CHAPTER 4 4.0 RECOMMENDATIONS OF THE COMMITTEE Subsequent to the Committee findings and observations, the following recommendations that will streamline the sugar sub-sector are proposed. 1. Enhance both farm and factory production efficiencies Kenya needs to implement the sugar industry strategic agenda for increased competitiveness and reduction in consumer prices. There is need to lower production cost, improve extensions among others l reduce and eventually eliminate the incentive to smuggle sugar into the country 1. Establishment of a multi-agency anti- smuggling unit Kenya Sugar Board (KSB) is unable on its own to police the sugar market. The sugar regulator lacks capacity to man borders and enforce its mandate as a regulator. The country needs to establish a permanent inter-agency enforcement unit on sugar trade to increase scrutiny and monitoring of cross-border trade and step–up border patrols to eradicate sugar smuggling. The unit should draw membership from KPA, Public Health, KSB, KEBS, the Police and KRA. The agency will, if formed, check illegal imports that enter the market concealed as other low value commodities such as rice, pasta or even fertilizer. The Committee recommends a 100% verification of all granular imports through our formal entry points should be undertaken, and that auctions of sugar at the Port should be stopped forthwith. 1. Companies that cleared through KRA without permits from KSB should be banned from importing sugar into the Country. They include Hydrey (P) Krish Commodities Ltd, Reeswood Enterprises Ltd, Shake Distributors Ltd and Shree Sai Industries Ltd. Equally, KRA should be reprimanded for clearing the sugar without permits and officers responsible should be punished accordingly. 1. The then Kenya Sugar Board Chief Executive Officer, Rosemary Mkok should be relieved of her responsibilities for failing to discharge her responsibilities effectively in regulating the sugar sub- sector as per the existing regulations. In particular, she should be held accountable for issuing an operating license to West Kenya Sugar Company in complete disregard of the law. Thorough investigations should also be carried out to determine the role she played in the registration of Butali Sugar Mills in complete disregard also of the regulation on zoning. 1. Licenses for West Kenya Sugar Company and Butali Sugar Miils should be suspended until both millers prove they have developed sufficient cane to sustain their operations to reduce cane poaching. 1. Formulate and develop a value chain management strategy and amend the Sugar Act: A central marketing body similar to the Mauritius Sugar Syndicate should be formed to contain unnecessary inter-mill competition, which propagates distortions. At the current ex-factory price of Kshs. 3,600 per 50kg bag (Kshs. 72 a kilo) retail outlets continue to sell sugar to the consumer at Kshs. 125 per kg, a difference of Kshs 52. This benefit is not cascaded to the miller, consumer, retailer or tax collector but middlemen of sugar marketing. 1. Laws governing the regulation of sugar imports and exports should be amended to provide for higher accountability standards for re-packaged sugar and for stiffer penalties for offenders. The new regulations should demand for proper labelling indicating date of manufacture, name and address of manufacturer, country of origin, batch number for purposes of traceability upstream and downstream the value chain. 1. Review repackaging regulations to guarantee consumer safety Sugar is a product that impacts on health and safety and enforcement of requisite standards, product inspection and quality assurance squarely falls on KEBS. However, a number of leading supermarkets and retail outlets in the country and who are not licensed sugar manufacturers or importers are repackaging sugar in own brands contravening the KEBS standards. Samples taken by KSB have failed to meet legislated standards and action taken. This calls for stringent measures to regulate repackaging of local and imported sugar. 1. KEBS should device a mechanism for ease of detection of fake symbols and lebels on all the approved goods 1. Tax reforms on sugar and Tax break to investors Kenya should relook its taxation regime to reduce the price of sugar in the domestic market, which is at present very high relative to those in neighboring countries. At present, VAT is charged on the Sugar Development Levy (SDL), constituting double taxation. This has the effect of making the local market an attractive destination for sugar imports whether legal or illegal. The Committee therefore recommends 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. 1. Infrastructure development to reduce operational and overheads costs Feeder roads remain largely unattended due to poor coordination between various agencies that support infrastructure development, such as KeRRA, LATF, CDF and the County Governments. This tends to spread resources too thinly for substantive infrastructure development. The committee recommends that the national government should provide mechanism for coordinated infrastructure development to avoid duplication of responsibilities by different bodies mandated to maintain roads as well as coordinate donor support in the Roads Sector. Coordination of all these efforts targeting infrastructure will ensure sustainability in maintenance of rural access roads in the sugar belt. 1. Land tenure system Population growth has consistently played a negative role on land holding patterns in the core sugar belts. The existing land tenure system is retrogressive as it has seen a steady decrease in land sizes through sub-division. The Government should implement the National Land Policy to mitigate further land sub-division for improved productivity. These uneconomically viable land units make operational costs high eating into cane farmers and millers mark up. 1. Fertilizer subsidies for the sugar sub- sector Selective fertilizer subsidies targeting the cane production is recommended to reverse the worrying trends in productivity occasioned by the factors outlined above. This measure will enhance cane production per unit area to international industry standards, and thus make local sugar industry more competitive. The subsidy should be complemented by bulk procurement of subsidized inputs and capacity utilization. 1. Investigate market operations of Mumias Sugar Company While production and performance improved in general in the year 2013, it is notable that there was a decline in area under cane in Mumias zone. The Government should commence investigations as to why performance within Mumias sugar growing zone has been declining in the recent past and take corrective measures to prevent further deterioration. In particular, the Government should also investigate Mumias Sugar Company dealings with certain importers and large distributors to unearth possible engagement in underhand deals and other market malpractices. Specifically, the Government should investigate business relations between MSC and Czarnikow Sugar EA Limited, E D & F Man Sugar Ltd, Rising Star Commodities Ltd, YH Distributors, Kambale Nzagale of (DRC), Osman Adan and Nesredin Mohamed of (Ethiopia), S&G General Suppliers, Star General Suppliers and Mugabe Thomas of Rwanda, Mega Laser International, Manyuon Samuel Deng, Mid Africa, Southern Sudan Mudland Co. Ltd, Kapoeta Trading Co. Ltd and International Relief Services of Southern Sudan, Arua Mercantile Co. Ltd, Quick Sellers Uganda, Muru Enterprises, Kasave Trading Co. Ltd, Trident Investment Ltd and Uchumi Commodities (Uganda) Ltd of Uganda among others. (Annex II a-h) 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 757,431MT 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)) The Government should recover from the Company over Kshs 250,000,000.00 in realisable VAT and that the then Managing Director, Dr Evans Kidero takes full responsibility for the fraudulent transactions. Dr Kidero should as a consequence be barred from holding public office as the fraudulent transactions took place under his watch. Equally, owners of all the trucks that ferried the sugar from Mumias go-downs supposedly for export and companies associated with them, namely YH Wholesalers, Paleah Stores Ltd, International Relief Services and others should be investigated and made to pay for their complicity in the fraudulent exports. 1. The Committee recommends introduction of landing certificates for all transit sugar as a confirmation of physical exit to stop any diversion and must be accounted for. Diversion and repackaging go-downs in Mombasa, Mariakani, and even Nairobi’ Eastleigh area have been identified with prominent personalities quoted as orchestrating the vice. Substantial stocks of repackaged sugar have failed quality tests confirming they are not of local origin. 1. The Committee recommends that Kenya Sugar Board management be punished/prosecuted whenever they disregard the law (Sugar Act 2001) and the property of managers responsible be attached to compensate for any losses. 4.1 ADOPTION OF THE REPORT Committee Members present We, the undersigned approve this Report and request the Committee Chairperson to lay the Report and to give notice and move the Motion of Adoption in the House at the earliest opportunity- 1. The Hon. Adan Nooru Mohamed, MBS, M.P. – Chairman …………………………………………………………… ……… 1. The Hon. Kareke Mbiuki, M.P - Vice Chairman …………………………………………………………… ……. 1. The Hon. Kabando Wa Kabando, M.P …………………………………………………………… …….. 1. The Hon. Benjamin Washiali, M.P …………………………………………………………… ……. 1. The Hon. Fred Outa, M.P. …………………………………………………………… …… 1. The Hon. Raphael Letimalo, M.P …………………………………………………………… …… 1. The Hon Mary Wambui Munene, M.P …………………………………………………………… …… 1. The Hon. Francis Munyua Waititu, M.P. …………………………………………………………… ….. 1. The Hon. Peter Njuguna Gitau, M.P ……………………………………………………………. . 1. The Hon. Maison Leshoomo, M.P. ……………………………………………………………. . 1. The Hon. (Dr.) Victor Kioko Munyaka, M.P. ………………………………………………………….. 1. The Hon. Kimani Ichung’wah, M.P. …………………………………………………………… …. 1. The Hon. Alfred Kiptoo Keter, M.P. …………………………………………………………… …. 1. The Hon. Ayub Savula Angatia, M.P. ……………………………………………………………. . 1. The Hon. Justice Kemei, M.P. ……………………………………………………………. . 1. The Hon. Phillip L. R. Rotino, M.P. …………………………………………………………… 1. The Hon. Korei Ole Lemein, M.P. ……………………………………………………………. . 1. The Hon. Silas Tiren, M.P. ……………………………………………………………. 1. The Hon. John Bomett Serut, M.P ………………………………………………………….. 1. The Hon. Millie Odhiambo, M.P ………………………………,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, ,,,,,,,,,,,,,,,,,, 1. The Hon. Daniel Kitonga Maanzo, M.P. …………………………………………………………… …. 1. The Hon. James Opiyo Wandayi, M.P. ……………………………………………………………. . 1. The Hon. Patrick Wangamati, M.P. ……………………………………………………………. . 1. The Hon. Ferdinand Kevin Wanyonyi, M.P. …………………………………………………………… 1. The Hon. Florence Mutua Mwikali, M.P. ……………………………………………………………. . 1. The Hon. Zuleikha Hassan Juma, M.P. ……………………………………………………………. 1. The Hon. John Kobado Kobado, M.P ………………………………………………………….. 1. The Hon. Paul Simba Arati, M.P ………………………………........................... ....................... 1. The Hon. Hezron Awiti Bolo, M.P ………………………………........................... .......................... xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx ANNEX I:Minutes of the Committee deliberations on the Petition by Western Development Initiative Association on the petition of imminent collapse of sugar industry in western province due to rampant sugarcane poaching and smuggling of cheap sugar imports ANNEX II: Documents of Exports by Mumias Sugar Company ANNEX III: KRA’s Report on Mumias Sugar Company Exports ANNEX IV: Documents of imports by Mumias Sugar Company ANNEX V: Documents of purchase by Nesredin Mohamed of Ethiopia Report of the Departmental Committee on Agriculture, Livestock and Co-operatives on the Crisis Facing the Sugar Industry P
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