How Ruto cornered sugar baron in pitched battle to control struggling miller

The elephant in the room was AFA’s decision to close factories in Western Kenya for four months apparently to allow time for young cane in the farms to mature.

What had particularly irked some of the sugar barons was AFA’s decision to give milling licence extensions to State-owned Chemelil Sugar and privately-operated Kibos Sugar, which is owned by Raju Chathe Patel, leading to accusations of favouritism.

When Mr Rai rose to speak, however, he chose to focus on a different issue. The billionaire dwelt on what, in his view, urgently needed to be done to save the sector. He went on to praise President William Ruto’s fertiliser subsidy, terming it a game changer that would boost sugarcane yields in the next harvest.

“This shortage (of sugar) was also caused by a shortage of fertiliser. No farmer could afford such fertiliser prices, which had a big impact on yields,” said Mr Rai.

Also Read: How P.V Rao blunder on lease opened Mumias Sugar Company to court cases

Last year, a government subsidy introduced by President Ruto cut fertiliser prices from Sh6,500 to Sh3,500 for a 50-kilo bag. This month, the President announced a further reduction in price to Sh2,500 ahead of the short rains planting season in October.

Three days later, Mr Rai was abducted in broad daylight by unknown assailants at a junction along Wood Avenue in Kilimani, around 4pm on Friday, August25. The businessman was released two days later after an encounter that reportedly left him shaken.

What really happened during his two days kidnap ordeal remains a secret only known to him and perhaps close family and friends, as the businessman has remained mum on the matter . Four days after the abduction, Mr Rai set in motion a legal process that would appear to be the beginning of the loosening of his stranglehold on Kenya’s sugar sector.

The Nation has learnt that, on August 29, Mr Rai wrote to his lawyers, instructing them to withdraw all cases filed at the High Court and Court of Appeal, by himself, West Kenya Sugar company, and Vartox Resources Inc, which had challenged the 20-year lease awarded to Uganda-based Sarrai Group to manage Mumias Sugar Company.

On Wednesday evening, Mr Rai met other litigants in the cases against Sarrai Group, for over four hours, where an agreement was struck to also have them drop their legal action. The businessman committed to pay an estimated Sh50 million in fees incurred by the litigants.

In his tour of Western Kenya last week, President Ruto announced the government’s plans to invite a new investor to take over Mumias, indicating that Mr Rai’s Uganda-based sibling, Sarbjit Singh Rai of Sarrai Group, may also have to drop their interests in the miller.

Also Read: President Ruto’s ‘go to heaven’ threat to sugar cartels stirs up a storm  

Two days earlier, he had order ordered all persons currently at Mumias Sugar Company to vacate and withdraw all court cases pertaining to it.

But how did the sugar sector end up in this sour mess? Will the President win this war against the sugar barons? To understand why Dr Ruto has declared war on the sugar barons, one must first understand how the local sugar industry works. Kenya has 16 sugar factories. Six (Miwani, Chemelil, Muhoroni, Mumias, Nzoia and South Nyanza) are owned by the government.

Four factories — Naitiri, West Kenya, Olepito and Sukari — are owned by Mr Rai, making him by far the largest sugar producer in the country. The other factories, owned by various other private investors, include Soin, Kwale International, Busia, Kibos, Transmara and Butali.

Local sugar prices have hit record highs in recent months, piling pressure on President Ruto to reduce the cost of living, which was one of his key pre-election promises last year.

For example, local millers sold a 50kg bag of sugar for an average of Sh8,312 in June, or Sh166,240 per tonne, according to the latest data from AFA. By comparison, the cost of imported refined white sugar landed in Mombasa was Sh91,445 per tonne, or 82 per cent cheaper than locally produced sweetener.

Despite the high prices charged on consumers by the millers, most of them have become notorious for offering farmers throwaway prices for their cane, which takes 18 months to mature.

According to the Ministry of Agriculture, these factories are supplied with sugarcane by some 300,000 farmers in Kenya. The ministry adds that more than eight million Kenyans derive their livelihoods directly from sugar production and indirectly through related businesses in the supply of goods, related services and social amenities.

Also Read: Kakamega County, KCB on the spot over Mumias lease deal

Among the major crops, sugarcane was the glaring omission in President Ruto’s United Democratic Alliance (UDA) manifesto, but it is no secret that the Head of State has his eyes on reforming the sector for both economic and political reasons.

The sugar-growing regions of Western, Nyanza and Coast are considered strongholds of his political arch-rival and Opposition leader Raila Odinga.

On his recent tour of Western, the President has touted farmers as the biggest beneficiaries of his sugar sector reforms as he eyes a bigger share of the populous region’s vote ahead of the 2027 elections.

In Mumias, where the collapse of the once giant sugar factory has devastated the local economy, the President declared war on “sugar cartels” he says have exploited farmers, who remain poor because of low prices paid by millers. The fall of Mumias, which at its height controlled nearly 60 per cent of the country’s total sugar production, and the collapse of some State-owned millers, has left a void that is now being filled by the private sector.

This comes as it emerges that detectives from the Economic Crimes Unit are investigating Mr Rai’s alleged involvement in fraud, specifically money laundering and tax evasion, in the buy-out of some of Mumia’s creditors.

Also Read:Ruto orders investor out of Mumias Sugar

Another major battlefront the President has opened with the millers is the importation of some 100,200 tonnes of duty-free sugar outside the Common Market for Eastern and Southern Africa (Comesa) to address a biting shortage.

In 2022, local millers produced 796,600 metric tonnes of sugar, while a further 320,700 metric tonnes were imported to plug the shortfall. However, local production has fallen this year due to a shortage of cane, which has even forced the government to close factories for four months.

The President has banned millers from importing this sugar, despite strong lobbying from manufacturers to be allowed into the import business.

Earlier this month, Agriculture Cabinet Secretary Mithika Linturi told members of Parliament (MPs) that only traders would be allowed to import sugar, dealing a blow to millers.

The Head of State has backed the closure of factories until November, saying, millers had harvested unripe cane. Only three factories are still operating — Mr Rai’s Sukari, Transmara and South Nyanza sugar companies — because they still have enough mature cane to crush.

As part of drastic reforms in the sugar sector, the National Treasury wants to write off more than Sh117 billion in debt owed by five struggling State-owned sugar companies before they can be leased out to private investors.

Under the plan, run-down factories will be sold and land leased to bidders selected to commercially run Nzoia Sugar, South Nyanza Sugar (Sony), Chemelil Sugar, Mumias Sugar, Muhoroni Sugar and Miwani Sugar to build modern factories.

Treasury Cabinet Secretary Njuguna Ndung’u said the proposed leasing model would be implemented by unbundling the core estate land and factory land owned by the millers.

The Kenya Kwanza government had decided to privatise the troubled state-owned sugar mills to inject fresh capital to revive their operations. However, the Cabinet this month abandoned the privatisation route in favour of a lease and operate framework aimed at not only reviving the performance of the millers but also keeping their ownership under government control.