BY Kenyatta Otieno
The Kenyan sugar industry provides enough fodder for clumsy if well-funded movie. From where I sit, this mercury-and-copper-in-sugar story is utter rubbish; it is all about turf wars. Meanwhile, farmers in the western Kenya sugar belt from Mumias in Kakamega to Awendo in Migori live in destitution set deep in sugar plantations.
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Celebrated author Robert Kiyosaki in his book Rich dad Poor Dad talks about minding your own business, using fast food chain giant McDonald’s as an example. McDonald’s may not make the best hamburgers in the world, but they own the most valuable intersections and streets in America. It is not about the burger; it is the real estate. Anyone can make better hamburgers than McDonald’s, but not everyone can build an efficient operating business system on prime property like McDonald’s. This is the reason, I believe, we must mind our own business in the sugar industry.
It is not about producing cheap sugar or importing much cheaper sugar from Brazil. The problem is, government placed the sugar industry at the hands untouchable sharks and cartels. The genesis of this handover was watching as government-owned sugar mills were brought to their knees, to allow for huge imports. The next stage was to allow millers to import and repackage sugar to meet the deficit that rose from their inefficiency. From then on, it turned into a downhill hurtle. Why would millers work to produce sugar at prevailing expenses if they could import it cheaply?
The idea of smallholder sugarcane farmers – engineered by Jomo Kenyatta’s Agriculture minister Bruce McKenzie – was not entirely a mistake. It was meant to encourage indigenous farmers to venture into cash crop farming. The biggest mistake was the failure to organize these farmers into cooperative societies or communal holdings to allow for mechanized production. This is an idea they couldn’t entertain because it would have introduced communism-type holdings that existed across the border in Tanzania as ujamaa. The worst idea of them all was introducing small holder peasants into the matrix and leaving them at the mercy of market forces and sharks they could not stand up to.
Like many sectors that set off on a wrong footing after independence, the government resorted to stubbornly walk the same path with a limb if the sector refused to die a natural death – the sisal and cotton sectors died this way long time ago. The stink in the can for government is to avoid loss of employment to Kenyans in the face of unsustainable financial bail-outs of underperforming sugar mills. This is what opens up the politics of sugar which ultimately work against the very farmers and employees government claims to protect.
Why is Brazilian sugar cheaper?
The answer lies in Brazil’s minding its own business in sugar production. If our objective is to produce sugar at as cheaply as Brazil does, in the manner it does, then we have already lost the plot before we even begin. Brazil sugar mills do not survive on producing refined sugar; they produce ethanol. The refined and unrefined sugar that finds its way to Kenya is a by-product of their industrial objectives, which is why it can be sold at a throwaway prices. We cannot expect to compete with them if we are looking to produce grapes where they produce apples.
About 70% of Brazilian cane goes into production of hydrous and anhydrous ethanol. The remaining 30% is what is left to cause shifts in global prices of refined and unrefined sugar. As per government policy, anhydrous alcohol in Brazil is blended with petroleum fuel – in the US, ethanol derived from corn is also mixed with petroleum products. Hydrous alcohol in Brazil is used as fuel for vehicles designed to be powered by 100% alcohol, which its government encourages. The government there also guarantees millers the purchase of ethanol by state-owned Petrobas.
In 1979, Brazil set the price of hydrous-alcohol-powered vehicles at about 35% less of the equivalent price for petroleum-powered vehicles. Taxes for these vehicles were also lowered to encourage people to buy them. To push the envelope, gas stations were ordered to sell alcohol for alcohol-powered vehicles over the weekend, while gasoline was sold only on weekdays.
In March 2009, Honda launched another innovation for Brazilian flexible-fuel technology by developing flex-fuel motorcycles. These innovations, and government support, demonstrate the extents to which Brazil has gone to protect its sugar industry.
The country’s government has been setting the ratio of mixing anhydrous alcohol and petroleum products, which currently stands at 26% alcohol after motorists lobbied against further increases. This is done by taking into account global crude oil prices and the supply of ethanol from millers. An increase of ratio from 20-26% has an effect of 4-11% on the amount farmers get for their cane; it also shakes global prices. Brazil is largest exporter of sugar in the world so this lowers its exports and increases the global prices of refined sugar, while creating local demand for millers. It’s genius.
What about Kenya?
The first step is to bring all mills in Kenya to efficient production. The management of these mills must be streamlined so that they can make profits, however marginal. Next step is to consider the by-products of sugar, which are a source of corruption in Kenyan sugar mills. An employee of one of the biggest mills in Kenya once confided that only refined sugar is accounted for at their factory; all by-products are siphoned out in the disguise of ‘dumping’. Every business has a secret and the secret of sugar mill business is in its by-products.
This is where the Kisumu Molasses Plant, which was meant to produce ethanol, comes up. The idea of setting up the plant was noble but, as usual, politics and corruption in Kenya curtailed its development. Our only option now is for the government to step up and consider the production of ethanol from local cane seriously. Afterwards, it should encourage production alcohol-powered motorcycles to replace the petrol powered ones, which have become a common and aggravating feature on our roads.
We don’t have to compete with Brazilian sugar; the sugar cartels can be left to import as much as they want. Meanwhile, the government can look at our sugarcane as source of fuel now that we are drilling our own oil.
The secret, as Kiyosaki puts it, is to mind our own business. The cartels can fight over refined sugar market to their death. The little that our own mills produce can be consumed by the military, prisons and other government institutions. The only thing standing between us a robust sugar industry is corruption and selfish interests, not cheap Brazilian sugar. (