Regional sugar crisis takes bitter turn as states mull $369m import bill

Four out of the five East African nations are facing a sugar deficit of 410,060 tonnes that could send the prices of the commodity to an all-time high in 2011.

Rwanda, Uganda, Tanzania and Kenya are facing an import bill of over $369 million at the current world market price of $900 per tonne.

With budget shortfalls still dogging the government, Tanzania is now facing a further drop in revenue as it moves to allow duty-free importation of more than 12,500 tonnes from EAC partner states and 37,500 tonnes from outside the region.

The move to scrap the 25 per cent import duty on sugar from outside the bloc goes against the East African Community’s Common Market Protocol; however, other governments in the region are also locked in discussions with top sugar stakeholders over the crisis amid fears that tax waivers on imported sugar may not help reduce prices, resulting in the states losing millions of dollars in revenue.

Tanzania, Uganda, Rwanda and Kenya which consume more than 1.5 million tonnes of sugar per annum, produced a total of 1,111,900 tonnes last crop season. 

“This creates a deficit of 410,060 tonnes in the four EAC countries. They are now considering shipments to bolster supply and reduce record domestic prices,” Marwa Moses, EAC officer in charge of agriculture and food security, told The EastAfrican.

“This is a wasted opportunity. The sugar deficit speaks of a huge market for sugar in the region; it is up to producers to boost investment and production to meet the rising demand,” Mr Marwa added.

But sugar producers blame the drought for scorching a swathe of the region’s sugarcane plantations, poor technology, high cost of production, over-reliance on rainfall and land scarcity as contributing factors. 

Tanzania’s sugar consumption stands at 480,000 tonnes per annum, but all four producers — the Tanganyika Plantation Company (TPC), Kilombero, Kagera and Mtibwa sugar companies — only manage to produce 320,000 tonnes.

There is no production taking place at the moment as the season runs between June and May.

Tanzania’s sweet tooth

Agnes Blasi Lukyaa, director of promotion and development for the Sugar Board of Tanzania, told The EastAfrican that Tanzania faces shortage of sugar for both domestic and industrial consumption.

According to sugar deficit breakdown industrial imports are projected to hit 116,000 tonnes and 30,000 tonnes for domestic consumption.

Last year, Tanzania’s sugar demand was more than 330,000 tonnes, while its production stood at 250,000 tonnes, creating a deficit of nearly 80,000 tonnes.

The retail cost of sugar has risen to Tsh2,200 ($1.44) from Tsh1,700 ($ 1.20) per kg in retail outlets.

Tanzania has what it takes to become a major sugar exporter in the region, with more than 40,000 hectares of virgin arable land.

The largest block, Ruipa in the Kilombero Basin, has the potential of producing 224,000 tonnes of sugar.

The size of the country and varied topography provides ideal water, soil and climatic conditions for sugarcane production.

Labour costs in Tanzania are also among the most competitive in the world.

Tanzania’s Minister for Industry and Trade, Dr Cyril Chami told The EastAfrican that local producers and businessmen should release 61,000 tonnes of sugar from various warehouses to reduce the deficit in the sugar market.

“The duty-free sugar imported from Malawi and Madagascar will improve supply and reduce prices to below Tsh1,700 ($1.20) per kg in retail shops,” he said.

Tanzanian traders are at liberty to import 50,000 tonnes of sugar worth $45 million at zero duty to cushion the shortfall and ease retail prices by 23 per cent.

Last week, Mathew Kombe, director general of the Sugar Board of Tanzania said the Cabinet has already approved a waiver on import duty, which is 25 per cent of the CIF value.

CIF value covers the commodity value as well as shipment and insurance costs.

Mr Kombe said that the government has not, however, waived VAT as was requested by the selected importers, who had argued that sugar prices in the global market are so high that if they were to pay VAT they would not break even.

The government maintains that a kilogramme of sugar should not go beyond Tsh1,700. 

Protas Mmanda, director taxpayer services and education at the Tanzania Revenue Authority told The EastAfrican that no official communication on the waiver had reached the relevant ministries.

Customs Act requirements

The Customs Management Act of the East African Community, demands that a tax waiver by a member country must be approved by the Council of Ministers, which meets twice a year, though it can convene an extraordinary meeting at the request of a member state.

Sources close to the Prime Minister’s Office said the decision to waive the import duty on sugar is ready for execution under an emergency national protocol.

Sources added that the Tanzania government would report on the matter in the next meeting of the Council of Ministers.

Rwanda faces a shortage of around 60 tonnes of sugar this year. Rwanda’s current consumption stands at an annual 20,000 metric tonnes and the deficit is largely covered by imports from Zambia and Malawi.

General manager of Kabuye Sugar Works, Rao Mahakali said that to bridge the emerging deficit in Rwanda’s market, his plant will import up 1,200 bags of sugar (60 tonnes) to supplement local production and keep prices steady. 

Uganda is struggling to cover a shortage of more than 50,000 metric tonnes, according to Silver Ojakol, commissioner of external trade in the Ministry of Tourism Trade and Industry.

The Uganda Sugar Technologists Association put the sugar output in East Africa’s third largest economy at 290,000 tonnes in the 12 months through December 2010, from 280,000 tonnes a year earlier.

However, Mr Ojakol says, Uganda’s production cannot meet domestic consumption estimated to be 340,000 tonnes a year, compelling the country to import nearly 50,000 tonnes.

In Kenya, sugar demand this year stands at 700,000 tonnes while production is 500,000 tonnes.

Solomon Odera, Kenya Sugar Board acting chief executive said the EAC’s economic powerhouse, currently produces about 70 per cent of its domestic sugar requirements, making the country a net importer of sugar.

“The deficit in production is met through imports from both the Common Market for Eastern and Southern Africa (Comesa) and non-Comesa countries,” he said.

Last year, Kenya’s sugar factories produced about 400,000 tonnes against a consumption of more than 600,000 tonnes, leaving a shortfall of 200,000 tonnes.

Based on a deal between Kenya and the Comesa Secretariat in December 2007, Kenya was scheduled to allow some 300,000 tonnes of duty-free sugar into the domestic market by March 1, 2011 with any consignments outside the quota attracting 40 per cent duty.