The Uganda sugar sector crisis

The challenge that we have in Uganda's sugar industry is how the industry is organised, regulated and managed for efficiency, scale and sustainability in order to be competitive, but also beneficial to both the local sugar cane farming communities and sugar millers. We must first disaggregate the industry and its value chain to determine both the areas of weakness and understand the areas of greatest potential.

Uganda's sugar industry handicap

The danger for Uganda's sugar industry is to view itself primarily from a ‘sugar' perspective rather than a ‘sugar industry cluster and or value chain' perspective. Industry clusters are broadly defined as geographic concentrations of interconnected companies and institutions in a particular sector. These encompass an array of linked industries and other organisations necessary for the competitiveness of the sector.

Value chain, on the other hand, can be referred to as the complete range of activities from design, production, marketing and distribution done by businesses in order to bring a product or range of products and services to the market.

Understanding the industry view

The limited view about the sugar industry in Uganda has made it very difficult to grow beyond sugarcane growing and sugar milling. This has curtailed the full participation of the local population beyond sugar cane growing and thus precipitated the ongoing conflict in sugar cane growing regions particularly Busoga.

The purpose of this article is to propose a way forward for the industry by pointing out the areas which could open up participation of the local sugar cane farmers either individually, companies, Joint Ventures, or through cooperatives. First let us examine the complete picture of sugar cane processing outputs and byproducts.

Sucrose; (sweetening agents used as food additives) which include, raw sugar, jaggery, refined sugar, white sugar, depending on the process employed and constituents/purity of the final product.

Molasses; (by product of sugar extraction), this is the final viscous liquid that remains once all the sugar that can be practically extracted has been extracted from the sugar cane juice. This has several domestic or industrial use, including;

Cattle feed, edible syrup, acids, like; citric acid, lactic acid, oxalic acid, maleic acid, itasonic acid, butyric acid. Solvents and chemicals like ethanol, butanol, acetone, glycerol etc, Vinegar, Bio plastics, Enzymes, and Zeylatol.

Molasses also contains substantial amounts of potassium and small quantities of nitrogen and phosphate which can be used as fertilisers. Molasses can also be used for road surfacing after mixing with asphalt and as Boiler fuel.

Ethanol; when molasses is fermented and distilled it produces ‘Ethanol' which is used in petrol blending as we know and here is a great opportunity to link it to the petroleum industry infrastructure.

Extra Neutral Alcohol (ENA); this is also a result of the fermentation and distillation process of Molasses and is used for making alcohol beverages such as ‘waragi'/cosmetics etc.

Bagasse; this is a fibrous material that remains after the juice is extracted from the sugar cane. Bagasse is used in the thermal power plant as fuel for production of power or even Mosquito Coils.

Impurities / Press mud; impurities like non-sugars, wax, inorganic compounds etc. which were extracted during juice clarification process is used as manure/manufacture of fertilizers,

The list of other products that can be derived from this process include; Juice, Tissue paper, Sugar Cane Cola, All type of Sweets, Plastic bottles, Compost Fertilizer, Table ware, Paper plates, Paper cups, Local red wine, Fiber Board (ceiling boards), Particle Board, Furfural and Acetic Acid, Bagasse ash, Chocolates, Sugar cane yeast

What is at issue?

The question of the Sugar industry cluster must be answered in order to both identify the weaknesses in the sector and point to the areas of great opportunities. For a start, the data that we have is generally sugar production and not anything else listed above.  We also do not have any clear indication as to the other cluster players in the sector, for example we do not have a clear policy on the development of a range of supporting services and capacity building initiatives in a number of strategic areas of the sector, namely research and development, tertiary education, vocational training, engineering, mechanization and extension services to name but a few. With all such products, co-products and services, the sugar sector would be able to evolve into a vast sugar cane cluster with a very high multiplier effect at the macro-economic level this is where the greatest opportunity is.

The Crisis

Evolution of capital from venture to vulture

Traditionally, a "vulture capitalist is a type of venture capitalist who looks for opportunities to make money by buying poor or distressed firms". They are also known for taking control over someone else's innovations and, as a result, the money that person would have acquired from those innovations. In recent times and in Africa generally this term has come to mean any capitalist who invests in high potential or high yielding sectors in ways that are simply predatory with little regard to social and environmental impact or any long term national interest.

Just like the bird they are named after, vulture capitalists will wait until they see the right opportunity and swoop in at the last minute, taking advantage of a situation with the lowest possible price.  

Cost of production and low productivity

The sugar industry in Uganda is constrained by low production capacities, lack of clear harvesting schedules, huge debts, managerial inefficiency, cane poaching, unreliable and fluctuating weather conditions, outdated technology, equipment and machinery.

Factories across Uganda and indeed throughout the Busoga sub-region continues to have very low productivity and operate at low capacities due to low levels of technical efficiency and managerial and logistical inefficiencies.

The macroeconomic environment influences on this sector also have to be understood for example, crude oil prices and weather conditions are uncertainties common to most commodities. Since sugar production is capital intensive and for Uganda a considerable share of debt is in USD.

The uncertainty as to the profitability and competitiveness of producers increases even when world prices stay relatively low. Combined with the "claimed" current large stock levels, any shock to one of those variables would create volatility, which would have a knock on effect on sugarcane production. Furthermore, the schizophrenia in the domestic policy environment becomes a major distabilising factor for the sugar sector.

Absence of empowering Legislation

All countries that produce sugar from sugar cane have some form of legislation to support the productivity and competitiveness of the sector while at the same time protecting sugar cane farmers and indigenous capital. It is therefore widely viewed that legislation to sugar cane production in Uganda would be welcome provided it empowered and cushioned the local population against the vulture capital that has taken over between 50 - 60% of all arable land in areas like Busoga and turned it into sugar cane production.

There are two key areas that need clear legislation for this purpose;

1. Land use and Sugar cane growing
2. Value addition and value chain processes

Any legislation that either confines or restricts the local population from participation in terms of the two would only help to foster poverty and is likely to create conflict between the cane producers and the millers.

Impoverishment of the local population

It is very clear that the lack of relevant laws, regulations and effective framework for controlling the sugar industry in Busoga sub region and Uganda as a whole have led to poor productivity, and lack of competitiveness as a result of not  producing the required sugarcane commercially, on a large scale by landowners who have hundreds of unutilised acreage of land, and instead having very poor, small households with 0.5-2.0 acres of land being heavily involved in sugarcane production at the cost of household food production leading to famine, extreme poverty, poor educational outcomes and health particularly among children, and the elderly and pregnant women but also early pregnancy and child marriages.

Proposed solution to the crisis

Development of a specific sector strategic plan;

Sector Strategic Plan (SSPs) and vehicle to support the sector like we have for coffee, this would provide the industry with the appropriate framework to improve its competitiveness and to ensure its very survival or sustainability as a sector. Such a plan would look at cost reduction, enhanced productivity, and manpower development, the optimal use of cane sugar resources such as land available for farming, well-planned diversification activities and the creation of new opportunities.

The needs of the sector would be more conclusively addressed such as;

1. Modernising and diversifying the sector 
2. Transforming it into a more cost-efficient and competitive sugar cane cluster,
3. Aimed at the production of natural, white, industrial and special sugars, electricity from bagasse/coal and ethanol from molasses,
4. Grow the sugar trade dividend across the region and beyond, 
5. Connect to the country's related industry such as oil and gas in order to reduce the country's dependency on imported fossil fuels and on oil in particular.

Uses of sugar and market growth

Any future effort to grow the sector and achieve sustainability must support the millers to develop alternative sugar based products rather than sugar for household use alone, which causes an excuse of "over production" or huge stocks. This issue affects all commodities.

This clearly points to the need for a clear road map for development of alternative products growth opportunities. The idea here would also include incentiveisation of indigenous entrepreneurs to get involved in value addition across the entire value chain. 

Legislation

As stated earlier, legislation should provide great relief provided it ensures that the local and indigenous population does not get locked out of the value addition in the sector and get confined and condemned to growing sugar cane for supplying to millers. For example, legislation could compel the selling of a proportion of the stake or allocating shares of these milers to indigenous or local cooperatives, individuals, out growers, or indigenous companies. This ensures that the dividends accruing to the sector are shared out more equitably.    Such legislation would support the efforts to diversify the sector to deal with long run changes that may arise.

Improved productivity and efficiency

The situation is not going to improve unless there is serious sectoral effort to move from production based on factors of production alone such as increased acreage under sugarcane, to improved efficiency in production of sugar cane, logistics and milling.  The sector must work to bring down labour costs, improve field operations with the introduction of such practices as consolidation of fragmented land for sugar cane cultivation and farm efficiency above and beyond acreage, irrigation and improve factory operations and management of sugar mills.

Overall, for the sector to be meaningful it must not only produce sugar but must produce sugar and its byproduct competitively, efficiently, and provide both jobs for the local population, as well as incentivize entrepreneurship for increased participation in value addition for indigenous capital in the sector.

The writer is the Dean School of Business and Applied Technology, Clarke International University