Government to Blame for the Chaos in the Ugandan Rice Industry

On 4th October 2020, Sunday Monitor ran a story saying that the government had given a company a shillings 16 billion tax break to import rice. The story explained that the company had been given an import permit to import up to 50,000 metric tons of rice from Tanzania. Consequently, The Rice Association of Uganda was protesting this move because it would affect rice growers in Uganda.

The Rice Association of Uganda raised two interesting issues: They questioned why the Ministry of Trade issued an import permit to a single company to import rice from Tanzania tax-free instead of leaving the importation open to anyone interested in doing the business. Secondly, they questioned why the same ministry solicited a tax waiver on behalf of the company from the Ministry of Finance yet normally the company would have sought the waiver itself.

Interestingly, Ms Gotovate Uganda Limited that was awarded the import permit and a tax waiver was not known in the sectoruntil then, according to RAU. This raises many questions that only the Ministry of Trade can answer.

Uganda consumed an estimated 346,000 metric tons of rice in 2018. Of this, 238,000 metric tons was locally produced; the balance was imported. Also, by 2018, Uganda had more mills than rice to process, and as a solution, Uganda Imported paddy rice and brown rice (unprocessed rice) mainly from Pakistan and Tanzania to cover the gap.

The importation of rice into Uganda is highly regulated, seemingly to protect local growers and dealers, with import licenses of rice limited to a quantity of up to 5000 tons per miller and valid for only four months in 2017.

So, the government has justification for issuing permits to import rice when rice is scarce on the market to help keep prices stable. However, the government has no justification for permitting a single company to import large quantities of rice in a sector with many other capable players.

Equally, the government has no justification for exempting a single company from paying 16 billion shillings in taxes while other companies are paying taxes to import rice. It is discriminative and perpetuates corruption.

Therefore, the government’s decision to allow one company tax exemptions and a license to import ten times what an ordinary miller would have imported, and hence flooding the market with cheaply priced rice that has rendered local producers uncompetitive and driven some of them to the brink of exiting the business is very absurd and highly regrettable.

It is true, in the short term government should look to import rice in periods of scarcity to cover gaps between production and consumption and help stabilize prices on the local market. In the long-term, however, the aim should be to attain self-sufficiency. Currently, Uganda is a net importer of rice, yet it has the potential to be a net exporter.

The key to unlocking Uganda’s rice production potential is in supporting and encouraging small-holder growers. However, this potential has been suffocated by clueless, selfish actions taken by unpatriotic, incompetent people in government.

Specifically, an injunction issued by the commercial division of the high court in 2014 that has prevented URA from collecting VAT of over one trillion shillings from 14 companies importing rice into the country from Tanzania.

The court has no plausible reason as to why this injunction is still in effect and the case not disposed off after nearly seven years. This gross incompetence and delay of justice has not only cost Uganda revenue of up to one trillion shillings but has also disproportionately disadvantaged local tax-paying rice dealers who have to compete with cheap rice imported by the 14 companies exempted from tax, some owned by foreigners.

Equally, the double standards of evicting small-farmers growing rice in wetlands by NEMA only for the government to allocate 16,000 hectares of wetlands to large companies to grow rice is a disincentive to the small growers. The government should stop applying the law on environment protection selectively–crippling incomes for poor households in favour of large companies with connections in government.

Taking about poor households, rice is dominantly grown in eastern and northern Uganda, two of the poorest regions in the country. The northern region has a poverty headcount rate of 32.5% and eastern region stands at 35.7%. Butaleja district in the eastern region, one of the rice-growing districts in that region, has a poverty headcount rate of 48%.

With these figures in mind, you would expect the government to encourage and support farmers in these regions to grow more rice among other cash crops to help raise household incomes. Unfortunately, the government has other ideas, and this leaves me wondering if there are people in government profiting from the current conditions in the rice industry.

In brief, small-scale rice growers are struggling to sell their products because the government has allowed a few companies to import cheap rice tax-free. Many small dealers are in distress and on the verge of exiting business while many others have completely abandoned the business. The government is culpable for the chaos in the rice industry, and for every small-scale grower that exits the rice sector, the government has their blood on its hands. The government must wake up and support small-scale growers and dealers in the rice sector.

The writer is an economist.