24 August 2017

Uganda: MPs Considering New Zoning Laws to Contain Bitter Sugar Sector Feud

Uganda's sugar millers are elbowing for space, placing access to cane from outgrowers at its centre of a bitter war.

For close to a decade, sugar producing companies have battled against what they see as encroachment by newcomers, some of whom they see as adventurers seeking to reap where they did not sow.

Older millers like Kakira Sugar Works accuse new entrants of benefiting from the lack of a law governing the setting up of sugar mills. "When you develop your own outgrowers, you put in a lot of money.

We have invested over Ush300 billion ($832.2 million) in developing farmers. Why do they want to encroach on the people we have developed?" Kenneth Barungi, the deputy general manager Kakira Sugar posed.

The battle has been bubbling under the surface. The companies lobbied technocrats and politicians seeking to maintain the status quo while others sought to toughen regulations for opening new factories.

It exploded at a recent meeting with the manufacturers at parliament Buildings. Parliament's committee on trade and industry was seeking the views of industry players on a new legislation, dubbed The Sugar Bill (2016).

Many millers

The issue of distance between millers was the most contentious because the presence of many millers in the same area means they all rely on the existing outgrowers.

Although it is a windfall for the growers because it brings about alternative buyers for their produce, old millers say such competition is bad for business.

Kakira says that over the past 25 years, they have nurtured 9,000 outgrowers from the original four and these contribute over 60 per cent of the sugarcane crushed for sugar.

They, therefore, do not welcome new millers setting up shop nearby, thereby reaping from an investment they did not help cultivate.

"We have gone to banks and gotten comfort letters to enable our outgrowers borrow money. About Ush20 billion ($5.5m) is in the form of outstanding loans just because they (outgrowers) sold cane to other millers near us to avoid repaying them," Mr Barungi said.

The Bill attempts to cure the problem by creating zones and dictating an acceptable distance between millers. Clause 22(3) of the Bill provides that sugar mills be separated by a radius of 25 km.

Distance

However, appearing before the committee, Kakira Sugar, the country's biggest miller, proposed a 50km distance.

"The clause must clearly state that one sugar mill must be in a 25km radius in the sense that you draw a circle of 25km and put a mill in the center of it and another mill in the center on the next 25km radius circle which makes it a 50km distance between the two mills," Mr Barungi explained.

Appearing before the committee, Mwine Jim Kabeho the chairman of Uganda Sugar Manufacturers Association defended the push for the 50km distance arguing that "it is based on the technical understanding that sustainable sugar and sugarcane production require a stable environment and long-term planning due to the long gestation period of sugarcane as a crop."

"Establishing more factories in close proximity within one zone will not lead to increased sugar production. These new factories should be located in their own zones and develop their own cane. For example, in 2014, 438,000 tonnes of sugar were produced compared to only 392,115 tonnes in 2016, although there were more factories in operation," Mr Kabeho told the committee.

Uganda Sugarcane Growers' Association co-ordinator, Michael Mugabira, however, says that while zoning, placement of mills should not be based on circular rings as proposed by Kakira and other players, as it distorts placement of plants given that some areas lack utilities such as power and water to serve the plant.

"Instead, let industrial clusters (which may combine a number of zonal areas) which is an established international business norm, be the basis for determining number of plants to be established in a region.

This is similar to the business and industrial parks policy by Uganda Investment Authority," he said.

What then happens to the millers that are already operating but lie within the 25km radius?

Law

If passed, the law will not act retrospectively and Clause 5 says that if there is already two mills in one zone, the status quo will be maintained.

The bickering over cane poaching is akin to the one in Kenya in 2012 when Kakamega and Busia residents petitioned the government to stop West Kenya Sugar Company from poaching cane belonging to Mumias Sugar Company and others.

The farmers argued that poaching adversely affects sugar development and production.

But the new players think the push by the old players is veiled advocacy for protectionism that does not bode well for a liberalised economy.

Alternatively, they argued that if there must be zoning, there should be a provision for farmers' co-operative sugar mills and a reservation of 40 per cent of zone production potential for licensed jaggeries, open pan mills and smallscale mills for indigenous proprietors only.

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