Sugar Sector Reform: At what cost?

Editorial

It was normal that the sugar sector should receive our prime attention in view of its overriding socio-economic implications at a time when sugar production was the predominant economic activity of Mauritius. Thus, before economic diversification was initiated in the late 70s and early 80s with textiles taking the lead, when the commonwealth Sugar Preference came to an end in 1974 with Britain’s accession to the Treaty of Rome, Labour Party leaders negotiated the Lome convention to create the necessary opening and privileged access principally for our sugar to the European market. The sugar sector benefited due to this arrangement from a guaranteed export quota in the European Union at much above world market prices, and that was to have a positive impact on the standard of living of all those associated with the industry and on the country generally. Earlier in the late 1880s and early 1900s, the sale of small tracts of lands, mostly the marginal ones, under the morcellements schemes to sugar industry labourers was forced upon the sugar estates by depressed sugar prices on the world market. This would eventually create the conditions for the emergence in later years of a middle class, due also in no small measure to their investment subsequently in the higher education and professional training of their children — nothing was ever obtained on a platter, as one local cleric would want his followers to believe.

Today even though sugar production remains one of the major activities of Mauritius, its economic weight in terms of earnings, and still less in terms of employment, has steadily declined compared to other sectors that have emerged. Nevertheless succeeding governments have for years given a series of concessions to the sugar sector. These ranged from the elimination of the sugar export duty, that was intended to recoup for general economic development a small part of the political price obtained for sugar under Lome, to cheap loans granted by the Bank of Mauritius at one time. Did the sugar sector reciprocate by generating more employment and/or output? Workers have instead been laid off under the Voluntary Retirement Scheme and, later, under the Early Retirement Scheme. Total annual sugar production has gone on shrinking. Falling sugar prices, especially in the wake of the end of guaranteed EU prices from 2009 and the liberalization of quotas from 2017 onwards – and various other factors including demographics and non-availability of labour, an inequitable sharing of the gains from the diversification into non-sugar sectors (energy, bagasse, distillery) – have gradually led to land abandonment mostly by small planters (whose production costs are 16 to 26% higher than Corporate Sugar’s) at the rate of 2000 hectares annually; in the process the number of small planters has gone down from 27,000 in 2004 to 12,000 today.

Corporate Sugar has instead stayed put, and they should not be blamed for diversifying into other sectors, such as energy production (though only a handful of investors have taken hold of them to the exclusion of the numerous other stakeholders) and taking advantage of various schemes, such as the IRS and the Smart Cities that followed being developed by the large sugar estates, which control the large land holdings in the country. To be compatible with a fair and equitable sharing of gains, Mauritius Times has been arguing at length that the resulting windfall gains due to soaring prices arising from land conversion could have been employed to support targeted economic development for the benefit of the nation as a whole and that the fallouts from the diversification into non-sugar sectors should have been more equitably distributed. Politicians of various dispensations have – for reasons best known to themselves – not listened, and nothing has materialized from this source. Without politicising or ethnicising the issue, this could have been done by shareholding structures which are the basis of large scale economic activities. Similarly to the shareholding to the tune of 36% in SIT by the small planters, the state could have taken the lead in extending this by legislation to the non-sugar sectors. For a start, besides the shareholding issue, there is nothing that prevents the state from extending the same benefits and waivers generously offered to the large sugar sector to, equally, the small planters who are abandoning their lands. These too can thus be made available for residential purposes, and perhaps even for renewable energy production in selected regions.

We now learn from the ‘Mauritius Sugar Cane Sector Review – Policy Note’, a report prepared by the World Bank, dated 20 Dec 2020, that ‘if no policy action is taken in the short term, with the current level of losses, the (competitive) analysis shows that the sector will continue to decline and could disappear in the next 10 to 20 years (under a pessimistic scenario)’. And it goes on to propose a series of policy reforms and programs ‘to halt the decline and have a high likelihood of the sector being viable over the coming decade: (i) increase the price paid for generating electricity from bagasse; (ii) decrease the sugar logistics and export costs; (iii) expand the revenues generated from the sale of specialty sugars; (iv) lower labor costs; (v) improve the efficiency of sugarcane farms; (v) allow the pass-through of market signals throughout the value chain; and (vii) augment the level of taxpayer support to the sector’ — measures, which it says ‘can increase the probability of the sector turning a profit over the coming 10 years’.

In other words, what all this means is that despite the earlier Blueprint on Centralization of Milling Operations (1997), designed to rightsize operations, the Sugar Industry Efficiency (SIE) Act (2001) passed to facilitate the implementation of the Sugar Sector Strategy Plan and thereafter the Multi-Annual Adaptation Strategy ten-year plan, the sugar sector has been unable to become viable and has required regular injections of taxpayer support – Rs 1.5 billion annually to make up for its Rs 1.4 billion annual losses. The latest World Bank’s report is now saying that it will again require additional direct taxpayer support for it to become viable within the next 10 years!

Following a Cabinet decision taken last Friday, Agro-industry minister Maneesh Gobin, who in July 2021 was categorically against the publication of the World Bank report, presumably because of the political implications of the policy changes proposed, in particular the lowering of labour costs, has himself last Saturday made an official presentation to the industry’s stakeholders. It is not known whether the minister has found this “consultative document” of the World Bank valuable for implementation, but he would have stated that further World Bank’s inputs may be called for, if required.

This begs the question of whether the country can continue to pursue the slippery road of pumping more and more funds per the WB Report recommendations – or should have recourse to a broad range of local knowledge and expertise to work out a more sustainable and viable long term outcome.

* Published in print edition on 11 February 2022