Sugar: Need for a Paradigm Shift

Double standards despite the government’s pro-planter rhetoric have taken a heavy toll on the small planters, akin to genocide

The writing was on the wall since 2009, yet the Minister of Agriculture, the MCIA and all those bent on jockeying for the interests of the privileged few chose to bury their heads in the sand

The writing was on the wall since 2009 with the end of the Sugar Protocol preferential sugar arrangements. The threats of market liberalization to the viability of the sugar industry came to a head when the ex Syndicate sugar price paid to sugar producers plummeted to Rs 12, 694 and Rs 13,166 per tonne for the 2014 and 2015 crops. This necessitated emergency bail-outs from the reserves of the Sugar Industry Fund Board and SIFB premium payment waivers to keep producers afloat. Yet, the Minister of Agriculture, the Mauritius Cane Industry Authority (MCIA) and all those bent on jockeying for the interests of the privileged few instead of those of all the stakeholders of the sugar industry chose to bury their heads in the sand.

Despite calls to have an honest and objective analysis of the viability of the industry in a competitive market environment, they blithely opted to keep by all means a basically uncompetitive sugar industry on a tenuous lifeline through various makeshift measures implemented in 2015 and 2016 as recommended in the 2015 Landell Mills Commodities Ltd (LMC) report.

It has basically all been tantamount to flogging a lame horse. As expected, these shots in the arm were of no avail. They neither improved the fundamentals nor the competitiveness of the sugar industry. The situation is worse today. The 2017 crop price indication of some Rs 13,000 per tonne is well below the average viability price of planters and millers calculated by LMC at Rs 16,000 ($478) per tonne in 2015. This average cost is higher today. In order to be a viable exporter, the market price obtainable must not only cover these higher industry costs but also port handling and other charges as well as freight and insurance costs for a cif delivery to our principal export markets. Going forward, a similar below cost sugar price is forecast for the 2018 crop based on continued bearish world sugar prices.

The adverse impact of the abolition of European Union (EU) sugar, isoglucose and sweetener production quotas as from 1 October 2017 on sugar market values has been a potent wake up call. It has jolted all those pipe dreaming and nurturing false hopes that, in the teeth of all the statistical evidence to the contrary, world sugar prices will by some esoteric mojo rise above our high production costs and more importantly consistently remain at those high levels. The unequivocal evidence of historical data shows that world sugar prices are generally low and are as a rule benchmarked on the costs of the most competitive world sugar producers.

Coal to Newcastle

The EU beet industry is a very efficient industry with an average yield of 11.8 tonnes per hectare compared to a yield below 8 tonnes per hectare in Mauritius. Thus, in anticipation of the abolition of EU sugar quotas, areas under beet cultivation have been increased.

In an EU study dated October 2016, it is forecast that EU sugar production will expand to 16.66 million tonnes in 2016/17 marketing year and to 18.6 million tonnes in 2017/18. In the coming years, the production of isoglucose which was capped at 700,000 tonnes is expected to increase threefold to 2.3 million tonnes of a type presumably containing low levels of fructose to meet health concerns and food safety norms.

The production of other sweeteners such as inulin syrups could also be started. We should remember that High Fructose Corn Syrup (HFCS) has wrested most of the beverages and processed food products market from sugar in the US. The upshot is that sugar imports in the EU are expected over time to be reduced from 3.0-3.5 million to 1.8 million tonnes and EU exports which will no longer be limited are expected to increase from 1.3 million tonnes to 2.5 million tonnes.

These developments will dampen both EU sugar prices and have a bearish impact on world sugar prices. No wonder industry reports indicate that an unprecedented 80% of our normal exports to the EU are still unsold despite long term contracts as buyers bide their time in a context of larger EU white refined sugar supplies and discounted prices. It is akin to sending coal to Newcastle. Only the most competitive exporters of white refined sugar capable of being viable at discounted prices and reduced white sugar premium will be able to battle for market access.

Under such grim circumstances, it would be foolhardy to allow the marketing of sugar to be dictated by parochial interests rather than purely commercial considerations.

Flogging a lame horse

Undeterred, the sugar industry has reportedly again proposed an array of support measures to prop at any cost a basically loss making sugar industry. They are thus glibly proposing that domestic consumers of sugar, sugar industry workers, sugar producers, government, the SIFB and all and sundry bend over backwards to again provide a lifeline to a critically ill and uncompetitive industry. To crown it all, the Rupee must also be devalued against inter alia a falling US dollar to artificially boost the revenue of the sugar industry whose weight stands at a tiny 0.9% of GDP in 2016, at the expense of consumers in an import dependent country and all the stakeholders of a diversified economy. These are desperate measures.

There are no proposals to review the model of operation of the industry and trim its overhead costs or cease the production of loss making products. To be marketed, a product must above all be competitive. It also needs to meet the quality standards, specifications, contractual terms and the import rules of the importing country. It does not make any commercial sense for producers to pay refining and other fees to mills to continue to produce loss making white refined sugar.

The proposal to hike the duty on imported sugar from 15% to 40% is so tell-tale. In commercial terms it measures the substantial difference between the cost of producing uncompetitive white refined sugar locally and the cif Port Louis price (i.e. cost of sugar plus freight & insurance) of competitive imports of white refined sugar from third countries. For some years now, some private operators have invested in ventures to import, pack and distribute white refined sugar on the local market. Is the intent aimed at wiping the entrepreneurship of these SMEs out of the domestic market? A small domestic market of some 40,000 tonnes can certainly not assure the viability of an industry producing some 380,000 tonnes annually. Its viability can only be assured by proven competitiveness in the market place.

Sugar is an emotional subject. It is steeped in the history of our land and conjures immense passion. Its narrative is about hardships, blood, sweat and tears and arduous battles and epic strikes for rights and justice. It is also about deft trade negotiations and innovative strategies to stay ahead of the game. However, the survival of the sugar industry cannot be at any cost and at the expense of some unalienable core values.

Anyone associated with the sugar industry knows that throughout its chequered history its prosperity has been anchored on the hard work of its workers who moved volcanic rock to plant, nurse and harvest the sugar cane before the advent of machines. Despite mechanical support, the industry remains dependent on labour for many of the tasks of sound cultural practice.

At a time when most of the sugar cane workers earn less than Rs 10,000 per month, how can the industry seriously propose nearly 50 years after independence that their meager salaries be restricted by every means arguing that these have increased by too much? How can they propose that industry workers should no longer benefit from a well earned VRS after decades of loyal service to the industry and that the services offered by seasonal workers so vital to the industry today should not be regulated? It’s akin to setting the clock back. Have they seen the wrinkled and weathered face of a 60 plus woman field worker eating her cold meal under pouring rain after her strenuous field chores?

The survival of an uncompetitive and ailing sugar industry cannot be cobbled on the back of proposals which are contrary to the ethos, ideals and values of our independence. Those of us who like the multitude of producers have been farming family estates for three generations find these abject proposals anathema. We will not have a sugar industry devoid of basic humanity.

Double standards

It makes no commercial sense to maintain the production of uncompetitive white refined sugar at the cost of systemic losses to producers. The fundamental problem afflicting sugar cane planters has been the policy of double standards championed by the government for too long. The object of the Multi Annual Adaptation Strategy was inter alia to build a sugar cane industry cluster using the various by-products of sugar cane to generate more remunerative streams of revenue for the benefit of all producers in the context of declining sugar revenues from a more competitive market environment.

While the Corporate sector has for years been benefitting from the remunerative streams of revenue from the diverse enterprises of the sugar cane cluster such as energy production, distilleries, etc., to make good losses from sugar, the planter has in comparison earned a pittance over the years from these various ventures using their share of cane by-products.

In addition, permits and facilities have been granted by government to the corporate sector to invest in new revenue generating enterprises such as ethanol production and an all coal power plant, despite our COP21 commitments. They have also benefitted from very generous exemptions from land conversion and transfer taxes as well as other taxes and duties covering hundreds of acres of cane lands under the Smart City scheme. In contrast, the December 2007 government-sugar industry agreement to allocate a 35% shareholding to the sugar cane planters and employees of the sugar industry into the sugar cane industry ventures using their by-products as feedstock is yet to be fulfilled ten years later. This would allow planters to also benefit from revenue streams from the various industries of the sugar cane cluster to shore their falling sugar revenue.

The policy of double standards despite the pro-planter rhetoric has taken a heavy toll on the small planters, akin to genocide. The legacy is damning. Thus, according to SIFB records, some 7,407 small planters i.e. some 38% of the 19,671 planters owning up to 1.99 hectares (4.92 acres) in 2009 have exited from sugar cane production by 2016 owing principally to falling sugar revenue and recurring losses incurred. The area under cane cultivation has also fallen by 8,099 hectares i.e. by 13.7 % from 59,108 to 51,009 hectares from 2009 to 2016. Similarly, the production of large planters owning more than 100 hectares and millers has declined by 47,394 tonnes (12.9 %) between 2009 and 2016.

Parity of treatment

Burying heads in the sand is no longer an option. There is an urgent need for a paradigm shift. It is high time to cut the dead wood, prune the sugar industry of its white elephants and streamline production around only those products which are still viable such as special sugars and Fair Trade sugars in a competitive market place. Research and incentives must also encourage planters to cultivate high biomass cane varieties to provide feedstock to the viable sugar cane cluster enterprises. To do otherwise would be to continue to throw good money from the SIFB funds after bad.

It is equally important that there is parity of treatment towards planters. Two path-breaking measures would help achieve this objective. Firstly, the 35% shareholding commitment made to planters and employees since 2007 into the ventures of sugar cane cluster and eventually into other value added derivatives from the cane biomass must be implemented forthwith through a new investment vehicle holding stock in the viable sugar cane cluster industries. Secondly, as a legacy for their immense contribution over generations to the national economy, sugar planters should be allowed to realize their land assets and tap market opportunities available by exempting upto10 hectares of land of all sugar cane planters owning a maximum of 75 acres (30.35 hectares) from the payment of land conversion tax. More than 99% of the sugar planters own up to 10 hectares.

This will allow a large number of the entrepreneurial planting community and in particular the smaller ones to realize their land assets in the best possible conditions and where possible tap investment opportunities in the market place and in the various emerging sectors opened up by government. The enhanced supply of scarce non agricultural land will help render land more abundantly available for entrepreneurs, investors as well as for residential and business uses and to assist the policy thrust in favour of SMEs.

The structure and concentration of land ownership in the country which requires urgent reform is an important cause of inequality and a major constraint to inclusive development and a true democratization of the economy to enable mainstream Mauritius to take advantage of the opportunities in the emerging sectors and poles of development opened by government. The immense latent entrepreneurship of the sugar planting community must be harnessed for the common good.

The sugar industry has shared memories of battling it through the vicissitudes of history, through thick and thin. At this critical juncture, it is together that we can rationally, objectively and honestly find the best and most viable critical path forward for the sugar cane industry in a spirit of sharing and solidarity. Let us let those who own and farm cane lands as opposed to those who don’t shape the future. This would require calling a spade a spade, making some bold and painful decisions but above all ensuring that even in our most trying moments we unswervingly championed fairness and equity towards all stakeholders.

 

  • Published in print edition on 25 August 2017

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