Uganda Sugar – A Market Perspective

The debate of encroachment of Mabira forest by Sugar Corporation of Uganda Ltd (SCOUL) has brought bitter tastes to peoples mouths in the last two months. The media is awash with “environmental” positions on the issue. Threats to boycott SCOULs sugar have been passed and the Government risks a split in her ranks on the issue. Few arguments have cared to present an economic perspective to the argument. This could be because most stakeholders agree that Uganda should increase her production capacity, and that therefore this is a non-important aspect of this discussion. Well… I have seen arguments about how sugar can cause all kinds of health problems. True, except that it’s great industrial value in the production of a host of other products remains undisputed.

I choose as always, to look at the picture in a slightly different lens. This is not intended to rub the environmentalist the wrong way, but rather to crystallize the economic aspect of this argument. It is an informative writeup and not a position on the Mabira issue.
What is the real picture regarding sugar in Uganda? Why is production very anemic and why do we need to increase production capacity? To talk about why our production is anemic would take many pages of an elaborate discourse. That is best left for another day. However, here is why we need to think seriously about the sugar situation?

Uganda’s Position

What is Uganda’s import situation on Sugar?

In 2001, we imported 52,384 MT (26,388 MT from South Africa) worth US$ 21,843,000, in 2002 we imported 32,704 MT (23,692 MT from South Africa) worth US$ 13,660,000, in 2003 we imported 29,905 MT (14,287 MT was from South Africa) worth US$ 12,425,000, in 2004 we imported 47,083 MT (20,475 MT was from South Africa) worth US$ 19,621,000 and lastly in 2005 we imported 52,518 MT (30,000MT was from South Africa) worth US$ 23,698,000. In totality, over the 5 year period; 2001 – 2005, we have spent approx US$ 91.2 million on sugar imports. It is also clear that South Africa is Uganda’s biggest source of Sugar.
Let us then take a look at the export side. In 2001, Uganda exported 3,347 MT worth US$ 1,384,000 mainly to Rwanda (1,331 MT) and the Congo (1,468 MT). In 2002, exported quantities fell to 1,377 MT mainly again to Rwanda Sudan and the DRC. In 2003, exported quantities drastically fell to 267 MT. In 2004, exported quantities rose to 4,573 MT (of which 2,597 MT went to the DRC). In 2005, exported quantities continued to rise; 16,428 MT worth US$ 6,246,000. Lastly, in 2006 statistics estimate the US$ 11,290,000 was earned for 25,421 MT of sugar, mainly to Southern Sudan, the DRC and Rwanda.


So, what is the pattern exhibited by these figures?

Uganda’s domestic demand for sugar has hovered around 250,000 MT per annum and growing; we produce about 200,000 MT per annum. Our industrial capacity largely can’t meet all of this demand; this leaves a shortfall of about 50,000 MT. This gap is naturally filled by imports or by increasing production capacity. In Uganda’s case, the former has prevailed.

Interestingly, a closer look at the statistics reveals why a price shock came about in 2006. Our import quantities over the years have remained close to the deficit levels for local demand. We imported 52,518 MT in 2006 and exported about 25,421 MT mainly to the regional markets of Southern Sudan. This means that the quantities of sugar largely meant to satisfy local demand, left the country for better and more lucrative prices, leaving a glut of about 50% domestically. Obviously, it doesn’t take rocket science to figure out why the prices went up and scarcity prevailed.

The trend line for exports shows a growing market (demand) while the trend line for imports shows an invariably stable import bracket while production at home hasn’t changed much either.

The point for increased production is then made crystal clear. Uganda isn’t ready to take the opportunities offered by the regional markets for sugar. It is therefore logical to increase sugar production back home. We wouldn’t have to import 50,000 MT of sugar, if our production capacity rose by 50,000 MT. Also, we need twice this amount to meet increased export demand. In the event that 100,000 MT of sugar is added onto our production stack and the export market falls? Then we will consume all the “excess” sugar.

What are the market trends for sugar in the region?

Caution ought to be exercised. In 2006, Southern Sudan accounted for about 6,943 MT of our exports while DRC accounted for 3,349 MT. In my view, this is a temporary situation for both markets, likely to last about 5 or fewer years (the period given within the CPA for the GoSS to determine self autonomy). If Southern Sudan undergoes political changes which favour integration with the greater Sudan, then the market will fall. They would then take deliberate measures (not for sugar alone but other consumer goods) to create their own production capacity.

Currently, greater Sudan’s sugar production presents better prospects for Southern Sudan. I believe that the bottlenecks hampering sugar “imports” from greater Sudan to Southern Sudan are only temporary and will impact.

Here is why!

There are 5 sugar factories in Sudan (the the Guneid Factory, the New Halfa Factory, the Sinnar Factory and the Assalaya Factory - and one of them, the Kenana Factory), 4 are state owned. Kenena Sugar Factory is one of the biggest integrated sugar refineries placed under one administrative body in the world. It is one of the world’s largest individual producers with an annual capacity of over 300,000 MT. It is clear that our export opportunity for the region will be greatly impacted by this scenario over the coming years!!