Economic analysis of Tanzania's sugar industry: the case of Kilombero sugar company

Abstract

Whereas the potential for increased sugar production exists, Tanzania imports sugar. Production targets set have never been realized. Increase in sugar production has failed to match the corresponding increase in consumption. with rapidly growing demand for sugar in Tanzania, there is a need for increasing production. This study set to give an economic analysis of the sugar industry in Tanzania, using Kilombero Sugar Company (KSC) as a case study. The study was aimed at understanding the major problems facing the industry with respect to production and processing of sugarcane. A survey approach of a randomly selected sample of 41 outgrowers was used, while for the nucleus estate and the factory, data sources were based on secondary information. The production function approach and the production costs and returns analyses were used to assess the productivity of outgrowers' farms, the factory and the estate, while the factory cost function was for determining the economic capacity of the factory. The study revealed that Kilombero outgrowers are faced with many problems which tend to lower their productive capacity. These included poor drainage, low levels of fertilizer and herbicides use, lack of extension services, lack of credits, food shortage, poor services from KSC, poor sugarcane pricing, poor road networks and inadequate farm machinery. Using official prices, returns on sugarcane were higher and resources were efficiently utilized than in paddy enterprises. Resources in sugarcane processing were found to be inefficiently utilized, and there were excess capacity problems in the factory. Reasons for excess capacity included downtime, old age of the machinery coupled with poor services, lack of lack of sugarcane haulage equipment, decline in TCH (tonne cane/hectare and poor ex-factory pricing. The estate had higher yields compared to outgrowers' farms. However, both yields were lower compared to other sugar estates in East Africa. Production costs were higher in the estate than in outgrowers' farms. Gross margins in the estate were positive but due to high overhead costs, the net returns were low in ratoons and negative in plant cane. It was recommended that extension services and the services provided by KSC be improved. Financial institutions should extend their credit to farmers. Outgrowers should increase their yields, by improving crop husbandry and considering the use of animal power. The government is advised to allocate enough foreign currency to KSC in order to finance the purchase of spare parts and machinery. However, KSC management should improve efficiency of resource utilization by reducing production costs and improving yields. Reduction in the present average ex-factory price of sugar was found as one way of encouraging KSC to operate at economic capacity.