Sugar producers keen to sweet-talk Europe

WITH the world sugar price relatively high, SA’s sugar producers are understandably keen to fix prices and terms for exports of raw sugar to Europe, in what would be a drastic turnabout in government policy and their own market orientation.

As South African Cane Growers’ Association vice-chairman Tim Murray puts it, now is the time, but South African Sugar Association executive director Trix Trikam is not quite as sanguine: "We need the revenue that access to European markets will give us if the industry is to remain sustainable. It is a matter of survival."

That in itself may be alarming, considering that of all SA’s developed agribusiness, sugar is perhaps the best integrated, with dedicated infrastructure and apparently secure in its markets. The industry contributes about R8bn a year to gross domestic product, employs about 77000 people directly and 350000 indirectly, and 1-million people depend on it for a living.

In a good year, SA produces about 2,2-million tons of raw sugar, about half of which is consumed domestically. The past season was not good, with drought cutting production to 1,9-million tons.

The highly developed state of the industry brings into question any developmental justification for SA joining the world’s poorest nations — such as the African- Caribbean-Pacific countries and least developed countries — in having preferential access to European markets.

SA’s position since its free-trade agreement of January 2000 has been to waive access to the sugar market, because its entry would have been detrimental to its sugar- producing neighbours. Under the agreement, the total preferential allocation was fixed, which meant SA’s neighbours would have had to sacrifice part of their quotas to make up an allocation for SA.

But things change, as Mr Trikam puts it, chief among which is the threat arising from constant increases of input costs for farmers and millers against a volatile world sugar price. The European Union (EU), which he describes as highly price-insensitive, is an ideal market for SA’s sugar, in no small measure because Europe is experiencing a sugar shortage that cannot be fully supplied by the African-Caribbean- Pacific and least developed countries. That means SA can negotiate a good price fixed for an extended period, protecting it against the volatility of the world spot price.

The moral argument does not hold either. The EU’s ramped, if partial, liberation of its sugar market since 2005 has resulted in inequality within the Southern African Customs Union, with countries such as Swaziland trading freely with their neighbours and enjoying quota-free and duty-free access to Europe, while SA’s exports are subject to full tariffs.

A new raw-sugar deal in which SA would take up the balance in raw sugar of what the African- Caribbean-Pacific and least developed countries cannot provide would be advantageous for Europe’s producers, as its production cutbacks have resulted in idle time at the continent’s refineries.

As for development, says Cane Growers chairman Suresh Naidoo, the money to pay for it has to come from somewhere and that means SA’s markets have to expand. But the development imperative has to be questioned too. With 14 mills and 450000ha under cane irrigated from limited water resources, it seems all the suitable land for cane production is being exploited to the full, 80% of which is on coastal land in KwaZulu-Natal and 20% in southern Mpumalanga. The same goes for sugar mills, which have to be within 30km of the cane fields to be profitable.

But, Mr Naidoo says, at least another 220000ha of tribal land can be made available for cane, which is a classic entry-level cash crop suitable for emerging farmers. That means at least three more mills can be built, which would result in the development of sugar towns and related industries, and would do much to fulfil the government’s job-creation ambitions.

A study by the University of KwaZulu-Natal’s Prof Jeff McCarthy shows the introduction of sugar farming and milling is a strong basis for modernising rural economies, leading to diversification and urban growth. The multiplier effect, he says, typically leads to new manufacturing and transport systems, while mills’ retained earnings are used to leverage funds for diversified investment.

That appears to be the obvious direction the sugar industry needs to take but, as it collectively emphasises, before greenfields or even vertical expansion can happen, a number of elements have to be in place, chief among which is market expansion into Europe.

It is clear from the government’s statements it is not unsympathetic and, to be fair, any regulatory changes would mean a change to the Sugar Act, which has been under review for at least a decade. In the most recent round the government has asked the industry for its input, but the predictable divide between growers and millers has resulted in separate representations. The government has referred it back to the industry with the instruction to get its house in order and speak as one.

Until that has happened, it is unlikely there will be any or much progress in achieving the industry’s ambitions, developmental exigencies notwithstanding.

source: businessday