The government ended the sugar production and import subsidy scheme at the beginning of the new year. The removal of the subsidy, which had been in force for a decade, means a five Birr retail price increase for each kilogram of sugar.

A letter sent from the Ministry of Trade & Industry to the Ethiopian Sugar Corporation on September 15, 2020, has increased the factory gate price of the commodity from 15.54 Br a kilogram before value-added tax (VAT) to 20.54 Br.

The increase was made due to rising production and the cost of importing sugar, according to Eshete Asfaw, state minister for Trade & Industry.

"It's not meant to make profits," he said. "It's to stop the losses the Corporation has been incurring and make it at least cover its costs."

With the previous pricing scheme, the government was subsidising the Corporation, which carries three billion Birr in debt from the Commercial Bank of Ethiopia (CBE) for imports of sugar, to provide the commodity to consumers at an affordable price, according to Eshete.

With the amended price, a quintal of sugar at the factory gate will be sold at 2,250 Br for consumers and 2,456.50 Br for industries. The latest price change is the fourth since the government took control of the price and the sugar value chain.

A decade ago, due to market disruption caused by inflation and international sugar price increases, the government suspended the auction system, assumed authority of the value chain and the price, and established the Ethiopian Sugar Corporation. It was established as a state-owned enterprise and sources finance through the Sugar Development Fund, taking on loans with the government's guarantee.

For the past couple of years, the Corporation has been producing and importing sugar while state-owned wholesale and import trade enterprises have been distributing the commodity. In addition to the production, the Corporation transports sugar to its storage facilities located in Wonji, Metehera, Qality and Fincha. Regional states then distribute the sugar based on the quota allocated by the Ministry.

The Industrial Inputs Development Enterprise serves as a wholesaler by channeling the sugar to retailers. Consumer cooperatives, Ethiopian Fruit & Vegetable Marketing (Etfruit) and other private retailers get their sugar from the Enterprise. With the distribution system, each household can purchase up to five kilograms of sugar each month for a fixed price. The latest price was 20.40 Br a kilogram and jumped to 25.54 Br after the subsidy removal.

Since the establishment of this value chain, the factory gate prices of sugar have changed three times. In 2013, a quintal of sugar was 1,100 Br, and it was increased to 1,400 Br after two years. The last change was made in 2018, when the the price increased to 1,642 Br a quintal.

Imported and locally produced sugar from Wonji, Fincha and Metehara sugar plants is subjected to a 20pc excise tax after production and a 15pc value-added tax (VAT) on top of the factory gate price. The recently legislated excise tax has reduced the rate from 33pc.

The latest price change was made following repeated calls from the Sugar Corporation, according to Gashaw Aychiluhem, executive officer of corporate communications of the Corporation, which has over 60,000 employees and has been undergoing major reforms since July 2019.