Research and Advocacy under supervision of Sokoine University
Graduate Entrepreneurs Cooperative (SUGECO) & Tanzania
Sugarcane Growers Association (TASGA)
Enhancing Sugar Industry Regulatory Framework of Tanzania
Introduction
Strengthening of Business envi ronment in the up and down s tream of the suga r sector is vi tal i mporta nt to ma xi mize i ts contri buti on to na tional
income and rural li velihoods through trade and servi ces. Sugar a ct of 2001 under Suga r Boa rd of Tanzania ha ve supported several positi ve changes and
growth within the sector. However regulatory inadequa cy s till exis ts i n issues related to out growers ’ benefits and ins ti tuti onal framework governance
for s ugar i mportation and distribution that negatively a ffects out growers and other s takeholders along the va lue chain
FACTS
 Tanzania is a sugar deficit country, producing only 57.6% of the total raw sugar demand.
 Sugar cane subsector is an important agr o-base d industry to Tanzanias’ e conomy with imp acts to
rural livelihoods of more than 100,000
 The demand gap of 43.4% is met by imports from such countries as Brazil and India.
 The country spends approximately USD 132 million annually on sugar importation (Rabo-bank
report, 2013).
 Sugarcane out-growers earned more than TZS 45 billion annually
 The sector contributing to more than TZS 12.3 billion in government revenue annually.
 At present the four main sugar companies run their processing plants at below capacity level
 Sugarcane farmers are highly taxed due to inefficiencies in the sugar milling industry and/or
excessive power by the sugar mills cause by poor and/or lack of regulations (Nkonya and Hurle,
2013)
 Consumers are also heavily taxed as tariff exemptions do not necessarily translate into low
consumer prices (Nkonya and Hurle, 2012)
 Tanzania sugar market is not protected enough against imported sugar, Tanzania tariffs is (0-10%)
where as the East Africa Community external tariff’s (25%-100%).
Main challenges in the business
environment for stakeholders in Tanzania
sugar sector
 Inadequately
regulated
and
unharmonized practices on rendement
determination, definition of tradable
products from sugarcane, sugar cane price
setting
 Uncoordinated institutional framework
governing sugar importation and
distribution system that culminate into
increased cost of doing business, and
consequently low prices for sugar cane
producers and high prices for consumers.
 Limited processing capacity, inefficiency
cost Excessive processing costs in the four
factories calls for investments in sugar
mills to ensure lower processing costs and
eventually lower domestic prices for
consumers or higher farm gate prices for
cane producers.
Outcome of inadequate regulatory situation
 Three a pproaches are used for rendement determination
 Two di fferent ways are used to determine tra dable products from
s ugar ca ne
 Three different approaches a re used for sugar ca ne price setting i n the
s ector
Costs of lack of and/or poor regulation in the sugar industry
The cost of inadequatel y regulated and unha rmonized pra ctices
observed in the suga r cane value chain is enormous ; in the pas t 10
yea rs ,
 Pri ce di fference and cane was ted has contributed to a total
revenue l oss of a round TZS 20.95 billion to out-growers.
 A total loss of TZS 176 billion Tsh has occurred to suga r value
chain a ctors due to fa ctory ineffi ciency a ccelera ted by la ck of
fa ctory competi veness due to over protection offered by the
current regulation of 40 km ra dius cane reserva tion area.
 Also out growers ha ve lost TZS 5.64 billion from decreased cane
planted a rea by 3000 hecta re in 2009-2012 at Mtibwa a rea onl y
due to competition from company’s estates production.
 There is overprotection of the processing factories by the 40 km
ra di us ca ne reserva tion a rea
 Two va ryi ng sugar distribution systems exist
 Centra lized collection a nd distribution point for l ocally produced sugar
by few ma jor distributors that also happen to be the major s ugar
i mporters
Foregone opportunities due to poor regulatory environment
 The silence gaps in the current regula tion and i nadequa cy in the existing
regime has caused some fa ctories to opera te at onl y 56% fa ctory capa ci ty
res ulting into huge losses over the past 10 years i ncluding: Los s of government revenue, VAT TZS 40.676 bi llion from the s ector.
 Los s to out-growers revenues TZS 40.3 billion
 Los s to millers estates TZS 49.3 billion
 Los s in Cess TZS 171.7 billion
 Los s in Skills development levy (SDL) TZS 750 mi llion
 Further in the past 10 yea rs the industry has los t an opportuni ty for cos t
reduction of TZS 257.07 billion through the current expensi ve ins ti tutional
a rrangement and implementa tion and governance of the suga r
di s tribution services.
 The factories ha ve lost the opportunity for improved cash flow of TZS 76
bi l lion due to poor coordination of s ugar i mportation a nd distribution.
upotevu kwa wadau unaosabishwa na uzalishaji
chini ya kiwango-Mtibwa
4,000,000,000
3,500,000,000
Estate loss in
Tsh
OG loss in Tsh
3,000,000,000
VAT
Outgrowers sugar cane price vs production
costs at Mtibwa
70000
Cane price per tone
Prodn costs+deductions
60000
50000
TZS
2,500,000,000
40000
TZS
2,000,000,000
1,500,000,000
30000
1,000,000,000
20000
500,000,000
10000
0
Years
Years
What should be done? In order to improve the regulatory framework in the sugar industry for strengthening the business
environment in the sector, the following are proposed: Development of rules and procedure harmonizing sugar cane rendement determination with mandatory inclusion in
the cane purchase agreement.
 Declare and implement use of core sampler as mandatory in sugar industry of Tanzania.
 Sugar cane and its derivatives (tradable products) be defined in the Sugar industry regulations and their value be
shared between factories and outgrowers – to be specified in the cane purchase agreement.
 Revise down the 40km cane reservation radius to economically justifiable cane reservation area in respect to current
needs to avoid cane wastage and reduce over protection offered by the current regulation to factories.
 Allow farmers to enter the purchase agreement with any factory around the area.
 Set minimum efficiency to be complied by all factories to avoid unnecessary inefficiencies.
 Establishment of sugar importation control and distribution services (SICDS-Authority). This can be formed in the
arrangement of the Private–Public Partnership arrangement that is more focused and re sponsible for
implementing/facilitating mechanism for
a. Bulk sugar importation
b. Control of timely procurement that does not affect producers, consumers and the factories
c. Intervention on the dishonest business arrangements in sugar distribution that tend to create artificial
scarcity and
d. Monitoring efficiency of the sugar distribution services
The Research and Advocacy is supported by Business Environment Strengthening in Tanzania – Advocacy
Component (BEST-AC)