Sugar prices in Zambia high but not excessive-CUTS

A new report by the Consumer Unity Trust Society shows that although domestic sugar prices are high, they are not excessive.

The report also shows that the margin made by cane farmers does not seem to be excessive and therefore, there is no reason to suppose that high shelf prices are caused by farmers.

It also pointed out that the cost of fortification Vitamin A appears to be extremely low, with one Sugar Company saying the cost of fortification to them is currently 5 Ngwee per Kg.
It charges that the cost of fortifying sugar in Zambia is not responsible for the apparent higher prices charged.

‘In addition, CUTS feels that the fortification policy – whereby all sugar sold for household use in Zambia must be fortified with Vitamin A– is a barrier to investment and investors have been unable to infiltrate the market, as entrants in the market may need to invest in fortification equipment. However if the fortification policy is removed, this could put Zambian jobs at risk, as it would allow for easier imports,’ it said.

The CUTS study was however was unable to identify refining costs although comparisons between Zambia Sugar and Kasama Sugar support the possibility that the former charges up to K 1 more per 1 Kg bag of unrefined household sugar than it might if competition in the sector was stronger.

It noted that the pricing of sugar varies and there is some level of price competition among players.

It showed that Kasama prices its sugar around K 5.50 while a 1 kg Zambia Sugar is pegged at K 6.80 per 1 kg.

‘Prices are actually negotiated between the sugar producing companies and suppliers/wholesalers and the level of bargaining power and quantities being bought has a huge influence on the prices. The larger buyers use bulk purchases and their retail clout to push prices down,’ it said.

It stated that average transport costs around the country from Mazabuka may be in the range of 30 Ngwee per KG.

‘This may contribute to greater prices than in other regional countries with lower transport costs (not including transporters’ margins) but it cannot be the cause of all of the difference,’ it said.

‘Over 95% of the costs of production for sugar producers are locally sourced and the devaluation of the Kwacha, we assume, should cushion the pressure against exports that Zambia Sugar, being the only exporter, feels with the drop of the world sugar prices on the export market.’

The report also said that Zambia is a low cost producer and there is no reason why sugar prices should be similar (in US$ terms) to a country like Botswana that imports Sugar adding that on-farm sugar productivity is high in Zambia.

CUTS also suggested that Zambia should facilitate investment in the sugar sector, as this would bring jobs to Zambia.

‘During this study CUTS learned through interviews with a sugar producer that there is actually a fourth sugar producer which is a recent entrant in the market but is yet to start production,’ it said.

‘Certainly if the Government wanted to adopt a market-orientated approach (rather than an interventionist one) to reducing sugar prices, encouraging or facilitating this kind of investment could be recommended.’

It also suggested that Government should open the market to imports by dropping the vitamin A fortification requirement but that this has to be driven through a quota system.

It also called on Government to facilitate investment in domestic sugar production.