NAIROBI, Kenya – The New Kenya Cooperative Creameries (New KCC), a state-owned milk processor that has long been central to Kenya’s dairy industry, is on the brink of collapse, according to an audit report by Auditor General Nancy Gathungu.
The audit, which covers the fiscal year ending June 2024, reveals alarming financial discrepancies, including a significant pre-tax loss of Sh1.5 billion, pushing New KCC into a severe cash flow crisis.
The company’s liabilities now exceed its assets by Sh1.2 billion, highlighting its unsustainable financial practices, with Gathungu pointing out that its negative working capital and over-reliance on loans have burdened the company with mounting interest payments amounting to Sh192 million.
“Delays in settling debts risk penalties and supplier withdrawals, which could worsen the company’s financial difficulties,” Gathungu noted.
New KCC’s debts extend beyond its operational expenses, with a substantial Sh3.2 billion owed to farmers.
Some of this debt has remained unpaid for over 120 days, endangering supply chains and further deepening the company’s troubles.
Despite government promises to revive the dairy sector, New KCC’s mounting debt is threatening its very existence.
The audit highlights several internal management failures that have compounded New KCC’s financial troubles.
The company currently employs 171 more staff than its approved establishment, straining resources and impeding financial recovery.
Additionally, discrepancies in asset valuation and poor accountability further complicate efforts to stabilize operations.
“There are concerns about the sustainability of New KCC as a going concern,” Gathungu warned.
These findings have prompted increased scrutiny from parliamentary oversight committees, who have raised alarm about New KCC’s management and its capacity to turn things around.
The government has already committed to restructuring and supporting the company, but the audit findings suggest that more stringent measures are necessary.
Despite the financial turmoil, President William Ruto has reiterated the government’s commitment to rejuvenating the dairy sector and supporting New KCC.
During a recent tour, Ruto emphasized that the government would continue to back the company, underscoring its critical role in supporting local farmers.
Nevertheless, Gathungu’s report calls into question whether the government’s support will be enough to address the deep-rooted management and financial issues plaguing New KCC.
The government’s future efforts, including potential mergers and restructuring within the state-owned sector, will need to address both operational inefficiencies and the massive debt burden that threatens the company’s viability.
New KCC, established in 1925 and revived in 2003, has historically supported Kenya’s dairy farmers by providing a stable market for milk.
However, the current financial crisis underscores the growing challenges faced by state-owned enterprises in maintaining sustainable operations.
With over 22,000 farmers relying on the company and the government pledging to support the sector, the future of New KCC remains uncertain, with its ability to recover hanging in the balance.
