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The Kenyan Market

Beverage Alcohol

The beverage ethanol market in Kenya is estimated at 48 million liters per year (without accounting the consumption of spirits made by small illegal distilleries). Beverage ethanol is subject to 180 % excise taxes (+18 % VAT) which explains that substantial volumes of ethanol are smuggled into the country (mainly from Tanzania).

Only 3 companies are producing ethanol domestically:

    • Spectre International, based in Muhoroni produces hydrous ethanol from Molasse sourced from sugar companies in the western region of Kenya, Spectre’s capacity is estimated to be 30.000 M3/year. Spectre exports about 60% of its production to Tanzania.
    • The Agro Chemicals & Food Corporation (ACFC) in Kisumu also produces ethanol from sugar companies’ molasses (mainly from Muhoroni Sugar Company). ACFC has an estimated capacity of 18.000 M3 /year. ACFC is part of Mehta Group.
    • Mumias Sugar Company co-produces ethanol from the sugar production process, the capacity is estimated at 16.000 M3/year.

Over 20.000 M3 per year is exported to Uganda, Tanzania, Democratic Republic of Congo and other countries in East African region for beverage use.

There are planned expansion programmes by Spectre International, Mumias Sugar Company and to a smaller extend by ACFC which could add an extra 80 million liters a year.

The local companies are selling their ethanol ex-works before excise taxes & VAT at a price which represents a premium over the CBOT quotation of 150-175 US$/M3 (~ 30 %). In May 2014 Spectre selling price (Spectre) was 780 US$/M3 while the April 2014 CBOT price was 2.36 US$/gallon or 623 U$/M3.

Non-commercial Alcohols

Many non-commercial alcohol beverages are produced in Kenya (known as Changaa, Busaa, Muratina Mnazi, Kumi-kumi, and Karubu). The consumption of non-com¬mercial alcohol is highest among the poor population. It is estimated that non-commercial spirits made by illegal distilleries account for 75% of the total alcohol consumption in Kenya.

There is a very high incidence of health hazards and deaths related to the consumption of home brewed alcohols. Those alcohols are prohibited by the state but the law is difficult to enforce.

Bioethanol for Fuel Market

The market opportunity for fuel ethanol (anhydrous grade) is large in terms of both volumes & profitability.

The Kenya Bureau of Standards authorized the E10, (10% ethanol-gasoline blend). An E10 mandate is in place in Kisumu, the country’s third largest city but cannot be enforced due to lack of ethanol supplies.

Kenya current gasoline (PMS & RMS) consumption is estimated at 520.000 M3 /year. To meet the national target of 10% ethanol blend, Kenya’s national production will need to double.

Fuel Ethanol is not subject to excise taxes, petroleum regulation, petroleum development & road maintenance levies. The total tax advantage against gasoline amounts to 28.9 KES or 0.345 US$/liter. At current gasoline pump price of 1.35 US$/liter in Nairobi, Bioethanol (anhydrous grade) would fetch an energy equivalent price of 0.905 US$/liter.

Fuel Ethanol for Cooking Stoves – Market Opportunity

Firewood and charcoal are the main cooking energy source (~80%), followed by kerosene (~15%) and LPG (~5%).
Kerosene is sold in Kenya at 82 KES or 1.056 US$ per liter while charcoal is sold at KES 1200 to KES 2.000 (14.4 -24.0 US$)/40 kgs sack in urban centers.

Based on energy equivalent (e.e.) prices, the use of Ethanol would be economical against Kerosene (the e.e price is 71 KES or 0.863 US$/liter) but not against charcoal (the e.e. price of ethanol is 0.34 US$ to 0.54 U$/liter).
The energy equivalence calculation is however not appropriate in comparing the cost of fuels, the reason being that the most important factor contributing to cooking efficiency (estimated in minutes to reach boiling time) is the efficiency of cooking stoves used for each type of fuel not the energy content of the fuels. The ethanol cooking stoves are reported to burn 2 times less fuel than the kerosene stoves, 2 to 3 times less than the charcoal stoves and 5 times less than firewood 3 stone stoves.

The “cooking efficiency equivalent” price of ethanol compared to Kerosene and Charcoal may therefore exceed 2.1 US$ and 0.72 US$/liter.

The 18 million M3 of wood needed each year for the production of 2.8 million tons of charcoal production is responsible for the deforestation of 550.000 ha each year in Kenya. Due the increasing scarcity of forest there is a wood fuel deficit in the entire country which gets worse year by year.

Clean-burning ethanol stoves are not only cleaner and safer, but also far more convenient to use. The introduction of ethanol as a cooking energy substitute to charcoal would significantly contribute to the reduction of deforestation while decreasing the households’ energy bill.

The Molasse Market in Kenya

Currently, the supply of molasses of Spectre and ACFC is coming from nine sugar companies: Muhoroni, Miwani, Kibos, Chemilil, Sony, Soin, Mumias, West Kenya and Nzoia. Molasses supply to the two firms is assured all year round. ACFC has an added advantage as it borders Muhoroni Sugar Company (the molasses are transferred by pipeline).

Reportedly, only half of the capacity of Spectre International and Agro Chemical & Food Corporation (ACFC) is being used as both companies are facing structural Molasse supply problems. Fulfilling the capacity of both plants would require the entire Kenyan production of Molasse (at full sugar plant capacity), which is not feasible given that about half of the molasses produced in Kenya is being sold to small-scale brewers in Uganda & Tanzania. In addition, some sugar companies are planning to start processing bioethanol from the molasses they produce.

If this happens, then supply of molasses as a source of feedstock to Spectre & ACFC will be greatly compromised.
Another threat to the sector is the involvement of middlemen who adulterate the molasses. The adulteration of the raw material translates to high costs of maintenance for factories as the water used to dilute the raw material ends up corroding fermenters.

Following a purchase price quotation request made by Mr. Muchiri, ACFC gave a Molasse price indication (collected at the plant gate) of 10.000 KES per ton (115 US$/T) collected at the plant gate; VAT excluded). This price has been later raised to 14.000 KET/T (159.4 US$/T).

The Sugar Molasse sold in the Kenyan market has a typical Brix of 70 to 75% with 42 to 50 % of fermentable sugars content (TRS or TSS) depending on the sugar extraction efficiency of sugarcane mills. The Syrup obtained from the evaporation of the Sweet Sorghum stalk juice has the same Brix as sugarcane molasse but its TRS exceeds 84 %. The Sweet Sorghum should therefore command a price premium of 68 to 100 % over sugarcane molasses.

Sorghum Grain Market in Kenya

In Kenya, Sorghum grain is a staple food in Western and Nyaza regions of Kenya. Recent years East Africa Breweries Ltd (EABL) introduced white grain (Gadam) in beer production in place of ballery. Kenya’s sorghum production was on the decline till the intervention of the EABL sorghum program.

In August 2012 Robert Muchiri, founder of Afrinol Ltd initiated an outgrowers network of sorghum producers that sells about 3.000 tons per year of white (Gadam) sorghum grain to the brewery industry.

The last crop price was 33.000 KES /T or 376 US$/T delivered brewery/ excluding VAT. This price is about 145 US$/T higher than the May 2014 FOB US price of 221 US$/T. This difference is explained by the cost of imports: the sea freight, harbor & storage & intermediates charges amount to ~85 US/T to which an inland transport cost has to be added (East African Breweries pay 60 US$/T to bring the sorghum from Mombasa port to Nairobi).

In the last 3 years, the white sorghum FOB gulf port price has fluctuated from a low of 195.3 US$/T to a high of 302.5 US$/T (average price is about 240 US$/T).

Soybean Market in Kenya

Soybeans will be produced under crop rotation. The local June 2014 “farm gate” price of soybeans is 60.000 KES /T or 683 US$/T. The Soybeans, U.S. No. 2 Yellow, FOB Gulf of Mexico July 1st price was 553 US$/T. Quite logically, the domestic versus US golf prices difference of 133 US$/T is similar to the one observed for sorghum grains.

From July 2011 to July 2014, the U.S. No. 2 Yellow, FOB Gulf price ranged from 502 to 623 US$/T (3 years-average price is about 530 US$/T).