Rwanda: Madhvani Group Speaks Out on Plans to Satisfy Country's Sugar Demands

Sugar

In recent years, sugar production in the country has not matched supply which has in turn had an impact on the trade deficit.

For instance Kabuye Sugar Works, the largest producer has a capacity of about 14000 tonnes annually against a demand of an estimated 80,000 metric tonnes annually.

Madhvani Group, which owns the plant say that they are undertaking an expansion drive which will see the plant increase production capacity.

Farhan Nakhooda's group project director's Excerpt:on the expansion, projections and insights into agricultural investments in Rwanda.

Last year, you expressed interest to expand your operations in Kabuye Sugar Works to increase production capacity. How far with the expansion?

The first phase of the expansion will end in the course of this year. The second phase begins mid this year and will run for 3 to 4 years.

The design work for Phase 2 is going to be very different, for Phase 3 which we are already exploring and have asked for additional land, we have commissioned a survey on who is currently using the land and what scheme of development we will propose for it.

Till that survey is completed, it is difficult to draw complete timelines because that will depend on the timelines, terrain, and irrigation required.

What will be the capacity of the plant following the expansion in the various phases?

The capacity of the plant will increase to 21,000 tonnes of sugar at the end of Phase 1. We are currently producing 14,000 and we will go up to 21,000.

You might not see it immediately because at the end of Phase 1, the land will be ready for planting, then it will take another 18 months or so to mature.

So while the project work will be complete at the end of 2017, we will need about 18 months before the cane is ready to have the sugar out. From phase 2 we will get to 28,000 tonnes by an additional 7 000 tonnes.

The country currently has a demand of about 80,000 tonnes of sugar per year, what are your projections on how much imports could be reduced?

This will reduce the quantity of imports but it will not eliminate them. For that additional land has to be made available for cultivation. Our intention with the land that we have and what we have requested for is local consumption.

In the country, you mostly use a Public Private Partnership (PPP) model, have you found this to be effective?

We have found the PPP model very useful in the case, the land we have been allocated is not a contiguous parcel, we have farmers land, then our land. We have to work jointly with local farmers to do it.

To get the full participation of the farmers through the assistance of local administration and the Ministry of Agriculture makes a big difference. By doing it as PPP we ensure that farmers benefit, cooperate and participate.

We have formed nine cooperatives in the last 2 years and we have formed seven water management associations. The system we have designed has drains which run through our land and farmers land.

If the farmers do not maintain their portion, the system will not work, the responsibility of the associations is to make sure that the farmers maintain the part of drain that runs through their land wherever there are flood gates which are slightly higher technology so we maintain the flood gates. Farmers are willing to pay to the associations a small fee so that the system works.

Have you had any efforts to help farmers living around your plants to do better in terms of output?

We certainly help improve lives of people who are living around the plant.

In phase 2 we are looking at slightly different technology for transportation along the Nyabarongo River by barges, right now cane is transported on wooden canoes but we plan to have large steel mechanised barges.

So that will greatly improve the rural access infrastructure that can be used by the surrounding communities.

While the barge can be used one way to transport cane, on the return journey, it comes back empty, if that community needs to transport produce or inputs, they can use that empty capacity of the barge. It should directly benefit the community.

What is the profitability and viability of such ventures in Rwanda and the region based on your experience?

These are long gestation projects; they are viable in the long run. They are viable for investors who are not looking for returns tomorrow. In Uganda, we have been in business for about 100 years, we have a different appetite for risk and we look at long time gains.

Over the years, the projects are viable and you contribute to the economic gains of countries you are working in. I would say the same for the rest of the region.

In your initial proposal, there were plans to produce about 12 megawatts which would be added to the national grid. Is that still the plan?

We are meeting the Ministry of Infrastructure and we are talking to them about the government's willingness to buy power that we generate. There is capital investment in putting up the plant.

If there is no guarantee in finding a buyer, we will put up a smaller plant. If the ministry and the Rwanda Energy Group say that they will buy from us, we will be ready to make a higher capital investment and supply the power.

In your close to 20 years of working with the government, how can you rate them as partners?

We have seen that the government is very supportive and is receptive to new technologies and there is genuine commitment to improve lives of the common Rwandan.

That encourages us that if we are investing in projects such as this one that have benefits to ordinary Rwandans, it is sustainable. We are not only investing in a project to reduce sugar imports and benefit farmers as well.

Do the global prices of commodities worry you considering it's at a time when you are increasing your capacity in the country?

Actually in the last one year, sugar prices have gone up by at least 50 per cent, commodity prices have gone down are largely for oil and metals, which are imported by large economies such as China and India.

Those have gone down. But the sugar industry is very cyclical. Right now we are in a state where the demand exceeds supply and therefore the prices have gone up, there is a steady increase in demand per year globally but production capacity has not gone up.

That is why we are seeing an increase in price.

As a player in the sector, what is your observation of the regional sugar sector?

The community does need to invest in increasing sugar prices. If you look at Africa as a zone, North Africa imports, East Africa Imports, West Africa imports, it is only Southern Africa that exports.

If you add up all this, Africa as a whole is a net importer, till we address this as a bloc by increasing production, the trend of deficit could continue. There is a potential for expansion for the sugar industry.

The industry also generates large volumes of employment; it gives small farmers economic activities to do and has other benefits which crops do not have.

How can regional governments change the status quo?

The governments need to have a good sugar import policy. What happens is that international companies dump sugar when they have a surplus, they sell the extra at marginal costs.

That world market of sugar is determined essentially by marginal costs not the actual costs of production. In the community (EAC) there is a tariff regime, whereby there is a certain import duty applied so that we are protected from this dumping.

Dumping provides revenue to farmers outside not the local market. We need a policy which will encourage local production.

Quite often, you work with smaller holder farmers, is it inconveniencing?

It is always a challenge to work with small farmers but the main benefit is that there is a lot of self-fulfillment when you see the value that you are adding to a community.

It has really developed our project and we have taken very concrete steps to improve relationships with farmers. Some of our farmers have gained a lot and have become trainers for others and have improved yields.

Does the technology use in sugar production affect the levels of produce and what new technologies are you set to adopt?

The basic sugar production technology has not changed, when you add on power, it requires more modern technology to be able to supply to the grid. That improves the value addition to the process.

Similarly if you are going to make alcohol from the molasses that is left behind. Our plant will incorporate new technology both for power generation and alcohol production.

Previously there was a lot of manual work, now there is a lot of automation. But when you do automation it is important to ensure a balance so as not to reduce employment.

We want to balance both.