KENYA NATIONAL ASSEMBLY

ELEVENTH PARLIAMENT
(THIRD SESSION-2015)

REPORT OF THE
DEPARTMENTAL COMMITTEE ON AGRICULTURE,
LIVESTOCK AND CO-OPERATIVES
ON THE

THE CRISIS FACING THE SUGAR

INDUSTRY IN KENYA

CLERKS CHAMBERS
PARLIAMENT BUILDINGS,
NAIROBI

MARCH, 2015

Report of the Departmental Committee on Agriculture, Livestock and Co-operatives on the Crisis Facing the Sugar Industry
in Kenya

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CONTENTS
ACRONYMS ................................................................................................................................................ 3
Terms of Reference for the Committee.................................................................................................... 5
INTRODUCTION ....................................................................................................................................... 5
Membership ................................................................................................................................................. 7
CHAPTER 1 ................................................................................................................................................ 11
1.0 OVERVIEW OF THE SUGAR INDUSTRY IN KENYA .................................................................... 11
Historical Perspective................................................................................................................................ 11
Cane Production, Quality and Supply.................................................................................................... 11
Mills Performance and Contribution to GDP ........................................................................................ 12
Sugarcane and Sugar Prices ...................................................................................................................... 12
Cost of Production.................................................................................................................................... 13
National Sugar Consumption .................................................................................................................. 13
Sugar Imports and exports ....................................................................................................................... 13
COMESA Safeguards ................................................................................................................................. 14
Privatization..............................................................................................................................14
Divesture..................................................................................................................................................14
Farmers Problems...................................................................................................................................... 15
2.0

EVIDENCE AND SUBMISSIONS FROM SUGAR COMPANIES AND OTHER WITNESSES

16

2.1 Submissions by Western Development Initiative Association (WEDIA) ...................................... 16

2.2 Submissions by Management of Mumias Sugar Company (MSC)................................................ 17
2.3 Submissions by Nzoia Sugar Company (NSC) ................................................................................ 18
2.4 Submissions from Butali Sugar Mills (BSM) ..................................................................................... 20
2.6 Submission by West Kenya Sugar Factory (WKSF) ......................................................................... 22
2.7 Submission by the Former Managing Director MSC Dr. Evans Kidero ........................................ 23
2.8 Submission by the Director General National Environment Management Authority (NEMA)
.................................................................................................................................................... 23
2.9 Submission by Commissioner General Kenya Revenue Authority (KRA) ................................ 24
2.10 Submissions by Kenya Ports Authority (KPA) ............................................................................... 26
2.11

Submissions by the Inspector General of Police (IG) ............................................................ 26

2.12

Submissions by Kenya Bureau of Standards (KEBS) .............................................................. 28

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2.13

Submissions by Management and Board of Directors for Mumias Sugar Company ........ 29

2.14

Submissions by the Director General of the National Intelligence Services (NIS) ............. 31

2.16

Submissions by the Cabinet Secretary Ministry of Agriculture, Livestock and Fisheries ... 33

3.0 FINDINGS OF THE COMMITTEE ................................................................................................... 39

Cane Poaching ........................................................................................................................................... 40
3.3

OBSERVATIONS ............................................................................................................................. 46

CHAPTER 4 ............................................................................................................................................... 50
4.0 RECOMMENDATIONS OF THE COMMITTEE ............................................................................. 50
ANNEXTURES ........................................................................................................................................... 53

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ACRONYMS
WEDIA

Western Development Initiative Association

DCALC

Departmental Committee on Agriculture, Livestock and

Co-operatives

MSC

Mumias Sugar Company

NSC

Nzoia Sugar Company

BSC

Busia Sugar Company

BSM

Butali Sugar Mills

WKSF

West Kenya Sugar Factory

KRA

Kenya Revenue Authority

NIS

National Intelligence Service

IG

Inspector-General

DG

Director-General

CG

Commissioner-General

CS

Cabinet Secretary

NEMA

National Environment Management Authority

EMCA

Environmental Management and Coordination Act

KPA

Kenya Ports Authority

KSB

Kenya Sugar Board

KEBS

Kenya Bureau of Standards

COMESA

Common Market for Eastern and Southern Africa

KeRRA

Kenya Rural Roads Authority

IDB

Industrial Development Bank

RSCL

Rising Star Commodities Limited

Report of the Departmental Committee on Agriculture, Livestock and Co-operatives on the Crisis Facing the Sugar Industry
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DRC

Democratic Republic of Congo

EU

European Union

UK

United Kingdom

DPL

Dantes Peak Limited

GK

Government of Kenya

AFFA

Agriculture Fisheries and Food Authority

EACCMA

East African Community Customs Management Act

SDF

Sugar Development Fund

LATF

Local Authorities Trust Fund

CDF

Constituencies Development Fund

VAT

Value added Tax

NSE

Nairobi Stock Exchange

MT

Metric Tones

TCD

Tones Crushed Daily;

FCB

Fives Call Babcock

SCT

Single Customs Territory

KPMG

MW

A merger leading audit firm between Klynveld Main Goerdeler

AndPeat Marwick
Mega Watts

MSS

Mauritius Sugar Syndicate

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PREFACE
Mr. Speaker Sir,
01.

Arising from a petition by Western Development Initiative Association on

the imminent collapse of sugar industry in Western Kenya, the Committee
while investigating into the issues raised in the petition, undertook to
sample investigations into the status of sugar industry in Kenya with a view
to finding a lasting solution and making recommendations to salvage the
industry and save the loss to be incurred by over six million sugarcane
farmers across the country if the industry was to collapse.

02.

Terms of Reference for the Committee

(i)
(ii)
(iii)
(iv)
(v)

Investigate and inquire into the current state of the sugar

industry in the country;
Investigate and inquire into the issue of cheap sugar imports and
smuggling;
Investigate and inquire into the alleged exports by Mumias Sugar
Company between 2006 and 2012;
Look into the glut in the sugar market, which has, among other
causes, contributed to the current crisis in the industry; and
Report on the findings of the Committees inquiry.

INTRODUCTION
03.

The Departmental Committee on Agriculture, Livestock and Co operatives

is established pursuant to provisions of Standing Order 216 (5). Under the
provisions of Standing Order 216 (5) the Committee is mandated to:-

(a) investigate, inquire into, and report on all matters relating to the
mandate, management, activities, administration, operations and
estimates of the assigned Ministries and departments;
(b) study the Programme and policy objectives of the
Ministries
and departments and the effectiveness of the
implementation;
(c) study and review all legislation referred to it;
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(d) study, assess and analyse the relative success of the Ministries and
departments as measured by the results obtained as compared with
their stated objectives;
(e) investigate and inquire into all matters relating to the assigned
Ministries and departments as they may deem necessary, and as may
be referred to them by the House;
(f) to vet and report on all appointments where the Constitution or
any other law requires the National Assembly to approve, except
those under Standing Order 204 (Committee on Appointments); and
(g) make reports and recommendations to the House as often as
possible, including recommendation of proposed legislation.
04.

The Committee is also mandated to scrutinize the budget of line Ministries

and Departments as provided under Standing Order No. 235 states which
that:-

(i) Upon being laid before the House, the Estimates shall be deemed to
have been committed to each Departmental Committee without
question put, for each such committee to deliberate upon according to
their respective mandates.
(ii) Each Departmental Committee shall consider, discuss and review the
Estimates according to its mandate and submit its report and
recommendations to the Budget and Appropriations Committee within
twenty-one days, after being laid before the House.
(iii) The Budget and Appropriations Committee shall discuss and review
the Estimates and make recommendations to the National Assembly,
taking into account the recommendations of the Departmental
Committees, the views of the Cabinet Secretary and the public.
05.

Section 124 of the Constitution (2010) also provide for the establishment of
the Committees by Parliament.

06.

The Committee oversees the performance of the following Ministries and

Government departments:(i) Agriculture,
(ii) Livestock,
(iii) Irrigation,

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(iv) Fisheries development,

(v) Co-operatives development, and
(vi) Production and marketing.
07.

Under the above Ministries, the Committee covers the following subjects;
(i)
(ii)
(iii)
(iv)

Agriculture policy;
Veterinary policy
Fisheries policy
Cooperative societies

Membership
08.

The Committee comprises the following Members:1.

The Hon. Adan Mohamed Nooru, M.P.

Chairman

2.

The Hon. Japhet M. Kareke Mbiuki, M.P.

Vice Chairman

3.

The Hon. Kabando Wa Kabando, M.P.

4.

The Hon. Raphael Letimalo, M.P.

5.

The Hon. Patrick Wangamati, M.P.

6.

The Hon. Francis Munyua Waititu, M.P.

7.

The Hon. Mary Wambui Munene, M. P.

8.

The Hon. Peter Njuguna Gitau, M.P.

9.

The Hon. Maison Leshoomo, M.P.

10. The Hon. Anthony Kimani Ichungwah, M.P.

11.

The Hon. Alfred Kiptoo Keter, M.P.

12. The Hon. Ayub Savula Angatia, M.P.

13. The Hon. Justice Kemei, M.P.
14. The Hon. Philip L. R. Rotino, M.P.
15. The Hon. Korei Ole Lemein, M.P.
16. The Hon. Silas Tiren, M.P.
17. The Hon. Benjamin Jomo Washiali, M.P.
18. The Hon. (Dr.) Victor Kioko Munyaka, M.P.
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19. The Hon. John BomettSerut, M.P.

20. The Hon. Millie Odhiambo, M.P.
21. The Hon. Fredrick Outa, M.P.
22. The Hon. Maanzo, Daniel Kitonga, M.P.
23. The Hon. James Opiyo Wandayi, M.P.
24. The Hon. Ferdinand Kevin Wanyonyi, M.P.
25. The Hon. Paul Simba Arati, M.P.
26. The Hon. Florence Mwikali Mutua, M.P.
27. The Hon. Hezron Bollo Awiti, M.P.
28. The Hon. John Owour Kobado, M.P.
29. The Hon. Zuleikha Hassan Juma, M.P.
Mr. Speaker,
0.9

This Report was considered at length by the Committee in a retreat at

Windsor Golf and Country Club in Nairobi in 6th and 7th March , 2015 and
the resolution to adopt this Report was reached unanimously in a meeting
attended by a majority of the Members of the Committee Members. It is
our hope that this Report will guide and inform the House on the status of
sugar industry.
The Committee wishes to sincerely thank the Offices of the Speaker and the
Clerk of the National Assembly for the support and services extended to the
Members to enable the Committee complete this report smoothly.
I am grateful for the Members of the Committee whose support enabled
the Committee to accomplish this task. Special thanks to the secretariat for
their support at all times.
On behalf of the Committee, I now have the honour and pleasure to
present this Report to House for consideration and adoption.

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Thank You
We the undersigned
1. The Hon. Adan Mohamed Nooru, MBS, M.P.Chairman_________________________________________
2. The Hon. Japhet M. Kareke Mbiuki, M.P. -Vice
Chairman______________________________________________
3. The Hon. Kabando Wa Kabando, M.P._______________________________
4. The Hon. Raphael Letimalo, M.P.____________________________________
5. The Hon. Mary Wambui Munene, M.P._______________________________
6. The Hon. Francis Munyua Waititu, M.P.______________________________
7. The Hon. Peter Njuguna Gitau, M.P._________________________________
8. The Hon. Maison Leshoomo, M.P.___________________________________
9. The Hon. Anthony Kimani Ichungwah, M.P.__________________________
10. The Hon. Alfred Kiptoo Keter, M.P.__________________________________
11. The Hon. Ayub Savula Angatia, M.P._________________________________
12. The Hon. Justice Kemei, M.P.________________________________________
13. The Hon. Philip L. R. Rotino, M.P.___________________________________
14. The Hon. Korei Ole Lemein, M.P.____________________________________
15. The Hon. Silas Tiren, M.P._______________________________________
16. The Hon. Benjamin Jomo Washiali, M.P.______________________________
17. The Hon. (Dr.) Victor Kioko Munyaka, M.P.___________________________
18. The Hon. John Bomett Serut, M.P.___________________________________
19. The Hon. Millie Odhiambo, M.P.__________________________________
20. The Hon. Fredrick Outa, M.P._______________________________________
21. The Hon. Maanzo, Daniel Kitonga, M.P.______________________________
22. The Hon. James Opiyo Wandayi, M.P._______________________________
23. The Hon. Patrick Wangamiti, M.P.___________________________________
24. The Hon. Ferdinand Kevin Wanyonyi, M.P.___________________________
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25. The Hon. Paul Simba Arati, M.P._____________________________________

26. The Hon. Florence Mwikali Mutua, M.P.______________________________
27. The Hon. John Kobado, M.P._______________________________________
28. The Hon. Hezron Bollo Awitti, M.P._________________________________
29. The Hon. Zuleikha Hassan Juma, M.P.________________________________

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CHAPTER 1
1.0

OVERVIEW OF THE SUGAR INDUSTRY IN KENYA

Historical Perspective
10.

Sugar cane was first introduced in Kenya in 1902 with the first sugar factory
being set up at Miwani near Kisumu in 1922. Later in 1927, another sugar
factory was set up at Ramisi in the coast province, the area where the
current Kwale International Sugar is located.

11.

After independence, the Government of Kenya moved to expand sugar

through investments in sugar cane growing schemes and establishment of
more new sugar factories. These include Muhoroni Sugar Factory (MSF) in
1966, Chemelil Sugar Factory (CSF) in 1968, Mumias Sugar Company (MSC)
in 1973, Nzoia Sugar Company (NSC) in 1978 and South Nyanza Sugar
Company (SONY)-Awendo in 1979.

Cane Production, Quality and Supply

12.

The total area under cane in the country presently is 203,730 Ha,
comprising 189,390 Ha belonging to out-growers and 14,340 Ha Nucleus
Estates (land owned/leased by mills to grow cane). There are 300,000 cane
farmers, 4,500 of which are large scale.

13.

The quality of cane as measured by pol % cane averages 12 compared

13.5% in the region. Pol % of cane dropped from a weighted average of
11.16 in 2012 to 11.08 in 2013, due to cane harvested below 13 months.
However, there was an improvement in fibre % cane, from 17.18 to 17.01
during the period.

14

The average yield per Ha in Kenya is 60.5MT compared to the global

average of 63MT. Columbia produces 115 MT per Ha. Total cane supplied
for processing by mills in 2013 was 6,764,200 MT compared to 5,842,830
MT in 2012, representing a 15.77% increase.

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Mills Performance and Contribution to GDP

15.

Today, Kenya has eleven (11) operational sugar mills in the country, 1 to be
commissioned in Kwale (Kwale International Sugar Company) while 2 mills
(Muhoroni and Miwani) are under receivership. The 11 sugar factories have
an annual production capacity of about 600,000MT of sugar against the
annual domestic requirements of 800,000MT, running a deficit of
200,000MT.

16.

The estimated 200,000 metric tons shortfall is offset by sugar imports

which has created a lot of instability in the local domestic market. Kenya
has only managed to achieve significant production of the commodity in
1980 and 1981 to meet domestic demand.

18.

The combined installed current crushing capacity of operational mills is

about 29,990 MT of cane per day. The current capacity is sufficient to
produce about 1 million tons of sugar per annum. This is not sufficient to
meet the domestic consumption capacity of sugar. The target is to expand
the daily capacity to approximately 50,000 MT per day in order to
produce 1,350,000 MT to make Kenya a sugar surplus producer.

19

The sugar industry in Kenya supports directly or indirectly six million

Kenyans, which represents about 16% of the entire national population.
The sugar industry contributes about 7.5% of the country's Gross Domestic
Product (GDP) and has a major impact on the economies of Western Kenya
and Nyanza regions and, to a lesser extent, Rift Valley. The sugar subsector is expected to equally have a major impact on the economy of Coast
region once the mill being built in Kwale becomes operational.

20.

Sugar production increased from 503,210 MT in 2012 to 599,070 MT in

2013 as a result of increased cane supply and better recoveries. Recoveries
improved from Tonnes Cane/Tonnes Sugar (TC/TS) of 11.61 in 2012 to
11.29 in 2013. The Factory Time Efficiency (FTE) improved from 76.65% in
2012 to 79.98% in 2013. The Overall Time Efficiency (OTE) also rose from
60.27% to 64.13%.(Annex VI)

Sugarcane and Sugar Prices

21.

Sugarcane prices dropped from an average of Ksh 3,755/MTat the

beginning of 2013 to Ksh 3,476/MT at the end of the year. In 2013, ex-mill

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sugar prices averaged Ksh 4,499 compared to Ksh 4,911 in 2012. Wholesale
sugar prices ranged from Ksh 4,100 to Ksh 5,800 (mean Ksh 4,754) per 50kg bag in 2013 compared to Ksh 4,200 to Ksh 7,800 (mean Ksh 5160) per
50-kg bag in 2012.
Cost of Production
22.

The average cost of producing one ton of cane in Kenya is USD 22.5 while
that of the regions is as low as USD 13 per ton. The average cost of
producing a ton of sugar in Kenya is USD 870 (or USD 700 exclusive of
finance charges) compared to USD 350 in Malawi and USD 400 in Zambia,
Swaziland and Egypt and in USD 450 in Sudan. The cost of production in
Brazil is USD 300, up from USD 270 three years ago.

National Sugar Consumption

23.

The average annual consumption of sugar in Kenya, in the last six years
(between 2008 and 2013), is approximately 787,320 metric tons. During
that period local sugar production amounted to 3,173,850 MT while
imports amounted to 1,277,020 MT. Kenya exported a total of 63,585MT
during the period.

Sugar Imports and exports

24.

In 2013, a total of 237,640 metric tons of sugar were imported into the
country, which compares closely with 238,590 MT imported in 2012. Out
of the total imports, 44% constituted Brown/Mill White for direct
consumption while the balance was refined white sugar meant for
manufacturing. Imports from the COMESA region were 106,810 MT, which
represents 45% of total imports. The EAC supplied only 4,820 MT, which
represents 2% of total imports. The Average CIF Mombasa landed price
for sugar in 2013 was Ksh. 63,675/MT, which is about Ksh 3,950 per 50-kg
bag.

25.

Between the years 2006 and 2012, Mumias Sugar Company is said to have
exported unknown quantity of sugar to a number of countries in Africa
among them Democratic Republic of Congo, Ethiopia, Rwanda, Southern
Sudan, Uganda and in Europe exports were made to Italy and the UK. The

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amount of sugar is unknown due to the fact that records availed to the
Committee by MSC and KRA vary in Tonnage.(Annex II & III)

COMESA Safeguards
26.

Kenya has since 2002 been on COMESA safeguards to enable it take

measures to improve competitiveness of its sugar industry. The initial
safeguard period of one year was extended by another year before a fouryear extension was granted in 2004. This was followed by another three
years extension in 2008 and two years in 2012. The latest extension of one
year ends in February 2015. During this period, the allowable quota of
sugar to be imported into Kenya has been raised from 340,000MT to
350,000MT and any additional imports above the quota will be subject to
a 5% tariff.

Privatization
27.
All the 5 Government owned sugar factories are earmarked for
privatization program. The Program received Cabinet approval in 2008
and debt writes offs has been approved by parliament as a precursor to
Government divesture. This aims at transforming the industry towards
commercial orientation and injection of the required fresh capital from the
private sector. However, the Parliamentary Departmental Committee on
Finance, Planning and Trade passed a resolution on 9th January, 2013
that the privatization of the public Sector Sugar Companies should be
postponed until such a time when all legislation affecting the Agriculture
Sector (sugar) and the County Governments have been put in place. In
order to kick start the privatization process, the approvalof the
Parliamentary Committee on Finance, Planning and Trade is required.
Divesture
28.
The Kenya Sugar Industry has the potential to generate up to 120 MW of
electricity for export to the National grid without major investments.
However, it is only Mumias Sugar Company that has divested into energy
production and is currently generating 38MW out of which 26 MW is
exported to the national grid. The rest of the factories generate electricity
for their own use but do not export to the national grid.

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Farmers Problems
29. The problems facing cane farmers are acute and need a multitude of
mitigation measures to institute a radical shift in respect of industry policy
and legislative action to tame the trend of farming cane from collapse.
30.

The scenario is two-pronged with the cane farmer, on one hand producing
the raw material and on the other hand, the sugar millers who have tended
to hold the view that sugar farming is a business on their part and not to
the farmers. At the same time reforms in the sugar sub-sector have been
very slow. This has given room for scrupulous businessmen/women
engaging into imports and exports that ruin the local farmer at the end.

31.

The problems of sugar sector reflect serious policy flaws and inadequacies in
the relevant legislations governing the sugar sub-sector. It is a pointer of a
selective implementation and lack of enforcement of the existing legislation,
that is, the Sugar Act (2001).

Mr. Speaker, Sir,

32.

Between the months of September 2013 and August 2014, the Committee
collected and collated views from the Sugarcane Millers and other
stakeholders deliberating on the issues raisedin committee sittings both
within and outside Parliament. The Committee also received memoranda
from associations of Sugarcane farmers. Some of the Millers, interest parties
and other stakeholders the Committee met include the industry regulator Kenya Sugar Board (KSB), Mumias Sugar Company (MSC), Nzoia Sugar
Company (NSC), West Kenya Sugar Factory (WKSF), Butali Sugar Mills
(BSM), National Environment Management Authority (NEMA), the
Inspector- General of Police, (IG) the Kenya Ports Authority (KPA), the
Commissioner-General (CG) of the Kenya Revenue Authority (KRA), Kenya
Bureau of Standards (KEBS), the Director General (DG) of the National
Intelligence Service (NIS), former Managing Director (MD)Mumias Sugar
Company, the Cabinet Secretary National Treasury, Cabinet Secretary for
Agriculture, Livestock and Fisheries, and, Western Development Initiative
Association (WEDIA).

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CHAPTER 2
2.0

EVIDENCE AND SUBMISSIONS FROM SUGAR COMPANIES AND OTHER

WITNESSES

2.1

Submissions by Western Development Initiative Association (WEDIA)

33.

Appearing before the Committee on 16th October, 2013, WEDIA made the
following submissions: (a) WEDIA was registered as an association in 2010 and that it
represents development interests of sugarcane farmers and other
sectors in Western Kenya;
(b) It was among the first entities to raise the issue of cane poaching
and was also at the fore-front in stopping the attempted disposal of
land belonging to defunct Busia Sugar Company (BSC);
(c) Sugarcane poaching started about the year 2000 after the
establishment of Butali Sugar Mills in Kakamega County.
(d) Sugar factories in Western Kenya, including Mumias Sugar Company,
Nzoia Sugar Company and Butali Sugar Mills, have signed contracts
with their cane farmers except West Kenya Sugar Factory;
(e) To-date, West Kenya Sugar Factory does not have any single
contracted sugarcane farmer but has since inception been buying
cane from farmers contracted by other millers, hence promoting
poaching;
(f) West Kenya Sugar Factory does not have cane development
programmes for farmers but harvests cane from farmers in Western
Kenya. The factory has continued to buy cane from Busia Sugar Zone
(contracted by Mumias Sugar Company), Nzoia Sugar Zone and
Butali Sugar Mills farmers even when they (West Kenya) have no
contracted farmers in those zones;
(g) West Kenya has gone ahead to construct a weighbridge at Tangakona
area in Busia County where all the poached cane is collected for
transportation to the factory in Kakamega County;

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(h) The presence of the weighbridge has led to disputes and conflicts
among the surrounding local communities/millers and at one point a
tractor transporting sugarcane for Nzoia Sugar Company was burnt
and six tractors belonging to West Kenya impounded by Nzoia Sugar
Company;
(i) Kenya Sugar Board has allowed West Kenya to operate in Western
Kenya despite the company failing to honour the licence issued to it
to construct a factory in Kimilili area of Bungoma County way back
in 2008;
(j) Kenya Sugar Board gave West Kenya a two-year reprieve under
questionable circumstances even after failing to construct a factory in
Kimilili and continued harvesting cane from farmers contracted by
other factories;
(k) In some cases, cane is harvested by agents of West Kenya Sugar
Factory without the consent of the owners.
2.2

Submissions by Management of Mumias Sugar Company (MSC)

34.

Appearing before the Committee on 29th October, 2013 the then Managing
Director of Mumias Sugar Company, Mr. Peter Kebati, submitted as follows;
(a)

MSC was established 40 years ago and is the largest sugar producer
in Kenya and is currently an integrated factory with installed
capacity of 270,000 MT sugar plant, 38MW Co-generation Plant,
22 million - litre Ethanol Distillery and 15 million - litre Water
Bottling Plant;

(b)

The Company is listed on the Nairobi Stock Exchange and there are
over 145,000 shareholders including Kenyan investors and the
Government of Kenya which holds a 20% stake in the Company,
pays approximately Kshs. 2.5 billion in taxes and remits Kshs.
500,000 million to the Sugar Development Fund (SDF) annually;

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(c)

MSC supports a population of 2 million people directly and over 5

million indirectly and the Company has a workforce of 1,896
permanent employees and 40,000 seasonal and contracted
workers;

(d)

The Company operates an Outgrowers Cane Development Scheme

within

Kakamega, Bungoma, Busia and Siaya

counties

and

spends over Kshs 2.8 billion to provide services for land

preparation, fertilizer/input supply, extension support, harvesting
and transport to over 110,000 farmers;
(e)

MSC signs cane farming contracts with the farmers committing

them to supply their cane to MSC to enable recovery of what the
Company has invested in cane development expenses

to

contracted farmers;
(f)

MSC appreciates fair competition in the sector and wants emerging

issues to be addressed as a policy intervention to restore sanity and
fair practices in the industry;

(g)

There is no fair competition in the sugar sector and unless the

emerging issues are addressed from both policy and legislative
fronts, then the industry is headed for collapse as rightfully
observed by the Petitioners. There is urgent need to restore sanity
and the rule of law in the industry.

2.3

Submissions by Nzoia Sugar Company (NSC)

35.

Appearing before the Committee on 5th November 2013, the Managing

Director for Nzoia Sugar Company made the following submissions;

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(a) NSC was established in 1975 under the Companys Act Cap 486 of
the Laws of Kenya with the Government as the majority shareholder
owning 98% shares while Fives Call Babcock (FCB) and Industrial
Development Bank owning the remaining;
(b) NSC serves over 67,000 farmers in the larger Bungoma, Kakamega,
Lugari, and Malava Districts;
(c) NSC produces sugar and supports cane production through the
provision of extension services to farmers through extensive
Company Nucleus Estate covering 3600ha;
(d) NSC provides cane development services including supply of
fertilizers and provision of extension services to out-grower cane
farmers contracted by it;
(e) West Kenya was poaching cane from farmers contracted by Nzoia
Sugar, Mumias Sugar and Butali Sugar factories;
(f)There were individuals acting as cane poaching brokers based at
various points within Bungoma and Busia Counties;
(g) NSC sensitizes farmers on obligations of signed contracts with them
and other millers and campaigns against cane poaching;
(h) In 2008, NSC set an anti-poaching unit comprising of NSC and the
Kenya Police Officers that used to monitor cane poaching and later
in 2010 an ad hoc committee of the Board was set up to help
manage cane poaching which was at an all time high;
(i) NSC had instituted Court proceedings against West Kenya Sugar
Factories (WKSF) in 2012 on the matter of cane poaching; and
(j) NSC has not been able to pay farmers in good time due to low sales
as a result of a depressed sugar market;
(k) NSC has lobbied the government not to allow cheap sugar into the
Country as it negatively affects sales, payment to farmers and other
obligations.

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2.4
36.

Submissions from Butali Sugar Mills (BSM)

Appearing before the Committee on 5th November 2013, the Managing
Director for BSM submitted as follows:-

(a) BSM was founded in 2010 by Sugarpower Consulting which is a consultancy

firm in engineering after securing a license to build a sugar mill from Kenya
Sugar Board (KSB). The firm has branches in India, Syria, Mauritius, Kenya,
Tanzania and Uganda was not aware of any poaching of cane and no legal
action had been instituted against it in regard to cane poaching;
(b) Kenya Sugar Board should come up with regulations in respect contractual
obligations on the parts of contracted farmers and respective millers;
(c) The creation of too many weighbridges had contributed to cane poaching;
(d) West Kenya Sugar Company pays farmers after seven days.
(e) BSC received funding from Kenya Sugar Board for construction of weigh
bridges and cane development.
(f) 2.5

Submissions by Kenya Sugar Board (KSB)

(g) Appearing before the Committee on 7th November, 2013 and 28th March
2014, the Kenya Sugar Board made the following submissions:
(h) KSB was established by an Act of Parliament, the Sugar Act of 2001, with
the main function of regulating and facilitating growth of the sugar industry
in the country. The Sugar Act 2001 is subject for repeal with the
commencement of the Crops Act, 2013 and the implementation of the
AFFA Act, 2013;
(i) KSB is charged with the role of developing regulations to guide the sugar
sub-sector and the issuance of licences to import or export sugar and sugar
by-products and manages jointly with the KRA any restrictions on imports
and exports of sugar and sugar by-products;
(j) KSB also licences the establishment of sugar mills and defines zones with
which they operate;
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(k) KSB identified West Kenya Sugar Factory as the main sugarcane poacher in
Western Kenya and had received complaints from neighbouring millers;
(l) KSB identified Kenafric Industries as one of the manufacturers that
repackage imported industrial sugar in locally manufactured branded sugar
packages for sale as table sugar;
(m)
KSB issues licenses for importation and the role of verifying quality,
quantities and values as specified in the KSB permit rests with KEBs and KRA
before the consignments are released into the market;
(n) That KSB issued the licence to import 10,000 MTs of sugar in 2012 to MSC
and it was unprocedural for the Permit to have been used by a Third Party,
Dantes Peak Ltd since the permit was non transferable; (Annex II)
(o) While it was the resolution of the Ministries of Agriculture and Finance to
allow millers to import sugar, there were no justifiable reasons for Mumias
Sugar Company to import the 10,000 MTs from Kenana Sugar Company
from Sudan in 2012;
(p) KSB was tracking some 14 containers of imported sugar that had been
traced to Nairobi, a consignment of sugar where no documents for its
release could be traced in KRA and KPA yet KSB had not licenced its
importations. Each container carries 21-25 tones totalling to 301,000 metric
tons for the 14 containers which translates into 6020 (50kg) bags worth of
Kshs. 24 million;
(q) That KSB needs to be empowered with investigatory and prosecutorial
powers independent of Kenya Police and KRA in terms of sugar imports
and transit sugar;
(r) If there was sugar from India being traded in the Kenyan market, KSB
submitted that it had not licenced the importation of table sugar from India
in the last five years; and
(s) KSB has weak surveillance capacity and therefore it cannot effectively
handle the issue of sugar smuggling through our porous borders; and KSB
had been informed that Rising Star Commodities Ltd was repackaging
imported sugar in its go-downs in Mombasa in Mumias Sugar Company
branded bags and selling it as locally manufactured sugar.

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2.6
36.

Submission by West Kenya Sugar Factory (WKSF)

Appearing before the Committee on 5th November 2013, the Managing
Director for West Kenya Sugar Factory submitted as follows:(a) West Kenya Sugar Factory was the second largest Miller in Kenya and
had grown from 500 Tons Crushed Daily (TCD) in 1979 to its current
crushing capacity of 5000 TCD and employs 2000 workers apart
from indirect employment to harvesters, loaders and transporters;
(b) Until 2005 when the Kenya Sugar Board licensed Butali Sugar Mill
Limited in controversial circumstances, the then existing millers
sourced cane from their clearly demarcated zones and each miller
was able to invest in cane development within their respective
zones;
(c) When Kenya Sugar Board licensed Butali Sugar Mill Limited and
supported its commissioning in the name of free competition in a
liberalized market, cane zones were hitherto respected;
(d) A miller who buys cane from a farmer in an area presumed to belong
to another miller cannot be deemed as either stealing or poaching
cane;
(e) The Cane farmer has the right to sell his or her cane to a miller of
his or her choice as guaranteed by article 40 of the Constitution and
the Sugar Act 2001, which specifies that the farmer is the owner of
the cane on his farm;
(f) West Kenya Sugar denied it was engaged in cane poaching activities
and had taken legal action against the Ministry of Agriculture and the
Kenya Sugar Board and Butali Sugar Mills Limited on the licensing of
the mill against existing laws and regulations;
(g) The sugarcane crisis in western Kenya was occasioned by the licensing
of Butali Sugar Mills Limited and the commencement of its operation
in 2011, which has increased the number of millers competing for
decreasing cane;

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(h) West Kenya Sugar Company pays farmers after seven days with
competitive prices and it chargers them a flat rate of Kshs.390 per ton
irrespective of the distance with the option of the farmer using own
transport; and
(i) West Kenya Sugar Company operated with the involvement of local
communities, the provincial and County administration and
champions the rights of farmers as regards correct tonnage, better
prices, prompt payments and efficient extension services.
2.7
37.

Submission by the Former Managing Director MSC Dr. Evans Kidero

Appearing before the Committee on 19th May 2014, the Former Managing
Director for Mumias Sugar Company made the following submissions:(a) That between the years 2006 and 2012 MSC exported sugar to
Ethiopia, Uganda, Sudan, Democratic Republic of Congo (DRC) and
Rwanda and the EU especially Italy and United Kingdom;
(b) That he did not have any documents to corroborate his submissions
but that he believed the current management should furnish the
Committee with the necessary documents available on the exports;
(c) That during his tenure at MSC, the company was making good
profits, paying farmers in good time and even the value of its shares
at the Nairobi Stock Exchange was reasonable

2.8 Submission by the Director General National Environment Management

Authority (NEMA)
38.

Appearing before the Committee on 7th November, 2013, the Director

General for NEMA made the following submissions:
(a) That National Environment Management Authority (NEMA), was
established under the Environmental Management and Co-ordination
Act No. 8 of 1999 (EMCA) as the principal instrument of

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Government for the implementation of all policies relating to

environment;
(b) That the was mandated Authority to exercise general supervision and
coordination over all matters relating to the environment and to be
the principal instrument of the Government of Kenya in the
implementation of all policies relating to the environment;
(c) That the role of NEMA in the establishment of a weighbridge at
Tangakona in Busia County was to coordinate the various
environmental management activities undertaken by the lead agency,
West Kenya Sugar Factory (WKSF);
(d) That due diligence environmental assessment test was done on the
land at Tangakona in Busia County and a report issued to West
Kenya Sugar Factory to go ahead with the intended development on
the said land;
(e) That NEMA is not involved in the issuance of Permits or Licences for
trade;
(f) NEMA also establishes and reviews land use guidelines, examines land
use patterns to determine their impact on the quality and quantity of
natural resources and carries out surveys, which assist in the proper
management and conservation of the environment.
2.9 Submission by Commissioner General Kenya Revenue Authority (KRA)
38.

Appearing before the Committee on 24th April, 2014, the Commissioner

General of KRA made the following submissions:
(a) KRA was established by an Act of Parliament, Chapter 469 of the Laws
of Kenya, which became effective on 1st July 1995. was aware of the
presence of contraband sugar in the country, which had seriously
affected the local industry;
(b) KRA was aware Mumias Sugar Company imported 10,000 MT of
sugar in 2012 through a third party called Dantes Peak Limited and

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that Mumias paid all the duty for the consignment which was cleared
in 2013; (Annex IV)
(c) The Commissioner-General admitted that KRA did not have the
capacity to verify all containers of commodities imported but does
random verification and scanning of the Cargo before release;
(d) The Commissioner-General was aware Mumias Sugar Company
exported sugar to various countries between 2006 and 2012 but was
not in a position to confirm if the sugar had indeed left the country as
that would require confirmation from border officers and counterparts
in countries of destinations;
(e) The Commissioner-General said if indeed the sugar never left the
country then Mumias Sugar Company is duty bound to pay the
equivalent of Value Added Tax (VAT) exempted;
(f) KRA does not have infrastructure at all borders of our country
especially in Eastern and North Eastern where smuggling is rampant
but they have formed a joint team with the Kenya Police Service and
the Kenya Sugar Board to address the issue of illegal sugar entering the
Country unregulated and untaxed;
(g) Sugar imports into Kenya is restricted under the 2nd Schedule Part B (1)
of the East African Community Customs Management Act of 2004
where any import into Kenya must therefore first get approval from
Kenya Sugar Board through a non-transferable Permit containing
details of the importer, tonnage, origin of sugar and other relevant
details, information which is used during clearance;
(h) The revenue or duty collected and paid is determined by the type of
sugar whether it is industrial or table sugar and also the origin of the
sugar. Sugar from COMESA region are exempted from duty while
non-COMESA sugar attracts 100% duty;
(i) KRA has created special units to address non-compliance with KSB
sugar import regulations and it was through such a unit that the case
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of non-compliance of the Mumias Sugar Company sugar import of

10,000 MT of 2012 was detected leading to a delay in clearance;
(j) In 2011 KRA noted increased importation of Industrial sugar from
Egypt as a result of which joint investigations were conducted that
revealed most of the said sugars were trans-shipments from Brazil.
Thereafter, KRA in consultation with KSB implemented restrictions
on Industrial Sugar imports from Egypt by imposing 10% duty as is the
case with non-COMESA imports;
(k) KRA has made several sugar seizures leading to several court cases,
one in point is that of Matt International who have since challenged
KRAs decision to impose 10% duty on industrial sugar imported from
Egypt (the matter was still pending in Court).
2.10 Submissions by Kenya Ports Authority (KPA)
39.

Appearing before the Committee on 28th March, 2014, Managing Director

for Kenya Ports Authority informed the Committee that: (a) KPAs mandate was to handle inbound and outbound cargo once they
have been cleared by relevant authorities;
(b) KPA handled 40x20ft containers of sugar belonging to Mumias Sugar
Company but imported through Dantes Peak Ltd;
(c) KPA waived a total of 15 million shillings in demurrage charges that
accrued following delay of clearance the cargo after anomalies were
detected by KRA and the interventions of Mumias Sugar Company
accepted;
(d) KPA works in collaboration with KRA and KSB in monitoring the flow
of sugar through the port.

2.11

Submissions by the Inspector General of Police (IG)

40.

Appearing before the Committee on 29th April 2014, the Inspector General
of Police made the following submissions: -

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(a) National Police Service was established by Act of Parliament and

mandated to enforce the law which includes surveillance of all goods,
including sugar, entering or being traded within but some borders are
extensive, porous and some areas may not be manned;
(b) The Kenya Police Service, Immigration Department, Kenya Revenue
Authority, Kenya Ports Authority and Kenya Airports Authority work
together in manning the borders and to ensurethat the necessary taxes
and duties are paid;
(c) The Kenya Police escorts all the transit goods including sugar and
ensure that KRAs main interest (tax) is paid and all other laws are
adhered to;
(d) The Kenya police has managed to arrest and prosecute suspects in
sugar smuggling although often courts release the suspects, especially
cases concerning sugar through Kismayu and Kenyas border with
Somalia;
(e) Legislation regulating the sugar industry is very weak and there is need
for strengthening it;
(f) The National Police Service does not protect criminals and is not
aware of a ware-house in Mombasa that is protected by police where
even Kenya Sugar Board personnel denied access to the premises but
promised to investigate the matter following complaints from the
Principal Secretary Department of Agriculture and report to this
Committee;
(g) The IG acknowledged that some police Officers had lost their lives
while tackling contraband sugar which somehow abets insecurity
terrorism in the country since all entries are not ascertained that it is
Sugar;
(h) The IG acknowledged that the capacity in terms of resources is lacking
at our borders and that there is need to develop a policy where a
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particular Officer can serve at a station for only three years per
station;
(i) Officers are regularly appraised on the required documentation for
importation of any goods in to the country, however the Service was
dealing with isolated cases of integrity among the Officers as and
when they arise;
(j) The Kenya Police Service had signed agreement memorandum with
Kenya Sugar Board and Kenya Revenue Authority to establish antismuggling unit to deal with cases of smuggling;
(k) The Kenya Police Service has been underfunded for a long time but
there is noted improvement in the allocation of resources to the Police
Service;
(l) Police Officers are routinely seconded to the Kenya Revenue
Authority to oversee operational matters including revenue collection
and compliance to statutory requirements; and
(m) The various government agencies at the border points need to
appreciate security as a cross-cutting issues and an important aspect of
our national development.

2.12 Submissions by Kenya Bureau of Standards (KEBS)

41.

Appearing before the Committee on 14th May, 2014 the Managing Director
for Kenya Bureau of Standards submitted as follow: (a) Kenya Bureau of Standards (KEBS) was established in July 1974 under
CAP 496 of the laws of Kenya. It offers several services including
Standards development and harmonization, Testing, Measurement
(Calibration), Enforcement of standards, Product inspection, Education
and training in Standardization, Metrology and Conformity
Assessment, Management Systems Certification and Product
Certification;

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(b) KEBS analyses sugar imports coming into the country on request and
notification of arrival of the same by Kenya Ports Authority and Kenya
Revenue Authority;
(c) Since 2012, seven consignments of sugar had been recommended for
destruction by KEBS and other government agencies for nonconformance to quality specifications and KEBs is among the state
agencies charged with destruction of goods that do not conform to
the standard s;
(d) KEBS was aware of the impounding of a consignment of sugar that
had been imported by Mumias Sugar Company although the IDF was
reading Dantes Peak Limited;
(e) KEBS was facing the challenge of determining the importers of
industrial sugar meant for manufacturing but which was being
repacked for domestic consumption against the regulations;
(f) KEBS does not have up-to-date equipments and infrastructure for
analysis of various commodities imported and exported.KEBS also
lacks capacity for enforcement of standards and market surveillance
and therefore cannot cope with demands like single window and 24
hour operations at the port of clearance or entry/exit.
2.13 Submissions by Management and Board of Directors for Mumias Sugar
Company
42.

Appearing before the Committee on 27th May, 12th June, 10th July and 17th
July, 2014, the Board of Directors of Mumias Sugar Company submitted as
follows:
(a) The Board and management were aware that the Company exported
sugar to several European and African countries between 2006 and
2012 and concerns that the sugar may not have left the country and
that revenue in the form of VAT payable could have been lost;
(b) The Board and management were also aware that certain information
regarding the exports was missing from the Companys records and
promised to institute forensic audit of all MSC exports in view of the

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fact that some of the key managers had since left the Company and
would report the findings to this Committee;
(c) The Company was in a crisis as a result of serious management short
fallings and the company was unable to meet its obligations including
payment to farmers;
(d) The Company was on a restructuring process to address serious
management bottlenecks and disciplinary measures had been taken
against some managers following the findings of the forensic audit on
sugar imports and other management shortfalls;
(e) The Board and management were not involved in the decision to
import the consignment of the 10,000 MT of sugar in 2012 and there
was an on-going Board investigation on the same and undertook to
submit the outcome of the investigations to the Committee within
two months. The Board had asked KPMG to investigate into whose
accounts money from the imports went. The final KPMG report would also
shed light on exactly how much monetary loss MSC incurred through
fraudulent activities.

(f) The preliminary report of the Forensic Audit by KPMG on sugar

imports by the Company could not be released to the Committee at
that stage because there were certain transaction details that had not
been captured in the report and the Board undertook to submit the
report in two months when those aspects had been addressed;
(g) The Board admitted that it was having challenges from neighbouring
Companies that had taken advantage of delay in payments for
sugarcane by MSC to poach cane from its contracted farmers.
(h) The Board admitted that there was massive corruption and lack of clear
management direction in MSC in the past, to this effect some officers had
been sent home pending investigation; and
(i) The Board also affirmed that there were reforms going on at MSC to
clean the mess and also to recover the money lost. The company did not
have an Internal Audit Department and the Chairman promised to have a
new department reconstituted;

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2.14 Submissions by the Director General of the National Intelligence Services

(NIS)
43.

Appearing before the Committee on 10th July, 2014, the Director General of
NIS made the following submissions: (a) That the function of NIS was to gather intelligence and compile
reports on the same for action by the relevant authorities;
(b) That NIS has no prosecutorial powers;
(c) The sugar industry was crippled by among other issues, high
cost of production and obsolete technology hence Kenya was a
very lucrative market for the commodity and that has been a
catalyst for sugar smuggling in the Country.

44.

The Committee expressed disappointment over the information presented

by the Director General and informed him that Kenyans had very high
expectations of his office. The DG expressed his appreciation of the
Committees need to deal with the sugar issue and requested that the
Committee details out the information they required from him and he
would respond within two weeks.

45.

The Committee acceded to his request and outlined the required

information as follows:(a) Provide information on illegal sugar importation, exportation and
smuggling;
(b) Provide the name of the illegal importers and smugglers and
their local partners within and outside government Institutions;
(c) Provide information in the custody of National Intelligence Service
if any concerning smuggling of sugar into the Country through
Kismayu and along Kenyas border with Somalia;
(d) The names of companies, traders, dealers, transporters and any
other persons involved in the alleged sugar exports by Mumias
Sugar Company to regional countries and in particular owners of

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the trucks that ferried the sugar for export from Mumias Sugar
Warehouses; and
(e) The circumstances under which sugar meant for industrial use
ended up being used as table sugar and the persons involved in
the repackaging of the sugar for domestic consumption.
A letter detailing the above was sent for action however this has not been done to
date
2.15 Submissions by the Cabinet Secretary, National Treasury
46.

Appearing before the Committee on Friday 29th August, 2014, accompanied

by a KRA official, the Cabinet Secretary made the following submissions
regarding sugar Imports by Mumias Sugar Company:
a) The CS confirmed that the import of sugar by MSC was done by a third
party.
b) In 2013, 10,000 metric tonnes of sugar was imported on behalf of MSC by
a third party, The consignment took 46 days to be cleared by KPA due to
clarification issues and attracted a penalty of 8.8 million payable to KRA
and undisclosed amount of millions to KPA.
c) The Committee finally concluded that the permit transfer to a third party
was done unprocedurally.
d) The KRA official clarified to the members that the import license issued to
MSC cannot be used more than once as it shuts down when the system
captures the consignment name and code.
e) The CS confirmed that Mumias Sugar exports were done from 2006 to
2012 and that there were no exports done in the year 2013.
f) The CS assured the members of his commitment to brief them on the
privatization of sugar sector and proposed for a joint meeting for the
Committee on Agriculture and Finance.

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2.16 Submissions by the Cabinet Secretary Ministry of Agriculture, Livestock and

Fisheries
47.

Appearing before the Committee on Tuesday 9th September, 2014, the

Cabinet Secretary made the following submissions on the status of the sugar
sector in the country and other matters affecting the industry:

48.

On the Status of the Sugar Sector in Kenya the Cabinet Secretary informed that: -

(a) The sugar subsector plays a major role in the Kenyan economy and
was a source of income for millions of citizens. The Country was
producing about 600,000 MT of sugar against the annual domestic
requirements of 800,000 MT, running a deficit of about 200,000
MT.
(b) There were 11 operational sugar mills in the country, 1 additional
new mill was to be commissioned in Kwale while 2 other mills
(Muhoroni/Miwani) were under receivership.
(c) The combined installed crushing capacity of operational mills was
about 29,990 MT of cane per day. The current capacity was
sufficient to produce about 1 million tonnesof sugar per annum.
The target was to expand this capacity to approximately 50,000
MT in order to produce 1,350,000 MT to make Kenya a sugar
surplus producer.
(d) The sugar closing stocks held by the factories at the start of the year
2013/14 was at 27,392 MT up from 19,205 MT at the end of
2012/13. The stock level increased to a high of 42,845 MT in
February, 2014 against optimal level of 9,000 MT.
(e) The Ministry embarked on a strategy to decrease the sugar stock to
an acceptable level of 8,478 MT, which was achieved by 20th
August 2014.
(f) The increased sugar stock was attributed to;
(g) Sustained high sugar production;
(h) Carrying forward huge stocks from the previous year;
(i) Surplus balances in the world market and depressed prices; and
(j) Increased presence of uncustomed sugar in the country attracted by
our high cost of production.
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(k) The Kenya Sugar Industry has the potential to generate up to 120
MW of electricity for export to the National grid without major
investments. However, it is only Mumias Sugar Company that is
currently generating 38MW out of which 26 MW is exported to
the National grid. The rest of the factories generate electricity for
their own use but do not export to the national grid.
(l) All 5 Government owned sugar factories are earmarked for
privatization program. The Program received Cabinet approval in
2008 and debt writes off has been approved by parliament as a
precursor to Government divestiture. This aims at;
(m)
Transforming the industry towards commercial orientation;
and
(n) Injection of the required fresh capital.
(o) The Parliamentary Departmental Committee on Finance, Planning
and Trade passed a resolution on 9th January, 2013 that the
privatization of the public Sector Sugar Companies should be
postponed until such a time when all legislation affecting the
Agriculture Sector (sugar) and the County Governments have been
put in place. In order to kick start the privatization process, the
Parliamentary Committee on Finance, Planning and Trade
approval is required.

49.
(a)

On the Challenges faced in the Industry the CS submitted as follows: -

Low productivity and high cost of sugar production

These had been caused by a number of factors that include the following
among others;
Deteriorating soil fertility;
Low adoption of high yielding sugar cane varieties;
Poor agronomic practices;
Land subdivision into uneconomic sizes;
Intermittent moisture stresses due to drought spells;

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 Low quality seed cane materials;

Insufficient and unsustainable technical support to out-growers;
Frequent cane shortages which lead to immature cane;
The high and rising cost of inputs such as diesel, imported
fertilizers and machinery;
High harvesting and transport costs;
Sugarcane is grown by small holder farmers under rain-fed
conditions;
Poor roads within the cane catchment areas;
Lack of sufficient finance for Government owned sugar
factories to rehabilitate the machineries;
Length of cane harvesting and milling time; and
Lack of capacity to utilize the by-products for ethanol and
power generation.
(b)

Illegal sugar imports

That the high presence of illegal imports earlier in the year saw the industry
continue to experience stock piles and declining ex-factory prices of sugar.
The Un-customed sugar imports were re-packaged into local bags to conceal
identity and evade the surveillance network. In the period January to July
2014 the market had experienced declining sugar prices to a low of Kshs.3,
200 for a 50 kg bag against an average industry break-even of Kshs.3, 800
pushing down cane prices to lows of Kshs.3,000 per ton.

(c)

Intra Regional Trade

That this was especially for net deficit sugar countries that exported
substantial amounts of sugar to partner states with disregard and /or
compromise or laxity in the enforcement of the Rules of Origin. Egypt for
example, despite being a net importer, is a significant supplier of sugar to
Kenya.

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2.16.3The CS gave the following recommendations on how to streamline the

Sugar Industry
50.

The Cabinet Secretary told the Committee that to mitigate these challenges,
the following strategies were recommended and the Ministry had initiated a
number of them with a view to streamlining the Kenyan sugar sector as
follows:

(a) Cost Reduction and Increased Productivity Measures

Diversified product base
51.

All new investments for setting up sugar factories must demonstrate a

revenue stream beyond sugar when applying for registration. The existing
mills will be required to provide a road map towards expanding their
product base beyond sugar within the next 5 years. This will provide a
transition from the single revenue stream which contributes heavily to the
industries un-competitiveness.
Bulk procurement of inputs and machinery

52.

The cost of inputs will be reduced through bulk procurement of high spend
items such as fertilizer and farm machinery (tractors); a process that has
already been put in motion. This will be implemented within the next 2
months.
Modernization of factory technology

53.

Fresh injection of capital for the poorly performing Government owned

mills was urgent hence the recommendation for speedy exploitation of
viable options that can see Ministry fast track the stalled Privatization of the
5 Public Sector owned sugar mills. This will contribute quite significantly to
the long term revitalization of the industry by way of injection of much
needed capital estimated at Kshs 58billion to address the industry
productivity challenge which may include Public Private Partnerships,
auctions or private treaties with willing investors. This should be done by
March, 2015.
Diminishing Land sizes

54.

There is need to roll out of a land policy that introduces mandatory block
farming to preserve economical land sizes that will enable the industry

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benefit from economies of scale, planned cane development/harvesting and

mechanization in the future. This should be done by December 2016
Payment System
55.

The industry must shift from the payment system based on weight to one
based on quality. Remuneration that rewards efficiency and penalizes
inefficiency to be adopted by the entire industry by December 2016.The
system will improve efficiency as it will remunerate based on quality
Development of a seed cane policy

56.

This will guide the industry in the development and adoption of high
yielding, early maturing and disease resistant certified seed cane of relevant
varieties. This policy is targeted to be in place by June 2015.
Sugar production and consumption

57.

In order to validate our statistics on the national sugar demand and supply,
an independent study will be undertaken by 30th December 2014 to
confirm the updated status based on changed fundamentals such as
population and production growth.
Improvement/ Management of roads infrastructure

58.

This will be done to encourage collaborative management of infrastructure

in the sugar belt that will enhance the impact of the available pool of funds
to the sugar value chain within the various agencies in the sugar belt.

(b) Intra Regional Trade and Rules of Origin

59.

There is an urgent need for verification missions to deficit countries which

have high export history to satisfy authenticity and the harmonization of
regulatory/administrative processes within the trading blocks. A case should
be put forward for the establishment of competent authorities in respective
partner states for purposes of liaison on sugar matters. This specifically
applies to Uganda and Rwanda who do not have regulatory bodies specific
to the sugar sector. Kenya and Tanzania have in place such authorities
making collaboration and administration smoother. This should be done by
30th October 2014.

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in Kenya

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(c) Single Customs Territory

60.

On the impact of the Single Customs Territory (SCT), a position paper

seeking an amendment to exclude sugar based on its unique challenges will
be submitted immediately.

61.

In the meantime Agriculture, Fisheries and Food Authority (AFFA) will in

collaboration with Kenya Revenue Authority station officers within the
partner states and in Mombasa to ensure the sectors interests are protected.

(d) Un-customed Sugar Imports

62.

Ban on Sugar Auctions

It is recommended that instead of auctioning impounded un-customed sugar
imports, it should be destroyed publicly and, to avoid conflict of interest,
Sugar Millers/Manufacturers should not be allowed to import sugar from
now on given the Mumias and Chemelil experience. This should be
implemented immediately.
Single Desk Marketing and Distribution of Sugar

63.

Replacement of dedicated factory distribution networks with a Single Desk

Marketing arrangement that will minimize costs of marketing and unfair
trade practices particularly among the poorly performing state owned mills
should be done. This will mitigate the duplication on high individual
publicity and marketing budgets and also allow the Companies to focus on
milling of sugar and related activities such as ethanol production and
manufacturing of specialty value added products. This should be done with
immediate effect.
Establishment of permanent inter-agency surveillance and enforcement unit.

64.

The Gazettement of a permanent inter-agency surveillance and enforcement

unit on sugar trade that reports directly to the Director General of AFFA
made up of the Sugar Directorate, KEBS, Public Health, Kenya Revenue
Authority and the Police. This should be done immediately.

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CHAPTER 3

3.0 FINDINGS OF THE COMMITTEE

Mr. Speaker,
65.

The committee investigations which, included site visits to the various areas
of interest to the Sub-Committee terms of reference came up with the
following findings.

3.1

Presence of Cheap and Unregulated Sugar in the Local Market

66.

The Committees investigations established that a huge quantity of sugar

enters the Kenya market unregulated and untaxed. In the last six years, the
country has consumed approximately 335,000 MT (KSB statistics) of sugar,
either illegal or meant for industrial manufacturing. The sugar is repackaged by unscrupulous business people in packages similar to those used
by local millers which, is against regulations governing food products. Apart
from such sugar not meeting the Kenya Bureau of Standards (KEBS)
specifications for domestic consumption, the government loses in terms of
taxes.

67.

The illegal importation of sugar has led to the flooding of sugar in the local
market which has caused market distortions resulting in unfair price
competition to the disadvantage of local sugar millers and cane farmers.
The unfair competition has led to low sales by the millers hence farmers
cannot promptly be paid for their cane deliveries.

68.

It is good to note that, despite Parliament in 2001 passing the Sugar Act
number 10 of 2001 which outlined well the requirements for licensing of
sugar millers and the functions of the Kenya Sugar Board, illegal and
unregulated sugar imports still poses a major threat to the Sugar sector.

3.2 INDUSTRY CHALLENGES

69.

Mr. Speaker, the Sugar Sector in Kenya is faced with many challenges
namely:

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(a) Poaching of sugarcane among sugar millers;

(b) High cost of production;
(c) Field and factory inefficiencies,
(d) Corruption and impunity;
(e) Lack of capital to modernise and automate the mills;
(f) Fast decreasing land sizes and loss of soil fertilities; and
(g) Failure by the regulator to properly manage and regulate the
sector.

70.

Cane Poaching
Traditionally, the Kenyan cane growing model has operated on an outgrowers model whereby farmers are supported to grow cane on their farms
and in turn they are expected to supply the cane to the millers who have
provided cane development which include land preparation, supply of
seed cane, supply of fertilizer, farmer extension services, harvesting and
transport of the cane to the millers where the cost will be recovered.

71.

In practice, development of own cane by millers, commonly known as

Nucleus Estate as well as contracted farmers was a precondition for licensing
of cane millers. This precondition is no longer adhered to, thereby creating
the current wrangles in the cane zones as the new millers who have been
licensed do not have enough cane to run their factory capacities. Further,
these millers have encroached on contracted cane already established by
existing millers.

72.

Cane

poaching

has

communities/millers,

led

to

conflicts

among

surrounding

local

a case in point is the incident in Tangakona

weighbridge where tractors transporting cane to Nzoia Sugar Company

were burnt down.
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in Kenya

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73.

The genesis of cane poaching is attributed to weak regulations regarding

licensing of new factories and failure to honour contractual agreements by
both the millers and farmers.
High Cost of Production

74.

Kenya is ranked among the countries with the highest cost of Sugar
production in the world, which makes it an attractive destination for both
legal and illegal imports.

While the cost of production in the region is

about USD 415 per metric tonne of sugar, the cost of production in Kenya is
well in excess of USD 550 per MT.

This high cost of production is

attributed to the following;

(a)

Poor agronomic practices in the sugar growing zones;

(b)

High cost of inputs and old machinery at farm and factory

levels;
(c)

Deteriorating soil fertility;

(d)

Use low-yielding sugarcane varieties;

(e)

Reliance on rain-fed farming;

(f)

Small and uneconomic land sizes;

(g)

Unsustainable technical support to out-growers;

(h)

Poor road infrastructure and high transport costs; and

(i)

Low by-product utilization.

Heavy Indebtedness
75.

All public-owned mills are heavily indebted and lack the capital required to
expand, modernise and automate the factories for the required efficiencies
and economies of scale.

At the moment, five public-owned mills are

indebted to the tune of over Shs 100 billion with Nzoia Sugar Company
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having a debt of Shs 37 billion, Miwani Sugar Company (in receivership)

Ksh 28 billion, Muhoroni Sugar Company (in receivership) Ksh 27 billion,
Chemelil Sugar Company Ksh 5 billion and South Nyanza Sugar Company
Ksh 3 billion. The money is owed to the Government of Kenya, suppliers,
banks, Kenya Sugar Board and farmers for cane deliveries.
Imprudent business decision, Corruption, Impunity and Fraud
76.

The mills have engaged in a number of projects and programmes that have
turned out be either misadventures or ones with low rates of returns.
Mumias Sugar Companys investment in ethanol and co-generation plants
and Nzoia Sugar Companys purchase of trailers that could not be used on
Kenyan roads are cases in point in which huge sums of money have been
lost in the process.

77.

Sugar sales and exports and imports in particular have turned out to be
avenues through-which monies are siphoned out of the companies. While
the concept of distributorship in sugar sales has become a major case of
corruption and impunity, the engagement of mills in regional sugar exports
between 2006 and 2012 is suspect.

For instance examining the KRA Report (Annex V) on the sugar

exports by MSC, there is glaring discrepancies on the volumes on
actual exported sugar as provided in the Simba System entries and the
summary of exports entries submitted to the Committee by MSC in
the detailed submissions on company (Exporter) basis (Annex II & III).
Another case in point is where one Nesredin Mohamed (an Ethiopian
importer) wrote to MSC requesting to be allowed export of
5,000MT of sugar to Ethiopia. Information received from MSC
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indicates that 5,882MT were exported by Nesredin Mohamed. There

are no clear records to ascertain this. (Annex II& III)
78.

That notwithstanding, a total summary all exports by MSC for the period
2006 to 2012 are given as 52,284MT while the detailed itemised list to
individual companies total to 30,204.37 MT. However figures from KRA
indicated that MSC had export entries amounting 71,272.58MT (Annex V),
Further, KRA confirmed that only 8,133 MT were exported as per entries in
Simba System and therefore there is no evidence of exports of the reminder
sugar volumes estimated at 63,139.58 MT which translates to Kshs. 2,886,
681,516.70 (Annex V),

79.

Further, the registration certificates provided by MSC have varied

information. For instance, Mid Africa Commodities and Mega Laser are
importer from South Sudan when the certificates indicate the firms are
registered to operate in Kakamega and Malaba Border respectively (Annex
II)

80.

The Board of Directors of MSC instituted a forensic audit on the sugar

exports and imports. This audit was undertaken by KPMG audit firm and
the Committee received the "Draft Factual Finding Report" from KPMG on
19th December, 2014 (Annex VI).
Low Productivity

81.

The total area under cane in the country presently is 203,730 Ha,
comprising 189,390 Ha belonging to out-growers and 14,340 Ha Nucleus
Estates (land owned/leased by mills to grow cane). There are 300,000 cane
farmers, 4,500 of which are large scale.

82.

The average yield per Ha in Kenya is 60.5MT compared to the global

average of 63MT. For instance Columbia produces 115 MT per Ha. Total
cane supplied for processing by mills in 2013 was 6,764,200 MT compared

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to 5,842,830 MT in 2012, representing a 15.77% increase. However,

Sugarcane yield in the industry has seen a steady decline in the last ten years
hitting a low of 51 tonnes of cane per hectare per year. This decline is
attributed mainly to:
(a) high cost of fertilizer
(b) application of inappropriate fertilizer combinations leading to
acidic soils
(c) use of inappropriate heavy machinery leading to destruction of
cane stools and compromising the viability of the ratoon crops;
(d) exhausted soils due to many years of sugarcane cultivation,
and;
(e) cane husbandry practices that do not support the newer cane
varieties.
83.

Harvesting techniques in concomitant with poor harvesting programmes,

poor transport arrangements through spillage, heavy wear and tear on
transportation units and fewer than optimal trips per day.

84.

At present, there are 11 working sugar mills in the country, four of which
are Government-owned. The combined installed capacity of the
operational mills is 29,990 Metric Tonnes of Cane per day (TCD), with an
underutilized capacity of 60% due to technical, financial and management
limitations. The sugar industry in Kenya supports directly or indirectly six
million Kenyans, which represents about 16% of the entire national
population. The sugar industry contributes about 7.5% of the country's
Gross Domestic Product (GDP) and has a major impact on the economies of
Western Kenya and Nyanza regions and, to a lesser extent, Rift Valley. The
sugar sub-sector is expected to equally have a major impact on the
economy of Coast region once the mill being built in Kwale becomes
operational.

85.

The Factory Time Efficiency (FTE) in 2013 improved from 76.65% in the
2012 to 79.98% in 2013while the Overall Time Efficiency (OTE) also rose
from 60.27% to 64.13% in the same period, which very low compared to
the industry standards of 92% for FTE and 82% for (OTE) respectively.

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in Kenya

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86.

Sugar production increased from 503,210 MT in 2012 to 599,070 MT in

2013 as a result of increased cane supply and better recoveries. Recoveries
improved from Tonnes Cane/Tonnes Sugar (TC/TS) of 11.61 in 2012 to
11.29 in 2013. (Annex VI)

87.

During the investigations the Committee found that Mumias Sugar

Company and Dantes Peak were involved in fraudulent activities where the
latter used the Formers PIN and import licence when clearing imported
sugar with both KRA and KPA

88.

As regards the importation of 10000MT of sugar from Sudan by MSC, the

committee found that Import Permit from KSB was issued to MSC which
unprocedurally transferred to a third party (Dantes Peak Ltd). KRA admitted
having noted the anomaly but still went ahead to release the consignment

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3.3

OBSERVATIONS
The Committees observations are as follows;
Repackaging of contraband sugar

89.

That, substantial amounts of illegal sugar imports is repackaged into local

branded bags to conceal identity and evade the surveillance network.
Industrial sugars have been found repackaged and end up on the market to
compete with table sugar that has been subjected to full duty hence evading
taxation. (Annex KSB

It was established that Ms. Rising Star Commodities repackages

imported sugar into bags with Mumias brand details. The
company denied officers from the then Kenya Sugar Board
from entry into its warehouse for verification.
Flouting sugar Import license conditions

90.

Rising Star Commodities Ltd, a licensed sugar importer, brought in sugar

beyond licensed quantities and needs to be further investigated too over
claims that it denied Kenya Sugar Board entry into its go-downs for
verification. The Committee also observed that in 2013/2014, KRA allowed
into the country 15,140.40MT without permits from KSB. The companies
involved are;
(a) Hydrey (P) (3000MT)
(b) Krish Commodities Ltd (1,140.40MT)
(c) Reeswood Enterprises Ltd (4,000MT)
(d) Shake Distributors Ltd (6,000MT) and
(e) Shree Sai Industries Ltd (1000MT).(Annex IV)
Compromised consumer safety

91.

Sugar auctioned by Kenya Revenue Authority is allowed back into the local
market without KBS verifying if it is suitable for direct consumption or
manufacturing. This also contravenes the Kenya Bureau of Standards
regulations.

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False declaration
92.

In view of the fact that MSC made exports to the regional markets through
various companies mentioned above, there is glaring disparities between
records from MSC and the respective exporting companies. For example,
Nesredin Mohamed of Addis Ababa wrote to MSC to purchase 5000MT for
export and the records from MSC indicate a summary total of 5,882MT
which still has a bigger variation from the detailed records submitted by
MSC indicating a total of 117, 641MT having been traded by Nesredin
Mohamed as exports to Ethiopia between 2006 and 2009. Records at MSC
indicate a total summary of all exports by MSC for the period 2006 to 2012
as 52,284MT while the detailed itemised list to individual exporting
companies total to 30,204.37MT which is a big variation from records held
at the KRA indicating 70,431MT as exports of brown sugar by MSC the
same period. (Annex II (a) (h),IV (a) & V (a))

93.

Although the KRA submitted that it did not have sufficient capacity and
equipment to verify all incoming cargo, the Committee after its visit
observed that there was lack of proper coordination between KSB, KRA,
KEBS and KPA in handling and verifying imports creating loopholes for
sugar being imported as other commodities such as rice and fertilizer.

94.

That, a total summary all exports by MSC for the period 2006 to 2012 are
given as 52,284MT while the detailed itemised list to individual companies
total to 30,204.37 MT. However figures from KRA indicated that MSC had
export entries amounting 70,610.76MT Annex V(b), Further, KRA
confirmed that only 8,133 MT were exported as per entries in Simba System
and therefore there is no evidence of exports of the reminder sugar volumes
estimated at 62,477.76 MT Annex V (i). Split them into two Mumias

figures and KRA figures i and ii

95.

That, imported low grade rice was being repackaged into superior quality
bags by Ms Rising Star Commodities Ltd which led to the Government
losing revenue in terms of duty.

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Illegal points of entry

96.

The Committee's investigations also found out that there is an illegal point
of entry in Shimoni area, which is being used to facilitate illegal entry of
sugar with the knowledge of Customs officers and police.

97.

The then KSB had issued MSC licence to import sugar even at a time when
there was a lot of un-harvested sugar cane in the local farms and plenty of
sugar stocks in the local market.

98.

The then KSB had been disbursing Sugar Development Levy Funds for cane
development to Millers with no cane development schemes

99.

That, as at the time of compiling this report, NIS had not provided any
documents and/or reports despite several requests by the Committee in
relation to all exports and imports of sugar between 2006-2012.

100. That, the Committee also observed that MSC exports and business dealings
with the following companies were controversial:1) Czarnikow Sugar EA Limited.
2) E D & F Man Sugar Ltd.
3) Rising Star Commodities Ltd,
4) Kambale Nzagale of (DRC),
5) Osman Adan and Nesredin Mohamed of (Ethiopia),
6) S&G General Suppliers,
7) Star General Suppliers and Mugabe Thomas of Rwanda,
8) Mega Laser International,
9) Manyuon Samuel Deng,
10) Mid Africa,
11) Southern Sudan Mudland Co. Ltd,
12) Kapoeta Trading Co. Ltd,
13) International Relief Services of Southern Sudan,
14) Arua Mercantile Co. Ltd,
15) Quick Sellers Uganda,
16) Muru Enterprises,
17) Kasave Trading Co. Ltd,
18) Trident Investment Ltd,
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19) Uchumi Commodities (Uganda) Ltd of Uganda.

(Annex II a-h& VII)
101.

In view of the fact that MSC made exports to the regional markets to the
companies mentioned in 102 above, there is glaring disparities between
records from MSC and the respective importing companies. For example,
Nesredin Mohamed of Addis Ababa wrote to MSC to purchase 5000MT for
export and the records from MSC indicate a summary total of 5,882MT
which still has a bigger variation from the detailed records submitted by
MSC indicating a total of 117, 641MT having been traded by Nesredin
Mohamed as exports to Ethiopia between 2006 and 2009. Records at MSC
indicate a total summary of all exports by MSC for the period 2006 to 2012
as 52,284MT while the detailed itemised list to individual exporting
companies total to 30,204.37MT which is a big variation from records held
at the KRA indicating 70,431MT as exports of brown sugar by MSC the
same period. (Annex II (a) (h),IV (a) & V (a))

102. The Committee observed that despite there being questionable dealings of
MSC between 2006-2012, the then MSC Auditors Ms Delloite and Touch
gave MSC a clean bill of health.
103. The Committee observed that, with regard to importation of 10000MT of
sugar from Sudan by MSC, the Import Permit from KSB issued to MSC was
unprocedurally transferred to a third party (Dantes Peak Ltd). Further, KRA
admitted having noted the anomaly but still went ahead to release the
consignment
104. That, KPMG has provided a disclaimer to its "Draft Factual Finding Report"
as to the accuracy and completeness of the report, noting that any
subsequent information may require the findings to be adjusted and
qualified accordingly. However the Committee took cognizance of the
report.

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CHAPTER 4
4.0

RECOMMENDATIONS OF THE COMMITTEE

The Committee therefore recommends:

105. THAT, the government establishes a permanent inter-agency enforcement
unit on sugar trade which should enhance capacity to verify, scrutinise and
monitor cross-border trade and step up border patrols to eradicate sugar
smuggling. The unit should draw membership from KPA, Public Health,
AFFA, KEBS, the Kenya Police, KRA and any other relevant government
agencies.
106. THAT, KRA officer(s) should be investigated and appropriate action taken
for clearing sugar without permit from the sugar regulator. Equally any
company that imported sugar without a permit from the regulator should
be banned from import and export bussines.
107. THAT, the reinforcement of re-packaging regulations to ensure consumer
safety and that KEBS be held responsible for failure to prevent abuse of its
seal which is supposed to be a standard measure for safety of goods in the
country but has consistently been abused.
108. THAT, relevant laws and regulations governing sugar imports and exports
should be amended to provide for higher accountability and public health
standards for re-packaged sugar and for stiffer penalties for offenders. The
Government should cancel import licences for the following companies: Kenafric Industries, Czarnikow E. A. Ltd, Stuntwave Ltd, Mshale
Commodities and Rising Star Commodities Ltd.
109. THAT, the government implements the sugar industry strategic agenda for
increased competitiveness and reduction in consumer prices. There is need
to lower production cost, improve extension services among others to
reduce and eventually eliminate the incentive to smuggle sugar into the
country

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110.

THAT, the National Government in collaboration with county government

should provide mechanism for coordinated infrastructure development to
avoid duplication of responsibilities by different bodies mandated to
maintain roads.

111.

THAT, the National Government should implement the National Land

Policy to mitigate further land sub-division for improved productivity.

112.

THAT, the fertilizer subsidy should be complemented by bulk procurement

of other farm inputs and capacity utilization which should be done by the
Sugar Directorate.

113.

THAT, Investigations should be carried out on MSC and/or its agents, KRA
and all importers and/or their agents who imported sugar from MSC in the
period between 2006 - 2012 and appropriate action taken.

114.

THAT, the KRA should be held responsible for the loss of VAT taxes
amounting to Kshs 577 million for fictitious exports of sugar by MSC.

115.

THAT, any officer from the Board and Management of MSC and KRA
responsible for the fictitious exports of sugar between 2006-2012 be
held responsible for abuse of procedures and abuse of office.

116.

THAT, the National Government introduces landing certificates for all

transit sugar as a confirmation of physical exit to stop any dumping into the
local market,

117.

THAT, the Government should consider offering tax breaks to encourage

new investors into the sugar industry. Additionally, duty waiver for sugar
industry farm inputs and farm machinery will go a long way towards
reducing the high cost of sugar production.

118.

THAT, KPMG having provided a disclaimer as to the accuracy of the Draft

Factual Finding Report, Mumias Sugar Company avails with immediate
effect the final KPMG report to the National Assembly.

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119.

THAT , officers from MSC/KRA who abused import procedures with regard
to Import Permit requirements in the importation of 10,000MT of sugar in
2012 from Sudan be held to account for their misdeeds.

120. THAT, Deloitte and Touch be held responsible for misleading the
government, other shareholders and public on the state of affairs in MSC
during the period of their engagement as auditors.

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ANNEXTURES

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