Sugar prices in Zambia are high says a new report published today from CUTS International Lusaka. However, the report argues that it is not clear what is driving high prices in the sugar sector.
CUTS International Lusaka’s research confirms the findings of other studies, including those by market regulators, which have shown that sugar prices are high in Zambia. Reviewing existing studies on sugar prices the report shows that in Zambia sugar prices are relatively high despite the fact that production costs are comparatively low.
A recent Africa Competition Forum report states that: “… the prices of sugar in Zambia do not reflect the cost advantages and high levels of productivity in that market.” A 2010 study confirmed this and found that the cost of production for sugar in Zambia was $169/tonne compared to a world average of $263/tonne.
The report presents original analysis of JCTR’s Basic Needs Basket (BNB) to show that between June 2009 and June 2014 sugar prices in Zambia have increased by nearly 50 per cent. This means that the price of a 1kg bag of sugar increased from ZMW 5.8 in 2009 to ZMW 8.6 in 2014 – an increase of ZMW 2.8. This trend of rising prices since 2009 is confirmed in a recent Africa Competition Forum report. CUTS International Lusaka argue that high sugar prices add to cost of living pressures experienced by Zambian families.
However, the report says that it is not clear what is driving high prices in Zambia. It argues that previous studies which have suggested that prices are excessively priced are not robust enough to substantiate the claim.
The report from CUTS International Lusaka presents the initial findings from its wider research project that it is undertaking in 2014 which seeks to better understand what accounts for high sugar prices in Zambia. The scoping report identifies three possible factors which could affect prices, all of which will be explored in more detail through further research:
- Costs of production: CUTS International Lusaka argue that previous studies which have looked at sugar prices have failed to sufficiently take on board the production costs across the sugar supply chain. One exception is an Africa Competition Forum report which attempts to account for distribution and transportation costs. However, an extensive exploration of this issue is still required.
- Retail and wholesale prices: The scoping study undertook some preliminary research in three areas (Kasama, Lusaka and Mazabuka) to see if prices were being increased at the retail and wholesale level. The information gathered from this exercise suggests that small scale retailers and wholesalers do not make much profit from sugar sales. Retailers and wholesalers instead use sugar as a crowd puller not a profit making product. As this is based on a small set of case studies CUTS International Lusaka will explore this in further detail in future research.
- Market Structure and Protection: Another factor that might explain high prices is that the Zambian sugar milling market is dominated by one player, Zambia Sugar, which has a market share of about 94 per cent for industrial sugar production and 92 per cent for household sugar. Previous studies have tended to point to Zambia Sugar’s market share as the reason behind high sugar prices in Zambia. However, CUTS International Lusaka suggest that previous studies have produced insufficient evidence to support the claim. For example these studies cite a 2006 report by the Competition and Consumer Protection Commission (CCPC) as evidence of excessive pricing. However, CUTS International Lusaka discussed this with the CCPC who said that while they acknowledged sugar prices are high they have not yet established whether this amounts to excessive pricing. Further research is therefore required to better understand this important issue.
The report also discusses the impact of Vitamin A fortification on the sugar sector. Fortification is required for all domestic sugar. Existing evidence and interviews with key stakeholders undertaken by CUTS International Lusaka suggest that the Vitamin A fortification policy acts as a non-tariff barrier, protecting local sugar producers from imported sugar. CUTS International Lusaka argue that the fortification requirement could be a significant cost driver and a possible barrier to entry for prospective market entrants.
In future research CUTS International Lusaka will explore these different factors to try and better understand why prices are high and what the impact of high prices is having on consumers in Zambia and business. It will also consider what impact a change in the regulatory and policy environment for the sugar sector could have on jobs and investment. We hope to engage all stakeholders – especially sugar producers to see how best we can present an accurate picture of the sugar industry and to address the information gaps highlighted by this scoping research.