Uganda’s sugar industry in danger of implosion
The El Nino rains and cane poaching are expected to affect Uganda’s sugar production, the latter issue will also affects the long term viability of an industry which has made a remarkable recovery after years of neglect.
Uganda last year produced 438,000 tons of sugar way above the local demand of 320,000 tons. It managed its first surplus since 1972 in 2012 and expectations were that the sector would churn out 500,000 tons this season.
An uncharacteristically long rainy season, is expected to affect production as too much rain around harvest season tends to dilute the sugar in the cane.
There is little the country’s sugar producers can do about this, as seven of every ten kilos produced in Uganda comes from around Lake Victoria, areas which have been severely hit by the El Nino rains.
However, industry players say that is a short time danger, the long time challenge is the entrance of new sugar millers into the game who are content to poach cane from existing growers already contracted to older players, a trend which discourages new investment in the sector and may reverse the gains of the last two decades.
In 1972 former president Idi Amin expelled the Asians from Ugandan accusing them of being economic saboteurs. Among the expelled were the Madhvani and Mehta families, who between them accounted for more than 70 percent of the country’s 130,000 tons at the time.
What followed were more than 25 years of disintegration and underinvestment in the sector, which saw production collapsed to nothing by the mid-eighties.
However with the repossession of the Kakira Sugar Works and the Sugar Corporation of Uganda Ltd by the Madvhani and Mehta families respectively and the privatisation of the Kinyara Sugar Works, hundreds of millions of dollars of new investment has gone into the industry to the point that the country is now a surplus producer of the sweetener.
According to industry projections at the current rate of increase in production supply will be at 535,000 tons short of anticipated demand which will be at 613,000 tons at the time.
Hundreds of millions of dollars in new investment will be required to keep the country in surplus, but players warn that it would be hard to justify this level of investment if rogue millers continue to grow in the scale of their operations.
According to a sugar policy that was launched five years ago to regulate the industry, which employs thousands of Ugandans directly and indirectly, to set up a sugar milling operation one must ensure they are not within 25 km of an established mill and must have at least 500 hectares of their own plantation.
These conditions were put in place to prevent new players poaching from contracted out-growers of the established players.
Older players, while they have their own nuclear plantations, they rely mostly on out growers for their crop, farmers who they support within puts, credit and a sure market for their produce.
Kakira says last year they paid out sh108b ($30m) to the 8600 farmers under its wing.
The Trade ministry acknowledges that the millers causing the older players discomfort were licensed before the sugar policy was signed off and nothing can be done about their operations. The bigger players argue the policy should be applied retrospectively because the danger to their production exists regardless.
They say on the surface it may seem that production would be increased with new players but this is wrong because these rogue millers would be drawing off the same sugar cane and secondly because their processes are not as advanced would not be able to squeeze out the maximum amount of sugar from the harvested cane.
Mayur Madvhani, the head of his family’s operations warns that allowing these kind of behaviour will see Uganda’s sugar industry going down the way of their Kenyan counterparts.
Kenya, which has fallen from a net exporter to a net importer in recent years, has suffered from an unregulated industry where millers are crammed into western Kenya and the rise of the cane poachers, a combination of which has brought their industry to its knees.
Last year Kenya’s sugar production stood at 500,000 tons against a national demand of 800,000 tons.
This situation has given rise to powerful sugar import interests, which a few months ago attempted to fight off the importation of Ugandan sugar in favour of much cheaper sugar from further afield, which would guarantee them windfall profits.
These same interests have thrown obstacles in the way of much needed reforms in the Kenyan sugar industry, whose production is dominated by government controlled operations.
Uganda’s industry is entirely in private hands which accounts for its rapid rebound.
The trade ministry says all those concerns will be incorporated in a new law to regulate the sector that will only begin to wind its way through the tortuous legislative process next year after the 2016 general elections.