Zimbabwe’s sugar industry is being hampered by a monopoly and a combination of policy and value chain inefficiencies which have rendered locally produced sugar and related products uncompetitive for export market, according to the National Competitiveness Commission (NCC) sugar value chain report.
Currently the price of locally produced sugar averages US$738 per tonne, above SADC average of US$500.
The NCC is interrogating value chains of strategic sectors to understand the cost drivers with the hope of making local production competitive.
According to the report, the sugar industry is a monopoly with Tongat Hullet subsidiaries of Hippo Valley, Triangle Limited, Zimbabwe Sugar Sales and Fuel Ethanol Company of Zimbabwe dominating all levels of the sugar value chain.
In the Milling of sugar cane for instance, Zimbabwe only has two milling companies, Hippo Valley and Triangle Limited which are both affiliated to Tongaat Hullet and they dictate the Division of Proceeds (DOP) ratio for milling out growers’ cane.
Out growers have long been pushing for the review of the current 77:23 ratio in their favor arguing that the 23 percent of proceeds to the millers remain too high a premium and affect viability.
This is worsened by the fact that the DOP ratio only accounts for sugar sales whereas in other countries the DOP ratio also considers other buy-products such as molasses.
“The monopoly has its own challenges. In Zimbabwe we only 2 sugar can miller and are affiliated to Tongaat Hullet. In other countries such as Egypt, which has 15 companies in the sugar industry offers 15 mills and competitive pricing,” said Dumisani Sibanda , NCC chief economist domestic competitiveness at the launch of the report this morning.
Zimbabwe is one of the 88 countries in the world that produce sugar and is ranked 17th globally, 9th in Africa and 4th in the SADC region.
However, the sector faces several challenges which continue to push the cost of production up.
The report notes the high interest rates in the domestic borrowing market as problematic with rates ranging between 40 and 60 percent against 13.2 percent in Mozambique, 8.5 percent in Zambia and 3.4 percent in South Africa.
The report further highlighted outdated and dilapidate canal infrastructure being used by out-grower farmers in Chiredzi for watering their crop which has resulted in dwindling yield per hectare.
The report also established that Zimbabwe is one of the world’s nine countries that fortifies its sugar with Vitamin A, which is an added cost.
“The cost of Vitamin A is US$ 9-10 per tonne. So this is an added cost on production which policy makers should really look into,” said Douglas Muzimba, NCC chief economist international competitiveness.
Other uncompetitive factors identified by the report includes, an inefficient railway transportation system, higher than regional average cost of fuel, electricity cuts and the limited number of milling centers which leads to longer distances being travelled by out-grower farmers to access milling services.
