King Sugar Is Dead, Long Live The King

The situation is set to deteriorate further as the industry gets sucked up into the liberal and reputedly volatile global sugar market

A corporate crisis is often a sign that the company’s business model has petered out—that the industry’s underlying structure has changed dramatically, so old ways of doing business no longer work.
McKinsey Quarterly

Constantly reciting the mantra about the wishful transformation of the sugar industry into the cane industry over and over during more than a decade has obviously proven insufficient to save it from its dire destiny. Over the years there has been a bevy of “strategic plans” and blueprints prepared by experts and consultants from the most renowned institutions purportedly directed at “maintaining a feasible and globally competitive” future for the industry. All in vain, it would seem, as the industry faces the grimmest of futures as the quota and preferential price regimes are eliminated.

In the 1990s, a Sugar Industry Efficiency Act was passed in our Parliament with the same objective, only to completely fail to change the path of dereliction as witnessed by the parlous situation in which sugar production finds itself today. In the heydays of the sugar booms and Sugar Protocol regimes, the then authorities had fixed a target of 720,000 Metric Tons of annual sugar production for the country (a figure which presumably represented the equivalent of one ton per capita of the population at that time). The extent of the decline can be measured by the actual figures of 360,000 Metric Tons which will be realized this year and the historically low price per ton which planters would be receiving for their contribution to this national production.

It is true that the relative importance of sugar production in the national economy has been declining ever since the country has been successfully implementing a diversification of its economic structures – adding Tourism, Manufacturing and Financial Services and Information and Communications Technology as significant economic pillars. The latest trend, however, is much more worrying because it corresponds to an actual reduction in the scale of the industry as witnessed by the rapidly falling acreage of land under sugarcane cultivation and the corresponding decline in output – to which one must now add the external factor of fall in prices.

It must be pointed out that a mere statistical description of the deterioration of the state of the industry to date, however, fails to grasp the real nature of the dramatic socio-economic impact it has occasioned in the country. The historical development of sugarcane production in Mauritius has so fundamentally shaped the national economic structure of the island that an examination of the industry’s contribution to GDP reveals only partially. In a paper entitled ‘Mauritius, Malthus and Professor Meade’, Prof John King wrote the following:

“…the economy’s expansion from a production figure below 1,000 Metric Tons up to 1814 is best described in terms of ‘circular causation’: its needs (derived both from its general role as a revenue-providing export sector and from the particular characteristic of cane and sugar production) gradually produced an institutional structure which, as it grew, reinforced the Industry’s relative profitability compared with other forms of production in Mauritius. This led to secular expansion of acreage and the displacement of activity unrelated to the Industry’s growth.”

This centrality of the industry in the formation of the economic institutions and settings of the nation especially in the determination of wealth and income distribution cannot ever be overrated. Thus, for example, the banking sector in Mauritius took its own time to go through a painful exercise of ridding itself of a template of business which was determined by the development of the sugar industry, namely a monetary system tailored to the seasonality and risk profile of sugar production. Not to mention the fifteen or so days of “closures of businesses” at the end of the year…

There is a load of anecdotal evidence that quality of life in the rural areas has been deteriorating considerably over the past decade or so. They are afflicted by serious social evils resulting principally from consumption of drugs and abuse of alcohol. While we need to guard against falling into the trap of romanticizing rural life and past traditions, it is a fact that the dismantling of sugar factories in those areas has occasioned the disappearance of many micro businesses which used to thrive, especially during the crop season. Factory areas used to support a healthy ecosystem of related and supporting activities ranging from the local retailer to the mechanical repair shop and miscellaneous other undertakings.

While centralization and rationalization of sugar production was an inevitable consequence of liberalization and globalization, the unintended consequences have been hugely damaging to the social fabric of the country. This is yet another testimony to the inaptitude of our political “class” as well as the erstwhile “barons” who in spite of the rather generous financial packages offered by the European Union for the smooth transition post Sugar Protocol and Lome Conventions have utterly failed to, if only mitigate some of its dire consequences.

Actually the situation is set to deteriorate further as the industry gets sucked up into the liberal and reputedly volatile global sugar market as the small planter community is learning at its expense these days. The price obtained by them for their production is manifestly insufficient to cope with increasing costs of production. Only a radical solution which clarifies the various revenue streams of the industry (bagasse, production of electricity, ethanol) and reviews the distribution of such revenues among all stakeholder can form the basis of a solution for the survival of the industry in the mid and long term.

In conclusion we quote again from the prescient paper by Professor John King written in 1970, and leave it to our readers to appreciate the irony of the situation: “… in terms of this analysis, the problem of Mauritius in 1960 was that of formulating a strategy in response to these stresses generated within its own pattern of development, and between this pattern and trends in the rest of the world economy.” This approach might be developed to predict the actual strategy likely to be adopted…

 

  • Published in print edition on 25 August 2017

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