Cost of extension services and its effect on profitability of sugar millers: a case of south nyanza sugar company, Kenya.

Abstract

The performance of most companies in the sugar industry in Kenya over the years has been an issue of great concern to the management, stakeholders and the Government. The main objective of this case study was to examine the cost of extension services and its effect on profitability of Sonysugar Co. Ltd, and the Kenya sugar sub-sector as a whole. The specific objectives was to investigate how land preparation costs, seed cane supply costs, cane maintenance costs, cane harvesting and transport costs affects the profitability of Sonysugar Co. Ltd. These extension services include land preparation, seed cane supply, cane maintenance, cane harvesting and transport. The study was occasioned by the persistent decline in profitability of most millers and their constrained cash flows despite concerted efforts to reverse the situation. The study area for this research was Sonysugar Co. Ltd, the target population was 491 employees from Finance and Agriculture departments, the population was stratified according to the departments and a purposive sampling technique was used to pick the respondents from each strata, sample size of 150 employees was used for this study. The study used both primary and secondary data. The primary data was collected through structured questionnaires and interview schedules while secondary data was collected through document analysis. The collected data was analyzed using both descriptive and inferential statistics .The study findings revealed that land preparation costs, seed cane supply costs, harvesting and transport costs affects negatively the profitability of Sonysugar Co. Ltd, on the contrary the study also revealed that cane maintenance costs positively affects profitability of the company, the results of this research can be used to give more insights into the perceived cost implications on the profitability of millers. Emphasis should be made to review extension services so that while farmers continue to get the best out of these services, the company is also able to operate profitably. The study recommends that emphasis should be made to review land preparation activities, seed cane supply services, harvesting and transport activities as the study found that they indeed reduces profitability of Sonysugar Co. ltd, this could possibly be achieved through outsourcing, focus of the company should not be much on extension services but rather on the company’s core function of improving the milling capacity, the company’s working capital should not be constrained by subsidiary activities such as extension services, besides, there is need for the company to identify new ways that can be used to claim money owed to it by cane farmers so as to eliminate the issue of bad debts. The financial performance of the millers is likely to improve and thus be more attractive to prospective investors if these recommendations are considered for implementation.