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Monday,June 01,2020 13:29 PM

Hard facts about sugar industry in Uganda

By Admin

Added 14th January 2020 09:05 AM

Brazil and India are two of the most successful sugar-producing countries in the world not only because their soil and climatic conditions are more favourable than ours in Busoga, but also more importantly because those countries have clear proactive sugar policies in place.

Hard facts about sugar industry in Uganda

Brazil and India are two of the most successful sugar-producing countries in the world not only because their soil and climatic conditions are more favourable than ours in Busoga, but also more importantly because those countries have clear proactive sugar policies in place.

By Kamlesh M Madhvani

The fortnight before Christmas saw Jinja graced with a Presidential visit. The major economic item on the Presidential agenda was to address the fears of cane farmers who have had a bumper cane harvest resulting in a drop in their prices.

The President held several meetings and gatherings with the farmers, addressing these worries, and was to a very large extent able to calm their nerves. Not only were tractors promised to districts but assurances were given on refunding withholding taxes to the farmers.  

"This big harvest is good. We only have to plan for better ways from benefitting from it", the President advised. He continued "When there is too much production, prices go down and people start panicking. Do not panic.

Excess is good". Describing plans to invest in processing so that farmers realise more benefits, the President mentioned refined sugar for sodas and pharmaceuticals, ethanol, paper, sanitary pads, briquettes and animal feed, and even another sugar factory.

The President is absolutely correct in reiterating the need for value addition: for instance in Kakira today our payment to farmers incorporates not only the contribution we obtain from sugar sales (today our sugar prices are materially lower than in the past, due to the national sugar surplus) but also that of supplying up to 33 megawatts of power to the national grid, as well as sales of extra neutral alcohol (ENA). This is in line with what is happening with the world's larger sugar producers, including the two largest, Brazil and India.

In view of this bumper harvest, the President declared that a zoning law (that would restrict too many millers from operating in one relatively small cane growing area as we have around Kakira) was no longer required.

He, however, rightly pointed out "The debate of zoning was very important when mills lacked enough cane". This is a moot point, for the long term prospects for the sustainable sugar industry in Busoga cannot be totally abandoned to the vagaries of the ever-changing climatic conditions, on the one hand, and the unpredictable laissez-faire market economics on the other hand.

Coherent Government policy is needed to safeguard the interests of all stakeholders and ensure that the sugar industry, one that has numerous positive social externalities, thrives and focuses on value-added production. These externalities include extensive direct employment and indirect wealth creation through farmers and other service providers, and also important for political leaders, the potential vote bank.

Besides this, critically, the larger more established companies contribute substantial amounts to the URA: in the case of Kakira, around $50m annually. The importance of a thriving sugar sector has been well recognised by the world's two largest sugar-producing countries, Brazil and India.

What is required from our Government is nothing new: in fact, the two countries mentioned above, have the largest sugar industries in the world precisely because of proactive Government policies at many levels, including price guidelines, appropriate tax incentives, and targeted subsidies, as well as control of the location of millers.

Regrettably, in the current absence of such policies, the sugar industry in Uganda faces a bleak future. Here are some hard facts.

Hard fact 1: The climatic conditions in Busoga are far from ideal for sugar cane growing. Relatively few sunshine hours, poor relative humidity and small temperature exchanges (the variation between day and night temperatures) prevent the optimal accumulation of sucrose. Hence normal overall sugar recovery is low. (Recovery is the percentage of sugar produced from cane crushed).

Recovery of all factories in Busoga hovers around a little more than 8%, compared to that of Brazil and India which are around 11%-12%. This means the costs of making the same amount of sugar are intrinsically higher here. Cane grown in other parts of Uganda such as in the north, due to different soils and weather conditions, would yield a far higher sucrose content and hence higher recovery.

The effects of low recovery in Busoga should be mitigated by millers focusing on value-added by-products, such as electricity and ENA, for, without these, no sugar factory can be viable. A Governmental policy needs to encourage investors to focus on value enhancements by providing targeted tax incentives.

Unfortunately, at present in Uganda, for instance, we have the highest taxes on ENA produced from sugar in the entire East Africa region. Also, in our oil obsession, having found oil deposits, we have totally forgotten about giving incentives to both petroleum companies and millers for mixing petroleum with environmentally friendly ethanol (that is ENA suitable for use as vehicle fuel).

This can be achieved by implementing an ethanol blending policy, as has been done elsewhere.

Hard fact 2: Not only do we produce low-quality cane, but the quantity of cane produced per acre per year in Busoga is historically far lower than Brazil or India. Due to climatic conditions Ugandan cane normally takes 18 months to ripen compared to 12 months elsewhere.

Barring the occasional exceptionally good rainfall years we have recently experienced, annual average yields in Busoga are about 35-40 tons per acre compared to about 60 tons per acre in Brazil and India. The Government needs to assist sugar manufacturers in experimenting with newer more productive cane varieties from Africa and elsewhere.

In Kakira, on our own initiative, we have been experimenting with no fewer than 500 varieties in our laboratories and fields, and of these 8 are promising. Besides this, we are embarking on an ambitious irrigation programme that can potentially increase yields by 30%, especially in the drier areas. All this requires substantial resources.

Hard fact 3: Whilst the current cane bumper harvest can rightly be celebrated, this is a very unusual phenomenon. In Busoga, recent periods of drought occurred in 1989, 1993, 2000 and 2016. Hence the question of potential recurrent shortages of cane cannot be ignored.

This is another reason why Governmental policy in this area is required. Brazil and India (together with many other large sugar-producing countries) follow various strategies including, as mentioned above, zoning by allocating millers their own specified radius.

In other areas (as in the dense and highly productive sugar growing belt of UP in north India where many millers operate in a small area) cane supplied by farmer co-operatives is regulated to specific millers at guided cane prices.

Hard fact 4: The current lack of regulation has led to many unfortunate consequences. Firstly, because of dependence on cane growing, there is a food shortage in Busoga, leading to poverty and nutritional deprivation.  

Kakira was the regional pioneer in encouraging farmers to grow cane for the company, with the agreement between the farmers and Kakira clearly stipulating that 30% of the farmers' area should be reserved for cash crops. This was discarded when new millers, who had not invested any substantial amounts in developing their own nucleus estates, entered Kakira's neighbourhood, and encouraged farmers developed by Kakira, to supply them with the cane.

Secondly, because of the disregard for long term agreements between millers and farmers, farmers are tempted to supply underage cane for short term benefits. This is despite the fact that they would lose almost 500,000/= shillings per acre for each month (up to the age of maturity at 18 months) supplying under age cane. The millers also end up with even lower recovery from this immature cane.

This practice is rampant in Busoga even in periods of normal weather conditions. Due to economies of scale, smaller farmers (shambas of less than 6 acres) suffer most, as their cost of cane is typically 5,000/= more than the larger ones.

Hard fact 5: Brazil and India are two of the most successful sugar-producing countries in the world not only because their soil and climatic conditions are more favourable than ours in Busoga, but also more importantly because those countries have clear proactive sugar policies in place.  

These include ethanol blending policies and even export subsidies extended to millers, as in the case of India. Contrast this with Uganda: no ethanol blending policy in place, and as far as export of our surplus concerned, even though we are fully paid up members of the East African Union, our partners prevent unsubsidised sugar entering their markets with both tariff (as in the case of Tanzania) and non-tariff (as in the case of Kenya) barriers. As I write Kakira has sugar stocks well in excess of 15,000 tons whilst shortages and high prices prevail in both Kenya and Tanzania.

In conclusion, given Busoga's inherent soil and climatic drawbacks resulting in low recoveries, and, more importantly, the lack of policy direction, the long term sustainability of our sugar industry in the region is uncertain. What started as a well-intentioned proposal for zoning introduced in the original formulation of the Sugar Bill, was decimated by politicians.

This was done for short term political expediency, using slogans such as  ‘being anti-competitive' or ‘fostering monopolies'. The long term sustainable balanced considerations of all stakeholders, namely the farmers and millers, together with the development of Busoga as a whole, was thus sacrificed.

 As we have seen in countries such as Brazil and India, in recognition of the huge socio-economic externalities, let alone the potential vote bank that the sugar industry entails, the future of this complex industry cannot be left to the short term whims of free-market economics and short term political opportunism.

The successful sugar-producing countries have clear policies in place. These range from effective cane supply frameworks, including the location of millers, price guidelines, subsidies, to the encouragement of value-added by-products by incorporating it in the tax legislation, and encouragement of cane varietal research. For the survival of the sugar industry in Busoga, we need to learn from this. 

The writer is a Joint Managing Director of Kakira Sugar Ltd

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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