Sugarcane Economics

I was in Jinja recently scouting for land to acquire. I was eventually led to a small town called Mutai along Kamuli Road. As we drove a few kilometers off the road I noticed an interesting trend. I saw several trucks idly parked along the road. I also noticed several fairly well built houses for a rural setting. When we reached the proposed land I noticed an overgrown sugarcane plantation. Most of the neighboring land had sugarcane as well.

This region is infamous for sugarcane growing. Many households have become overly dependent on sugarcane production as their main source of livelihood. This has been helped by the proliferation of several sugar factories like Kakira Sugar, Mayuge Sugar, Kaliro Sugar, Kamuli Sugar, GM Sugar, etc. Many of the farmers are small scale out growers.

I inquired from my broker why they were so many idle trucks. He told me that things have not been good recently for the sugarcane farmers. “You know people made a lot of money from sugarcane back in the day. There were many factories which were competing for sugarcane and the prices were good. People built houses, educated their children and invested in more plantations. Then there was a gold rush and everyone who could find land anywhere starting growing sugarcane. Now there is too much production and little demand. Prices have fallen. The factories are now rationing purchases. You first have to get a permit to supply sugarcane. To make matters worse our nearest factory, Kakira Sugar, is closed for maintenance till end of the month. That is why you see idle trucks and this sugarcane drying up in the garden.”

“Is this the reason this person is selling this land?” I asked. “Partly,” he responded. “The owners are siblings who inherited this land from their late father. They all now stay in Kampala. They leased this land to this person for five years to grow sugarcane. So this person is supposed to harvest three times before handing back the land to the owners.” “So what happens if I choose to buy this land?” He replied that in that case the owners would pay off the lease interest from the proceeds of the sale.

I noticed several small scale plantations all around. There were a few gardens with food crops. The allure of large sums of money has driven some people to either lease their land for paltry sums or to allocate most of their available land to sugarcane production. Some people have even sold most their land to the big out growers. 

As I listened to my broker I reflected on the economics of sugarcane production. The market is controlled by the big sugar factories who can literally control the price of the cane. A small scale farmer really has no control over what price to charge. It would help if the farmers were organized in some kind of corporation which could lobby for their interests. To fully control the supply chain the farmers would need to own the production plants themselves. So the farmers eventually need to organize themselves and transition into manufacturing and marketing of the sugar. The cane can be used to make all sorts of things and not just sugar. It can even be used to generate electricity. There is also need to explore regional and international markets. At an individual level there is also need to diversify the economic streams for individual farms. A farmer would do well to have a mix of different crops and animals including cattle, matooke, coffee, chicken, goats, etc. This way they can withstand the whims of the market fluctuations from sugarcane.

As we drove away I could see that the market was doing what it always does for any commodity. Early handsome profits drive many people into a certain trade. As more people join the profits dwindle. There is consolidation usually at the processing or production level. A squeeze of the market forces the small players out. A few monopolies emerge. There is a public outcry mixed with politics. The politicians arrive and make attempts at regulation. If the industry becomes too critical for an economy there is full blown regulation. At this point only a few players with economic muscle remain to control the industry.

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