Responding to an anonymous tip via the toll-free 8478, the investigation team at the Trade Competition and Consumer Protection Authority sprang into action earlier this month.
The informant relayed a tip that a truck carrying 180 quintals of sugar has been smuggled in to Addis Ababa from Dire Dawa.
Subsequently, the general manager and board members of the company (name withheld as the case is still under investigation), were brought in for questioning.
At a time when a constraint in supply of sugar is gripping the nation, such trade practices become more frequent. The practice ranges from price hikes, hoarding and transporting the commodity outside the authorized distribution route to the impossible task of making “honey” out of sugar, which is later sold as genuine honey.
Sugar is one of the essential commodities whose price and distribution is closely regulated by the government. Although businesses are often singled out as the prime culprits and held accountable for the unlawful trade practice, their profit maximization effort is often in response to a problem from the supply line. The recent shortage of sugar is also a result of a miscalculation by the Ethiopian Sugar Corporation (ESC) which resulted in the delay of import of sugar into the country.
“We expected Tendaho Sugar Factory to start production last year,” Zemedkun Tekle, corporate communication director at ESC, told The Reporter. Tendaho, whose project launch predates ESC’s establishment, was expected to enter production during the first half of the 2013/14 budget year.
“When we made the projection [at the end of the 2012/13 budget year], the project was over 99 percent complete. We did not expect the 0.0 something would cause this much delay in production,” Zemedkun added.
The factory, whose construction began in 2007, was enabled by a USD 400 million line of credit from the EX-IM Bank of India with India’s Overseas Infrastructure Alliance (OIA), which is largely blamed for the delay, awarded to undertake the project in a turnkey contract.
With Tendaho in mind, ESC boldly announced that Ethiopia is edging closer to becoming sugar self-sufficient and claimed that the country will seize to import sugar as of the 2013/14 budget year.
However, delays at Tendaho coupled with ceasing of production at Fincha Sugar Factory, the largest sugar producing factory at present with daily output of over 10,000 tcd (tons of cane per day), resulted in an unexpected shortage in the supply of sugar causing panic in the market.
Currently, Ethiopia produces sugar from three sugar factories – Fincha, Wonji and Metehara. But these factories stop operations and conduct maintenance during the rainy season particularly from July to September with imports filling the gap in supply.
However, Fincha Sugar Factory ceased production two months prior the timetable due to untimely rain with mud making it difficult for vehicles to transport sugarcane from the plantation to the crushing plant.
“There was no sugar from Fincha - a factory which was producing nine thousand tons of sugar per day at the time - until October this year,” Zemedkun told The Reporter. The other two factories also resumed production as of mid-October.
Had it gone according to plan, ESC would have filled the gap in supply during the rainy season from the Tendaho Sugar Factory. As the factory is located in the arid Assayita town of the Afar Regional State, productions can be carried out all year round.
The constraint in supply led to a depletion of the country’s sugar stock, which at one point was as low as 80,000 quintals, according to a city government official. This stock was not even enough to meet the monthly quota of Addis Ababa which stands at 102,000 quintals.
“Addis Ababa was accorded a special attention and the stockpile was almost entirely supplied to the market in the capital,” Gemechis Melaku, head of the Addis Ababa Trade and Industrial Development Bureau, told The Reporter.
Whereas industries and regions were forced to remain without supply of sugar for some time, the constraint in the capital led to all sorts of unlawful trade practices including smuggling sugar out of the city.
In a frantic attempt to adjust the supply of sugar, the country, initially, ordered the import of one 100 thousand tons of sugar which arrived in July this year.
“The market was starved, so the import was quickly sucked up,” Zemedkun said. A further 60 thousand tons of sugar arrived in the country in September and November. But the market is yet to stabilize with Trade Competition and Consumer Protection Authority still grabbling with cases of unlawful trade practice in the retail of sugar.
“It is the hangover effect of the shortage. It should stabilize soon,” Zemedkun forecasts.
Before the infamous move of introducing “price cap” by the government, in June 2010, the Ministry of Trade devised a scheme to regulate the price and distribution of sugar and other essential commodities such as wheat and edible oil. The scheme also introduced a quota system on the basis of population size, which is continuously revised.
Based on the designated quota, Addis Ababa Trade and Industrial Development Bureau can receive up to 102,000 quintals of sugar every month while industries get 124,000 quintals.
Regional states including the City Council of Dire Dawa are allocated a total of 402,153 quintals every 45 days and the purchase and distribution is handled by the Merchandise Wholesale and Import Trade Enterprise (MEWIT). Oromia Special Zones get some 10,700 quintals every month and a half.
“The sugar we import is highly subsidized by the Ethiopian Sugar Corporation. That eats up the investment capital we would otherwise have used on sugar development projects,” Taitu Ali, acting director-general of ESC’s Marketing Division, told The Reporter justifying quota system and the need to closely regulate the distribution and price of the commodity.
The purchase is done by submitting a request letter and effecting payment to ESC’s Marketing Division, whose headquarters is located off Chad Street on Philips Building around Mexico.
The Addis Ababa Trade and Industrial Development Bureau said it has distributed a little over 259,000 quintals in the first quarter of the budget year. Latest figures from the MoT also reveal that the bureau effected purchase of some 77,000 and 101,800 quintals of sugar for the month of October and November.
The distribution channel to the level of end-users in regions is largely carried out by regional trade bureaus. In Addis Ababa, the trade bureau relies on consumer cooperatives set up in all 116 weredas and Et-fruit. The cooperatives directly sale to end-users and retailers in a 20/80 ratio with 80 percent of the sugar supplied to retailers while the remaining amount sold directly to consumers. VAT-registered service providers get their sugar from Et-Fruit.
However, the distribution channel is not without its problems. According to Yosef Getachew, investigation and prosecution director at Trade Competition and Consumer Protection Authority, large number of unlawful trade cases indicates malpractice by consumer cooperatives.
“A number of cases show conspiracy between traders and cooperatives,” Yosef told The Reporter.
The Addis Ababa Trade and Industrial Development Bureau, which oversees the activities of the cooperatives, largely blame traders for gaps in distribution. However, it also admits loose controlling and supervision mechanisms as another contributing factor.
“However, we cannot be at every retail shop. We expect the consumer to be a watchdog but that has not been to our satisfaction,” Gemechis, head of the city trade bureau, said.
In a bid to motivate informants, a directive entitles tipsters a fee amounting to 30 percent of the property which is a subject of the unlawful trade practice.
Prolonged procedures to purchase the sugar and the 20/80 ratio which favors retailers are considered as contributing factors for the distribution gaps which may need a revision, according to Zemedkun.
GTP vs reality
Ethiopia’s ambitious goal set under the Growth and Transformation Plan as one of major sugar producing countries in the world by 2015 now appears unrealistic. The government had planned to raise the annual production of sugar to 2.25 million tons by the end of the GTP period (June 2015). Besides satisfying the domestic demand, some 1.24 million tons were expected to be exported generating 661.7 million dollars annually.
However, ESC’s projection for the current budget year is more conservative. The corporation projects the annual production to reach 1.2 million tons. The sugar production can expect a boost when Tendaho Sugar Factory, which will crush 13,000 tcd at full capacity, and Kessem Sugar Factory, with an initial capacity of 6,000 tcd, begin operation this year. According to ESC, both factories have entered testing phase.
Prime Minister Hailemariam Dessalegn, while presenting his government’s quarterly report to parliament, said the country will be able to finish seven of the ten sugar projects currently underway. Besides Tendaho and Kessem, the projects include Tendaho II (13,000 tcd), Arjo Dediessa (8,000 tcd), Kuraz I (12,000 tcd) and two factories at Tana Beles , with a combined capacity of 24,000 tcd.
“We will soon evaluate where exactly the progress of each of these projects are to determine whether we can achieve them all,” Zemedkun told The Reporter.
With a boost in domestic production expected this year, ESC’s plan for the budget year earmarked 600,000 tons of sugar for export. If not the export, ESC is confident that the 60,000 tons of sugar imported during the current budget year will be the last.
Meanwhile, without adequate supply of sugar, investigators and prosecutors at the Trade Competition and Consumer Protection Authority, tasked with a broader responsibility of ensuring market transparency, continue to be inundated with cases where unlawful trade involving sugar as little as 50 kg being reported to the authority.
This budget year alone, nearly 500 quintals of sugar has been confiscated with traders punished with fines and imprisonments.