Kenya’s sugar sector a lifeline for millions of smallholder farmers, factory workers and ancillary businessesis on the cusp of a dramatic revival. The Ministry of Agriculture and Livestock Development has today announced a landmark Ksh 12.29 billion private-sector investment package to overhaul four distressed state-owned sugar mills: Nzoia, Chemilil, Sony and Muhoroni. Under 30-year lease agreements, four companies will inject fresh capital into these factories, modernize processing lines, settle lingering arrears, and safeguard thousands of jobs (The Star).

Background: A Sector in Crisis

Sugarcane farming and processing underpin the livelihoods of some 250,000 smallholder farmers and directly or indirectly support the economic well-being of over six million Kenyans roughly 12 percent of the country’s population (SCIRP). Yet decades of under-investment, mismanagement and mounting debts left Kenya’s state mills operating at a fraction of their capacity, forcing cane deliveries down to as low as 40 percent of design output in some factories.

Agriculture contributes 22.4 percent of Kenya’s GDP, with sugarcane among its top three industrial crops alongside tea and coffee (Kenya National Bureau of Statistics). Restoring these four mills is therefore not only a matter of reviving sugar output—currently meeting less than 60 percent of domestic demand but also of revitalizing rural economies and ensuring food-security through cash-crop diversification.

The 30-Year Lease Agreement

In a strategic pivot from outright privatization, Parliament in March 2025 approved a Privatization (Amendment) Bill authorizing the leasing of underperforming state corporations. Agriculture Cabinet Secretary Mutahi Kagwe led the leasing process, culminating in awards to:

“These leases are underpinned by strict performance benchmarks,” said CS Kagwe. “If the new operators fail to modernize the mills, support cane development or pay farmers and workers as agreed, we will revoke their leases and reassign them to parties who deliver on their commitments” (The Star).

Breakdown of Goodwill and Annual Lease Fees

In addition to the Ksh 12.29 billion capital injection, each lessee will pay a one-off goodwill fee for the right to lease factory-owned land, plus annual lease fees earmarked for cane-development programmes and community welfare:

Annual lease fees will be paid each January and channelled through the Kenya Sugar Board (KSB) to support cane-rehabilitation schemes, extension services and community projects near the mills (The Star).

Tackling Arrears: Farmers and Workers

A major impetus for leasing was to settle Ksh 2.2 billion in outstanding payments. Under the new lease terms and accompanying government guarantees:

• Farmers: Over Ksh 1.7 billion was disbursed in late 2024 to clear historic arrears. An additional Ksh 500 million—accrued for cane delivered since January 2025—will be paid by July 2025 (The Star). Farmers will also receive annual bonuses based on sugar and molasses concession fees collected by KSB (Ksh 4 per kg of sugar and Ksh 3 per kg of molasses).
• Workers: Through an MoU with the Kenya Union of Sugar Plantation and Allied Workers (KUSPAW), the government has committed Ksh 600 million to settle part of staff arrears and Ksh 400 million to cover six months of salaries starting May 2025. A further Ksh 1.5 billion will be paid in July, followed by quarterly payments of Ksh 1.17 billion until all arrears—estimated at Ksh 5.6 billion—are cleared (The Star, The Star).
  

These measures aim to restore confidence among farmers and factory staff, whose livelihoods were jeopardized by protracted non-payment.

Investor Profiles: Who’s Behind the Revamp?

• West Kenya Sugar Company is part of Rai Group, chaired by Indian-born tycoon Jaswant Rai, whose conglomerate spans sugar, real estate and hospitality. Rai Group’s West Kenya mill already controls 45 percent of Kenya’s sugar supply via subsidiaries such as Kabras Sugar and Sukari Industries (Tuko.co.ke – Kenya news.).
• Kibos Sugar & Allied Industries formed a consortium with private equity partners to take over Chemilil. Led by the Chatthe family, this group brings experience in textiles and agri-processing.
• Busia Sugar Industry Ltd. is headed by Ali Ahmed Taib, a veteran sugar entrepreneur who also owns Kwale International Sugar Company, a Pabari Group-backed facility incorporating a 5,500-hectare plantation and a 3,300 t/day crushing mill connected to an 18 MW bagasse-fired power plant.
• West Valley Sugar Company is managed by Bernard Soi, a Nairobi-based investor known for turning around underperforming agro-industries.

Collectively, these investors have pledged to deploy world-class management practices, adopt modern harvesting techniques and introduce mechanization to boost yields from the national average of 90 MT/ha toward private-sector benchmarks of 140 MT/ha (USDA Foreign Agricultural Service).

Government Safeguards and Oversight

To ensure accountability, the Ministry of Agriculture will:

1. Retain oversight boards while management boards were dissolved on handover, a supervisory council comprising CS Kagwe’s office, KSB and local county representatives will monitor performance.
2. Enforce performance-linked covenants leases include clauses allowing termination if processing targets, payment timelines or community-development commitments are not met.
3. Facilitate technical assistance through a Sugar Industry Revitalization Programme, the government will fund agronomic training, joint research with the Kenya Sugar Research Institute, and mechanization grants. The Institute’s data show public-mill-serviced plantations yield far below private counterparts due to gaps in extension services and transport logistics (USDA Foreign Agricultural Service).
   

“There must be transparency and full engagement with farmers and workers. This lease is a partnership, not a take-over,” emphasized CS Kagwe during a press briefing in Mombasa County (The Star).

Regional Integration and Export Prospects

Kenya currently imports about 250,000 MT of refined sugar annually to bridge its production shortfall, primarily from South Africa and Uganda. Revitalizing these four mills could reduce import dependence, ease forex pressures and open export opportunities to East African Community (EAC) markets such as Tanzania and Rwanda.

The East African Community’s Sugar Protocol sets a common external tariff of 25 percent on sugar imports, giving Kenyan producers a price advantage once factories reach full capacity. Analysts estimate that, at 90 percent utilization, the revived mills could produce 350,000 MT per year—a 60 percent increase over current output—creating room for both domestic supply sufficiency and regional exports.

Modernization, Sustainability and Climate Resilience

Beyond juicing cane, investors plan to integrate green energy solutions, including:

• Bagasse-fired cogeneration plants to supply captive power and feed into the national grid.
• Effluent treatment and irrigation modernization to reduce water usage by up to 40 percent.
• Climate-smart agriculture — drought-tolerant cane varieties, precision-fertilizer application and weather-information systems for farmers.

These innovations dovetail with Kenya’s National Climate Change Action Plan, which targets a 50 percent reduction in GHG emissions from agriculture and energy by 2030. Private mills have demonstrated that decentralized power generation can reduce both operational costs and carbon footprints.

Community Impact and Value-Addition

Sugar belts around Bungoma, Kisumu, Kakamega and Busia counties have suffered from factory closures, leading to lost incomes and youth unemployment. The infusion of Ksh 12.29 billion will not only revive mill operations but also:

• Secure over 12,000 direct jobs in milling, engineering, logistics and administration.
• Support 250,000 farmers through reliable offtake agreements, agronomy clinics and input credit facilities.
• Stimulate local economies via multiplier effects in transport, agro-dealer networks and hospitality.

Local leaders such as Bungoma Governor George Natembeya have expressed guarded optimism, urging investors to prioritize weekly payments to farmers and transparent weighbridge operations—a demand echoed by farmer unions in a joint endorsement of the lease model earlier this month (Capital FM).

Measuring Success: KPIs and Long-Term Outlook

Key performance indicators for the lease programme include:

• Factory Utilization: Raise from current 40–50 percent up to 80 percent within two years.
• Farmer Payments: Achieve 100 percent on-time cane payments.
• Yield Improvement: Boost average yields from 90 MT/ha to 120 MT/ha by 2027.
• Green Energy Output: Commission at least one 20 MW bagasse plant per mill.

If these milestones are met, Kenya could transition from a net importer of sugar to a net exporter by 2028, generate over Ksh 50 billion in annual sugar sales and reduce sugarcane import-substitution costs of Ksh 18 billion per year.

Conclusion

The Ksh 12.29 billion injection into Nzoia, Chemilil, Sony and Muhoroni sugar factories represents more than a capital infusion—it is a holistic revival strategy for a sector vital to Kenya’s rural economies and national food security. By aligning private-sector efficiency, government oversight, farmer welfare and climate resilience, the 30-year lease model has the potential to transform Kenya’s sugar landscape.

As the lessees commence rehabilitation works, stakeholders will be watching closely. The true measure of success will be not only in the metrics of tons milled or kilowatts generated but in steady incomes for farmers, secure livelihoods for workers and thriving communities in Kenya’s sugar belts. It is, in every sense, sweet redemption for a once-stalwart industry.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

16th May, 2025