The genesis of the Uganda sugar crisis

Thursday, 1st September, 2011

By Paul Busharizi

JUST as we were beginning to feel some relief as sugar prices went down, they shot up again. But it should not be too surprising, considering the number of factors we are up against.

Poor weather, war and wanton greed conspired to cause our recent sugar shortage pushing prices to record highs.

In addition, deeper underlying regional supply and demand issues mean that sugar prices are unlikely to fall back to previous levels in the near future.

Frost in Brazil’s center-south region in June and earlier this month, the failure of the India crop last year which forced it to draw down its stock pile and, therefore, leaving nothing for export and the La Nina floods earlier this year in Australia have put world sugar supplies under pressure.

Brazil and India produce about a half of the world’s sugar. Brazilian sugar exports account for half of all the world’s exports. These factors pushed world sugar prices to $818 a tonne the highest prices have been in more than 30 years. On Tuesday, the sugar spot price was $798 from a $600 figure in Februray.

As a result it is expected that world surplus will be cut by a million tonne s.

"To understand the effects of these weather patterns you have to remember that it takes 18 months for cane to mature, be ready for harvest, so supplies will be under strain well into next year," said Madvhani director Jim Mwine Kabeho.

Closer to home, the recent conflict in south Sudan’s contested border town of Abyei also upset an already delicate balance. In May skirmishes in Abyei caused the residents of the town to flee south ahead of the Southern Sudan independence in July.

"This is a problem because Southern Sudan used to get its sugar from north Sudan now they suddenly had to shift to our sugar," said Kabeho, who also chairs a committee that brings together officials from the sugar companies, the energy and trade ministries and the bureau of standards. He could not tell how many additional tonne s went north but said they felt the strain as a result.

Tension over Abyei - claimed by a southern group, the Dinka Ngok, and northern nomads, the Misseriya - has been rising since a referendum on its future scheduled for January was postponed.

Since then there have been fears clashes in Abyei could spark a new north-south war, which this latest incident will do nothing to dispel, our correspondent says.

Under a 2005 north-south peace deal, which ended 22 years of civil war, Abyei was granted special status and a joint north-south administration set up in 2008.

Related to this is the fact that the region is already a net importer of sugar, and with the coming into force of the common market increasing demand from Rwanda and Burundi and western neighbours eastern Congo is biting.

Kenya this week reported the highest retail price in history with a kilo going for upto Ksh400 (sh11,000) as speculators take advantage of the tight supply.

Apart from the interruptions brought about by the factory maintenance breaks, below normal rains have affected cane output, reducing supply to factories by up to 50 per cent.

In total the region produces about 1,200 tonne s of sugar short of total demand by just over 400 tonne s and growing.


“Demand is increasing annually and we are not even accounting for suppressed demand,” Kabeho said.

The coincidence of all these factors made for ideal circumstances for speculators.

"Obviously there were people taking advantage, how does sugar jump from sh120,000 per 50kg bag to sh260,000…. There is some strain on supplies yes but the extent of which cannot be reflected by a more than doubling of retail prices," Kabeho said.

President Yoweri Museveni’s announcement at the beginning of the month easing sugar import restrictions, put paid to those machinations, sending prices tumbling to previous levels.

Looking forward there is a need to implement a government sugar policy to incentivize the companies to invest more in the industry.

"People are seeing the shortage as a negative. I see it as a positive it means consumption is growing faster than production. That’s not a bad thing. What government needs to do now is encourage production," said Abid Alam, who is looking to have his sugar factory up and running within a year-and-a-half in Kaliro, eastern Uganda.

Since then there have been fears that clashes in Abyei could spark a new north-south war, which this latest incident will do nothing to dispel.

Under a 2005 north-south peace deal, which ended 22 years of civil war, Abyei was granted special status and a joint north-south administration set up in 2008.

Related to this is the fact that the region is already a net importer of sugar, and with the coming into force of the common market increasing demand from Rwanda and Burundi and western neighbours eastern Congo is biting.

Kenya this week reported the highest retail price in history with a kilo going for upto Ksh400 (sh11,000) as speculators take advantage of the tight supply.

Apart from the interruptions brought about by the factory maintenance breaks, below normal rains have affected cane output, reducing supply to factories by up to 50%. In total the region produces about 1,200 tonnes of sugar short of total demand by just over 400 tonnes and growing.

"Demand is increasing annually and we are not even accounting for suppressed demand," Kabeho said. The coincidence of all these factors made for ideal circumstances for speculators.

"Obviously there were people taking advantage. How does sugar jump from sh120,000 per 50kg bag to sh260,000? There is some strain on supplies yes but the extent of which cannot be reflected by a more than doubling of retail prices," Kabeho said.

President Yoweri Museveni’s announcement at the beginning of the month easing sugar import restrictions, put paid to those machinations, sending prices tumbling to previous levels.

Looking forward, there is a need to implement a government sugar policy to incentivize the companies to invest more in the industry.

"People are seeing the shortage as a negative, I see it as a positive. It means consumption is growing faster than production. That’s not a bad thing. What government needs to do now is encourage production," said Abid Alam, who is looking to have his sugar factory up and running within about two years in Kaliro, eastern Uganda.

By Paul Busharizi: The New Vision Newspaper

Uganda Sugar Factory not to blame for sugar scarcity

Thursday, 1st September, 2011

The shutdown at Kinyara Sugar has been partly to blamed for the scarcity of sugar in the market, a development which has led unscrupulous retailers and speculators to charge consumers up to sh7,000 per kilogramme.

I request to offer the real picture on the ground

Capacity

In the past three years, the factory’s crushing or milling capacity has increased from 2,400 to 4,000 tonnes of cane per day. This is a significant increase, but the company aspires to attain even higher capacity, which in turn requires expansion of the nucleus estate in terms of acreage of land brought into cane-growing.
Even then, there will still be room for farmers to expand their own acreage and for new cane farmers to open up new farmlands.
This will lead to growth in terms of tax revenue, dividends for the shareholders, including the Government which still holds a 49% stake in the company. It also means much more money will be injected into the local economy in the Bunyoro sub-region.
All these efforts and consequent development should be viewed as a sign of progress and should be supported.

Road network

Our estate has the best road network in the district besides the Masindi-Kafu road. There are even roads that fall under the Uganda National Roads Authority (UNRA) which we help in maintaining by grading from time to time.
This has been helping the community significantly. We shall continue to engage UNRA and all relevant authorities so that outgrowers, transporters and the general public do not suffer due to bad roads.

Arson in cane plantations

We continue to suffer at the hands of mindless arsonists almost every dry season. From December 2010 to March 2011, up to 2,000 hectares of outgrower sugarcane were burnt.
On one occasion in February, fire also spread from an adjoining outgrower cane field into the nucleus estate (the company’s fields), destroying about 600 hectares of cane in just one day.
Though we were not the intended target, we still suffered an enormous loss. Press reports that there was a strike by workers, which led to destruction of cane at Kinyara, are categorically denied.

Workers conflicts
It seems some instances of arson have been a result of conflicts amongst a few farmers. Bush burning has also been a general problem in the area, destroying not just cane fields but pine forests, cassava and maize plantations as well.
But the district is getting tough on bush burning. Masindi, like northern Uganda, usually experiences rough dry conditions. When this happens, cane, cassava and tree farmers bear the brunt.

Trade Unions
Union conflicts have nothing to do with management. However, they pose serious threats to the stability and productivity at the factory. We have taken all efforts, coordinating with the labour ministry and other stakeholders, to sort them out smoothly.

Retrenchment
Rationalisation of manpower is a natural process in this era of competitiveness and escalating cost of production.
This process started as early as 2004 even before the company became a part of Rai Group. It is mainly driven by the desire to improve efficiency, productivity and profitability. Before the current management came in, the company had already out sourced security services and laid off the security staff. The main reason for retrenchment in majority of the instances is theft. This action again is as per the terms of employment.

By P. V. Ramadasan : The New Vision Newspaper

Uganda Sugar Imports to Increase after Sugar Tax Removal

Monday, 22nd August, 2011

Within days after President Museveni announced that the Uganda Government would allow importation of tax-free sugar, the commodity suddenly became more available and the retail price came down from sh7,000 to sh4,000.

Whereas the first batch of sugar to be imported under Museveni’s tax-free arrangement is yet to come, speculators, who were hoarding the sugar, have suddenly released it onto the market. In addition, large amounts of imported sugar that were in transit to South Sudan, DR Congo and Rwanda have been released into the market.

“I cannot tell the exact tonnage of sugar that was put on the market; however, traders had sugar in warehouses that was destined to Congo, South Sudan and Rwanda. They put the sugar on the market as soon as the import tax levy on sugar was lifted,” said Isa Sekito, the Kampala City Traders Association (KACITA) publicist.

Under the tax-free arrangement, Madhvani Group, the proprietors of the Kakira Sugar Company, are set to import the first batch of 23,000 tonnes of sugar into the country after the removal of the 25% tax levy, a top trader’s representative has revealed.

Speaking to Sunday Vision after meeting President Museveni, Sekito said the sugar consignment is due to arrive on August 28.

“The President told us that by the time he announced the removal of the 25% tax levy on sugar imports, he had authorised Madhvani to import 23,000 tonnes of sugar into the country. We are a little saddened that a sugar company is being allowed to import sugar into the country. However, the President said other companies will bid to import an extra 17,000 tonnes after the Madhvani consignment arrives,” he said.

Sekito said the President consented to have the shilling-dollar exchange rate fixed at sh2,300 for imports for the next three months to stabilise the economy. Aston Kajara, the state minister for finance (investments), who attended the meeting, was tasked to coordinate the changes to the affected government parastatal bodies.

Jim Kabeho, a director at the Madhvani Group of Companies and chairman of the Uganda Sugarcane Technologists Association, said they have continued to sell sugar at the same price as before. The price changes seen on the market imply that middlemen have been cheating Ugandans.

“We sell a 50kg bag at sh120,000 at the factory, but traders are selling the same for between sh200,000 and sh250,000, translating to between sh4,000 and sh5,000 a kilo, which is far above the recommended retail price of sh2,700.

“We are currently looking for overseas suppliers of sugar overseas. Prices will continue falling once imported sugar arrives,” he said.

By SAMUEL SANYA : The New Vision Newspaper