A comparative economic analysis of contracted and non-contracted sugarcane farming - the case of the South Nyanza sugar project , Kenya

Abstract

This study is an economic analysis of the contracted and non - contracted systems of sugarcane farming. In the analysisl the South Nyanza Sugar Company (SONY SUGAR) in South Nyanza District was used as a case study. The broad obj ecti ve of this study was to undertake a critical review and assessment of the Kenyan sugar industry in general 1 and in particular analyze the contracted and non contracted organizational structure of the sugarcane enterprise at SONY SUGAR. This would assist to identify and examine the bottlenecks inherent ln the two systems of sugarcane farming. The sources of lnformation used were primary and secondary data. The former were generated via a questionnaire administered to a sample of 50 farmers from each of the two systems of cane production. The. secondary data werel however 1 obtained from relevant published documents. The analytical included descriptive statistics and gross margin The results reveal that it costs twice as much tools applied analyses. to establish and market one hectare of qontracted sugarcane (Kshs 22/890) compared to that in non - contract sugarcane (Kshs 11/222) The study also reveals that sugarcane farming is relatively more remunerative to the non - contracted farmers than the contracted ones. Furtherl the Contract Agreement impacts negatively on sugarcane product ion "- giving rise to numerous cases of independent non - contract cane farming in the project area. The study recommends that the Contract Agreement should be revised and re-written with incentives to attract farmers to the outgrowe~s'scheme. The study recommends that the Contract Agreement should be revised and re-written with incentives to attract farmers to the outgrowers'scheme. The revised scheme should encourage farmers to perform as many operations of production as possible on their own to reduce the costs of cane farming and thus raise their net cash incomes. The large number of transac~ions that take place between the sugar company and the individual farmers together with the subjective nature of judgements about produce quality by the former has often lead to conflicts. As a result, accusations between the two parties over the performance~and execution of the contract arise frequently. A third party most probably the Government should therefore provide a mechanism to solve such conflicts by requiring or providing a neutral arbitrator to whom the cane farmers or the sugar company can refer to in cases of disputes. The study also recommends that al~ the lines of non contracted structure be encouraged as it is a more viable form of rewarding the producer? for their investment in the industry. Finally, the study rec~encl$_that a farmers' produc.eL-Organization suc}~._asthe existing South Nyanza Sugarcane Outgrowers' Company (SaC) should be strengthened to increase the farmers' bargaining power and coordination between them and the Sugar company. In the long run, the organization should be encouraged to take over the services now rendered by the sugar company including the ownership of the sugar company by floating shares. sac should be set up as a limited liability company by Government guarantee. This guarantee is deemed useful ln attracting ccrnme~Cla~ banks' financing instead of depending on the sugar company as a financier. sac should also be involved in the establishment, maintenance' and transport aspects of cane and also provide machinery for farm level operations including harvested cane transportation. It should also provide advisory cane extension services to the cane farmers. It has already established a savings and credit unit to enable farmers to finance their agricultural practices as well as spread their earnings from cane to cover their consumption requirements in the long spells of two years between two cane harvests.