South Nyanza Sugar Company Limited
Sony Sugar Company commands a 12 percent market share for mill white sugar and intends to expand this portfolio in the near future once optimization and expansion of the current plant is carried out
The Sugar subsector is a major revenue contributor to the agricultural sector, the mainstay of the economy. The sugar sub-sector supports 20 percent of Kenya’s population and accounts for 15 percent of agricultural GDP. Kenya has seven major sugar factories with an annual production capacity of up to 600,000 metric tons of sugar.
Market share
Sony Sugar Company commands a 12 percent market share for mill white sugar and intends to expand this portfolio in the near future once optimization and expansion of the current plant is carried out. The company has a 5-year strategic plan (2009-2014) which is aligned to the industry vision and aims at promoting growth in all dimensions, optimization of the current capacity and investment in capital projects for generation of additional revenue streams.
Presently the company’s focus is to restructure its balance sheet to make it more attractive to investors. The company has a reputation for high quality mill white and brown sugar packed in bulk (50kg, 25kg) and pre-packed branded variants (5, 2, 1, ½, ¼ Kg) popular in the domestic market for its unique sweetness.
Added to the quality of its products is a high level of consumer endorsement in the East African region. In 2009 the Sony Sugar brand attained Super brands status. The cCompany’s brand is supported by impactful advertising rated among the top advertising campaigns in the region. The company also packs sugar sachets, since year 2003, for blue chip companies such Kenya Airways and institutions such as the Nairobi Hospital.
This is the only local sugar factory which manufactures sugar sachets. The hygiene and convenience of Sony Sugar sachets has seen the popularity of this pack variant extend beyond the borders to the neighboring cities of Kampala and Kigali.
The domestic demand for sugar is expected to grow at a rate of 9 percent in the next five years. The industry, however, has a potential of producing over one million tons of sugar if the installed production capacity is fully utilized. This would meet the projected domestic demand of 800,000 tons and provide a sustained surplus for export.
Industrial challenges
The sugar industry is currently facing numerous challenges including under-utilized capacity, poor transport infrastructure, weak corporate governance, high cost of inputs, lack of diversification, over-dependence on rain-fed cane production, high level of indebtness by milling companies, weak research-extension linkages and sub-optimal or non-existent out-grower institutions.
The government has developed the Kenya Sugar industry Strategic Plan 2010-2014 to provide a roadmap on tackling challenges facing the agriculture sector. This will form the basis of transforming the sugar sub-sector by strengthening the regulatory and policy framework, enhancing sugar industry competitiveness, investing in infrastructure and expanding the product base through value addition and product diversification.
The government is also in the process of privatizing all publicly owned factories within the next 18 months before the expiry of the Common Markets for Eastern and Southern Africa (COMESA) safeguards. Under the safeguards (Kenya has made a deal with COMESA trade bloc that allows it to restrict sugar imports from the bloc to 200,000 tons per year to protect its industry). The strategic investors will be expected to bring in new technology and utilize the by-products of sugar manufacture process for key diversification initiatives into ethanol production and co-generation of electricity.
Sugar import restrictions
Kenya is a signatory to World Trade Organization (WTO), the Cotonou Partnership Agreements (ACP-EU), COMESA Free Trade Agreement and the East African Community Customs Union. Sugar imports and exports are influenced by what happens in these trade regimes. As captured in the Vision 2030 plan, wholesale and retail trade is intended to move the country towards greater efficiency in the country’s marketing system by lowering transaction costs through institutional reforms.
The creation of wholesale hubs, building of retail markets and free trade ports are market opportunities which must be exploited by the sugar industry. The opening up of global and regional trade presents challenges in competitiveness of the Kenyan sugar industry. Some of the challenges include high dependency on fossil fuel for cane transportation, financial market challenges that impact negatively on Kenya’s trade performance in goods and services and international competition from low cost sugar producers.
It is therefore imperative that domestic production be more efficient and competitive and internal prices be re-aligned to competitive regional levels for industry survival and growth. Poor sugarcane farming
Closer home, some of the key challenges specific to the Sony Sugar cane growing belt include land fragmentation leading to uneconomical land use; dilapidated roads infrastructure; ageing factory equipment; weak out-grower institutions causing over-dependence on company resources in cane growing, harvesting and transport; declining interest in sugarcane growing; absentee farmers and high cost of inputs.
The emerging threat is the licensing of new sugar factories within the Sugar Act 2001s stipulated 30km radius of the existing factory. These planned new factories have made no investment in the key raw material sugarcane and plan to operate in total disregard of the basic provisions of the Kenyan law regulating the sugar industry.
Growth potential
SonySugar Company is endowed with significant physical and commercial facilities for growth and development, not to mention the tremendous opportunities for utilization of sugarcane by-products in diversification.
The South Western region of Kenya has the best climate and soils for cane growing, has access to regional markets in Uganda, Tanzania and Rwanda and has a captive domestic market for sugar and related products.
