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Food, beverage manufacturers under threat over 60% sugar tariff

By on February 26, 2013

The 60 percent effective tax on imported raw sugar is crippling manufacturers who use the product in their production process, BusinessDay has learnt.

Prior to now, duty on imported raw sugar was 5 percent and there were no further levies on the product. But government, in its 2013 budget proposal, indicated an increase of duty on sugar to 10 percent, in addition to a levy of 50 percent, bringing cumulative tax on sugar to 60 percent. The new tariff regime has since been effected at all entry points, despite the budget not having been signed into law.

BusinessDay learnt that the tariff increase is part of the National Sugar Master Plan (NSMP), which approved fiscal tariff for the period of 2012 to 2020. The NSMP specifically recommended  5 percent duty  and 0 percent levy for 2012, with graduated increases starting from 2013. For 2013 it recommended 10/50 percent in duty and levy; 2014/15 – 10/70 percent; 2016/18 – 10/80 percent;  2019/20 – 10/30 percent.

President Jonathan, in his budget speech, stated that these policies were to provide supporting fiscal policies to help agriculture and the local industry, and to protect investments in the local sugar refineries and sugar estates, as well as encourage new investments in local refining capacity.

This high tariff regime on raw sugar is currently a cause for grave concern to industry operators, who  have cried out that if urgent action is not taken to reverse the policy, manufacturers that use sugar as raw material will be forced to shut down operations within weeks.

The argument being made by industry watchers is that since local supply cannot meet the current demand for raw sugar for installed plants, government should wait a while to give more time for local production to meet the demand.

Informed industry sources told BusinessDay that Dangote Sugar Refinery Plc and BUA have stopped delivery of sugar to their distributors and other buyers, while those who now have lean stock are rationing and selling at over N10,000 per 25 kilogramme bag.
Big buyers like Nigerian Breweries Plc, Nestle Nigeria Plc, Cadbury Nigeria Plc, etc, are however  enjoying some respite now, because they have outstanding commitments with suppliers who are still supplying.

Yusuf Ageni, Nigerian Breweries’ public relations adviser, told BusinessDay, “We do not buy directly. We have commitments with suppliers who are still meeting these commitments.”

But for how long will these suppliers who now bear the brunt of soaring sugar prices, continue to supply? This the question close observers are asking.

Bread bakers and other confectioners  will soon run out of sugar, BusinessDay has learnt. The implication is that it will result to plant shutdowns and job losses.

Obi Ezeude, CEO and managing director, Beloxxi Industries Limited, a biscuit manufacturing company based in Agbara Estate, in Ogun State, said last week, that Dangote stopped supplying raw sugar to its factory in Apapa because of the new tariff demand, as vessels carrying the company’s  raw sugar cargo are stuck at the  Apapa Port.

Ezeude is particularly worried because only recently, Dangote advertised dropping the price of a 25 kilogramme bag from N9,600 to N6, 600. “We were happy about this because it meant a lot of savings for us. In a year alone, based on our consumption, Beloxxi would have saved N61 million on sugar alone.”

BusinessDay learnt that a meeting has been held on the matter, between government and industry stakeholders, the Manufacturers Association of Nigeria (MAN) and Food and Beverage manufacturers, where a compromise was reached.  The parties agreed on 50 percent tariff which will be introduced at 10 percent annually over time, and that an administrative window would be created for this. But since January, the private sector party has been demanding for a document stating the agreed terms in vain.

BusinessDay gathered that MAN had in September 2012 reviewed the tariff issue and made their recommendation to Ngozi Okonjo-Iweala, the finance minister and it was expected that their input would be reflected in 2013-2017 Tariff Book.
Kola Jamodu, president of MAN had explained then, that the general principle guiding the determination of duty should include the objective of promoting and achieving sustainable backward integration, employment generation, industrial growth and value addition, all tailored towards the overall wellbeing of the Nigerian economy.

It is clear that the Federal Government move is a spin-off of the NSMP, a product of the National Sugar Development Council (NSDC) and the Trade and Investment Ministry.

Nigeria depends almost exclusively, about 90 percent, on raw sugar imports, shipped mostly from Brazil, which are then refined by the local domestic sugar industry. The bulk of Nigeria’s refined sugar supply also comes from Brazil. Nigeria’s raw sugar imports in MY2011/12   were estimated to rise to 1.5 million tons, unchanged from MY2010/11. In MY2009, Nigeria imported 1.2 million tons of raw sugar and only 100,000 tons of refined sugar.

Two major companies refine sugar in the Nigeria: Dangote Sugar remains the dominant player with a refinery capacity of 1.44 million tons, followed by BUA Sugar Refinery with a capacity of 720,000 tons per year. The combined capacity of  both refineries is 2.3 million tons of sugar per year, far exceeding national consumption, estimated at 1.4 million tons. More investors, one of which is Flour Mills of Nigeria, plan to establish sugar refineries, despite overcapacity.