'White gold' industry on its deathbed

Unless the government intervenes soon and with appropriate ‘medication’ in hand, there is every indication that Tanzania’s sugar industry is headed for collapse.

A recent survey by this paper shows that few people expect any such stimulus or rescue package any time soon and many doubt whether the future holds any promise for sugarcane farmers, sugar producers and consumers and the national economy in general.

Alarmed by the events they have seen unfolding for years on end, distraught producers of the crop now want the government to urgently consider drawing up and implementing a new regulatory framework that will monitor trends in the industry more closely for effective support and protection.

The producers’ concerns come at a time when imports of industrial and other types of sugar, some in the form of smuggled consignments, keep swelling and denying locally produced sugar reliable market.

Sugar producers in the country warn that the government’s failure to arrest the illegal importation of sugar promises a number of disastrous consequences, including a progressive decline in government revenue, loss of employment and shutdowns of essential social services such as health and education centres supported by the sugar firms under their corporate social responsibility schemes.

It is on record that over US$10 billion has been invested in social services by Tanzania’s sugar industry since privatisation in the late 1990s.
While estate cane area has tripled to 50,000 hectares, out grower cane area has quadrupled to 19,000 hectares and sugarcane harvest has also quadrupled to 4 million tonnes a year.

Annual sugar production has more than tripled to 320,000 tonnes (equivalent to a staggering US$224 million).

The human angle to the story is even more revealing and well worth noting; the country’s sugar industry supports in excess of 75,000 jobs or direct employees (over 2,000 in support services) and 15,000 registered outgrowers whose annual income has more than doubled to 50 billion/- since the late 1990s, the corresponding government revenue standing at 100 billion/-.

Computations by the Tanzania Sugar Producers Association (PSPA) show that over one million people would be directly affected by the collapse of the sugar industry in that it accounts for 13 per cent of all agricultural employment in the country and contributes 5.9 per cent towards the total national employment.
The association says that, alongside shielding the local sugar industry against unfair competition from imports, the framework should meet the needs of legitimate users of industrial sugar and adequately manage the importation of sugar generally.

Sugarcane is also the largest industrial agricultural product in Tanzania, contributing 5.2 per cent of the annual gross value of field crop production.
It is also noteworthy that some 90 per cent of the income generated by the sugar industry trickles right down to low-income households, thus playing a pivotal role in the war on poverty.

It is of particular concern to TSPA that 2012/2013 saw 100,000 tonnes of imported sugar filter into Tanzania unlicensed and therefore at zero duty, while 150,000 tonnes entered the country illegally thus denying the government much needed revenue.  

Agriculture, Food Security and Cooperatives Minister Christopher Chiza and Kilombero Sugar Company Ltd board chairman Ami Mpungwe have elaborated on the substantial damage the collapse of the country’s sugar industry would inflict on stakeholders and the larger public.

“The damage will also include outgrowers, bankers, social security funds and loss of investors’ confidence,” warns Mpungwe.

He explained that the socio-economic impact and the multiplier effect for the sugar industry’s turnaround and growth trajectory are moribund particularly in job creation, growth of outgrowers’ communities, increased tax revenues, creation and formalisation of other sugar-driven business and overall rural transformation.

PSPA’s latest report on the status of the crop’s production and the development of the industry shows that since the Tanzanian market was flooded with the illegal sugar imports, local producers have hopelessly failed to meet their commitments to banks, to suppliers and out-growers, while their capital investments have been suspended owing to cash flow constraints.

“Also, the viability and sustainability of the sugar industry and the industry’s credibility in the eyes of financial institutions have been seriously compromised,” says the report.

“There are no significant benefits to the consumer, the price of sugar is below the average cost of production and the government is losing out on one of its major sources of revenue,” it notes.

In a letter sent to minister Chiza earlier this month, the producers attached five stakeholders’ resolutions for a new sugar import mechanism highlights including recommendation on the drawing up of a new regulatory framework to provide effective protection to the local sugar industry.

The producers argue: “Also the government has a central role and responsibility for establishing and ensuring the existence of a strong, transparent and auditable regulatory framework that effectively protects the local sugar industry while maintaining strict control on importation of sugar without disrupting the operations of legitimate users of industrial sugar.”

They have also recommended that major users of industrial sugar continue to procure their requirements as per current practice ‘which recognises their individual contractual arrangements’ and that the government take specific measures against dumped transit sugar as well as smuggled sugar entering the market through the so-called Zanzibar Route.

In the letter to minister Chiza, PSPA said that it would be of benefit if the producers’ consortium operating on the not-for-profit principle would have the responsibility for importing gap consumption sugar based on actual, verifiable and auditable requirements.

“The controlled volume of gap consumption sugar from the consortium activities would be made available for distribution through existing distributor networks,” it added.

The government, through Finance deputy minister Mwigulu Nchemba, declared in Bukoba earlier this month that it was contemplating a sweeping crackdown aimed at ending the illegal importation of sugar.

Sugar industry stakeholders the government’s intervention would be in line with the demands of vehemently touted national development ambitions, strategies, programmes and initiatives including Kilimo Kwanza and Big Results Now (BRN), especially as they relate to support for the stabilisation and modernisation of agriculture.

At a meeting held in Dar es Salaam last month, sugar industry stakeholders, among them major consumers of industrial sugar, agreed on the need to establish a new sugar importation mechanism to translate the spirit into action.

Delegates to the meeting included representatives of TSPA – whose members are Kilombero Sugar Company Ltd, Mtibwa Sugar Estates Ltd, TPC Ltd and Kagera Sugar Ltd – as well as the President’s Delivery Bureau, Confederation of Tanzania Industries, Tanzania Chamber of Commerce, Industry and Agriculture (TCCIA), Coca-Cola Kwanza, Nyanza Bottlers Co. Ltd, and the CEO Round Table.

Sugar industry watchers would like to see the government engage more with these and other stakeholders, to ensure that failure to act as swiftly and judiciously as circumstances demand, does not condemn this invaluable contributor to the nation’s economy to a cruel and largely unnecessary death.

They draw their optimism partly from the existence of the industry’s technical advisory committee, which brings together the Sugar Board of Tanzania, TSPA, Tanzania Sugarcane Growers Association, CTI, TCCIA, Tanzania Revenue Authority, and the Finance, Industry and Trade, and Agriculture, Food Security and Cooperatives ministries.

These meet twice a year to determine the quantity of sugar importation as well as the duty applicable to such importation.

However, a question that the team ought to answer is why, if it can deliver, is there still so much mess on the ground. Who or what is pulling them down?
Next: What stakeholders say about the real trials and tribulations facing Tanzania’s ailing sugar industry and how best to deal with them.