Uganda’s sugarcane growers getting raw deal
Sep 03, 2009
The Uganda Sugarcane Technologists Association’s annual report of 2006 reveals that the sugar sector contributes sh217b to Uganda’s Gross Domestic Product (GDP), saving the country over $132m of foreign exchange outflow. This figure is expected to ris
By Morrison Rwakakamba
The Uganda Sugarcane Technologists Association’s annual report of 2006 reveals that the sugar sector contributes sh217b to Uganda’s Gross Domestic Product (GDP), saving the country over $132m of foreign exchange outflow. This figure is expected to rise up to sh350b by 2011.
The sector also contributes over sh54b in revenue to the Government through VAT and exercise duty tax. The sugar sector employs 20,000 people directly and another 50,000 indirectly in the out-growers farms.
This underlines the importance and centrality of the sugarcane sector in Uganda. Despite the impressive figures stated, out-growers (farmers) are at the tail in the value with a share of only 25%. The main players in the sugarcane economy who are the millers; Kakira, Kinyara and SCOUL, take 46% before other net gains.
To understand the dilemma of cane out-growers (farmers) we need to look at the chain of stakeholders and examine the revenue share in the sugar value chain. The key actors are farmers, millers, the Government and consumers.
Among the various stakeholders, the farmer’s value chain takes the longest time (600 days) handling and producing sugar, but a farmer earns only 25% gross earnings. The miller who takes the shortest time (only 36 hours) and uses half the resources the farmer uses in producing a tonne of sugar earns the biggest proportion of 46% of the over all consumer sugar value.
The central government charges value added tax (VAT) of 18% on the factory price of sugar per tonne and exercise duty of sh50 per kilogramme of sugar, while local governments in sugar-growing districts collect sh1,500 per tonne of sugar.
As of August 2009, the price of sugar per tonne at the factory was sh1,136,017. Out of the foregoing figure, a farmer was paid 25% of the sugar value as the price per tonne of uncrushed sugarcane was, and is still sh35,783. The percentage of sugar recovered from sugarcane is only 9% in Uganda.
The situation is made worse because the miller pays the farmer in two parts; Interim payment which is 90% of the previous final year price at sh32,600 per tonne and the final balance is paid after final averages of the price of sugar are got, which means by retaining farmers’ revenue, the miller is earning interest on their revenue. The price of sugar to the consumer is sh1,600,000 per tonne.
Sugarcane growers are disturbed by an outdated formula used by millers to determine the sugarcane price. The formula is — the price of sugar per tonne = the average annual price of sugar per tonne (factory gate price) and the average annual sugar recovery from sugarcane (usually between a minimum of 9% to maximum of 10.5%). This formula was made without involving the growers or the Uganda National Association of sugarcane Growers and the Uganda National Farmers Federation.
Secondly, the formula does not provide for renumeration of the cane grower as a result of other sugarcane derivatives such as molasses, power generation from baggasse, for which the miller earns and saves sizable expenses.
The formula ignores the break-even analysis as a basis for making price decision and does not reward quality production from more serious farmers. This is colonial and contemptuous exploitation of farmers.
Yet compared to Kenya and Tanzania, the situation of sugarcane farmers in Uganda is gloomy. A Ugandan farmer is paid far less. While a farmer in Kinyara, Uganda is paid sh32,600 per tonne of sugarcane supplied to the factory, a farmer at Kilombero in Tanzania recieves sh49,000 per tonne and the Kenyan farmer gets an equivalent of sh63,000. Yet in the region, it is only Uganda that does not have a Sugar Act or policy to guide the sector.
This situation has denied cane growers an opportunity to achieve their full potential and subsequent prosperity. Sugar is a strategic crop like coffee, cotton, tea and diary for the country, yet unlike the mentioned strategic crops, it has no regulatory frameworks to oversee its sectoral operations.
The Government and millers should treat sugarcane out-growers fairly through ensuring uniform cane prices by all millers, subsidising infrastructure and farmworks in out-growers plantations, favourable formula for determining cane price, subsidy for acquisition of small mills for value addition, research and extension services and a a sugarcane policy.
The writer is the resident consultant and manager for policy research and advocacy at the Uganda National Farmers Federation
The Uganda Sugarcane Technologists Association’s annual report of 2006 reveals that the sugar sector contributes sh217b to Uganda’s Gross Domestic Product (GDP), saving the country over $132m of foreign exchange outflow. This figure is expected to rise up to sh350b by 2011.
The sector also contributes over sh54b in revenue to the Government through VAT and exercise duty tax. The sugar sector employs 20,000 people directly and another 50,000 indirectly in the out-growers farms.
This underlines the importance and centrality of the sugarcane sector in Uganda. Despite the impressive figures stated, out-growers (farmers) are at the tail in the value with a share of only 25%. The main players in the sugarcane economy who are the millers; Kakira, Kinyara and SCOUL, take 46% before other net gains.
To understand the dilemma of cane out-growers (farmers) we need to look at the chain of stakeholders and examine the revenue share in the sugar value chain. The key actors are farmers, millers, the Government and consumers.
Among the various stakeholders, the farmer’s value chain takes the longest time (600 days) handling and producing sugar, but a farmer earns only 25% gross earnings. The miller who takes the shortest time (only 36 hours) and uses half the resources the farmer uses in producing a tonne of sugar earns the biggest proportion of 46% of the over all consumer sugar value.
The central government charges value added tax (VAT) of 18% on the factory price of sugar per tonne and exercise duty of sh50 per kilogramme of sugar, while local governments in sugar-growing districts collect sh1,500 per tonne of sugar.
As of August 2009, the price of sugar per tonne at the factory was sh1,136,017. Out of the foregoing figure, a farmer was paid 25% of the sugar value as the price per tonne of uncrushed sugarcane was, and is still sh35,783. The percentage of sugar recovered from sugarcane is only 9% in Uganda.
The situation is made worse because the miller pays the farmer in two parts; Interim payment which is 90% of the previous final year price at sh32,600 per tonne and the final balance is paid after final averages of the price of sugar are got, which means by retaining farmers’ revenue, the miller is earning interest on their revenue. The price of sugar to the consumer is sh1,600,000 per tonne.
Sugarcane growers are disturbed by an outdated formula used by millers to determine the sugarcane price. The formula is — the price of sugar per tonne = the average annual price of sugar per tonne (factory gate price) and the average annual sugar recovery from sugarcane (usually between a minimum of 9% to maximum of 10.5%). This formula was made without involving the growers or the Uganda National Association of sugarcane Growers and the Uganda National Farmers Federation.
Secondly, the formula does not provide for renumeration of the cane grower as a result of other sugarcane derivatives such as molasses, power generation from baggasse, for which the miller earns and saves sizable expenses.
The formula ignores the break-even analysis as a basis for making price decision and does not reward quality production from more serious farmers. This is colonial and contemptuous exploitation of farmers.
Yet compared to Kenya and Tanzania, the situation of sugarcane farmers in Uganda is gloomy. A Ugandan farmer is paid far less. While a farmer in Kinyara, Uganda is paid sh32,600 per tonne of sugarcane supplied to the factory, a farmer at Kilombero in Tanzania recieves sh49,000 per tonne and the Kenyan farmer gets an equivalent of sh63,000. Yet in the region, it is only Uganda that does not have a Sugar Act or policy to guide the sector.
This situation has denied cane growers an opportunity to achieve their full potential and subsequent prosperity. Sugar is a strategic crop like coffee, cotton, tea and diary for the country, yet unlike the mentioned strategic crops, it has no regulatory frameworks to oversee its sectoral operations.
The Government and millers should treat sugarcane out-growers fairly through ensuring uniform cane prices by all millers, subsidising infrastructure and farmworks in out-growers plantations, favourable formula for determining cane price, subsidy for acquisition of small mills for value addition, research and extension services and a a sugarcane policy.
The writer is the resident consultant and manager for policy research and advocacy at the Uganda National Farmers Federation