When history is written the NRM (National Resistance Movement) will be credited with resuscitating the sugar industry and then killing it.
For the first time in almost 10 years sugar production fell in 2022 on account of falling sugar cane production and a concentration of a sugar mills in the Busoga region, which has triggered unfair and unsustainable competition.
This has led to jump in sugar prices and jeopardising of a recently won sugar market in Kenya.
When the NRM came to power in 1986, years of neglect from the 1970s led to the collapse of the sugar industry – factories fell into disrepair and fields were abandoned.
The NRM helped the three major players Kakira Sugar Works, Sugar corporation of Uganda Ltd (SCOUL) in Lugazi and Kinyara Sugar ltd in Bunyoro, to get back on their feet. Over nearly three decades the three rehabilitated and expanded their plants and use of sugar cane out growers to the point that by 2014 total production had grown to 438,000 tons enough to meet local market demands of about 350,000 tons and a surplus to export to the region, especially Kenya where there own sugar industry had collapsed....
In addition, the industry was directly employing 20,000 workers and many thousands more indirectly up and down the value chain.
The year 2014 is important because it’s from around that time that new sugar mills licensed irregularly by the trade ministry begun production and started a boom-and-bust cycle in the industry that threatens the gains of the existing investors and a future collapse of the industry.
“The trade ministry aided by some local politicians in Busoga pushed for the licensing of these new mills, without insisting they have their own nucleus fields, which means they started stealing cane from the existing outgrowers who were licensed to Kakira and Lugazi,” an industry player told Business Vision.
The major investment in the sugar industry is not the plant and machinery but the development of the plantation and setting up outgrower schemes. The new players sought to short circuit the process by setting up plants and hoping to poach cane from the existing players.
The business model has been that the millers have a nucleus estate – Kakira has about 23,000 acres and has developed an additional 15,000 acres in Kayunga for a total of 38,000 acres, SCOUL has about 30,000 acres and then develop an outgrower network, which is often multiples of the neucleus estate and supports thousands of farmers.
“Politicians complained that out growers were being paid peanuts for their cane but they did not factor in the inputs the big millers had put in –- ferterliser, pesticides, research, extension services, transport and even some loans to tide the farmers over the periods where they had no cash. All these costs came off the price of cane delivered to the factory,” the industry source.
Farmers excited by the new dynamic increased sugar cane production – with production jumping from 334,000 tons in 2013 to 438,000 tons. But supply and demand factors came into play and the once lucrative prices they were getting for their cane fell leading to a plummeting of production to 344,000 tons in 2017. With low supplies prices went up again and the industry recovered with production jumping to 622,243 tons in 2021.
With increased production prices went down to sh90,000 at the beginning of 2022 but ended the year at sh220,000 a ton.
This is a result of two factors farmers having decided to ditch the crop when prices collapsed but also because immature cane has been harvested in previous years affecting current production.
"Sugar cane in our part of the world matures at 18 months, when the optimum sugar content is achieved. Harvesting before that time means you will need more cane to produce a unit of sugar, but also jeopardise future harvests....
The instability in the industry has far reaching ramifications for livelihoods in the sugar growing areas, future investments in the sector and may put paid to our future export plans.
As it is now there is more sugar milling capacity in Busoga and Buganda than there is sugar cane to crush, as a result most the millers are operating at less than half of their full capacity. Existing players have no incentive to invest more.
“The assistance farmers is reducing, Why should I support the farmer when I am not guaranteed of his cane on harvest?” the source said.
As a result farm yields have fallen around Busoga from about 120 tons of cane per hectare to half that amount. This means famers now need twice as much land to produce the same amount of sugar, which has far reaching consequences for food security in the area.
“When prices jump farmers forget about food production and commit more of heir land to sugar cane production. So as cane prices fall hunger can be a very real problem in the region.”
To add salt to injury there has been a proliferation of weigh bridges in the area. Weigh bridges have been set up by private individuals who can take possession of sugar cane and pay the farmers cash. Originally farmers used to deliver straight to the factory, where not only quantity but quality was checked.
“Now these illegal weighbridges are just checking for quantity. So immature cane is taken as well,” the source said.
The seduction to the farmer is obvious but even more so for the growing middlemen who operate between the farmer and the mills.
“Now the roads are lined with trucks loaded with cane and the traders phones are beeping all the time with price quotes from this miller or the other. When they get a price they like the send the trucks off to the miller,” a trader told Business Vision.
"As it is now cane prices are high making our sugar uncompetitive in the export market. That may not be a problem as a soon cane prices will crash again. But our export markets cannot wait....
“Kenya government has accorded permission to import 100,000 tons duty free sugar from India/Thailand for home consumption,” a senior industry official complained. “And once the importers get a foothold, we will go back to the Kenyans fighting our exports.”
Our export price was up to $957 per ton dramatically up from $648 earlier in the year.
And the solutions industry players say, are within reach.
For starters government needs to stop the licensing of millers in the Busoga region and all existing factories must develop a nucleus estate of at least 2500 acres; weigh bridges should be shut down and farmers deliver their cane directly to the factory and an advisory committee be set up as stipulated under the Sugar Act 2020, which will have the power to implement decisions within the legal framework immediately. Ian addition government should undertake a study and zone the sugar growing areas to allow for orderly expansion and proper development of the sector.
"The unplanned licensing of new millers by the trade ministry, without insisting they develop their own fields and cane supply chains, is leading invariably to the collapse of the sugar industry in Busoga. Ministry officials were unavailable to comment on the subject.
It has happened before. In the 1970s and 1980s Uganda sugar production supplied the region. The giant millers at Mumias and Chemilil in western Kenya, both parastatals were brought to their knees through poor management and connivance with importers. The use of pirate millers was instrumental in bringing about that scenario.
“If we continue like this (licensing new millers) we will kill the industry and the suffering to the region is hard to calculate. These new players do not care about the regional or national economy, they just want to make money whether the industry survives or not,” the industry source said.
No comments:
Post a Comment