After barely a year of calmness, a new wave of problems is slowly brewing at the State-owned milk processor New Kenya Co-operative Creameries (New KCC).

After getting a substantive managing director following a turbulent recruitment that lasted 14 months, underneath New KCC is struggling to keep its contracted farmers happy while employees have started to grumble.

Over the past couple of months, the firm has been experiencing financial constraints that have resulted in delays in paying farmers and employees, which was last witnessed in the late 1990s when the company was broke.

These new developments, which the company has been struggling to keep under wraps, have even forced the Government to go slow on publicised plan to privatise the milk processor.


Sources in the company say during the months of December and January, farmers and employees had to endure delays in payments because of cashflow challenges.

The company, which just over a year ago, was paying farmers between Sh30 and Sh35 per litre depending on the delivered quantity, is now paying between Sh23 and Sh29 per litre.

“Something is terribly wrong somewhere” said a source.

The source said it was difficult to comprehend how a company that had in excess of Sh700 million in cash three years ago could be experiencing such serious financial constraints.

This probably might explain why New KCC has not announced its performance publicly since 2009, when it recorded a Sh500 million profit and presented a Sh30 million dividend cheque to the Government.

Though he admitted the situation at the milk processor is not rosy, New KCC Managing Director Kipkirui arap Lang’at said problems facing the company emanates from its unique status of being a public parastatal.

Langat was appointed managing director in March, last year, after two attempts to recruit a new boss blew on the face of controversies. Milcah Mugo acted for a record 14 months during the recruitment circus.

“The only hitch we are experiencing was due to increased milk production last year but it is nothing serious. Being a public company we are forced to buy all the milk from farmers when there is a glut,” said Lang’at.

Last year, milk production increased to 550 million litres compared to 515 million litres produced in 2010 and 406 million litres in 2009.

While rival milk processors absorbed just enough quantity in line with their capacity, New KCC was forced to purchase the remaining milk from farmers beyond its capacity to avoid a repeat of the 2010 debacle whereby farmers were forced to pour milk.

“We purchased the milk surplus from farmers and converted it into powder that is now in our stores,” said Dr Lang’at.

Powder milk

He added the forced venture, which saw the company accumulate about 190,000 tonnes of the powder milk, cost the company about Sh1 billion, money that is now tied in stocks.

“We have powder worth about Sh1 billion because we had an obligation to ensure farmers did not waste milk,” he stated.

He added with the current sharp decline in milk production as a result of the dry season, the company is now using the powder milk, something that should translate to normalcy in cashflow.

However, to ensure the company overcomes the vicious cycle of instability precipitated by unpredictable milk production, Lang’at has proposed that the Government set aside a special fund specifically for buying milk for farmers at times of glut instead of the company using its own resources.

“We are telling the Government to set up the fund and contract us to buy milk for farmers on its behalf. This will ease the pressure on New KCC,” he observed.

As the financial challenges pile up, New KCC has been forced to scale down production.

Though at its best times the milk processor can produce a high of 650,000 litres a day, production has now plummeted to 300,000 litres per day.

With rising competition in the dairy sector, which has over 40 registered milk processors, these challenges are making it difficult for the company to project its market share, invest in modernising its facilities and explore new markets.

Kenya is the third largest milk producer in Africa, behind Sudan and Egypt.

The dairy industry is the single largest agricultural sub-sector, larger than tea. It contributes some 14 per cent of agricultural GDP and 3.5 p[er cent of total GDP.

Kenyans consume more milk than almost anyone else in the developing world. In terms of milk consumption per unit of average income, Kenya ranks only behind Mauritania and Mongolia globally among developing countries.

On average, each Kenyan drinks, according to the International Livestock Research Institute, about 145 litres of milk a year.



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