Maravi

SPAZ justifies high sugar prices

SPAZ justifies high sugar prices
Written by Kabanda Chulu
Tuesday, September 01, 2009 4:18:05 PM

HIGH sugar pricing in Zambia is a reflection of the increasing operationcosts incurred by individual companies, Sugar Producers Association of Zambia (SPAZ) has indicated. The sugar producers argue that the absence of costs associated with local sales such as taxes, marketing, transport and distribution help to lower the price of exported sugar.

They further stated that the price of sugar reflects the country’s high production costs compared to the region such as wages, electricity, cane payments, fuel, transport services and social costs that they say had been increasing every year.

Several stakeholders, including the Parliamentary Committee on Economic and Labour Affairs, the Zambia Competition Commission and several manufacturing companies, recently accused sugar producers in the country of having monopolistic behaviour and operating like a cartel to exploit the domestic consumers.

But in statement released last week, SPAZ dismissed the assertions and argued that local market sugar pricing was driven by the huge costs of production, whereas the price charged for export markets did not reflect the cost of production of even the most efficient producers.

“As a result, export sales are made on the basis of all surplus producers, including Zambia,” it stated.

SPAZ explained that local sugar pricing included packaging and distribution costs which accounted for almost a quarter of the list price.

It stated that domestic consumption of sugar attracted value added tax (VAT) which increased the prices of sugar by 16 per cent while the regional VAT standard rate was below 12 per cent.

“Sugar cane growing and processing requires huge capital investments and the sugar industry is a high fixed cost business and the operations of both cane growing and sugar processing are to some extent financed by bank borrowing and the cost of borrowing in Zambia is very high as compared to the region,” it stated.

However, SPAZ stated that based on bulk purchase arrangements and long term contracts, industrial sugar users negotiated discounts on consumer price with various incentives given on account of volume, terms and quality.

Under the export market pricing for the region, the export price of household sugar from Nakambala to the Democratic Republic Congo (DRC) for example is approximately US $ 530.00 per tonne (about K3 million).

It stated that after transport and import taxes, sugar lands in Lubumbashi at approximately US $866 per tonne. And in most cases after all local charges and margins are included, sugar in the DRC is retailed in the region of US $920 per tonne (about K5,200 per kilo gram or K5.2 million per tonne).

And for the Great Lakes Region, the export price of brown sugar from Nakambala is approximately US $500 per tonne. After transport and import taxes, the sugar lands into Kigali (Rwanda) at approximately US $1,153 and is retailed in the region of US $1,200 per tonne or K6,840 per kilogramme or K6.8 million per tonne.

It stated that EU raw sugar prices paid to Zambia on a delivered basis range from 497 euros to 523 euros per tonne, which was equivalent to a net price of about US $600 to US $630 per tonne or an ex-factory price of K3,600 per kilo gram or K3.6 million per tonne.

“These are favourable prices considering that exports attract duty draw back and considerable value accrues to Zambia through foreign exchange earnings and enhanced employment opportunities arising from growing sugar cane and processing it for exports,” SPAZ stated. “Recently, we have received serious enquiries from Zimbabwe to purchase raw sugar at very competitive prices and this has been possible because the sugar industry in Zambia has been managed in a sustainable manner in contrast to that of Zimbabwe.”

It stated that the domestic market was small compared to the installed capacity of the sugar industry, thus making exports unavoidable.

“With completion of the expansion programme at Zambia Sugar, we expect to produce in excess of over 460, 000 tonnes of sugar and the domestic market is less than 150,000 tonnes per year, so in order to cover the high fixed costs associated with the sugar industry, Zambia Sugar will export two thirds of its sugar production to the regional and the EU markets especially that export markets are critical as they help the sugar industry cover the large portion of fixed costs which cannot be borne by the domestic market,” stated SPAZ.

Labels: INFLATION, SUGAR, SUGAR PRODUCERS ASSOCIATION OF ZAMBIA

posted by MrK @ 3:20 PM