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January 21, 2008

Kenyan sisal grower focuses on Asian markets

Mr Neil Cuthbert, the managing director of Kenyan sisal grower Rea Vipingo, has his eyes focused on the robust industrial expansion in China and India as he plots future strategies for his company.

The company, which is among the few agricultural sector companies that are listed at the Nairobi Stock Exchange (NSE), says venturing into the local market is not an option for future growth. “We export almost all our sisal and have no plans of selling locally,” he said. “The high quality fibre we produce cannot match the low prices offered locally,” said Cuthbert. “Our fibre is mostly used as buffing clothe in industrial machinery especially in the steel industry that is rapidly growing in the two Asian countries,” he said.

Rea Vipingo’s products are also shipped out to overseas markets for use in diverse tasks such as the manufacturing of cigarette paper, bank notes, carpets and house decorations, especially in the Middle East and north west Africa.

Over the past three years, improved weather conditions has helped the company improve its productivity and ultimately its profits. In the past five years, Rea Vipingo has seen its crop output rise by 26 per cent.

Mr Cuthbert ruled out the possibility of many players entering the sisal market in spite of recent improvement of prices. By the end of last year, the price of sisal had risen to $1,100 per tonne. He reckons that the long time that sisal takes to mature continues to act as a major entry barrier to investors. It takes about five years for a newly planted sisal plant to mature, with about 10 per cent of the crop having to be replanted annually. The plants have an average life span of between 10 and 12 years.

For the sisal producer, the existence of a few players in the tiny segment could provide some good news in an agricultural industry beset by problems.

Of the 22,000 tonnes produced in Kenya, Rea Vipingo produced about 55 per cent of the total production, translating to about 12,000 tonnes.

On the global scene, Brazil is the largest producer though it is hampered by the fact that most of the crop is grown by peasant farmers.

Second largest producer is Tanzania, where Rea vipingo has a number of tea estates and a spinning mill. Madagascar is another African producer of sisal, coming in at number four on the global listing.

But despite the impressive run in export trade, Mr Cuthbert decries a weakening dollar as a major setback to the company’s fortunes.

Just like other agricultural sub-sectors such as tea and coffee, the increasing costs of labour is also affecting the company’s operations.

Apart from Kenya, Rea Vipingo also has sisal production programmes in Tanga, Tanzania- making it the largest producer of sisal fibre in Africa.

Statistics from the firm showed that the total group sisal fibre production in 2006 increased by about 5.2 per cent over the previous year to 17,138 tonnes, translating into a 28.5 per cent growth over the past five years.

Business Daily Africa

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