Millers must find path to yield profit
Now that Parliament has given the Treasury the go ahead to pay off the Sh67.8 billion that five government-owned sugar millers owe, it now behooves the companies to find a way back to profitability.
It is also worth noting that another Sh16.3 billion that the firms owed as tax arrears, Sh9.9 billion in unpaid tax and Sh231.2 million as interest and Sh6.2 billion as penalties will be written off.
This is a big cheque to give to companies that only meet a fraction of their mandate. Generous as it is, therefore, it ought to act as an incentive for the struggling companies to improve their act and embrace innovations that will ensure they make money for themselves, supply Kenya with adequate sugar and give back to the Treasury by paying dividends.
They should, indeed, learn from the American banks and automobile industries, which get government bailouts whenever they run into financial headwinds and return to profitability after a few years.
Millers too must embrace such best practices and rid themselves of over-reliance on never-ending government bail-outs yet they control a sector that has high value goods, a ready market and few competitors.
One of the first steps they ought to take is streamline payments to farmers, especially those in their nuclear fields, so that the sale of cane to private millers at lower prices can stop. For as long as the five government millers fail to pay their farmers on time, they will never have sufficient cane to meet their crashing capacity.
Farmers, as primary suppliers, are, therefore, a critical component of the success of the millers going forward. If possible, the millers should consider increasing the amount they pay farmers per tonne to encourage more farmers to stick with them.
But they must also have a structured payment schedule, similar to that in the tea and coffee sectors to make it possible for farmers to plan and finance their family budgets predictably.
Secondly, the millers ought to produce enough sugar to meet the demands of the local market, and they must do so sustainably and without charging Kenyans an arm and a leg at retail outlets.
It is not acceptable that the millers are wallowing in debt and lament about lack of markets yet Kenya perennially imports more than 350,000 tonnes of sugar annually.