Thursday, July 10, 2014

Sugar cartel blamed for abnormally high prices

Dar es Salaam:  Consumers want authorities to probe monopolistic tendencies in the sugar supply in the country, which keep prices higher than normal, hurting the low income earners the most. The Executive Director of the Tanzania Consumer Advocacy Society, Mr Bernard Kihiyo, said the possibility of a cartel is high because the sugar supply business is controlled by a few powerful, food trading firms.
“There are only five major dealers allowed to purchase sugar in bulk and distribute it to wholesale traders. These dealers, according to allegations, collude to fix prices. Now this issue needs to be probed,” he said.
Despite the government efforts to allow duty-free importation of sugar to bridge the supply gap sugar prices keep on increasing. Retail sugar prices in the major urban centres in the country currently range between Sh1,800 and Sh2,000 and could reach Sh2,500 per kilo in remote areas. Wholesale prices range between Sh85,000 and Sh90,000 for a 50kg bag.
Consumers say this is still too high and should have had a bigger difference margin than that of Sh2,000 for retail and Sh5,000 for wholesale had the prices been free-float .The Fair Competition Commission (FCC) also agrees that a cartel in sugar business in the country is a possibility but it cannot intervene.
A senior official who requested for anonymity because he is not the spokesperson of the Commission said price fixing could be a result of inadequate laws that guide the sector, and which vest the Sugar Board of Tanzania (SBT) with too much powers to appoint suppliers.
As the SBT is the regulator in the sector the FCC has no mandate whatsoever to intervene. Efforts to find the director general of FCC to clarify the issue proved futile. But in a prompt response the SBT said the problem is inadequate sugar production in the country, which cannot meet demands.
“In simple economics sugar prices cannot decline in a situation where demand exceeds production, and hence, supply. And to make matters worse, our neighbours face chronic sugar deficits that have fuelled smuggling across the borders. It is too early to speak of cartels,” said SBT project manager Mr Abdul Mwankemwa.
The annual sugar demand is about 480,000 tonnes against production of about 300,000 tonnes. Sugar factories, on the other hand, complain that the collusion in the supply business has most often created artificial shortages and dictated how much sugar the factories can sell in the local market. 
The factories say they cannot sell their stock because the market is oversaturated with cheap, imported sugar, which, unfortunately does not retail below Sh1,800 and Sh2,500 a kilo.
According to FCC the Sugar Industry Act No 26 of 2001, which established the Sugar Board of Tanzania (SBT) as an autonomous regulatory authority under the Ministry of Agriculture, Food Security and Cooperatives provided loopholes that lead to monopolistic tendencies within the sugar market.
This is because the law gives the powers only to SBT to appoint main sugar distributors and importers, but lack of capacity to oversee their activities oblige them to deal with only a few players. Mr Kihiyo urges the government to look at the law to ensure it helps in boosting competition in the sector.
Tabling the 2012/13 budget in Parliament last week the minister for Agriculture, Food Security and Co-operatives, Mr Christopher Chiza said in the 2011/12 financial year the country had a shortage of 117,945 tonnes of sugar forcing the prices to rise up to an average of Sh2,500 per kg until June this year. Despite the government’s directive to dealers to import 200,000 tonnes of sugar still the retail prices of sugar ranged between Sh1,800 and Sh2,500 in the country.

According to him, the major solution is to encourage more investments in the sugar sub-sector for guaranteeing fair prices. The executive secretary of Tanzania Sugarcane Growers Association (Tasga), Sam Msimbira on his part blames spiraling inflation and power problems for higher sugar prices. Tanzania has four sugar production companies – Kilombero, Mtibwa, TPC and Kagera.

SOURCE Bernard Kihiyo Executive Director - TCAS

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