A US maize products vendor which shut down its Kenyan factory following turmoil in the corn market two years ago has revealed the massive cost of ending its nearly 40-year operation.
Illinois-based Ingredion booked a Sh1.76 billion loss from closing its Corn Products plant, one of the last processors in Eldoret town, after it was unable to source maize competitively in a market dominated by the State.
Corn Products used to manufacture animal feeds, starch and dextrose and had been operational since 1973 but shut down its plant in July 2012 citing high production costs and inability to compete with imports.
The firm's annual report says reorganisation of its local business led to the loss.
"In 2012, we decided to restructure our business operations in Kenya and close our manufacturing plant in the country. As part of that decision we recorded a $20 million (Sh1.76 billion) restructuring charge, which included fixed asset impairment charges of $6 million (Sh522 million) to write down the carrying amount of certain assets to their estimated fair values," said the firm's annual report.
The closure led to loss of 300 direct jobs. Ingredion said part of the Sh1.76 billion went to compensate affected employees.
"$2 million (Sh176 million) of costs primarily consisted of severance pay related to the termination of the majority of employees in Kenya and $2 million of additional charges related to this restructuring."
Ingredion said that an $8 million (Sh696 million) loss was from forex related adjustments, $6 million (Sh522 million) was on depreciation of assets and the remaining $2 million (Sh176 million) was on losses from working capital.
The plant had capacity to process 2,000 bags of maize per day. The company now operates a sales unit based in Nairobi that directly imports from its other plants. The Eldoret plant was the smallest of the 54 plants that the American conglomerate owned and used to serve industrial customers such as EABL and Unga Group.
Former employees say challenges that led to the plant's closure were on the supply side.
Mr Thomas Ochieng, a former manager, said he had to compete with other consumers for maize, the main raw material used to make starch and glucose syrup. Buying at higher prices made the firm's end products more expensive and its main buyers resorted to using alternative sources of starch.
"They (Corn Products) had to depend on retail prices which were high," Mr Ochieng told the Business Daily.
Industry players say they expect stability – which comes a bit late in the day after the US company divested at a huge cost to the economy – with the warehousing receipting concept that lets farmers store grain at a specific location and then sell or get credit based on the slips in place.
Industry lobby Eastern Africa Grain Council (EAGC) said that warehousing receipting will also assure buyers of a steady supply at a specific price, lack of which was the main undoing for Corn Products. "The grain buyers are assured of quality and quantity of grain since they are able to get all their supplies from one known location," said EAGC in a statement.
Data from EAGC shows commodities stored under warehousing receipting in the region had increased to 15,000 tonnes from 100 tonnes.
The Economic Survey 2014 shows that the manufacturing sector accounted for 8.9 per cent of the general economy and 12.4 per cent employment in the formal sector.
Eldoret, an agricultural town in the North Rift, has been hard hit by closure of industries due to liberalisation of the economy and the rising cost of production.
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