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Sugar-Coated Policies? Tanzania's Quest for Sweet Self-Sufficiency
Between Protective Measures and Consumer Demand: A Sticky Situation.
We talk a lot about industrial policy at the GPI. Industrial Policy in the real world is not the wonderful ex post examples of Taiwanese semi-conductors, South Korea’s cars, or Bangladeshi garments. More common than these glamorous long shot varieties are when banal industries that are assisted by industrial policy. Sugar in Tanzania is one of these. There are some costs and there are some benefits but it's very hard to know when one outweighs the other. The benefits are concentrated, and the costs are diffuse. It also happens to be concentrated with people who have seats at the political table, so it's doubly tricky!
The Protectionist Landscape: Tanzania's Sugar Shield
Governments often impose import tariffs and other protectionist measures to ensure there is adequate supply in the case of a global shortage or insure against dramatic food price swings. The sugar industry is a key example of this and often a key political crop as sugar shortages frequently results in civil unrest.
Both tariff and non-tariff barriers create huge incentives for Tanzanian sugar producers. Import taxes of 100% or 460 USD/tonne (whichever is higher) are applied to imports, creating a huge price incentive to produce behind this wall. Of course, many other countries also subsidise their sugar industries, and so these taxes could be considered an anti-dumping measure as opposed to being purely protectionist.
In terms of non-tariff barriers, Tanzania only allows the sale of raw sugar as a product in the marketplace. White sugar has been deemed to give an unfair advantage to imported sugar as higher levels of processing are required for white sugar. So, if you prefer white sugar in your coffee, sorry, you won’t be able to find that in Tanzania, even if you pay the taxes.
From tax breaks to land provisions, Tanzania has rolled out the red carpet to ensure that the Tanzanian sugar industry moves forward. There has been some great progress in terms of expanded production volumes, with large industrial estates and processing facilities being run and expanded by the likes of Kilombero Sugar (primarily owned by Illovo, a large multi-country sugar company), Kagera Sugar, and more recently Bagamoyo Sugar (owned by Bakhresa group, one of the largest conglomerates in the country).
Economic Sweetness or Sour Deal? Evaluating the Impact
Despite all this, sugar imports have persisted over the past 20 years. So, has it all been for nothing? Sugar production has increased from 303,759 MT in 2017/18 to 370,00 MT in 2021/22 (The Tanzanian government has a stated target of 700,000 MT). Although this is an increase of 20% over a 5 year period, it is still not keeping up with demand. Imports of sugar are holding at around 300,000 MT per annum. Was this 20% increase in domestic production worth penalising consumer through reduced product selection and higher prices?
When should (if ever) Tanzania reduce its tariff barriers against sugar? The suite of policies do seem to be increasing the country’s production. And Tanzanian sugar intake will likely only increase as the country becomes wealthier. Current intake is ~29g/day/head, whereas the US tops out the list with 126g/day/person. Kenya, with more or less double Tanzania’s GDP per capita, has similarly double the sugar intake per head. If these trends continue, and eventual consumption tops out at around 100g/day/head with 130M population estimated by 2050, the country will need to expand production by a factor of 12.5 over the next 25 years – if it wants to satisfy domestic demand with domestic production.
The import barriers however are regressive. Sugar consumption is a key luxury good for lower socioeconomic consumers. Rough back of the envelope calculations shows an additional cost to consumers of approximately 200M USD per annum1 , which is just shy 0.4% of Tz GDP. Over the course of the sugar tariff, consumers are being left with a hefty bill to support domestic production. We should caveat that this is likely overstated as a large amount of informal sugar was able to reach the markets, and the price that the importers ended up paying as a tariff was effectively much less due to ad hoc dispensations. Based on current local Tz distribution prices and world sugar prices, the increase in price is closer to 40%.
Another side to this story is how the informal market is supplied a large amount of sugar is imported through special exemptions which are given out on a preferential basis. Some of this comes in for industrial usage, which is then repurposed, other is brought in with reduced taxes to ensure that the volume exists in the marketplace. For a much more detailed discussion, please read the Gatsby report here.
A chewy decision for the Tanzanian government
There are some other positive externalities; a sugar tax is argued as one of the only ways to reduce consumption, and type two diabetes is very much on the rise in Tanzania. We see similar taxes going in throughout the developed world which reduce the negative health impacts of sugar. However, if this is one of the reasons for the tax, it could be much better targeted.
It’s a tough question that the decision makers in the government should be asking themselves, and one that we don’t have answers for: How long should an effective tax of 0.4% of GDP per annum and a lack of choice for consumers be paid for a domestic sugar industry? Especially when many of the benefits are accruing to the voiced and the costs to the voiceless.
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This rough estimate is taken from the total volume of sugar consumed in Tanzania multiplied by 40% of the shipped to Dar es Salaam value (the effective tariff on imported sugar after dispensations and quotas are granted to selected importers). It’s obviously very hard to know the exact cost of sugar protection to the country, but we think that somewhere in the ballpark of this is a reasonable estimate to go on.