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Kenya: Mumias Wages New Price War On Rival Millers
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Business Daily (Nairobi)
21 May 2008
Posted to the web 21 May 2008
Allan Odhiambo
A price war has began in the sugar industry as rising production costs threaten to push millers out of business.
The latest stand-off on pricing follows an aggressive move by the country's largest miller, Mumias Sugar Company, to grant special offers on bulk sugar purchases.
The Business Daily has established that, as part of a sales boost strategy, Mumias is currently offering a discount starting at Sh100 per 50kg bag for bulk packages. Prices on the miller's smaller packages however remained unchanged.
This apparently 'innocent' gesture is causing discomfort among other millers who are highly dependent on bulk sales unlike Mumias which also boasts of robust sales in smaller, branded packs.
"The attack on our key segment of bulk sales is causing us sleepless nights," the managing director of a milling firm in western Kenya told Business Daily.
Analysts said the move by Mumias is likely to affect the financial status of most cash strapped, State-run millers because they could be forced to take cue and offer discounts to buyers in order to stay afloat.
They further argued that it also serves as a wake-up call for the industry, which must brace itself for cut-throat competition that is likely to developed when the local market is fully liberalised in four years time. Kenya currently enjoys special safeguards which restrict annual imports from the Common Market for Eastern and Southern Africa (Comesa) even though this preferential treatment is set to be lifted in 2012.
Mumias CEO Evans Kidero, however said the special offers being granted to customers were within the principles of sound business practice and blamed the fears of rival firms on the high cost of production.
"We are all playing in the same market place and everyone must have a strategy to beat competition. I want to believe that their cries have nothing to do with our offers and they must look in the direction of high cost of production," he told Business Daily.
He said the current high payments to farmers for cane deliveries was a major factor to increased cost of production. Only last year the Government ordered that farmers be paid a minimum Sh2,500 per tonne of cane delivered to factories, marking a 13 per cent increment.
"This kind of arbitrary increments in the prices of cane is not good for business. Something must be done to this end besides ensuring efficiency at the mills," said Dr Kidero.
The high cost of oil and agricultural inputs have compounded the problems of production.
Analysts said the manner of the latest price war would require the direct intervention of the State because cash strapped firms risked sinking deeper into debt. This means farmers may soon have to contend with delayed payments.
"Our rivals have a real problem and the State must act fast to save them. Some issues such as the increment of cane prices even contravene the Sugar Act that govern the industry ," the CEO said.
Only last year, Mumias caused a shiver in the industry when it announced that it was adopting a new strategy which would see the bulk of its production rolled out in branded packs by March this year, in a quest to tighten its grip in an increasingly competitive retail market.
It said in the strategy that up to 70 per cent of its daily output of 1,000 tonnes of sugar would now find its way into the market in distinctive branded packs. In this way the firm hopes to elbow competition out by making its products "more visible" to target customers.
The strategy shift by Mumias came in the wake of a growing trend in the industry where millers have invested heavily in packaging in a bid to expand market share.
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Apart from Mumias, other millers such as Sony, Chemelil, Muhoroni and Nzoia have in the recent past launched branded products in a bid to keep abreast with competition.
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