Nairobi: Mauritian Sugar giant Omnicane will establish a Sh16.5 billion plant in Kwale in move that will heighten competition in a market that has witnessed a number of new entrants. The company, which is listed in Stock Exchange of Mauritius, would form a joint venture with local investors in Kwale International Sugar Company Limited (KISCOL) — giving it access 17, 000 acres of sugar cane. It would be the biggest entrant to Kenya’s sugar market and one of the largest foreign direct investment in the country’s agro industry in what could shake the dominance of the sector by Mumias Sugar.
Omnicane’s sales stood at Sh95 billion in 2010 and turned a profit of Sh8.8 billion compared to Mumias Sugar whose net profit stood at Sh2.6 billion on revenues of Sh15.6 billion.
'The project is in line with our vision to consolidate further our presence in the sugar and energy sector. It will also help in the internationalisation of our operations,' Omicane CEO Jacques d’Unienville told Reuters in an interview. The new entrant is expected to boost competition in the sugar industry, which is bogged down by high production costs due to use of poor technology and old machinery.
Sugar industry in Mauritius is very competitive due to use of modern technology in production and the firm is expected to replicate this model in the Kenyan market. The company would rely on its own as opposed to small-scale out-grower farmers for cane supplies, a situation that has worked against efficiency of local firms.
So far, Mumias Sugar has faced little opposition since the new entrants such Kibos, Soin and West Kenya do not much its financial muscle in market where state owned firms Nzoia, Miwani, Sony, Chemelil and Muhoroni are struggling.
Its entry will also complicate the business environment for the local producers as the country removes the 10 per cent duty on imports from least cost producers from the regional Comesa bloc expire in 2012.
Just like Mumias, the Mauritius firm will be looking at new product lines such as power generation and a 30, 000 litre ethanol production plant. Mumias is also looking at a water bottling plant, due to be commissioned in late September.
This comes as Kenya’s sugar sector experiences cane shortages that has seen millers operate below capacity and raised retail prices of sugar to Sh200 per kilogramme over the past two months. Increased competition is expected in the sugar industry following the entry of investors from one of Africa’s top producers of the commodity, Mauritius.
Leading Mauritian sugar producer, Omnicane, has partnered with a group of local investors in a Sh16 billion integrated sugar project under the flagship of Kwale International Sugar Company Limited (KISCOL). 'The project is in line with our vision to consolidate further our presence in the sugar and energy sector. It will also help in the internationalisation of our operations,' Omicane CEO Jacques d’Unienville was quoted by Reuters as having said on Monday.
He said that the sugar factory to be situated in the south of Mombasa would initially access 17,000 acres of sugarcane. The project also includes the building of an 18- megawatt bagasse power plant and a 30,000-litre ethanol production plant.
Mr Hashil Kotecha, an official of KISCOL yesterday confirmed the partnership with Omnicane but did not provide details.
The Kwale project is expected to boost competition in the sugar industry, which is bogged down by high production costs due to use of poor production technology and old machinery.
Sugar industry in Mauritius is very competitive due to use of modern technology in production. Irrigation is widely used to boost yields and ensure bad weather does not interfere with sugarcane cultivation.
Leading local miller Mumias Sugar Company Limited also plans a Sh24 billion integrated sugar project in Tana River District at the Coast. The Cabinet and the National Environment Management Authority (Nema) have already approved the project to be jointly implemented with the Tana and Athi Rivers Development Authority (Tarda).
A strategic plan on the proposed Tarda project showed that it would be irrigation-driven unlike the predominant rain-fed farming in the country’s sugar industry.
The irrigation-based production offers huge advantages including faster cane maturity and higher sugar content. The project is also designed to rely on a nucleus estate that is expected to take up the bulk of the 16,000 hectares. Most millers in Kenya rely on small-scale out-grower farmers for cane supplies, a situation that has worked against efficiency.
However, a nucleus system allows for planning and steady supply of uniform quality cane.
At full capacity, the planned sugar facility by Mumias and Tarda will host a power generation plant and engage 30,000 people in either direct or indirect employment.
Kenya remains a net import of sugar with consumers dependent on shipments from the Common Market for Eastern and Southern Africa (Comesa). The country’s 2010 sugar output dipped 4.5 percent to 523,522 tonnes due to a weather-induced cane shortage in some zones, the regulator Kenya Sugar Board(KSB) said early this year but projected a rebound by 6 per cent in 2011.
But sugar consumption in Kenya continues to outpace production. In 2010, it was 772,731 tonnes, and the regulator projected demand for sugar would grow to 794,844 tonnes by 2012.
KSB says the main challenges in output growth are to do with the high cost of sugar production in the east Africa nation relative to producers in the region. This cost is occasioned by a number of factors, key among them which is the undercapitalisation of sugar factories especially with the state-owned mills.
* By GITHUA KIHARA