Maize and sugar sector woes: Here is the real way forward

Two large grey clouds loom over our vital maize and sugar sub-sectors. Both have perennial strategic deficits so that only in a good year are we self-sufficient in maize production and sugar demand has long outstripped production.

Both are dogged by serious management and corruption such as the NCPB in maize and the old debt-laden largely government-owned sugar firms. The former is a relic of the colonial era and subject to political interference. The latter can be equated more with dinosaurs than modern commercial enterprises.

The cost of production in both is far higher than in many places, hence the attractiveness of cheaper maize imports from Uganda and Tanzania. For a long time Kenya has been producing some of the most expensive sugar in the world.

STAPLE FOOD

As well as maize being the country’s staple food, the two sub-sectors are major sources of employment and income for millions of Kenyans.

The NCPB has been in the news a lot recently and Agriculture Cabinet Secretary Mwangi Kiunjuri must feel he has been presented with a poisoned chalice.

The perennial problem with the NCPB is that it has plenty of maize in its stores at times of surplus and precious little that is edible in times of shortage.

Its strategic reserve capacity is 3 million 90-kilo bags. As consumption is in excess of 40 million bags a year, it is easy to see how such a small reserve runs out so quickly.

Even if farmers manage to sell their maize to NCPB, they wait months to be paid. Often brokers are given preference. One interesting recent scam involved brokers buying cheaper Ugandan maize and selling it to NCPB at a generous profit.

PRODUCTIVITY

The original largely state-owned sugar firms such as Nzoia, Muhoroni, Chemelil, Sony and also Mumias, are saddled with debt, ageing machinery and too many workers, culminating in pathetic productivity.

Farmers suffer delayed payments which in turn has made much of the sugar growing areas seas of poverty. Political interference leads to mismanagement, diversion of resources and stuffing factories with staff who got their jobs through connections rather than merit.

There is no magic wand, and trying to speed up delayed payments becomes a palliative rather than long term cure. The NCPB is unfit for the job: It does not have adequate funds to pay in time and lacks capacity to store surplus maize.

One solution could be to set up the framework for a ‘Warehouse Receipt System’. Farmers would deposit their maize with set-ups that have adequate storage. A receipt detailing the quantity, value and other specifications is given to the farmer, who can use it as collateral for loans.

BETTER PRICES

Another benefit is that the farmer can level out the supply chain, but release maize when there is less of a glut and prices are better. A third benefit is that stocks, particularly of smallholders, can be consolidated and sold jointly.

The Warehouse Receipt System Bill 2018 is undergoing its first reading before Parliament and will hopefully provide the relevant legal framework to fill this gap in marketing.

Addressing the ageing sugar factories will require a much more case-by-case approach. For example, if Nzoia or Sony have a lot of land, there is an option to diversify the product base into sugar-based products or alternative agricultural products.

FINANCIAL STAKE

Obviously the government must get out of the running of these factories and reduce its financial stake, but that does not mean selling off its assets to the highest bidder.

Another way could be for consortia to be put together with the relevant shareholding, which, in turn, will carry out that diversification.

An additional option is that some assets, land included, could be sold to raise money for the relevant diversification. In both cases the challenge for the government is to carry out long-term structural solutions, which will need considerable surgery.

Quick fixes like speeding up payments, alleviate the current plight but not much more.

Mr Shaw is an economic and public policy analyst. [email protected]