Sugar millers not ready for competition

High production costs will deny East African sugar producers the benefits that will come with the launch of the Customs Union of the Common Market for Eastern and Southern Africa (Comesa).

The Customs Union will bring zero rated sugar imports into East Africa and leading sugar millers and trade experts in Uganda say the region’s producers are still far from reaching optimal levels of production and therefore are not ready to embrace a trade arrangement that will open the region’s markets to competition.

“We don’t want to embrace negative linkages from Comesa,” said Patrick Okilangole, the principal commercial officer in charge of Comesa Desk at the Ministry of Tourism, Trade and Industry. “So the East African Community tariff will still apply so that we don’t lose what we have gained under the EAC Customs Union.”

While Kenya had the foresight to seek a safeguard from Comesa sugar till 2012, the “gap sugar” quota allowed into the country stood at 220,000 tonnes under the same trade regime but was last year revised at the rate of 40,000 tonnes per annum.

Starting 2008, any sugar above the quota limit will be successively reduced from 100 per cent by 30 per cent per annum till 2012, spelling the full liberalisation of the sugar industry to sound the death knell for the industry in Uganda.

“This therefore means that unless some other safeguard measures are introduced, there will be full liberalisation of the sugar industry from Comesa imports by March 2012. This will seriously affect the entire East African sugar industry,” says Wilberforce Mubiru, executive director of the Uganda Sugar Cane Technologists Association.

According to Mr Mubiru, Kenya’s recent agreement which is leaning towards a full liberalisation of Comesa sugar into Kenya over the next three years, can only mean one thing.

That by virtue of the East African Customs Union, Kenyan made sugar (after being displaced by cheap imports from Comesa) will find its way into Uganda.

The idea of a liberalised sugar market should not be permitted until such a time when EAC member states have enough capacity to procure more sugar than their country’s domestic requirement, said Mr Mubiru.

P.K. Eswar, spokesman of the Madhvani Group was unequivocal about sugar imports from Comesa and other countries.

“We cannot welcome it because it means our sugar will be uncompetitive,” he said.

“Uganda is not prepared for zero rated sugar. No country in East Africa currently has capacity for that. The industry in East Africa has not been developed to take that kind of competition. We are strongly opposed to this.”

The Madhvani Group owns Kakira Sugar, its flagship company and market leader in Uganda.

The three biggest mills — Kakira, Kinyara Sugar and Sugar Corporation of Uganda Lugazi, in addition to two small operators in Uganda currently produce a paltry 240,000 metric tonnes of sugar annually.

But experts put annual consumption figures for the local market at 250,000-270,000 metric tonnes, translating into a supply gap of up to 40,000 tonnes.