be undertaken
through the SRF.
6.2 Evaluation
The Plan will be subjected to four evaluations, which are two Internal Annual Evaluations; MidTerm Evaluation and Review; and Final Evaluation. The evaluations will be done using the indicatormonitoring tool provided in Annex X.
46
Kenya Sugar Industry
6.2.1
Internal Annual Evaluation (IAE)
To ensure that the experiences of the previous Plan’s implementation are not repeated, the
industry will undertake two internal annual evaluations of the Plan. The first annual review will
be held at end of the year 2010. The second annual review will be held at the end of the year
2013. The two evaluations will be done by an independent team of consultants with experience
in the sugar industry.
6.2.2
Mid-Term Evaluation and Review (MTER)
The purpose of the Mid- Term Evaluation and Review (MTER) will be to assess the extent
to which the Plan is meeting its implementation objectives and timelines. The MTER will be
carried out in December 2011, three months before the expiry of the COMESA protocol and
will therefore provide an opportunity to: (i) assess readiness for the open trade regime; and (ii)
provide recommendations for the remaining phase of the Plan. The MTER will be done by an
independent team of consultants.
6.2.3
Final Evaluation
The prime purpose of the Final Evaluation for the Strategic Plan 2010-2014, expected to be
carried out at the end of May 2014, will be to address four issues:
•
•
•
•
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.
6.4 Information Sharing
Information sharing and reporting will be key in reviewing this Plan. It will also provide a mechanism for
monitoring and evaluation. Various stakeholders have established websites through which information
can be shared. Additionally, the industry stakeholders will be meeting quarterly to share amongst
themselves and report emerging challenges. Reports on the implementation status of the Plan will also
be made available quarterly and annually by KSB.
6.5 Conclusion
The revised Kenya Sugar Industry Strategic Plan 2010-2014 focuses on objectives, strategies and
activities that will enhance industry’s competitiveness. If truly implemented, it will lay a firm foundation
for the industry to become efficient, diversified and globally competitive.
Strategic Plan, 2010-2014
47
Annexes
Annex I: Strategic Objectives and Actions (2004-2009)
Strategic Objective
Strategic Actions
1.
Increase sugarcane
production and
productivity
•
•
•
•
•
Strengthening research –extension- farmer linkages
Irrigation Development
Motivation to cane farmers to intensify production
Land reform in sugar growing areas
Expansion of sugar cane growing into new areas
2.
Increase sugar
production
•
•
•
Enhance management capacity within the industry institutions
Optimise existing factory capacity
Modernising existing factories
3.
Expand product base
•
Product diversification
4.
Strengthen Policy,
Legal and Regulatory
Framework
•
External interventions
•
Policy reforms on taxation
•
Classify sugar as special commodity
•
Review and implement policy of Revitalisation of Sugar industry
•
Institutionalise inter-ministerial standing committee on sugar
Internal interventions
•
Review Sugar Act 2001 and its regulations
•
Develop and document procedures for arbitration among stakeholders
•
Adopt good corporate governance practices
•
Implement industry standards on Environmental Health and Safety
•
5.
Privatisation of Sugar
Institutions
•
•
•
•
•
Promotions to attract financial service providers
Management and financial restructuring
Transformation of farmer institutions from advocacy to service provision
Promotion of private sector partnerships
Divestiture of GoK shareholding
6.
Sustainable Funding for
Industry,
•
•
•
Internally generated funds
Sugar Development Fund (SDF)
External Sources
7.
Stream Supply Chain
management
•
•
•
•
•
•
Institutionalisation of policies, strategies and structures
Monitoring cost reduction programmes
Establishment of Central procurement body for the industry
Transforming Stakeholder apex to central procurement units
Lobbying for e-commerce in procurement
Establish industry consultative forum to negotiate on pricing, costing, timing
and improved provision of goods and services
8.
Adopt World Class
Standards
•
•
•
•
•
•
•
Develop and implement appropriate standards and policies
Establish a national quality control laboratory for the industry
Develop and adopt appropriate service delivery standards
Develop ICT strategies and systems for the sugar industry
Benchmarking with best practices in the world
Keeping up to date trends and statistics from leading global sugar producers
Adapting to the existing multilateral trading arrangements
9.
Enhance SocioEconomic Development
and Environmental
Management
•
Enhance industry contribution to socio-economic development in sugar
growing areas and the country as a whole.
Improve industrial relations in the sub-sector
Development and improvement of infrastructure
Increased environmental health and safety
Effective marketing strategy
48
Kenya Sugar Industry
•
•
•
•
Strategic Plan, 2010-2014
49
Technological
Social
Economic
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Political
High cost of advanced technologies
Low negotiation capability
Low adaptability of advanced
technology
Language barriers resulting in
additional transactional costs
Drug trafficking and Drug abuse
leading to reduced productivity
Human trafficking and brain drain
Increasing Oil prices
Increasing food price
Counterfeiting
WTO) agreements on bilateral trade
Standards
Non-Tariff Barriers (e.g Minimum
Residue Limits)
Sanitary and Phytosanitary standards
World focused mostly on Governance
and
Human Rights
Terrorism
Global
Issues
Annex II: PESTLE Analysis
•
•
•
•
Low funding for Research and
Development
Language Barriers
High HIV/AIDS prevalence
Regional conflicts
Increasing food prices
Obligations under Regional
Agreements
And Standards
Non-Tariff Barriers (NTBs)
World Trade Organization (WTO)
agreements on bilateral arrangements
•
•
•
•
•
Piracy along the Somalia coastline
Conflicts (Darfur Crisis, Southern Sudan,
Eritrea/Ethiopia)
•
•
Regional
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Private Mills (Mumias, West Kenya, Soin
and Kibos) have invested in upgrades,
but parastatals Mills are mired in debt
and unable to upgrade or even carry
out routine maintenance
Low funding for Research and
Development
Slow pace of transformation to shorter
maturity cane varieties
High population growth rate
Low literacy levels
High HIV/AIDS and malaria prevalence
Language barriers
High crime rates
Economic crimes (money laundering,
corruption, fake currencies),
Increasing Oil prices
Food insecurity
Poor enforcement of tax laws and
International Agreements and
Standards
Counterfeit goods
High inflation
Underdeveloped export market access
for sugar
Low funding for export market
development
Regional crises diverting attention and
resources from local needs
Lack of a long term roadmap for the
development of the sugar belt
Ministry of Agriculture starting to focus
but it needs to be structured
National
•
•
•
•
•
•
•
•
•
•
•
Lack of competitiveness
Need for an injection of capital to
assist in Mill modernization through
privatization and dilution of public
capital holding in sugar factories
Language barriers and insecurity
increase costs of doing business
Diseases leading to absenteeism and
low labour productivity
Drug abuse reduces productivity
Unfair competition
A disenabling investment climate
Strong competitive pressure
Need for increased efficiency in the
sugar industry
Need for increased funding for market
development
Uncertain investment climate
Effect
50
Kenya Sugar Industry
•
•
•
Climate change and desertification
Slow domestication of Multilateral
Environmental Agreements(MEAs)
High legal costs
•
•
Climate change and desertification
Slow domestication of Multilateral
Environmental Agreements(MEAs)
National Ratification of Regional
Treaties
Rapid degradation of water towers,
biodiversity and habitats
Declining availability of fresh water
Pollution and waste management
Poor enforcement of environmental
standards
•
•
•
•
•
•
•
•
Weak institutional capacity in the sugar
industry
Bureaucratic regulatory and
administrative framework
Few qualified personnel on commercial
law (both bench and bar)
Informality of businesses
High legal costs
•
KESREF
KIRDI
•
Kenya Sugar
Board
•
•
•
•
•
•
•
•
Government
(MoA)
Breeding appropriate cane varieties
Recommending appropriate
fertilizers
Appraising, studying, developing
and monitoring technologies
Pest and diseases, agronomic
packages, farm machinery,
environment and safety issues in
sugar.
Carry out industrial research
Regulate, develop and promote the
sugar industry
Coordinate activities within the
industry
Facilitate equitable access to benefits
and resources
Sector coordination and policy
formulation
Responsibilities
Stakeholders
Policy formulation
Regulation
Coordination
Strategy setting
Advisory
Research
Innovation
•
•
•
•
•
•
•
Comparative Advantage
•
•
•
•
Enhanced research-extension
–farmer linkages
High and sustained technology
adoption rates
Efficient, effective quality service
delivery
Overall sector
Target
Annex III: Stakeholder Comparative Advantage Analysis
Environment
Legal
Climate-dependent sectors such as
agriculture adversely affected
Degrading environment impacting the
poor adversely
Need for simplification of regulations
Need for increased corporatization
Need for stricter contract enforcement
Performance standards needed for
Judiciary
•
•
•
•
•
•
•
Conduct more research into new
early maturing seed varieties that
are disease resistant and have high
sucrose content
Increase farmer training
Increase research on irrigation,
processing, harvesting , transport
and marketing
Issue licenses
Provide regulations, procedures
and guidelines on various areas of
operation in the industry
Link to the government
Provide policy direction in the sugar
sub-sector
What they can do to the sugar industry
•
•
•
•
•
•
Strategic Plan, 2010-2014
51
•
•
•
•
•
•
•
•
•
Other
Institutions:
KESGA,KESMA,
Transporters
Consumers
Universities
and Research
Institutions
•
•
•
•
•
•
Sugar Millers
Outgrower
Institutions
Farmers
Training
Research
Innovations
Buy sugar
Cane Transport
Advocacy for outgrowers and millers
Purchase and mill sugarcane
Market sugar and its by-products
Grow, harvest and transport cane
Coordinate all cane growing
activities
Supply quality seed cane
Harvest and transport cane
To produce quality cane with high
sucrose content
Adopt recommended crop
husbandry practices
Elect competent representatives
•
•
•
•
•
•
•
Science, technology and innovation
Feedback on sugar quality
Transportation
Advocacy
Processing
Input supply
Cane Production
•
•
•
•
•
•
•
•
•
•
Highly trained personnel
Increased collaboration
Good quality sugar at competitive
prices
Reduced Transport cost
Effective service delivery to farmers
Efficient supply chain management
Increased sugar and co-products
production
Must seek to satisfy farmers,
transporters
Increased cane production
Competitive return to land and
labour
•
•
•
•
•
•
•
•
•
Innovate new products and
technologies of sugar production
Broaden product base
Market intelligence
Demand quality and competitive
prices
Provide transport services
Reduce on-transit cane losses
Encourage technology adoption and
its implementation
Advocate for efficient supply chain
management
Increased efficiency in sugar
processing
Must become key partners in the
drive for efficient sugar production
•
•
To be business oriented
Ensure food security through
intercropping, border cropping
Reduce land subdivision
•
•
52
Kenya Sugar Industry
Transporters, Millers, Farmers, cane
cutters
Farmers, Transporters, Millers, KSB,
MoA (GoK)
KESREF, KSB, Millers, MoA
Reducing time lapse between cane
maturity and harvesting
Promoting the use of other modes of
transport
Increasing research funding for harvesting
and transport
Farmers
Ratooning
Transporters, OGIs, Farmers
Farmers, KSB, KESREF, MoA
Implementing a land tenure policy that
encourages economies of scale
Reducing post-harvest losses
KESREF, Farmers, OGIs, Millers
Enhancing results oriented researchextension-farmer linkages to accelerate
adoption rates
Millers, Transporters
KSB, Millers, Insurance firms, Farmers
Creating an insurance scheme to cushion
the farmers from losses arising in the
industry
Improving cane yard management
KESREF, MoA, Farmers, MoWI, KSB
Developing the use of and financing
irrigation for sugarcane production
Efficient, Reliable
Harvesting and
Transport Operations
Farmers, KESREF, OGIs, Millers, KSB
Increasing sugarcane production and
productivity through efficiency farm
operations
Reduction in Farm
Level Risks
Responsibility
Activity
Strategy
Strategic Objective 1:- To Enhance Sugar Industry Competitiveness
Annex IV: Results Matrix (2010-2014)
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Improved cane transport
system
Lower unit transport cost
Timely harvesting
Efficient scheduling of
transport operations
Increased cane supply
Lower Caneyard losses
Reduced cycle times
Reduced cane production
cost
Block farming
Satellite villages
Higher productivity
High of high yielding and
early maturing varieties in
the total crop
Lower farm level risks
Higher yields
Higher yields at lower costs
Output
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
% of harvesting and
transportation in total cost
Share of transport in production
cost
% of cane harvested at maturity
Timeliness of evacuation from
farm
Cycle time lapse
% of losses
Reduced staleness index
Improved sugar quality
% of ratoon crops
Reduced land subdivision
Increase adoption to high
yielding varieties
% of incidence covered
Change in farm level investment
Area under irrigation
% of water recycled into irrigation
Area under cane, yield levels/ha,
sucrose content
Output Indicators
2012
2012
2010-2011
2010-2014/
Continuous
2010-2014/
Continuous
2010/
continuous
2011/
continuous
2011/
Continuous
2011
2010-2014/
Continuous
2010-2014/
Continuous
Timeframe
Strategic Plan, 2010-2014
53
Streamlined corporate
governance
Enhanced Human
Resource Capacity
Effective, Efficient
and Reliable Milling
Operations
All stakeholders
All stakeholders
All stakeholders
Improvement of communication amongst
industry stakeholders and the rest
Training on prudent financial management
Millers, KSB, Consumers
Sensitization of industries on quality
standards and certification requirements
Advocacy on governance, security, high
cost of doing business, among others
Millers, KSB, Consumers
Millers, KESREF, OGIs, Universities
Strengthening industry collaboration with
training institutions
Ensuring the undertaking of International
Organization of Standards (ISO)
certification
Millers, OGIs, KSB, KESREF
Implementing a performance appraisal
system
KSB, Millers, OGIs, KESREF, Consumers
Millers, OGIs, KESREF, KSB
Signing of performance contracts
Conducting periodic Customer Satisfaction
Surveys(CSS)
Millers, KSB, OGIs
KSB, Millers, OGIs
Benchmarking with international
standards
Preparation of staff retention policy
KESREF,KIRDI, Universities
Intensifying industrial and applied research
KSB, Millers, OGIs, KESREF
Millers, KSB, MoA, GoK, Private sector
Creating economies of scale
Undertaking training needs assessment
and implementing its findings
Millers, Private Sector, KSB, KESREF
Increasing sugar production through
efficient processing
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Efficient financial
management
Efficient communication
systems
Good corporate governance
Quality Standards
Quality standards
Report on quality service
delivery
Increased skilled human
resource pool
Good Performance
Optimal performance
Optimal staff levels
Number of Staff trained
Best practices
New technologies
Lower production costs
Higher sugar production at
lower cost
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Profit margins
Rate of information flow
% of factories that are self
sustaining
% of customers receiving quality
service
ISO Certification
% of customers receiving quality
service
Collaboration agreements
reached
Level of targets being achieved
Number of performance contracts
signed
Number of staff retained
Efficient, effective and motivated
staff
Optimal staff levels retained
International standards adopted
New technologies introduced
Integration of factories, mergers,
acquisitions
Capacity utilised, FTE, recovery
rates,
2012
2012
2012
2012
2012
2012
2014/
continuous
2010/
continuous
2010/
continuous
2010/
continuous
2011
2014
2014
2012
2010-2014
54
Kenya Sugar Industry
KSB, Millers
Farmers, OGIs, Transporters, Millers
and Distributors
Millers, KSB
Millers, Private sector Partnerships
Millers, Private sector Partnerships
Millers, Private sector Partnership
Commissioning and undertaking value
chain analysis and product diversification
studies (feasibility, technological and
economic studies)
Implementation of recommendations
from the value chain analysis and product
diversification study
Developing diversification programmes
tailored to suit specific factory
requirements in line with market
opportunities
Initiating co-generation projects
Initiating ethanol production projects
Producing industrial sugar and alcohol
KSB, GoK, MoR, MORDA, MOLG
KSB, SDF committee
KSB, MoA, MoF, GoK
Activity
Setting up a mechanism to coordinate
utilisation of public funds available for
road infrastructure development
Increasing SDF allocation for infrastructure
development
Dedicating 15% of sugar tax revenue to
infrastructure development
Strategy
Improve road
transport
infrastructure
Responsibility
OGIs, KESREF, Millers, Farmers
Responsibility
Encouraging intensification to increase
food security
Activity
Strategic Objective 3:- To Enhance Infrastructure Development
Value Addition and
Product Diversification
Strategy
Strategic Objective 2:- To Expand Product Base
Industrial sugar and alcohol
Ethanol
Electricity
New product lines
Recommendations adopted
Reports
Integrated and intensive
farming
Increased food supply
•
•
•
Improved infrastructure
Infrastructure development
Coordinating mechanism
Output
•
•
•
•
•
•
•
•
Output
Tonnes of industrial sugar
produced
Litres of industrial alcohol
produced
Litres of ethanol produced
Amount of electricity supplied to
the grid
Number of new products
reaching the market
Number of viable
recommendations
Number of studies completed
Number of famers practising
integrated farming
Number of farmers exiting cane
production
•
•
•
Amount of sugar tax revenue
allocated to sugar
SDF allocation to infrastructure
Amount fund allocated to roads
Output Indicators
•
•
•
•
•
•
•
•
•
Output Indicators
2010
2010-2014
2010-2014
Timeframe
2013
2013
2013
2012
2011
2011
2010-2014
Timeframe
Strategic Plan, 2010-2014
55
All stakeholders
KSB. OGIs, Millers
KSB, Millers, OGIs
Encouraging E-commerce and
E-procurement
Increasing training of staff on the use of
ICT
Increasing information sharing through ICT
Development of a
Legal Framework for
Corporate Governance
Millers, KSB
GOK
Farmers, OGIs, KSB, MoA
KSB, OGIs, GOK
Millers, Farmers, Transporters, cane
cutters
All stakeholders,
Conclude privatisation of sugar factories
Strengthen the management of OGIs,
through governance and institutional
capacity building programmes
Strengthen the management of OGIs
Sign sugar industry agreements between
millers, growers and other service
providers
Establish framework of implementation
and M&E system
KRA, MoT, MoF, MoE, MoA, KSB
Strengthen advocacy role with other
stakeholders
Ensure prompt payment to farmers
KRA, KSB
Finalise and implement regulations to
restructure OGIs
Support measures to eliminate tax evasion
KSB, MoA, OGIs, Farmers
Harmonise all sugar laws
KSB, GOK
All stakeholders
Gazette the Sugar General Rules
Enhance capacity for a robust assessment
of market conditions
KSB, MoA
Pass the Sugar Amendment Bill
Finalise the policy
and legal framework
work-in-progress and
implement them
Strengthen the
management of Sugar
Import Policy
Parliament, MoA
Activity
Strategy
Responsibility
All stakeholders
Improving the ICT infrastructure through
networking
Strategic Objective 4:- To Strengthen the Regulatory Framework for the Sugar industry
Modernise and
promote the use of ICT
Information market place
e.g. Website, emails etc.
Pool of skilled personnel
Streamlined procurement
procedures
Networked sugar industry
•
•
•
•
•
•
•
•
•
•
•
•
•
Implementation Framework
M&E system
Improved service delivery
More effective and efficient
OGIs
Management efficiencies
Privatised sugar subsector
Timeliness of Payment
Higher revenues to KRA and
SDF
More accurate of import
requires
Efficient outgrower
institutions
Sugar Laws
Sugar General Rules
Revised Sugar Act
Output
•
•
•
•
Number of stakeholders with
websites
Number of staff trained
Number of e-procured items
Common sugar industry database
•
•
•
•
•
•
Number of agreements signed
Numbers of OGIs restructured
Numbers of mills privatised
Time lapse between cane delivery
and payment
% change in SDF collection
Accuracy of estimates
Output Indicators
•
•
•
•
2010
2010
2010-2014
2010
2010-2012
2010-2014
2010/
continuous
2010-2014
2010-2014
2010
2010
2010
2010
Timeframe
2010
2010-2014
2012
2011
56
Kenya Sugar Industry
Support measures to develop a
comprehensive policy on co-generation
and exploitation of bio-fuels and other
sugarcane products
Establish a sugarbelt roads management
committee
KSB, MoA, MoE
7
8
1
2
3
4
5
6
7
Throughput
Capacity Utilization %
Sugar Made (T)
Cane crushed (TCY)
TCD - Designed
TCD - operational
Mill Numbers
TCH
OTE %
FTE %
Available extraction time(days)
6
Out of field crop, Days
2
Annual & mini maintenance, Days
Crop length (Average) Days
1
Time Account
Cane fibre %
Cane pol %
PARAMETERS
3
1
Cane quality
EFFICIENCY 85,810.59
15
296.25
80.46
94.65
201.95
251
68.4
-
14.97
80.46
2,402,763.00
21,156,562.00
106,650.00
RSA
12.99
•
•
77.38
500,937.00
4,179,975.00
23,379.12
18,089.98
3
324.71
77.38
90.74
186.48
241
87.81
124
13.74
13.7
Swaziland
KSB, Millers, MoR, MoLG, GoK
Annex V: Benchmarking with Competitors
Development of a
comprehensive policy
on co-generation and
exploitation of bio-fuels
and other sugarcane
products
Development of
an institutional
Framework for
Coordination of Roads
Maintenance in the
sugarbelt
14
81.46
512,372.00
4,231,784.00
22,148.88
18,042.48
2
461.44
81.46
89.45
194.69
239
81.54
126
14.01
Zimbabwe
Comprehensive policy
Framework for coordination
of roads maintenance
170
15.11
13.96
82.68
215,484.00
1,817,273.00
11,216.88
9,273.56
2
233.69
82.68
92.67
161.22
195
89.4
61,455.05
710,845.00
2,790.24
2,494.47
1
116.26
89.4
73.31
286.08
320
5.61
45
18.47
10.78
Uganda
Functioning committee
111.96
Malawi
•
80
1,432,569.60
13,023,360.00
50,400.00
40,320.00
7
300
80
92
294
323
-
42
15.5
13.5
Kenya long term
2012
2012
Strategic Plan, 2010-2014
57
2
3
4
5
6
Undetermined losses %
ERC % sucrose in cane
ROR %
Rendement %
RBHR
R/Extraction %
1.92
86.05
86.24
11.36
88
98
1.74
86.38
86.99
11.98
89.55
96.39
9,000
39,440
Soin
Kibos & Allied Sugar Industries
Miwani
Mumias
Nzoia
West Kenya
SONY
Butali
Trans Mara
Kwale International Sugar Co.
TARDA
Total
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
3,000
1,000
1,000
3,120
2,500
3,360
9,200
800
800
100
2,200
Muhoroni
2.
3,360
Chemelil
TCD
1.
Factory
Annex VI: Capacity of Existing and Proposed Sugar Factories
Source: Kenya Sugar Board
1
Separation efficiency
3.14
86.48
85.6
12.11
88.04
96.68
2.93
87.15
85.14
11.86
87.53
97.06
0.12
_
83.81
11.56
86.67
96.75
2
86.25
86
11
89
96.63
58
Kenya Sugar Industry
Effective, Efficient and Reliable
Milling Operations
Benchmarking with International
standards
6.
7.
5
5
5
Providing information on production technologies and quality
standards and facilitating their application, adaptation and uptake
Providing information on international best practices for local millers to
benchmark themselves
Participating in regional and international negotiations on issues
affecting the sugar industry
100
50
80
Intensify industrial and applied research
Carry out regular condition maintenance
5
5
5
100
2500
2500
Invest in rehabilitation of the mills and upgrade them to more modern
and efficient technology.
Increase processing efficiency
20
14
12
6
Increasing research funding for harvesting and transport
Promoting the use of other modes of transport
15
5
Increasing ICT use in scheduling of cane harvesting and transport
operations
10
10
5
10
20
15
250
15
2011
5
5
5
100
150
5000
20
20
20
15
10
25
30
300
20
2012
5
5
5
100
150
5000
20
20
25
15
0
30
50
300
20
2013
Estimated Costs (KSh. Millions)
Reducing post-harvest losses
Improving cane yard management
6
Enhancing results oriented research-extension-farmer linkages to
accelerate adoption rates
Strategic Objective 2: To Expand Product Base
Efficient, Reliable Harvesting and
Transport Operations
5.
6
200
Creating an insurance scheme to cushion the farmers from losses arising
in the industry
Developing the use of and financing irrigation
2.
3.
4.
10
2010
Activities
Increasing efficiency in sugarcane production
Reduction in Farm Level Risks
Strategy
1.
Strategic Objective 1: To Enhance Sugar industry Competitiveness
Annex VII: Plan Implementation Cost Estimates
5
5
5
100
150
0
20
20
30
15
0
30
50
400
20
2014
25
25
25
100
600
15000
92
80
95
60
30
111
151
1450
85
Total
Strategic Plan, 2010-2014
59
Value Addition and Product
Diversification
3
0
50
Commissioning and undertaking value chain survey analysis and
product diversification studies
Implementation of recommendations from the value chain analysis and
product diversification study
Developing diversification programmes tailored to suit specific factory
requirements in line with market opportunities
Improve road transport
infrastructure
3
3
Increasing training of staff on the use of ICT
100
Funding road development
Increasing information sharing through ICT
500
Increasing SDF allocation for infrastructure development
Setting up a mechanism to coordinate utilisation of public funds
available for road infrastructure development
13. Development of a Institutional
Framework for Coordination
of Roads Maintenance in the
sugarbelt
12. Strengthen Framework for
Corporate Governance
11. Strengthen Management of
Sugar Import Policy
Total Budget Estimate
Establish a sugarbelt roads management committee
3,647
5
50
10
Conclude privatization of sugar factories
Establish and implement a M&E system for strategic plan 2010-2014
0
5
Ensure prompt payment to farmers
1
1
Support measures to eliminate tax evasion
Support implementation of rules of origin
Strengthen the management of OGIs
5
Enhance capacity for a robust assessment of market conditions
Strategic Objective 4: To Strengthen the Regulatory Framework for the Sugar industry
10. Promote the Use of ICT:
9.
1
5
Encouraging intercropping and mixed farming to enhance food security
reduce exit from cane farming
Strategic Objective 3: To enhance Infrastructure Development
8.
4,223
5
10
50
5
0
1
1
5
3
3
500
500
1
50
0
0
5
6,812
5
10
0
5
0
0
0
5
3
3
500
500
1
50
0
0
5
6,786
5
10
0
5
0
0
0
5
3
3
500
500
1
0
0
4
5
1,487
5
10
0
5
0
0
0
5
3
3
100
500
1
0
0
0
5
22,955
25
50
100
25
0
2
2
25
15
15
1700
2500
5
150
0
7
25
60
Kenya Sugar Industry
Coastal Sugar
Belt ( Ramisi)
16,585
692
11,963
-
11,963
-
3,930
361
22
3547
-
Interest
Source: State of SDF Funds, KSB.
13,835
254
South Nyanza
Sugar Belt (
Sony Sugar)
Grand Total
9,774
-
9,774
-
Sub-total
Western Sugar
Belt
West Kenya
Sugar Co.
Nzoia Sugar Co.
Busia Sugar Co.
3,807
104
Muhoroni
Sugar Co.
Sub-total
Nyando Sugar
Belt
366
3337
-
Principal
GoK loans
Miwani Sugar
Co.
Agro Chemical
Co.
Chemelil Sugar
Co.
839
152
5
-
5
-
682
654
28
-
-
Principal
2,093
201
0
-
0
-
1892
1,892
0
-
-
Interest
Financial Institutions
Loans
4,682
355
1,089
-
787
302
3,238
1268
1,875
-
95
Principal
802
87
272
-
199
73
443
303
134
-
6
Interest
Non performing SDF Loans
3,252
242
1,471
-
1471
-
1,539
527
411
-
601
566
566
-
-
-
-
-
-
-
Penalties
KSh., Millions
Levy
Arrears
SDL
3,311
-
1,321
-
1,321
-
1,990
0
1,433
-
557
Principal
3,181
-
937
-
937
-
2,244
2,244
-
Penalties
Statutory payments e.g.
Taxes Annex VIII: Loans and Grants to Sugar Factories (31 December 2007)
95
95
-
-
0
0
0
-
Farmers
Arrears
972
23
200
-
200
-
749
175
-
- 574
Performing
SDF Loans
14,627
331
6,744
-
6,744
-
7,552
4,684
2,153
- 715
Other
Creditors
58,096
-
2,998
27,032
-
26,657
375
28,066
9,968
8,666
6,884
2,548
Total
Strategic Plan, 2010-2014
61
Ha
Ha
Ha
Ha
TC/
Ha
x. Kwale International**
xi. Transmara**
xii. Miwani*
Total area under cane
Yield per hectare
*Miwani Rehabilitated and Operational by 2011
**New factories operational by 2013
Ha
ix. Butali**
2008/2009
Ha
Ha
vi. West Kenya
Ha
Ha
SONY
v.
vii. Soin
Ha
iv. Nzoia
viii. Kibos
2008/2009
Ha
iii. Mumias
2008/2009
2008/2009
2008/2009
2008/2009
2008/2009
2008/2009
2008/2009
2008/2009
2008/2009
2008/2009
2008/2009
2008/2009
Ha
Ha
Ha
Base Year
Chemelil
i.
Area under cane
Optimal yield levels
Unit
ii. Muhoroni
Indicator
Outcome
Outcome Indicator: Tonnes of cane harvested
Outcome: Optimal yield levels
Goal: Enhanced Sugar industry Competiveness
Firm/Farm Level Annual Targets
Annex IX: Annual Targets Monitoring Indicators
73
169,421
4,633
-
-
-
2,622
4,638
22,070
19,322
23,899
64,637
14,259
13,341
Base Value
79
177,892
4,633
-
-
-
2,753
4,870
23,174
20,288
25,094
67,869
14,972
14,008
2009/10
84
196,682
4,865
3,000
5000
2,600
2,884
5,102
24,277
21,254
26,289
71,101
15,685
14,625
2010/11
90
206,363
5,096
3450
5500
2860
3,015
5,334
25,381
22,220
27,434
74,333
16,398
15,342
2011/12
95
215,290
5,328
3600
6000
3120
3,146
5,566
26,434
23,186
28,679
77,111
17,111
16,009
2012/13
100
224,925
5,560
3750
6250
3250
3,278
5,798
27,588
24,153
29,874
80,874
17,874
16,676
2013/14
62
Kenya Sugar Industry
62,242
2008/2009
2008/2009
2008/2009
Ha
Ha
Ha
Ha
Ha
Ha
Ha
Ha
Ha
Ha
Ha
Tonnes
%
Tonnes
iii. Mumias
iv. Nzoia
SONY
v.
vi. West Kenya
vii. Soin
viii. Kibos
ix. Butali
x. Kwale International
xi. Transmara
xii. Miwani
Total
Tonnes of Cane Harvested
Post-harvest losses
Cane delivered to mills
-
2008/2009
Ha
ii. Muhoroni
2008/2009
2008/2009
2008/2009
2008/2009
2008/2009
2008/2009
2008/2009
2008/2009
2008/2009
2008/2009
2008/2009
5,165,786
5
5,125,821
-
-
-
1,326
297
7,480
5,489
5,909
27,191
5,507
9,043
Ha
2008/2009
Ha
Chemelil
i.
Base Value
Area of Cane Harvested
Base Year
Optimal Harvesting
and Transport
Schedules
Unit
Indicator
Outcome
Outcome Indicator: Tonnes of cane harvested and delivered to mills
Outcome: Optimal Harvesting and Transport schedules
Goal: Enhanced Sugar industry Competiveness
Harvesting and Transport Annual Targets
5,110,632
4
5,323,575
70,981
-
-
-
-
1,404
314
7,034
8,559
7,730
29,053
7,105
9,782
2009/10
5,808,049
3
5,987,680
74,846
1,076
-
-
-
1,471
303
7,565
9,208
8,316
28,740
7,643
10,524
2010/11
6,286,269
2
6,414,560
80,182
1,248
-
-
-
1471
325
8105
9866
8910
30,792
8189
11,276
2011/12
7,192,730
2
7,339,520
91,744
1,463
1,345
3,360
1,345
1,604
347
8,645
10,524
9,504
32,845
8,735
12,027
2012/13
8,010,834
2
8,174,320
102,179
1,614
1,560
3,898
1,560
1,672
338
9,618
11,707
10,574
36,540
9718
13,380
2013/14
Strategic Plan, 2010-2014
63
2008/2009
%
%
%
%
%
%
%
%
%
%
Tonnes
iv. Nzoia
SONY
v.
vi. West Kenya
vii. Soin
viii. Kibos
ix. Butali
x. Kwale International
xi. Transmara
xii. Miwani
Recovery Levels
Sugar Made
*Projected Sugar consumption by 2014 – 877,133 tonnes of sugar
*Export potential – 500,000 tonnes
Industry long term goal – 1,432,569 tonnes of made sugar
2008/2009
%
iii. Mumias
2008/2009
2008/2009
2008/2009
2008/2009
2008/2009
2008/2009
2008/2009
2008/2009
2008/2009
2008/2009
2008/2009
%
ii. Muhoroni
2008/2009
Base Year
%
Unit
Chemelil
Capacity Utilisation
Optimal Processing
Levels
i.
Indicator
Outcome
Outcome Indicator: Tonnes of sugar made
Outcome: Optimal Processing Levels
Goal: Enhanced Sugar industry Competiveness
Factory Level Annual Targets
518,128
10.0
-
-
-
-
88
68
60
51
58
66
52
50
Base Value
-
-
-
-
88
68
61
61
61
66
61
61
565,236
10.5
2009/10
50
-
-
-
88
70
70
70
70
70
70
70
670,830
11.0
2010/11
58
-
-
-
88
75
75
75
75
75
75
75
813,286
11.5
2011/12
68
50
50
50
88
80
80
80
80
80
80
80
982,257
11.5
2012/13
1,151,557*
11.5
75
58
58
58
89
89
89
89
89
89
89
89
2013/14
64
Kenya Sugar Industry
Months
Days
Synchronised timely
harvesting
Staleness index
Ha
Area under cane irrigated
Optimal harvesting and
transport schedules
%
High yielding varieties
Optimal yield levels
achieved
Unit
Indicator
Outcome
Outcome Indicator: Tonnes of cane harvested
Outcome: Optimal yield levels
Goal: Enhanced Sugar industry Competiveness
Other Critical Annual Targets
2008/2009
2008/2009
2008/2009
2008/2009
Base Year
4
6-12
400
5
Base Value
2
4
44,000
10
2009/10
2
3
84,000
25
2010/11
1
2
124,000
40
2011/12
1
1
164,000
45
2012/13
1
1
204,000
50
2013/14
Strategic Plan, 2010-2014
65
Score Card
Indicator
Variance
Satisfactory
Below Average
Poor
3
1
Good
4
2
Very Good
Comment
Achieved
5
Target
Year
Comments
0-36
37-52
53-68
69-84
85-100
Target Achievement Level (%)
Scorecard*
Annex X: Plan Indicator Tracking Evaluation Tool
Improvement Action
Achievement to Date
Mean Scorecard
Cumulative
Annex XI: Sugarcane Production – Recommendations for
Competitiveness
Excerpts from Cost of Sugarcane and Sugar Production, Kenya Sugar Board, 2008
1.1 Seed Cane Production
Seed cane for establishment of milling cane be obtained from properly selected “B” nurseries
which have been developed with seed cane from properly treated and inspected seed from “A”
nurseries. There is need for all sugar zones to invest in and operationalise seed cane treatment
units.
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.
1.2
Fertilizer Application
There is need for regular undertaking of soil tests to determine actual deficiencies in order to
apply appropriate corrective measures, instead of sticking to a fixed fertilizer regime regardless
of the changing soil needs. There is need for equipping of the soil testing laboratory at KESREF
to meet industry demand for effective and timely testing.
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:
 Ensuring prompt payment for cane deliveries
 Re-instating the farmers’ advance scheme to meet social needs and crop maintenance costs
before payments are received
 Undertaking specific research to ascertain the appropriate fertilizer regimes for each zone
 Supplying fertilizer in a timely manner, when required
 Closely supervising fertilizer application
1.3
Cane Harvesting and Transportation
Effective mechanization is only possible through viable farm units, hence the need for block
farming with minimum plot sizes of 25 Ha.
66
Kenya Sugar Industry
There is need to use purpose built unit for cane haulage eg. Bell instead of general multipurpose use units in order to cut down on cost of maintenance and improve on availability,
hence efficiency.
Cane Yard management at the factory is key to reduction of the uneconomically lengthy turnaround 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.
1.4
Roads Infrastructure
An industry infrastructure development blue print be formulated and implemented. The
industry collaborates with central and local government in the utilization of petroleum levy
and the local government cess.
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.
1.5
Quality based Cane Payment System
The modified cane payment formula should be adopted and implemented in all sugar
companies as a pilot cane testing unit is established to guide the industry towards sucrose
based cane payment.
Price of cane =
av. Price of sugar x farmer’s sharing ratio
TC/TS Ratio
Farmer’s sharing ratio: 50%
TC/TS ratio: 10%
Strategic Plan, 2010-2014
67
The system will create incentive for farmers to deliver clean high sucrose sugar and the millers
to improve sugar recovery, with overall increased productivity for the industry.
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.
Conditions to be met for a Successful System
Availability of high sucrose seed cane must be guaranteed (major role for KESREF)
The grower must guarantee ability to supply and the miller to crush, cane at the optimal
sucrose level.
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 industry’s 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.
1.7 Management and Profitability
The use of inputs and factors of production varies in the different sugar belts due to management
styles, technologies and geographical characteristics.
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.
68
Kenya Sugar Industry
In W/Kenya, CSC and MUSCO zones, the input use is generally lower and farmers have more
autonomy in deciding the level of input use. This autonomy has a disadvantage in that there is
more variability in production levels. One advantage however is that farmers can access inputs
at relatively lower prices than in the MSC zone.
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.
2.0
Strategies for Smallholder/Outgrower Development
It is often argued that the smallholder nature of sugarcane production in Kenya is one of the
key challenges that lead to high cost of production. While the smallholder nature is distinctly
unique in the case of Kenya compared with other regional producers, it can by all means be
streamlined and made efficient as is demonstrated by Indian sugarcane production which is
also largely smallholder yet enviable competitive.
2.1 Measures to Address Smallholder Constraints In order to address the typical constraints of smallholder production system, the following
measures have to be considered:
 Improved access to long term and affordable cane development finance
 Improved access to higher yielding and disease resistant cane varieties, and seed cane
 Improved capacity of cane growers in: cane growing techniques, business understanding,
enforcement of grower/miller contracts, continuous civic education programmes
 Improved capacity of the management systems: MIS to make operations more effective
and efficient; staff capacity through training and development; engaging with technical
partners to facilitate development.
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
The Business Linkages Model;
Block Farming;
Adoption of new cane varieties; and
Strengthening of Grower Association.
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.
Strategic Plan, 2010-2014
69
2.2
The Business Linkages Model
The ‘business linkages’ model was developed by Kilombero Sugar Company Ltd (KSCL) in
Tanzania and the International Finance Corporation (IFC) which financed a project proposal
entitled – the Kilombero Business Linkages Project (KBLP). The project, assessed as successful,
involves promoting business and commercial linkages between KSCL and the outgrower
community through innovative financing mechanisms and capacity building programmes. It
has allowed new farmers to enter the market and existing farmers to expand and improve their
cane farming activities. Support was provided for vital infrastructural development, creation
of an information management system, and delivery of agriculture and business training
to farmers, farm groups and local entrepreneurs through leveraging commercial and donor
funding.
KBLP’s 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:
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•
•
•
•
•
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Develop a comprehensive management information system;
Enhance business, agricultural and technical skills;
Contribute to SME and micro-enterpreneur development;
Develop Kilombero Community Trustand Trust Farm to provide finance for outgrower
community development projects;
Improve infrastructure in outgrower areas;
Increased access to finance for existing and new farmers; and
Build the capacity of associations that represent outgrower farmers.
The success of this project is hinged on supporting partners and a market to outgrower
production, all driven by clear economic objectives.
2.3
Block Farming
The problem of land fragmentation is notable in East Africa, and has been cited as a key constraint
to efficient sugarcane production. One strategy being pursued to address land fragmentation is
Block farming – a contiguous farming area operated under shared ownership.
2.3.1Benefits of Block Farming
 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
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 A drainage system will ensure productivity losses associated with water logging will be
reduced and even allow harvesting of cane during the rainy season if required.
2.3.2 Challenges of Block Farming
 All participating growers must start planting at the same time;
 A high risk of free-riding; and
 Farmers must stay with the block arrangement whilst the agreed period is in force.
2.3.3 Requirements for Successful Block Farming
 Strong institutional factors are crucial to the success of block farming. Strong farmer
associations at local and apex levels are needed to sensitize growers to build consensus
skills among block members
 Financing mechanisms must be made available
 Extension and training Services
 Supportive sugar miller and government to ensure appropriate institutions for policy and
regulation
 At least 4 hectare blocks are necessary for sustainable commercial sugarcane farming.
Maximum number of farmers per block is 20.
 Aerial photographs and GPS should be used to indicate block boundaries.
2.4
Improved Cane Varieties
One of the factors leading to low production and productivity of sugarcane is the existence of
low yielding varieties which are also susceptible to diseases and insect pests. The diseases are
generally seed-borne and are easily spread by use of unclean seed cane.
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:
Much greater focus on grower extension and training;
Introduction/ enforcement of legislative sanction;
A cane payment system that properly rewards growers for the quality of their cane.
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.
2.5
Strengthening Outgrower Institutions
(a) In order to address the low levels of education among farmer leaders, training and
capacity building of the management of Outgrower institutions is a priority. Directors
of Outgrower bodies must have acceptable minimum levels of education to enable then
understand and interpret policy.
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(b) Immediate independent audits of each of the Outgrower institutions should be undertaken
to determine the nature and extent of the liabilities. Restructuring of the financial state of
the Outgrower bodies is a pre-requisite in making them viable.
(c) Accountability in the leadership of Outgrower Institutions could be enhanced through
reviewing the Memoranda and Articles of Association, such that the grower bodies are
limited by shares rather than guarantee. Under their present structure, the outgrower
directors have nothing to lose by running down the institutions.
(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.
(f ) Directors and management of Outgrower institutions should be put on binding
Performance Contracts modeled in the form of those currently obtaining in the Civil
Service in order to ensure quality service delivery and accountability.
(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.
Annex XII: Sugar Production – Recommendations for Efficiency
Excerpts from Cost of Sugarcane and Sugar Production, Kenya Sugar Board, 2008
i.
Undertake financial restructuring of government owned sugar companies to prepare them for
privatization within a given period; Government should gradually divest from ownership of sugar
companies through sale of its equity in parastatal mills to strategic partners. Such divestiture should
take cognizance of the socio-economic impact on the local community.
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.
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v.
Enhance income streams through value addition of co-products
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 grower’s 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.
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