The genesis of the Uganda sugar crisis

Thursday, 1st September, 2011

By Paul Busharizi

JUST as we were beginning to feel some relief as sugar prices went down, they shot up again. But it should not be too surprising, considering the number of factors we are up against.

Poor weather, war and wanton greed conspired to cause our recent sugar shortage pushing prices to record highs.

In addition, deeper underlying regional supply and demand issues mean that sugar prices are unlikely to fall back to previous levels in the near future.

Frost in Brazil’s center-south region in June and earlier this month, the failure of the India crop last year which forced it to draw down its stock pile and, therefore, leaving nothing for export and the La Nina floods earlier this year in Australia have put world sugar supplies under pressure.

Brazil and India produce about a half of the world’s sugar. Brazilian sugar exports account for half of all the world’s exports. These factors pushed world sugar prices to $818 a tonne the highest prices have been in more than 30 years. On Tuesday, the sugar spot price was $798 from a $600 figure in Februray.

As a result it is expected that world surplus will be cut by a million tonne s.

"To understand the effects of these weather patterns you have to remember that it takes 18 months for cane to mature, be ready for harvest, so supplies will be under strain well into next year," said Madvhani director Jim Mwine Kabeho.

Closer to home, the recent conflict in south Sudan’s contested border town of Abyei also upset an already delicate balance. In May skirmishes in Abyei caused the residents of the town to flee south ahead of the Southern Sudan independence in July.

"This is a problem because Southern Sudan used to get its sugar from north Sudan now they suddenly had to shift to our sugar," said Kabeho, who also chairs a committee that brings together officials from the sugar companies, the energy and trade ministries and the bureau of standards. He could not tell how many additional tonne s went north but said they felt the strain as a result.

Tension over Abyei - claimed by a southern group, the Dinka Ngok, and northern nomads, the Misseriya - has been rising since a referendum on its future scheduled for January was postponed.

Since then there have been fears clashes in Abyei could spark a new north-south war, which this latest incident will do nothing to dispel, our correspondent says.

Under a 2005 north-south peace deal, which ended 22 years of civil war, Abyei was granted special status and a joint north-south administration set up in 2008.

Related to this is the fact that the region is already a net importer of sugar, and with the coming into force of the common market increasing demand from Rwanda and Burundi and western neighbours eastern Congo is biting.

Kenya this week reported the highest retail price in history with a kilo going for upto Ksh400 (sh11,000) as speculators take advantage of the tight supply.

Apart from the interruptions brought about by the factory maintenance breaks, below normal rains have affected cane output, reducing supply to factories by up to 50 per cent.

In total the region produces about 1,200 tonne s of sugar short of total demand by just over 400 tonne s and growing.

“Demand is increasing annually and we are not even accounting for suppressed demand,” Kabeho said.

The coincidence of all these factors made for ideal circumstances for speculators.

"Obviously there were people taking advantage, how does sugar jump from sh120,000 per 50kg bag to sh260,000…. There is some strain on supplies yes but the extent of which cannot be reflected by a more than doubling of retail prices," Kabeho said.

President Yoweri Museveni’s announcement at the beginning of the month easing sugar import restrictions, put paid to those machinations, sending prices tumbling to previous levels.

Looking forward there is a need to implement a government sugar policy to incentivize the companies to invest more in the industry.

"People are seeing the shortage as a negative. I see it as a positive it means consumption is growing faster than production. That’s not a bad thing. What government needs to do now is encourage production," said Abid Alam, who is looking to have his sugar factory up and running within a year-and-a-half in Kaliro, eastern Uganda.

Since then there have been fears that clashes in Abyei could spark a new north-south war, which this latest incident will do nothing to dispel.

Under a 2005 north-south peace deal, which ended 22 years of civil war, Abyei was granted special status and a joint north-south administration set up in 2008.

Related to this is the fact that the region is already a net importer of sugar, and with the coming into force of the common market increasing demand from Rwanda and Burundi and western neighbours eastern Congo is biting.

Kenya this week reported the highest retail price in history with a kilo going for upto Ksh400 (sh11,000) as speculators take advantage of the tight supply.

Apart from the interruptions brought about by the factory maintenance breaks, below normal rains have affected cane output, reducing supply to factories by up to 50%. In total the region produces about 1,200 tonnes of sugar short of total demand by just over 400 tonnes and growing.

"Demand is increasing annually and we are not even accounting for suppressed demand," Kabeho said. The coincidence of all these factors made for ideal circumstances for speculators.

"Obviously there were people taking advantage. How does sugar jump from sh120,000 per 50kg bag to sh260,000? There is some strain on supplies yes but the extent of which cannot be reflected by a more than doubling of retail prices," Kabeho said.

President Yoweri Museveni’s announcement at the beginning of the month easing sugar import restrictions, put paid to those machinations, sending prices tumbling to previous levels.

Looking forward, there is a need to implement a government sugar policy to incentivize the companies to invest more in the industry.

"People are seeing the shortage as a negative, I see it as a positive. It means consumption is growing faster than production. That’s not a bad thing. What government needs to do now is encourage production," said Abid Alam, who is looking to have his sugar factory up and running within about two years in Kaliro, eastern Uganda.

By Paul Busharizi: The New Vision Newspaper