Sugar trade fight leaves bitter taste

A massive shortfall of industrial sugar in Uganda has prompted fears that marked effects in the shape of job losses, a tax black hole, and the country’s products being rendered uncompetitive, will be inevitable.

This stems from disputes around Kinyara Sugar’s white industrial sugar production capacity. The government, acting on reports that the sugar refinery can produce 75,000 tonnes of industrial sugar annually, brought in a 25 percent Import Duty on sugar this financial year.

Saturday Monitor, however, understands that the Uganda Manufacturers Association (UMA) has called into question Kinyara’s capacity. The trade body further alleges that Kinyara intends to benefit from a “monopolistic market situation” as GM Sugar and Mayuge Sugar, which have shown interest in making industrial sugar, are yet to start.

Kinyara has previously insisted that it is capable of meeting what is demanded of it. Finance minister Matia Kasaija reiterated this when he told Saturday Monitor in an interview that “Kinyara maintains they can produce 75,000 annually.”

In a statement this week, Mr Rajbir S Rai, Kinyara Sugar’s director, “requested[ed] that the [Finance] ministry comes out clearly and firmly to confirm its decision to protect the local production of industrial sugar as it is the only policy measure that will allow the continuation of the production of refined industrial sugar locally and encourage other sugar manufacturers to also install sugar refineries.”

Mr Rai also used his September 12 letter to Mr Ramathan Ggoobi, the Secretary to the Treasury, to indicate that Kinyara has “close to 4,000 metric tonnes in stock.” He also set the record straight insofar as stressing that Kinyara has “been serving all customers who have placed an order. He proceeded to describe “claims of lack of capacity [as] unwarranted.”

UMA, however, begs to differ. It is particularly concerned with the growing demand for white sugar from makers of beverages, alcohol spirits, baked goods, dairy products, juices, confectionaries, baking powder, analgesics, syrups and ointments. This demand recently hit 140,000 tonnes per annum.

In a September 4 letter, Mr Ezra Rubanda, UMA’s executive director, made clear that the current East African Community (EAC) 25 percent Common External Tariff has pushed up the prices of sugar on the local market. In the letter addressed to Mr Ggoobi, who also doubles as the Finance ministry’s permanent secretary, Mr Rubanda proposes that duty remission be retained at 10 percent for a period of 12 months to allow for the concerns raised to be harmonised.

The shortage of sugarcane for processing has also contributed to inconsistency in supplying white industrial sugar, as well as high prices of brown sugar. This has consequently left consumers with a sour taste amid the sugar rush.

Cash flow constraints

In Buganda and Busoga sub-regions, factories pay anywhere between Shs200,000 and Shs240,000 per tonne of raw cane. Saturday Monitor understands that this is largely driven by growing competition for the cane after the entry of several investors in the processing.

The net result of the high sugarcane prices has been a spike in retail prices for the sweetener, further straining household budgets. Sugar in some places now trades at Shs5,500 per kg, a substantial year-on-year increment given that it traded below Shs4,000 last September.

Information from one of the big soft drink manufacturers indicates that at least $11 million (Shs41b) is required each month to order 3,000 tonnes of industrial sugar from Kinyara Sugar. This, the manufacturer further revealed, is for spot purchases. The beverage maker says Kinyara prefers spot contracts as opposed to the global practice of futures contracts where prices are negotiated quarterly and locked, a move that reduces price swings and liquidity pressures.

Besides, information from global sugar brokers indicates that a tonne of locally manufactured industrial sugar has remained high at an average of Shs2.8 million ($788) per tonne for the seven months ending July 31. The average of domestic white sugar is meanwhile placed at Shs3.3 million ($884) per tonne.

In Uganda, leading industrial sugar off-takers and consumer rights activists highly believe white sugar manufacturers are taking advantage of the country’s lack of a regulator to keep prices high.

 “Even as we are promoting Buy Uganda Build Uganda, I would not expect local manufacturers to force their product, which is very expensive on people, when they have another option,” Mr Denis Ainebyona, a commissioner in the Trade ministry, told Saturday Monitor, adding that the government has placed the millers who are overpricing the white sugar on watchlists.

“In the end, we want to support local sourcing but without disrupting the business and this requires a transition to evaluate quality, quantity, and price,” a beverages maker told Saturday Monitor.

Regulation blues

Saturday Monitor understands that Uganda dumped the establishment of a sugar regulatory board over financing constraints, fuelling concerns from cane producers, millers and consumers.

The trade, industry and cooperative ministry has instead opted for a sugar council described as cheaper, and this time government officials have set a tight deadline to operationalise the regulatory authority.

 “We are amending the law to provide a platform (the sugar council) that can bring together sugar manufacturers and cane out growers to discuss matters of the industry and advise the government accordingly. We hope to establish the platform by August 2023,” Mr Ainebyona said.

Analysts worry that the foot-dragging to operationalise a sugar board even as the 2020 Sugar Act provides for the board to reduce tension and check distortions caused by cartels, will make a bad situation worse. The regulators balance growers, millers and government interests.

Mr Phenihansi Kyotasobora, the vice chairman of the board of directors of Masindi Sugarcane Farmers Association Limited (MASGAL), said currently, millers have disproportionate power over the determination of sugarcane price, which leaves farmers with small margins.

“We are not all that happy with the current price of sugarcane—$43.6 (Shs161,000) per tonne of sugarcane Kinyara Sugar pays,” Mr Kyotasobora said.

Implications

There are fears that as many as 13,900 jobs could be put at risk if the 25 percent Import Duty on sugar remains. Besides employment, when duty is maintained at 10 percent, the manufacturers assure Mr Ramathan Ggoobi, the Secretary to the Treasury and Finance ministry permanent secretary, that Shs787 billion in VAT and corporation tax as well as Shs50 billion export revenue is set to be collected annually.

Consequently, the Private Sector Federation (PSFU) wants the government to protect the capital investments Crown Beverages, Harris International, and Century Bottling Company have pumped into the economy through a fair tax regime.

The 25 percent duty remission rate has driven the costs of products, with PSFU fearing that this will eventually lead to low consumption, less production, loss of jobs, and billions of shillings in government revenue.

“Eventually, we are most likely to see a flight of industries to the neighbouring countries, which will heavily harm our economy,” PSFU said in a position paper on the 25 percent duty remission scheme for industrial use sugar, submitted to Gen Caleb Akandwanaho, the chief coordinator of Operation Wealth Creation.

Minister Kasaija’s promise to send a team of officers to Kinyara Sugar is essentially a second bite at the cherry. Last year, in October, a Duty Remission Committee visited the plant in an attempt to verify its readiness to meet the local demand.

The production statistics, according to PSFU, indicate that from October 2021 to October 2022, Kinyara was producing 23,260.45 metric tonnes of industrial sugar.