Breakdown of machines at the Muhoroni and Chemelil Sugar Companies could affect the milling of sugarcane. The Muhoroni company was closed on its Friday last week after two of its mills stalled.
Chemelil is also facing a similar end, if its machines are not serviced soon.
“We have not serviced our machines in the past three years, and we are afraid that milling might stop if we cannot give them the maintenance needed soon,” said Chemelil receiver manager Fredrick Kabenei.
Chalenging times
The two companies have been going through financial strife.
Muhoroni has been cash-strapped since 2014, when it almost closed its doors after lacking funds to settle a KSh500m debt. At the time, the company had 30,000 tonnes of unsold sugar and was still producing 150 tonnes daily.
Most of the the debt, which was owed to the government, was written off with plans for a privatisation plan that would see Muhoroni merged with Chemelil, with the aim of maximising the output from about 100,000 acres of land on which the two companies sit.
The plan would see the land leased to investors, and the machinery fully depreciated allowing investors to deploy modern technology .
Industry report
Kenyan sugar producers have been unable to effectively sell their produce to the markets, owing to an influx of cheaper sugar imports.
According to the Oxford Business Group, 1 tonne of cane was worth KSh3200 in 2015, down from KSh4000 in 2003.
“In basic economic terms, it costs about $600 (KSh60,000) to produce a tonne of sugar in Kenya, double that of other sugar-producing members of the Common Market for Eastern and Southern Africa (COMESA).”
This play has allowed room for the entry of sugar from neighbouring countries, most of which also comes in through illegal channels, hence beating established taxation structures.
Bigger producer
Mumias Sugar has been responsible for 30% of Kenyan production. Yet it lost KSh2.08bn in the latter half of 2014. The government, which owns a 20% stake in the company, gave it a KSh500m bailouts in January 2015 and a further KSh1bn in July of the same year.
The company was expected to get another KSh5bn in support towards the end of last year.
But even with the financial injection, in August 2015, the company was reported to have lost half of its market share in four years.
State-owned South Nyanza (SoNy) and Nzoia also saw their shares decline by 5% and 1%, respectively in the same period.
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But even with the situation in the markets appearing grim, private companies are trying to establish ground in the country.
United States’ Dominion Farms, for instance, is working on plans to set up a 5000-acre sugar plantation and processing plant in Siaya County.
Dominion signed a 25-year lease with the local community for a 17,000-acre swamp, with hopes of converting it into arable land, in exchange for offering jobs to locals and buying cane from residents.
Alteo, the largest sugar producer in Mauritius, also recently annouced completion of due diligence on acquiring a 51% share in Transmara Sugar Company.
The Transmara sugar zone, located in Narok County, has been found to have the potential to yield sugar that is two to three times more that of some parts of western Kenya.