Powerful local barons will not allow imports to bring down price of sugar

What you need to know:

  • Will the sugar imports drive consumer prices down? I have my doubts.
  • The sugar business in this country does not respond to import competition.

If you import sugar right now, and depending on the way you time the arrival of your consignment, you will make big money.

Consider the following: the average ex-factory price charged by sugar mills in Uganda is currently in the region of $700 (Sh62,860) per tonne, having risen from $620 (Sh55,676) at the beginning of October, when we started importing sugar from that country.

In Kenya, the ex-factory price is now at around $1,000 (Sh89,800). Thus, if you time your imports correctly, and depending on the quantities you are able to ship in, there are handsome profits to be made.

I suspect that there must be a booming unrecorded and cross-border sugar trade going on in Busia, Malaba, and other border towns.

With eight sugar mills, Uganda now has the capacity to produce 465,000 tonnes of sugar, against its consumption of 320,000 tonnes.

Our neighbour has recently become a surplus producer. By November 3, it had exported 12,000 tonnes of sugar to Kenya.

If consumer prices remain as high as they currently are, the excess capacity in Uganda will find its way here.

Mark you, as members of the East African Community, exports from Uganda are guaranteed full duty-free access.

In April, the average ex-factory prices in Kenya were Sh3,200 per 50 kilogramme bag.  Right now,  the average is Sh5,100.

Indeed, retail prices have risen from an average Sh100 per kilogramme in February to around Sh117.

MAJOR SHORTAGE

Do we really have a serious sugar shortage in the country? With Mumias, West Kenya, Kibos, and Soin not producing at the moment, it means that nearly 51 per cent of milling capacity is out of action.

If you want to confirm that there is indeed a major shortage of sugar, all you need to do is call each of the remaining seven millers and ask them to tell you the amount of sugar they have in their stores.

When Cabinet Secretary Felix Koskei says that the current sugar imports are inevitable, he makes a valid point. The loud noises you are hearing are a red herring.

Is there discrimination or favouritism in the awarding of sugar licences?

I am reluctant to vouch 100 per cent for the bureaucrats, but if you have been following the politics of sugar imports over time the way I have, the inescapable conclusion is that we have come a long way from the days when we used to literally ration sugar import licences.

Today, it is not difficult to get registered. As a matter of fact, the procedure of registration is fairly transparent, which  explains why the list of registered importers is long.

However, being on the list does not automatically qualify you for a licence. You get a licence only after you have produced documents showing that you have contracted a supplier and have the capacity to pay for the sugar you want to import.

Sugar import licences are consignment-specific. Once you bring in a shipment, that specific licence expires.

This is a major point of departure because in the past, there used to be a booming secondary market for sugar import licences.

Unscrupulous merchants would, through political connections, get licences, then flip the pieces of paper in the secondary market at a premium.

People minted millions from selling these pieces of paper.

COLLUSIVE BEHAVIOUR

Perhaps the most pertinent question is this: Will the sugar imports drive consumer prices down?

I have my doubts. The sugar business in this country does not respond to import competition.

Whenever factories close for maintenance, merchants are able to control and manipulate market conditions to ensure that prices remain high.

It has something to do with the way the business is structured. Indeed, the business is tightly controlled by a tiny elite of merchants who operate in nearly all segments of the business, doubling as importers, distributors of local sugar, transporters, and owners of giant warehouses.

It is a perfect environment for collusive behaviour. By dominating sugar distribution, importation, transportation, and warehousing, the merchants are able to drive prices to the roof as they chase higher profit margins.

[email protected]. @jaindikisero