When sugar loses its sweetness
On the matter of Illovo Sugar Malawi plc crying wolf over government’s issuance of two sugar import licenses, I submit that government’s stance resonates well with the wishes of the people. The intervention is timely. The price of sugar has to go down to make the sugar sweet again. After all, according to Illovo, its justification for raising the price of sugar on October 22, 2022 was not based on production costs.
Sugar prices went up twice in a space of four months last year. Barely three days after the Malawi Government devalued its currency by 25 percent to a US dollar in May 2022, Illovo Sugar raised its prices by 25 percent effective May 30, 2022. In a statement the sugar manufacturing company said the rise in sugar prices was due to a general rise of cost of production that the company was facing.
The changes saw a 1kg packet of brown sugar selling at a recommended retail price of K1 100, and K1 150 for white sugar. Attributing the price rise to the devaluation, Illovo Sugar Malawi plc managing director Lekani Katandula said the revision had also been triggered by a sharp rise in the prices of fertiliser, fuel, electricity and the cost of growing sugarcane.
Then on October 21 2022, four months after the previous price hike, Illovo Sugar Malawi plc raised the recommended retail price to K1 500 for 1kg of brown sugar and K1 660 for 1kg of white sugar. In a statement the company said the reason for the second raise in the price of sugar was to curb illegal exports of the commodity.
The firm said the May 2022 devaluation of the kwacha by 25 percent made the Malawi sugar cheaper than that for its neighbours namely, Zambia, Mozambique and Tanzania thereby creating room for illegal exportation of the product to the three countries. Illovo added that the illegal exports could result in a shortage of sugar and other products that were also being smuggled.
According to the company, it raised the prices of its sugar to mitigate this risk and ensure that it does not run out of products essential for its daily needs in the country. Said Illovo Sugar Malawi plc in a statement: “We have taken this tough decision to increase our prices in an effort to ensure that Malawians can have reliable and sustainable access to sugar.”
The question to Illovo Sugar Malawi plc is: Was there not a less hurtful way of curbing the smuggling of sugar to neighbouring countries than hiking the prices by a whopping 42.7 percent?
As we can see government’s main contention against the price hikes is the huge hike of 42.7 percent above the rate at which the kwacha was devalued. If the kwacha was devalued by 25 percent, why raise the sugar price by a total of 66.7 percent at the expense of local consumers?
I am afraid to say that this extortionate raise in the price of sugar is a classic example of profiteering common among most monopolies in the country such as the power and water utility companies. Illovo Sugar Malawi plc produces 95 percent of the total sugar production in the country. The new entrant on the market, Salima Sugar, produces less than 5 percent of the sugar traded in the country. So Illovo Sugar Malawi plc is very much in the driving seat of the business and is using this pole position unconscionably.
The irony is that the company has been making these unjustifiable price hikes against the exclusive protection it has been enjoying from government for a long time. For many years, government has literally been bending over backwards to make sugar trading in the country a preserve of Illovo Sugar Malawi plc.
The 42.7 percent increase in the prices of sugar above the devaluation rate was totally unjustified and borders on unfair trading. Whence the Competition and Fair Trading Commission? This is unbridled abuse of the monopolistic powers the sugar manufacturing and trading firm has over the sugar industry in the country.
But it also shows the absence of camaraderie between the Ministry of Trade and Industry and its stakeholders in general. Illovo Sugar Malawi plc and government should have been talking to each other. The ministry exists to provide policy direction so that there is a win-win situation for all players and stakeholders in the industry such as traders and consumers. When Illovo Sugar Malawi plc discovered that its product was being smuggled to neighbouring countries on account that it was cheaper than that of its neighbours, it should have raised the matter with government for a solution beneficial to all players. Only after such a route failed to quell the situation should Illovo Sugar Malawi plc have made the decision it took. Every action has a consequence, positive or negative. Now government and Illovo Sugar are fighting because something did not happen at an earlier stage.
My concluding sentiments are that Illovo Sugar Malawi plc should reduce the price of its sugar by an average of K350 per 1kg packet to make their product sweet again.
