News Column

Local Sugar Industries Need Protection

June 2, 2014

Masembwe Tambwe

THERE has been a notion that privatisation of local sugar industries 20 years ago has failed to meet the intended objectives in making the country self-sufficient.

This notion has been used to justify duty free importation of sugar into the country, that in turn has crippled local sugar industries to the point where if no immediate and deliberate action is taken by the government, they might be headed for a closure.

As it stands, allowing for all premiums, freight costs and other logistics costs, current world prices translate into a delivered cost to Tanzania of 470 US dollars per tonne before application of import tariffs, if any.

According to industry sources, world sugar prices are so low because the largest sugar producing countries are heavily subsidising sugar exports. The Managing Director of Kilombero Sugar Company Limited (KSCL), Mr Mark Bainbridge, says there is no sugar producer anywhere in the whole of East Africa who can compete with world market sugar imports at this price level.

"This means that effective protection of the domestic market is essential," he says. While Tanzania allows sugar to be imported into the country tariff free, world leading sugar producers Brazil and India are charging up to 60 per cent import duty for sugar to enter their countries, this tariff enables these countries to protect their local industries while attracting new investments at the same time.

According to data from Tanzania Sugar Producers Association (TSPA), current sugar demand stands at 400,000 tonnes while the four local industries combined capacity is 320,000 tonnes annually.

TSPA says by these figures, direct sugar consumption deficit stands at 80,000 tons but between June 2011 and May 2012 the country, duty free imported 200,000 tonnes of sugar, noting that this has weighed heavily on local sugar industries.

According to Mr Bainbridge, KSCL lost 5.4bn/- in its 2013/2014 financial year due to imports and its cash flow is over the maximum limit after accounting for overdue creditors and outstanding growers retention payments.

At stake are 5,500 employees who received a total of 88bn/- in remuneration and benefits between 2007 and 2012 and 5,600 out growers who receive an average of 30bn/- annually. Due to lack of funds, workers' union is already considering action while out growers discontent is rising for lack of retention payment.

According to Mr Bainbridge, KCSL suppliers are now discontinuing services on critical items. Data available from TSPA, as of October 2012, local sugar producers had 78,000 tonnes of sugar in stock while under normal circumstances the stock should have been down to between 30,000 and 35,000 tonnes during the period.

The situation worsened and as of November 2012 the stock rose to 82,000 tonnes worth 100bn/- while the cost of storage stood at 60bn/-. In January, this year, the government announced ban on importation of sugar to allow local sugar industries to sell their produce, however, the situation on the ground is different as sugar continues to enter the country illegally.

If the country does not take deliberate measures to control sugar imports and protect the local industry, at stake are 75,000 jobs equivalent to five per cent of total national employment that are created by the industry.

Since privatisation of sugar industries in Tanzania, cane production has increased by three million tons making it the second largest agricultural product in the country contributing 5.2 per cent of annual gross value of annual field crop production.

Sugar industry further contributes one per cent of the national GDP and accounts for 1.9 per cent of total income tax. Since privatisation, the four sugar industries in the country, Kilombero Sugar Company Limited (KSCL), TPC Limited, Mtibwa Sugar Estate and Kagera Sugar Limited have invested 500m US Dollars and increased sugar production from 98,000 tonnes in 1998 to 300,000 tonnes this year.

KSCL has also invested another 34m US Dollars this year for construction of an alcohol distillery to be launched sometime in July. Further to that, Kagera Sugar has invested 120m US Dollars for irrigation infrastructure, 2.8m US Dollars in expansion of sugar cane farms and another 1.5m US Dollars for construction of staff houses during the financial year 2012/2013.

On the other hand, Mtibwa Sugar Estates is this year opening a new 5,000 hectares farm with irrigation infrastructure costing the company 53m US Dollars.

While these are some of the things to suffer immediate effect if sugar importation is not curbed, the future of the industry doesn't look good either. The demand for direct sugar consumption is linked with the country's population growth among other things. By 2030 Tanzania's population growth is estimated to reach 72 million people according to Tanzania National Bureau of Statistics (TBS).

This would then mean that the domestic sugar demand will rise to 1,500 tonnes by 2030 creating a gap of a whopping 1,100 tons if conducive environment for new investments particularly sugar policy and tax revisions are not put in place.

This gap will have to be filled by imports which then would mean killing local sugar industries because of the low cost of imported sugar.

President Jakaya Kikwete is quoted saying Tanzania should have 10 new sugar projects by 2030. Sugar industry specialists say this kind of investment would require 5bn US Dollars to realise. Such an investment cannot be realised if appropriate measures to protect the local sugar industry are not taken.

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Source: AllAfrica

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