Afr.j.polit. sci. (2001) Vol. 6, No. 1,123-140 
Management Politics in Kenya's 
Sugar Industry: Towards an Effective 
Framework 
Peter Wanyande* 
Abstract 
Poor management, corruption and vested political interests have made Kenya's 
sugar industry so inefficient that the country's goal of attaining self-sufficiency in 
sugar production will remain unattainable for a long time. To explain the persistence 
of this situation, the article examines the management practice in the industry, 
prevailing production arrangments and the problems associated with it, focusing 
on the politics that pervades the entire system 
Introduction 
This paper has two objectives. The first objective is to discuss the management of 
Kenya's sugar industry and to shed insights into the politics surrounding the 
management of the industry. The second objective is to suggest a way forward in 
terms of an effective policy framework for the effective management of the 
industry. In an attempt to meet these objectives we have provided a historical 
background to the sugar industry in Kenya including information about the various 
actors involved in the industry since its inception to date. These include sugar-cane 
farmers and their organizations, the owners of capital, both local and international, 
that have invested in the industry, the managers and the state through its various 
institutions. The paper then examines the production structure of the sugar industry 
including the production arrangements and the problems associated with the 
production system that has been put in place. The final part of the paper suggests a 
way forward in terms of policy. An attempt is made throughout the paper to 
highlight the politics affecting the management of the sugar industry. The argument 
of the paper is that poor management, corruption and vested political interests have 
made the sugar industry so inefficient that the aim of making Kenya self-sufficient 
in sugar is likely to remain elusive for a long time to come. 
Data for this report was obtained from both secondary and primary sources. 
1027-0353 © 2001 African Association of Political Science
124 Peter Wanyande 
Primary sources were derived from interviews conducted among twenty farmers in 
Muhoroni and fifteen farmers in Chemelil sugar-cane growing areas. The author 
had also attended the Open Forum of the Institute of Economic Affairs in 1999 at 
which problems in the sugar industry were discussed. Secondary sources included 
published and unpublished academic and non-academic materials on the industry. 
Newspapers and journals were also consulted. 
Genesis and Development of Kenya's Sugar Industry 
The development of the sugar industry in Kenya is inextricably linked to the history 
of Asian Agricultural Settlement in the country. The Asians, first came to Kenya as 
labourers who were used by the British to build the railway line from Mombasa to 
Uganda during the initial years of the colonial period. The Asians then referred to as 
coolies, soon began to engage in retail trade and later in commercial agriculture. The 
most successful of these early Asian agricultural settlements were at Kibos in 
present day Nyanza Province. It was here that the first sugar production on a 
commercial basis was started when the Miwani Sugar Mills was established on a 
medium scale at Miwani in Kisumu District of Nyanza Province, in 1922 (Odada, 
1986). It was run as a private business concern by the Hindocha family. Hindocha 
was an Asian who became a very successful businessman in the area. The second 
sugar mill was established in 1927 by the Associated Sugar Company Limited at 
Ramisi in Kwale District of the Coast Province and managed by the Madhvani 
Group International of India. These two were managed and owned by private Asian 
companies and the large-scale farms that supplied them with cane up to the mid- 
1960s were exclusively ownedby Asians. This was the situation before independence. 
The post-independence period saw the post-colonial state begin to participate 
directly in the sugar industry with the government aggressively boosting sugar 
production with the aim of making the country self-sufficient in sugar production. 
To this end the state's strategy to develop the sugar industry was guided by two 
policy documents. The first was the Swynnerton Plan of 1954 and the second was 
Sessional Paper No. 10 of 1965 a policy document in which the government stated 
its version of African Socialism. It has remained the country's development "bible" 
since its adoption. The full title of the document is African Socialism and its 
Application to Planning in Kenya. These two policy documents provided the broad 
framework within which the state was to revolutionize its agricultural sector 
including sugar-cane farming. 
The Swynnnerton Plan provided a land tenure policy that represented a new 
phase in Kenya's agricultural development as far as land utilization was concerned. 
The Swynnerton Plan introduced for the first time in this country, individual land 
tenure system and the registration of land including the provision of land title deeds. 
Prior to this land was communally owned. The plan is, however, best remembered 
for allowing Africans to cultivate profitable export crops hitherto an exclusive 
monopoly of white settlers (Migot Adholla; 1984:203) and Asians. According to 
this policy document,
Management Politics in Kenya's Sugar Industry 125 
sound agricultural development is dependent upon a system of land tenure 
which will make available to the African fanner a unit of land and a system 
of farming whose production will support his family at a level taking into 
account requisites derived from the farm, comparable with other occupations. 
He must be provided with such security of land tenure through indefeasible 
title as this will encourage him to invest his labour and profits into the 
development of his farm and as well enable him to offer it as a security 
against such financial credits as he may wish to secure from sources as may 
be open to him... (Swynnerton, RJM, 1995). 
Direct State Involvement in the Sugar Industry 
The post-colonial state echoed the Swynnerton policy by stating that one of the 
requisites for successful farming is a system of land tenure that encourages 
investment in the land and enables it to be used as a negotiable asset for obtaining 
credit. The net effect of such a policy was that it enabled smallholders acquire land 
and use it for cane growing and more so changed the traditional land tenure system 
thereby creating individual private property in land. The aim of the government as 
already stated was to make Kenya self-sufficient in sugar-cane production and to 
meet both domestic needs and if possible export. 
The involvement of the state in the sugar industry must, however, also be seen in 
another light, namely the desire to be seen to provide citizens with the opportunity 
to improve their income in line with the government's stated commitment to 
improving the living standards of the people. This was politically important as a 
way of enhancing the legitimacy of the government in view of the many promises 
the nationalist leaders had made to the citizens during the struggle for independence. 
Kenyans had been denied a chance to grow cash crops until the Swynnerton Plan of 
1954 already referred to. In addition, the state felt it was necessary to introduce 
sugar-cane production in Western Kenya because by 1966 this part of the country 
was already feeling that the government was not taking care of their interests. This 
followed the resignation of Oginga Odinga from the government after disagreeing 
with Keny atta. Kenyatta was Kenya's first president and Odinga was at that time the 
country's vice president. Indeed there were already signs of growing ethnic tensions 
in the country with a feeling that Kenyatta's ethnic group was being favoured in the 
development process. The Luo community who reside in the present sugar belt was 
particularly unhappy since many of them were feeling marginalized politically and 
economically. The introduction of sugar-cane farming in this region was therefore 
partly aimed at giving the people of the region an assurance that the government was 
still ready to tate c a r e °f their economic interests even if Odinga, the undisputed 
leader of the community, had fallen out with the government. The industry was also 
important because it would provide employment to local people as well as generate 
income. 
It is important to note that in later years the people of the region interpreted the 
near collapse of the sugar industry as a deliberate attempt by the state to "kill" the
126 Peter Wanyande 
community economically. The Luo community had by 1969 made it very clear that 
it no longer supported the Kenyatta government especially after the detention of 
Odinga following the massacre in Kisumu town during the opening of the provincial 
hospital in the town by President Kenyatta. Odinga had on this occasion exchanged 
bitter words with the president causing excitement among the crowd which then 
threw stones at the presidential motorcade as it left the meeting. This prompted the 
presidential security to open fire at the huge crowd present at the ceremony leaving 
scores of people dead. 
To encourage sugar-cane farming on a commercial scale, the state acquired a 
large area of land towards north and east of Muhoroni in present day Nyanza 
province. The state went on to establish sugar settlement schemes in 1966 under 
which a portion of land was allotted to each settler. The Sugar Settlement 
Organization (SSO) in the Ministry of Lands and Settlement was created and given 
the responsibility of managing the settlements with a commensurate milling plant 
capacity of East African Sugar Industry (EASI) now Muhoroni Sugar Company. To 
augment cane production, Sugar Belt Cooperative Union (SBCU) was established 
in the early 1970s for growing cane in traditional homelands to support cane 
supplies to the newly created Chemelil Sugar Company 12 kilometres from 
Muhoroni Sugar Company. Consequently, there was an increase in the area under 
cane especially in the period between 1966 to 1977. 
It is important to note that although many poor people were given land in the new 
settlement schemes, and encouraged to grow sugar cane, a large number of very rich 
people also got the land. The point about this is that because many of these rich 
people were employed far away from the farms in places such as Nairobi, they 
operated as absentee landowners or farmed through remote control by relying on 
employees to run the farms. One of the consequences of this was that productivity 
on such lands was not always at a maximum. 
Since the two sugar factories established in the 1920s at Miwani in Nyanza and 
Ramisi at the coast were privately owned and managed, the post-independence 
state, as a major shareholder in the industry decided to set up five sugar factories. 
This marked the beginning of direct participation of the state in the sugar industry in 
the form of ownership. Toward this end the state established the East African Sugar 
Industries Limited at Muhoroni in 1966 with a rated capacity of 1,200 tonnes of cane 
per day (TCD) and Chemelil Sugar Company Limited in 1968 with a rated capacity 
of 3,000 tonnes of cane per day (TCD). The establishment of Muhoroni and 
Chemelil marked the introduction of monopoly capital into the sugar industry. The 
management of Muhoroni Sugar Company was entrusted to the Mehta Group 
International whileChemelil Sugar wasentrusted to Bookers and Tate International. 
In 1973 the state established another factory at Mumias in Kakamega district with 
a capacity of 2,000 TCD and its management was entrusted to Bookers and Tate 
International. In 1978, a French Company Techniscare established a factory at 
Nzoia in Bungomadistrict with arated capacity of 2,000 expandable to 3,000 TCD. 
Its management was left to French Techniscare with the state being the major
Management Politics in Kenya's Sugar Industry 127 
shareholder. The fifth sugar mill was established in 1979 at Awendo in South 
Nyanza (SONY) and its management was entrusted to Mehta Group International. 
More recently, the government constructed the West Kenya sugar factory in 
Western Province. The government has also proposed to build a sugar factory in 
Busia in Western Province and to rejuvenate Ramisi sugar factory at the coast. 
Ramisi had been closed down due to, among other factors, mismanagement. 
The government thus participated in the sugar industry by owning shares in 
these companies in collaboration with the foreign capital. The state owned the 
majority shares in these companies. For example, it owned 98.8 % of the shares in 
SONY, 95.38 % in Chemelil,74.17 % in Muhoroni,70.76% in Mumias and 97.93% 
in Nzoia company. It is, therefore, correct to say that these are state-dominated 
companies. The state also dominated them in the sense that it took control of the 
distribution of sugar after the processing had been done. The state did this through 
the now defunct Kenya National Trading Company (KNTC). KNTC was a parastatal 
organization used by the state to distribute not just sugar but just about every 
commodity in which the state had an interest. Indeed the KNTC monopolized the 
purchase of sugar from the factories at a price determined by the state. The result of 
this was that farmers, both in the nucleus estates and the outgrowers had no 
incentive to increase production. 
Organizations in Kenya's Sugar Industry 
The Kenyan government has not only been active in affecting the establishment of 
new sugar companies, but it has also been involved in directing and controlling 
various programmes supposedly aimed at ensuring rapid development within the 
industry. To this effect the state has been represented in the industry by different 
institutions. The Office of the President through the Secretary of State Corporations 
sets and controls the terms and conditions of service for sugar companies especially 
through the appointment of directors of the firms and parastatals attached to the 
industry. 
In 1973, the government declared sugar a special produce and the Kenya Sugar 
Authority (KSA) was legally instituted as an advisory body within the Ministry of 
Agriculture under legal notice 32/73 to promote and accelerate development of the 
industry. According to the Agricultural Act Chapter 318 (Republic of Kenya, 
1967):
There is hereby established an authority to be known as the Kenya Sugar 
Authority (KSA), for providing and fostering the effective and efficient 
development of sugar cane for the production of white sugar in any area of 
Kenya. 
The KSA is thus the overall government body charged with the development of the 
sugar industry in the country. Its mandate includes the coordination of research and 
development activities of the industry with the aim of improving not just productivity 
but also the discovery of high-yielding cane varieties. In this regard KSA is
128 Peter Wanyande 
expected to work closely with the Kenya Agricultural Research Institute and the 
Kenya Sugar Research Foundation. KSA also controls the Sugar Development 
Fund, a fund established in 1992 to help finance cane development, the development 
of infrastructure such as roads in the cane-growing areas, factory rehabilitation and 
research. The fund is a revolving fund which is collected by sugar companies and 
contracted agents from locally produced and imported sugar. It is important to note 
the KSA is purely a government body without representation from the farmers. 
As an advisory body to the government on the production of sugar, the 
authority's roles have been: to advise on the effective and efficient development of 
sugar-cane production for the manufacturing of white sugar; to advise on rules and 
regulations necessary to enable the effective and efficient functioning and 
development of the sugar industry and to develop and implement, upon approval by 
the Ministry of Agriculture, a cane-testing service and a sugar-cane quality control 
system. Thus, KSA in collaboration with the Ministry of Agriculture determined 
the price of sugar cane after gathering systematic data from all sugar companies on 
the costs for the whole range of farm-level activities from bush clearing, land 
preparation, care development and transport costs. To implement the cane price, 
KSA goes through a price review committee; the state was represented by five 
ministries. These are the ministries of Agriculture, Commerce, Industry, Finance, 
Economic Planning and National Development, and the Office of the President. The 
committee then makes price recommendations to the cabinet for amendments and 
final approval. 
From the factory gate, the role of KSA is limited particularly with regard to sugar 
marketing and distribution. The latter function was governed by the provisions of 
the imports, exports and essential supplies Act (Cap 504). Through the provisions of 
the Act, sugar marketing and distribution was controlled by the Ministry of 
Commerce as the state classified sugar as an essential product. Domestic distribution 
of sugar under the state was delegated to the Kenya National Trading Corporation 
(KNTC), a parastatal that was established to Africanize trade in the country and 
which was answerable to the then Ministry of Commerce and Industry. Thus, 
KNTC became the sole distributor of sugar in the country before the wave of 
liberalization rendered it almost absolute. KNTC is now defunct. 
Thus, in as much as the crisis in the sugar industry is a function of the absence of 
policy and legal framework, the situation is further compounded by the weak 
institutional arrangements in the sector that do not provide for effective interactions 
between the stakeholders in the industry. The KSA whose mandate is to manage the 
industry as it is presently constituted is a non-industry body and suggestions have 
been made to have it reconstructed from being a government-appointed overseer of 
the industry to a stakeholder organization. This, as it were, would make it more 
efficient. Farmers are also demanding greater representation in the KSA whose 
management of the Sugar Development Fund (SDF) is being queried as nontransparent.
Management Politics in Kenya's Sugar Industry 129 
Cane Growers (Outgrowers' Organizations) 
Some analysts subscribe to the view that the most likely way in which agriculture in 
sub-Saharan Africa will get favourable prices and investments from governments is 
for rural class formation to proceed to the point of creating strong rural producers as 
a class. The basic argument here is that currently rural producers are fragmented and 
politically weak and defensive. This is the case of the sugar industry in Kenya 
where, as we have said, farmers are key stakeholders. 
In the Kenya sugar industry, cane-farmers are organized in cooperatives and 
outgrower companies. The sugar cooperatives exist among the sugar-cane farmers 
in Mumias, Chemelil and Muhoroni. These grower organizations ought to be 
understood within the broadest framework of cooperative movements in Kenya 
with the enactment of Cooperative Societies Act of 1966. Underlying the enactment 
of this legislation was the perception by the Kenyan policymakers that cooperatives 
could provide viable instruments for integrating smallholders with the modern 
economy. In this role, cooperatives would offer a service network in rural areas, 
which combined first stage processing and marketing with supply of credit and 
inputs. 
Realization of these aspirations required a rational and orderly development of 
the cooperative sector. But given theperceived lack of knowledge and organizational 
capacity in rural areas, it was therefore seen as axiomatic that the government would 
have to be the major player in designing and directing this process. Hence an 
acceptable level of effectiveness could be ensured only with the support of the 
resources and organizations of the state. At the policy level, it was made clear that 
the government defined the basic activity pattern. Cooperatives would have to 
accept to operate within a prescribed range of marketing activities. Indeed the 
cooperative societies in Kenya are treated more or less as departments of the 
Ministry of Cooperative Development, now merged with the Ministry of Agriculture. 
They do not have any management or even policy autonomy. This has had rather 
negative implications on the sugar industry as farmers have to abide by government 
rules governing their own organizations. 
Apart from Mumias Outgrowers Company (MOCO) which the KSA acknowledges 
as the only outgrower organization to have succeeded in offering the farmers 
good services despite the insurmountable problems in the sub-sector, the other 
outgrower organizations have not performed to the expectations of farmers. There 
are many reasons for this state of affairs. First is the deliberate misuse of funds by the 
officials of the organizations. This was the view of our respondents, who are 
members of these organizations, who also pointed out that this is the most serious 
problem. Elected officials use the organization as a platform to further their 
individual accumulation. More often than not they are guided by their personal 
interests disregarding what is best for the organization. 
The above problem is further exacerbated by illiteracy among the officials 
which breeds incompetence and poor bookkeeping, the effect being apathy among 
the members. Another factor tends to accentuate the inefficiency of these
130 Peter Wanyande 
organizations is the nature of the peasant society itself with other writers observing 
that the rural group that ordinarily works and lives together is too small to form the 
basis of a modern cooperative. 
The poor record of cane-grower organizations may not be due so much to the 
social organization of local communities as to amore fundamental inability of the 
national superstructure to establish the prerequisites for the effective and sound 
management of these organizations. Thus to fully understand and appreciate the 
pattern and behaviour of these outgrower organizations, it is imperative to shift the 
focus within a wider set of institutionalized power, while taking into consideration 
factors such as social capital attendant therein. To this end, therefore, it can be 
plausibly stated that the malpractice bedevilling the cane-grower organizations 
partly lies with the state which through the Ministry of Cooperatives should ensure 
that all the regulations pertaining to the operations of the cooperative are strictly 
adhered to by the elected officials. The existence of the parallel producer organization 
in the sugar industry negates the very principle of collective action by the persons. 
In an effort to make the views of the ordinary farmer felt an umbrella organization 
for all the individual farmers organizations was established in 1982. The organization 
is known as the Kenya Sugar Growers' Association (KESGA). One problem the 
farmers face even with KESGA in place is the lack of experience in dealing with 
issues affecting their members compared to farmers in the tea or even coffee 
industry. These farmers have had organizations for many more years than the sugarcane 
farmers. 
Management of Sugar Companies 
As is evident from what has been said so far, the management of these state-owned 
sugar companies was left in the hands of foreign multi-national corporations. This 
was in line with the state's policy as outlined in its policy paper Sessional Paper No. 
10 of 1965. This document made provision for the participation of foreign firms in 
the domestic economy. This approach was to permit Kenya to attract private foreign 
capital and management in the sugar industry which the government believed 
rightly or wrongly that it could not otherwise obtain locally. Thus, a symbiotic 
relationship has evolved between dominant foreign private business and the 
Kenyan State as an investor in the sugar industry. The managing agents of these 
sugar firms have been responsible for overall management of their companies. They 
provide top-level managerial as well as technical personnel from their parent 
companies abroad. Only rarely do they supplement such personnel with Kenyans. 
They are also responsible for the general administration of their respective sugar 
companies, handling recruitment and training of staff, maintenance of books and 
accounts, operation of the factory, management of the nucleus plantations and 
establishment of cane on outgrower fields with the help of cane establishment loans 
from local sources. 
The question of entrusting foreigners with the management of the sugar industry 
has been a hot political issue in Kenya over the years. This is especially in the recent
Management Politics in Kenya's Sugar Industry 131 
past. Two issues have made the practice near explosive. First is that, while in the 
initial period one could perhaps convincingly argue that Kenya did not have enough 
qualified people to manage the industry, this argument is hard to defend after thirty 
years of independence in which the country has made great strides in manpower 
development. Secondly, the issue has been aggravated by the poor performance of 
the sugar industry over the years in spite of the reliance on management by the socalled 
foreign experts. This is compounded by the fact that expatriate managers of 
these companies are paid salaries well above those of their local counterparts even 
though they don't necessarily perform better than the local managers. 
Production Arrangements 
Every sugar company in the sugar belt area has a nucleus estate and an outgrowers' 
scheme. The nucleus estates belong to the sugar company while the outgrowers' 
scheme covers the individual or private sugar-cane farmers. The idea behind the 
nucleus estates is simply to ensure a constant supply of cane to the factories. They 
are some kind of safety valve or insurance just in case farmers fail to deliver cane to 
the factories. It is, however, also a source of income for the factory owners and a 
chance for them to participate in sugar-cane farming. It is interesting to note that 
despite the existence of nucleus estates, sugar factories have not been able to meet 
production targets. 
Performance of the Sugar Industry 
As indicated above it is quite clear that the Kenya sugar industry has not performed 
according to the expectations of the government's goal of self-sufficiency in sugar 
production. This objective has remained elusive especially since the 1980s despite 
the government's massive investments in seven joint ventures in sugar-milling 
factories in collaboration with private companies. The target has also remained 
elusive despite the involvement of factories themselves in actual sugar-cane 
production through the nucleus estates. It was only in 1979 that the country was able 
to achieve self-sufficiency in sugar production. 
Although sugar-cane production rose from about 308,000 tonnes in 1982 to the 
highest estimated at 446,000 tonnes in 1989, there was a steady decline to about 
330,000 tonnes in 1994. However, in 1995, there was a rise in production to about 
439,400 tonnes. Unlike production, consumption has been rising steadily from 
about 328,000 tonnes in 1982 to about 560,000 tonnes in 1995;this was expected to 
rise to about 700,000 tonnes by the end of the year 2000 according to the Kenya 
Sugar Authority estimates (KSA, 1998). These statistics indicate that over the 
years, the country has only been able to produce 50-60% of its sugar requirements 
and has to import the deficit. 
According to o n e source, increased government investment in the sugar sector 
propelled Kenya from a net importer of sugar in 1966—importing about 70% of her 
consumption requirements—to that of self-sufficiency in 1979 when domestic 
demand stood at 253,000 tonnes against domestic production of 296,000 tonnes.
132 Peter Wanyande 
The same source goes on to lament that problems besetting the sectors have made 
Kenya a net importer of sugar again 20 years after demonstrating that selfsufficiency 
is achievable (The Point, the bulletin of the Institute of Economic 
Affairs, Issue 30, April 1999). 
Problems Facing the Sugar Industry 
The Kenya sugar industry has experienced numerous problems mainly of a 
managerial and political nature. Many of these problems have also to do with the 
way in which the government has treated the sugar sector. We shall begin discussion 
of these problems by looking at the role of government in the genesis and 
perpetuation of the problems. The government has contributed to the current 
inefficiency in the sugar industry in several ways. We have already indicated the 
monopolistic role of the KNTC in the distribution of sugar throughout the country. 
It must be added that during one party rule the government "protectionist" approach 
to economic development in general, and to the sugar industry in particular, made 
the sugar companies complacent. The government also formed the habit of bailing 
out sugar companies from collapse by injecting huge amounts of money whenever 
the companies were in the red. The companies were therefore assured of returns to 
their investment and so did not find it necessary to be innovative and competitive. In 
the course of conducting research for this report, we gathered that many of the sugar 
companies began to upgrade their production equipment only recently after being 
threatened by competition from imported sugar due to the current liberalization of 
the economy. The government has also been rather lenient with those who illegally 
imported sugar into the country, a factor which has contributed to problems in the 
industry in that it has led to dumping. Many powerful people are said to import sugar 
duty free and sell it at amuch cheaper price than the locally produced sugar and thus 
making it hard for the local companies to sell their stock. This problem has been 
compounded by gross misappropriation of funds meant for improving operations of 
the industry. According to one source, about 700 million Kenya shillings of the 
Sugar Development Fund was misappropriated by the Kenya Sugar Authority and 
other middle players (Reported in the Executive, June, 1999: 25). There is no 
evidence that the people behind this misdeed were punished. There were also 
complaints of massive or rampant tax evasion in the sugar industry with the culprits 
going scot-free. This is done by politically powerful individuals. We are here 
talking about corruption, a vice that has become pervasive in the country. Another 
problem that has made the companies difficult to manage is the practice in which the 
government provided loans to the companies and did nothing to recover such loans. 
This means that a manager coming to the company finds the company in such a huge 
debt that it cannot pay. This simply discourages the manager from even starting to 
repay the loans. 
Theotherproblem that creates inefficiency in the sugar industry is the appointment 
of managers on the basis of political considerations rather than merit. All the 
chairmen of the government-dominated sugar companies are political appointees. 
In some cases they are people who failed to get elected to parliament but were in
Management Politics in Kenya's Sugar Industry 133 
good books with the powers that be. Their appointment is, therefore, more of a 
political reward than aimed at improving the management of the companies. The 
same applies to the few local managers of these companies. Many of these lack the 
requisite technical qualifications and knowledge let alone the interest in the sugar 
industry. One of the consequences of this is that the managers feel that their duty is 
to serve the interest of the state and not necessarily the farmer. Secondly, such 
employees feel that because they are not certain that they will retain such jobs 
should there be change of government, they had better take as much as possible from 
the companies before they are replaced. They thus turn and treat the companies as 
mere sources of personal capital accumulation. This has been a general problem in 
Kenya especially since Moi took over the reins of power in 1978. He has not allowed 
people to stay in one public office for long and many, therefore, loot the organizations 
they work for as much as possible while they are in their public positions. 
A recent open forum by the Institute of Economic Affairs called to discuss the 
problems of the sugar industry, noted that a major problem in the industry is lack of 
clear policy guidelines. The government appears reluctant to develop such a policy. 
This is evidenced by the fact that the government has on three occasions refused to 
introduce in parliament a draft bill on the industry (The Point, April 1998, Issue 30). 
This was confirmed by the Secretary of the Kenya Sugar Growers' Association (see 
Executive, June 1999: 26). The lack of policy has meant that the roles of various 
interest groups in the sugar industry such as the farmers is not quite clear. It also 
becomes difficult to accuse an individual of wrongdoing within the industry in the 
absence of a clear policy. This lack of policy perhaps explains, to a large extent, the 
absence of farmers' representation in the various government institutions involved 
in the industry. The bodies in question are the Kenya Sugar Authority, the Interministerial 
Committee, the Sugar Board, and the Sugar Development Fund. The 
lack of representation by farmers is particularly absent in the Kenya Sugar 
Authority given the central role they play in the development of the industry. 
There are several other dimensions to the problems in the sugar industry apart 
from those caused directly by the state. Among these is the problem of management. 
According to a number of farmers interviewed sugar factories appear to lack 
capacity to collect cane from the fanners. The farmers observed that many times 
their cane dries up on the farms simply because the factories do not collect it in time. 
They also pointed out that even if the farmers wish to use their own transport to take 
cane to the factories they cannot do so since they have to get the okay from the 
factory. This implies that either the factories do not have the capacity to receive a 
certain amount or quantity of cane at any given time or that they simply are not 
sensitive to the interests of the farmers. This is why farmers and politicians from the 
sugar belt often interpret this as a deliberate act of sabotage to frustrate the 
community of sugar-cane farmers. They often see the hand of the state and therefore 
politics in all this. As a result many fanners become frustrated and opt not to plant 
sugar cane and this, too, reduces the amount of cane available. Consequently, the 
production targets are not met. 
It proved difficult to obtain explanation from the management of the sugar
134 Peter Wcmyande 
companies for the failure to meet the production targets. Many of them were 
reluctant to give information perhaps for fear of possible victimization by the 
government. 
We were, however, able to establish that one of the biggest problems in the sugar 
industry is the dumping of cheap sugar from outside the country. This makes it 
difficult for the sugar companies to sell their stock. This in turn discourages them 
from getting cane from the farmers hence the delays in cutting or harvesting cane. 
This has resulted in a situation in which many farmers simply leave their sugar-cane 
farms idle. It is important to observe that the importation of sugar is done not by 
ordinary people but by well-connected political elites who enjoy the protection of 
the state. It is this which leads many politicians from the sugar-cane-growing areas 
to blame the state for the mess in the sugar industry and to view it as a deliberate act 
of sabotage by the state. 
There is nothing wrong in importing a commodity if a country can get it cheaper 
compared to what is produced locally. However, the position in Kenya is that 
imported sugar is much cheaper than locally produced sugar despite the fact that the 
cost of sugar-cane production, estimated at Ksh. 1,000 per tonne, compares favourably 
with the world average. This competitiveness is, however, eroded by the high 
processing costs and marketing problems which have affected the performance of 
the Kenyan sugar industry. As Nyangito (1996) states, the underlying causes of the 
problems are the management of the factories and government regulations in 
pricing, marketing and importing. He further argues that the cost of processing 
sugar for the factories is well above that expected in a competitive industry, noting 
that the average costs estimated at Ksh. 16,500 per tonne for all factories in Kenya 
are 50% in excess of the ex-factory value of sugar. The main causes of this being the 
high costs of labour, electricity, fuel, packaging materials and chemicals required to 
process sugar cane. These costs make locally produced sugar uncompetitive. 
The high costs of processing sugar undoubtedly has implications on the 
financial performance of the factories and eventually their capability to pay farmers. 
Most factories are often unable to realize enough money to pay farmers at the 
industry set prices. Indeed, late payment of farmers for cane delivered to the 
factories is a common problem in the industry. 
The present capacity of the seven factories in the country for sugar processing is 
600,000 tonnes per year but the utilization is estimated at 60% annually. This underutilization 
is attributed to the inadequate supply of sugar cane to the factories; 
contrary to this, there has been an outcry from farmers that they are unable to have 
their cane processed, a clear indication of adequate supplies of cane at farm level. 
(Sunday Nation, 23.6.96). The main problem in capacity utilization is the inability 
of the factories to collect sugar cane from the farmers due to transport problems. 
Most milling companies are unable to synchronize cane supply from outgrowers 
and factory needs through financing and organizing farmers adequately to ensure 
steady supply.
Management Politics in Kenya's Sugar Industry 135 
The producer price for sugar cane has been a major concern in the industry for 
many years. Before May 1994, prices at all levels of the sugar industry were set by 
the government. They were based on the farmers' costs of production as computed 
by the Kenya Sugar Authority (KSA), plus some margin for profit. Studies on the 
industry indicate that the low producer price for sugar cane and the various 
deductions by milling companies for the services rendered to the farmers in terms of 
land preparation, provision of inputs and transportation of the cane to the factory, 
resulted in low returns which, at times, could be negative. 
The pricing was semi-liberalized in 1994 and the producer price is supposed to 
be negotiated by the millers and the growers. This, however, was not practical 
because the farmers do not have the capacity and capability of negotiating 
effectively with the millers. Thus, the price remained on the costs of production as 
calculated by Kenya Sugar Authority but the margin for profits was increased to 
25% as an incentive to producers. 
According to KSA, the current average producer price for sugar cane of 
Ksh. 1,553 per tonne is about 50% of the ex-factory price for sugar. This proportion 
compares well with the worldwide average of 55%. However, most Kenyan farmers 
are disadvantaged in that there are usually long delays in payments which end up 
reducing the real value of their earnings and also cause a lot of inconvenience, 
particularly the need for cash to meet the fanners' obligations. Due to these 
disincentives, some farmers have switched to alternative crops such as maize and 
hence the declining levels of sugar production. 
The country has imported sugar over the years to meet the gap between 
production and consumption but the import policy has been at the centre of 
controversy for many years. Before the liberalization of the industry, the Ministry of 
Commerce and Industry was by law (Chapter 329 of the laws of Kenya) responsible 
for importing sugar. This was done using the Sugar Equalization Fund through the 
Kenya National Trading Corporation (KNTC). This fund was established to finance 
the purchase of all sugar produced in the country, importing whenever shortages 
were anticipated and exporting it when there was a surplus. 
The law was often flawed and private individuals or companies were allowed to 
import sugar, for example, in 1986 sugar imports by a few private companies 
created a controversy in the country. The then Commerce and Industry Minister 
Jonathan Ng'eno had to explain to parliament why this had to be done. The reason 
given then was lack of funds but there were questions left unanswered as to what 
happened to the money saved by the fund (SN 23.6.96). It was widely believed then 
that the move was aimed at giving a few individuals an opportunity to reap huge 
profits from importing cheap sugar and selling it at high domestic prices.With the 
liberalization of the sugar industry, anybody interested in importing can theoretically 
do so but the Government has put in place import levies to protect the industry from 
dumping of cheap imports. The levies are currently six per cent VAT, seven per cent 
Sugar Development Fund (SDF) and a variable Import Duty of about ten per cent 
(Nyangito, 96)-
136 Peter Wanyande 
Despite the existence of a government import policy especially under one party 
rule, sugar imports found their way into the market without payment of the levies. 
Even today, when the government bans sugarimportation, imports of the commodity 
continue unabated. For example, in February 1996, there was an embarrassing 
furore over sugar imports. The then Minister for Agriculture, Simon Nyachae, 
banned the imports but the president overruled him the following day. Thus, the 
policy on sugar importation is more often than not flawed by ad hoc political 
decisions regardless of their negative repercussions on the industry. The politics of 
the sugar imports aside, the current import policy on the variable import duty does 
not provide incentives to reduce factory production costs through increased 
efficiency. 
The distribution of sugar, as already indicated, was dominated by the Kenya 
National Trading Corporation (KNTC) before the liberalization of the industry in 
1994. The KNTC had a network of warehouses in all the major towns and thus was 
able to serve most parts of the country. Presently under a liberalized industry, and 
with KNTC out of the way having become defunct, private wholesalers buy directly 
from the sugar mills fordistribution. It should be recognized that partial liberalization 
of the marketing system doesn't encourage efficiency in the distribution of a 
commodity. The government should have a clear policy on freeing all aspects of the 
marketing system for it to work well. Its role should be to enforce the trading rules 
and provide supportive services to the industry such as information about markets 
and improving the infrastructure. 
The problems discussed above have resulted in delays in cane harvesting, and 
delays in payment to farmer for cane delivered to the factories. It was claimed by 
some farmers interviewed that in some cases cane stays in the field for up to 48 
months before harvest instead of the required 24 months. When this happens the 
weight of the cane is drastically reduced and the farmer earns very little for the cane 
crop since payment is based on the weight delivered. Farmers have consequently 
become disillusioned. The factories are also heavily in debt and experience very 
high production costs whichplaces them atadisadvantage compared to international 
competitors. 
From the foregoing, it is clear that the problems in the sugar industry are mainly 
due to government policies and interference, which does not favour efficient 
performance. Although, the government espouses privatization of the industry, it is 
dragging its feet and seems not yet ready to release control over the milling 
companies. This has led to management inefficiencies of the factories with the 
belief that the government will always bail them out of their financial difficulties. 
Efficient management of the sugar factories is the key to the success of the sugar 
industry. 
Why Kenya's Sugar is Dearer than Imported Sugar 
As already indicated imported sugar is much cheaper than locally produced sugar. 
This has encouraged the problem of dumping. It is also the case that Kenya—
Management Politics in Kenya's Sugar Industry 137 
perhaps unique among the sugar-producing countries—imports the highest amount 
of sugar for domestic consumption. This is because elsewhere, 80% of world sugar 
produced is consumed in the respective countries of production and only 20% of the 
world sugar produced is traded on the world market. It is, however, instructive to 
note that world sugar prices do not reflect the cost of production from the respective 
countries of origin. This is due to the various subsidies offered by governments of 
exporting countries to their respective sugar industries. 
World leading producers of sugar such as Brazil, Mexico and the European 
Union, highly subsidize their sugar production. Brazil, Sudan, Mauritius and South 
Africa have an added advantage. Nearly 90% of sugar cane is grown on large-scale 
plantations. Their sugar factories have been designed to operate at much higher 
capacities. Some of their medium sugar factory capacity is about 30,000 tonnes of 
cane per day. Growing of cane under large-scale plantations and operating factories 
which have higher capacities, has an added advantage of economies of scale, which 
Kenya's domestic sugar factories cannot easily match. Again, most of the sugar 
economies of Mauritius, Sudan and Brazil, grow their sugar cane under low attitude 
areas and are supplemented with irrigation. This allows the cane to mature earlier 
than in Kenya's case and therefore cuts costs at the farm level. 
The cost of farm inputs also plays a key role in determining cost of production. 
Application of fertilizer is very necessary for improved cane yield and a country like 
Brazil has raw materials and industries that manufacture such fertilizers at more 
competitive prices. Another factor to consider is the cost of farm machinery. 
Comparatively, thecostoffarm machinery and their operations are fairly competitive 
in such sugar economies like Brazil, Mexico and the European Union countries 
which manufacture their own farm machinery. Kenya on the other hand, has to 
import all its fertilizers and farm machinery. 
It must also be noted that world sugar prices are at their lowest in the history of 
the world sugar market. This scenario has come about due to the political and 
economic developments in the former Soviet Bloc and the overproduction of sugar 
in Brazil, Thailand and India. Brazil's main product from sugar cane has been 
ethanol and sugar is considered as a by-product, which is not the case in Kenya. This 
partly explains why Kenyan sugar is dearer. However, due to the decline in demand 
for ethanol in the Eastern Bloc, Brazil switched and increased sugar production, 
most of which has been off-loaded to the world market. The ultimate result has been 
increase in the world sugar surplus of 5.1 million tonnes. While world sugar 
production for 1999 has been estimated at 129.1 million tonnes, consumption for 
the same period is estimated at 12.6 million tonnes, creating a surplus of this highly 
subsidized commodity available for the world market (KSA, 1999). 
Kenya, on the other hand, has about 100,000 small-scale sugar-cane farmers 
with an average holding of 0.6 ha. Kenya does not extend subsidies to the sugar-cane 
farmer. The cost of production is therefore relatively higher. The road infrastructure 
is very poor, making cane transportation expensive due to the high cost incurred in 
maintaining the cane haulage fleets. Most of the factory machinery is obsolete and
138 Peter Wanyande 
requires replacement. Unfortunately, we do not have adequate capital for such an 
undertaking. Cane-growing in Kenya is rain-fed and done in high-altitude areas. 
This elongates the maturity period. Cane research in early maturing varieties had for 
a long-time been ignored. This has had a negative effect on the sugar industry in 
Kenya. This shortcoming is now being addressed especially through the establishment 
of the Kenya Sugar Research Foundation. All these factors adversely affect our 
domestic sugar price. 
The Way Forward 
From the foregoing discussion it is quite clear that the sugar industry in Kenya is 
beset with numerous problems. The problems revolve around poor management 
and are compounded by politics. The industry has become a source of capital 
accumulation for politically powerful people who get state protection for their 
illegal activities in the industry. In charting out a new course to revitalize the 
management of .the sugar industry it then becomes necessary to deal with the 
management problems including corruption as well as the political questions. The 
place to start from is to develop a clear policy framework to guide the different 
players in the industry. This is necessary because currently there appears to be no 
policy guiding the industry. This means that it is difficult to even determine who has 
violated policy since a policy does not exist in the first place. The problem of lack of 
policy came up frequently among the people interviewed. It was also a major issue 
of concern at the open forum of the Institute of Economic Affairs already referred to 
in this report. The issue of policy has become even more urgent in view of the 
liberalization of the economy since the 1980s. While many have hailed liberalization 
of the economy and regard it as the cure of the country's economic problems, it is 
important to note that this is not necessarily true. There must first be clear policy 
guidelines on liberalization. Secondly, unless a liberalized economy is well 
regulated the private sector can easily take advantage of its new found freedom to 
exploit consumers in an even worse way than the controlled economy was doing. 
This is especially the case in developing countries where monopolistic firms are still 
predominant. In the case of Kenya's sugar industry it is very important to have clear 
privatization policy that gives farmers a voice. Currently fanners are not effectively 
represented in the sugar industry despite the existence of several organizations in 
the industry. The privatization proposals for the industry have already drawn 
opposition from many stakeholders. The opposition, which has come mainly from 
the politicians in the sugar industry, is premised on the fact that it is likely to leave 
out farmers who may not even be able to afford to buy the companies. It is also 
important to ensure that the existing farmers' organizations, such as the Kenya 
Sugar Growers' Association, are strengthened to make them effective players in the 
industry. 
Secondly, the politicization of the management of the sugar industry by the 
government should stop forthwith. That is, the government should stop appointing 
industry managers based on patron-clientele relationships, this breeds graft and
Management Politics in Kenya's Sugar Industry 139 
inefficiency; the government should also reduce ad hoc political influences in sugar 
importation and marketing. What is needed is the political will to support prudent 
policies, because, however theoretically sound a policy is, if there is no political will 
to support it, the desired results will not be obtained. 
While the viability of investing in the sugar industry in Kenya is not in doubt as 
shown by the desire to invest by foreign investors such as Tate and Lyle PLC 
Corporation and Commonweal th Development Corporation (CDC), the government 
must ensure that the massive public investments in the seven milling companies do 
not go to waste. And last but not the least, farmers should be supported to have a 
stake in the ownership and management of the factories. The KSA should play a 
leading role in improving the management capacity of the factories besides 
supporting farm production activities and monitoring and regulating the performance 
of the industry. 
Note 
* Dr Peter Wanyande is Senior Lecturer in Government, University of Nairobi, 
Kenya. This paper is the result of a research project conducted with the generous 
financial support of the Ford Foundation offered through the Small Research Grants 
Programme of the African Association of Political Scientists (A APS). 
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