Sober approach to the sugar debate, A MUST READ!!
What’s on my mind?
By Ted Mosi
For those who are speaking from the ignorant point of view. Let me put this into perspective.
Uganda has 13 factories. 4 major ones that produce 92% of the total output and 9 smaller ones that contribute 8% of the total sugar output. In 2014, the total production was 438,400 metric tons of sugar. The National demand for sugar in Uganda stood at approximately 522,000 MT per year. That then make Uganda a Net Deficit Producer. That brings me to my next point.
The sugar that is imported into Kenya allegedly from Uganda is actually sugar from Brazil, which finds its way into Uganda principally from two routes. The first route is through the port of Mombasa. This sugar then find its way to Uganda where it is then repackaged as Ugandan Sugar and re-exported back to Kenya. Now Kenya is very complacent. Through its tax agency, the KRA, they do not inspect goods destined for Uganda at the port of Msa. URA officials at the port of on the other hand are simply holding brief for their country.
The second route is through Egypt. Egypt for your information imports a minimum of 1.5 million MT of sugar annually. This is done by a single government agency called Egyptian Sugar Integrated Industries. This agency then sells this sugar to any Tom, Dick and Harry in Egypt, and doesnâ€™t care whether they export it out again or use it locally. All they do is control what gets into the country. Its that same agency that sets the local sugar prices in Egypt.
The Brazil Sugar is cheap because its hardly taxed. In Brazil, sugar basically is a by-product from Ethanol and power production. When exported, itâ€™s taxed at 1% on the cost of production at the port of export. Being a byproduct, its quality is normally very wanting. This sugar then enters the African markets tax free. Such sugar CANNOT compete in Africa going by the tax regimes in Africa.
Secondly, Uganda unlike Kenya is not a signatory to the COMESA sugar protocol. It did not sign the pact as it wanted to protect its local industries, something the current regime in Kenya is not keen to do. Basically they declared sugar an endangered crop.
Why isnâ€™t the Kenyan Sugar Cheap?
â€¢ The type of sugarcane that can be grown in Kenya matures in 18-20 months. Sometimes it goes up to 24 depending on the weather patterns. Sugar cane in Brazil, India and Mauritius (south of the equator) and Cuba, Sudan and Egypt (north of the equator) has early maturing period of up to 12 months. Such short turnaround time cheapens the production process. These species of sugarcane cannot grow along the tropics. Research is however on to try and develop a variety that can reduce the maturity period.
â€¢ The milling technology in Kenya is for the early 70s. The Government, which is the principal shareholder in most of the firms in Kenya, did not bother to adapt to new technology over the years. Use of the old technology is very expensive and inefficient.
â€¢ Tax regimes in Kenya are punitive. Local sugar is taxed at 20% of sales price (16%VAT and 4%SDL) This raises the price the consumer has to pay for the sugar. These taxes are not levied on imported sugar.
â€¢ Government policy on imports. Kenya is a net deficit producer just like Uganda and all the countries in the COMESA region. The deficit in Kenya that should be bridged by imports is approximately 250,000 MT made up of 200K MT of Industrial Sugar and 50K MT of Raw Sugar/Table Sugar.
Now the Industrial Sugar (Refined Sugar) that is used in the beverage industries such as Coca-Cola, EABL, Delmonte etc is not produced by any country in the region. It is imported wholly. The Government is the licencing body that licence the importers, so the same government goes ahead and license the importation of over 500,000 MT in a market that only needs half of that. Where do they expect the local millers to sell their products in an already over flooded market?
Let me give you another perspective. The amount that is paid to the sugarcane farmer is based on a formula called The Cane Pricing Formula. This formula is enacted in the Sugar Act. The formula is based on the net price of sugar per ton. Currently going by the low market prices, the farmer should be paid 2,470/ton. Most of the Govt Millers pays an average of 3,200/ton well above what the law requires.
Now if the government regulates the imports and only allow the deficit that is appropriately taxed, the effect of the good prices trickles down to the farmer. That is assured. Shortfall in the market is normally experienced in the months of April and May. This is during the long rains and at this time, coz of the logistical challenges of cane haulage, most firms close for maintenance. This is the time that the government should allow importation. Or better still allow the government owned millers to import sugar and sell.
The Sugar that is bringing all this uproar is the table sugar that Uganda allegedly brings to Kenya.
The GOVT needs to decide if it wants to develop the capacity of the local millers and care for the 4 million people who depend on these millers directly and indirectly, or shut them up and just import sugar. In either scenario, the public must be well informed on any action by the government that touches on their lively hood.
If the government can follow through with its policy of establishing the genuine source of sugar, and imposing the 120% tax on imported sugar outside of COMESA region, then that sugar will compete fairly with the local sugar. Infect in such a scenario, it can even import 1 million tons and the millers wonâ€™t be bothered.