Sugar Trade Dispute Sparks Economic Concerns in Uganda

Sugar Trade Dispute Sparks Economic Concerns in Uganda
PHOTO - Observer - Local industrial sugar consumers and activists believe that white sugar manufacturers in Uganda are capitalizing on the absence of a regulator to maintain high prices.
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A dispute over white industrial sugar production capacity at Kinyara Sugar has raised significant concerns in Uganda. The country is currently grappling with a substantial shortage of industrial sugar, leading to fears of potential job losses, a tax revenue shortfall, and reduced competitiveness in the market.

The issue revolves around conflicting reports regarding Kinyara Sugar’s capacity to produce 75,000 tonnes of industrial sugar annually. As a response, the government has imposed a 25 percent import duty on sugar for the current fiscal year.

The Uganda Manufacturers Association (UMA) has challenged Kinyara’s production capabilities and expressed concerns about a possible monopolistic market situation. They note that other potential industrial sugar manufacturers, GM Sugar and Mayuge Sugar, have not yet begun production.

Kinyara Sugar’s director, Mr. Rajbir S Rai, has urged the Ministry of Finance to confirm its decision to protect local industrial sugar production. He also clarified that Kinyara has a stock of close to 4,000 metric tonnes and has been fulfilling customer orders.

UMA is particularly worried about the increasing demand for white sugar from various industries, including beverages, alcohol spirits, baked goods, dairy products, juices, confectionaries, baking powder, analgesics, syrups, and ointments, which has reached 140,000 tonnes annually.

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In response to the rising prices of sugar due to the East African Community’s 25 percent Common External Tariff, UMA proposes retaining a 10 percent duty remission for 12 months to address the challenges.

The shortage of sugarcane for processing has contributed to the inconsistency in the supply of white industrial sugar and the high prices of brown sugar, affecting consumers.

High sugarcane prices, driven by increased competition for cane following investments in processing, have led to higher retail sugar prices, with some areas seeing prices as high as Shs5,500 per kg.

It is estimated that at least $11 million (Shs41b) is required monthly for spot purchases of 3,000 tonnes of industrial sugar from Kinyara Sugar. Global sugar brokers report high prices for locally manufactured industrial sugar, further raising concerns about price manipulation.

Local industrial sugar consumers and activists argue that white sugar manufacturers are taking advantage of the absence of a regulator in Uganda to maintain high prices.

Efforts to establish a sugar regulatory board have faced financing challenges, prompting the government to consider creating a sugar council by August 2023.

Analysts express concerns that the delay in establishing a sugar board may worsen the situation, as it could help balance the interests of growers, millers, and the government.

The ongoing dispute also has economic implications, including the potential loss of 13,900 jobs if the 25 percent import duty on sugar remains. Lowering the duty to 10 percent could secure Shs787 billion in VAT and corporation tax and Shs50 billion in export revenue annually, according to manufacturers.

The Private Sector Federation (PSFU) is urging the government to implement a fair tax regime to protect the investments made by companies like Crown Beverages, Harris International, and Century Bottling Company. The 25 percent duty remission rate is expected to increase product costs, potentially leading to reduced consumption, lower production, job losses, and decreased government revenue.

Minister Matia Kasaija has pledged to send a team of officers to Kinyara Sugar to assess the situation. A similar visit was conducted in October of the previous year to evaluate Kinyara’s readiness to meet local demand, during which the company produced 23,260.45 metric tonnes of industrial sugar from October 2021 to October 2022, as per PSFU statistics.

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