Sugar Sector: Old habits die hard

Tit-bits

Is transparency so difficult for a key historical industry that now impacts several sectors of the economy? Surely it is not covered by an Un-Official Sugarcane Secrets Act?

We understand that the Ministry of Finance, under the stewardship of Dev Manraj, is in the process of pre-budget departmental consultations and is seeking views from all concerned parties including private sector and their chambers, associations and all interested stakeholders. The Prime Minister has given indication that the 2015 national budget, which, incidentally, would bear the sole stamp of the Labour Party (LP) since the 2010 general elections, could be presented to Parliament shortly after the 8th of November, more or less on schedule for the exercise.

An opportunity to expound in concrete terms the LP driving philosophy for a responsible government reconciling the necessity to stimulate economic growth, democratization and business development with improved social justice and more inclusive development, while meeting massive infrastructure needs, all in an uncertain global context. It may therefore be an opportune time to renew or bring to the fore some major questions of national interest where progress has not been noteworthy.

Eric Guimbeau, leader of the MMSD, not suspected of being a leftie or a firebrand, has recently raised some extremely pertinent issues regarding the cane-sugar sector. The latter is being increasingly deserted by a double movement, better lands of the oligarchy are being converted into high-value commercial, business and residential malls while marginal lands of small planters are being increasingly abandoned for want of any significant returns with the phasing out of EU preferential pricing and quotas.

Today sugar is no longer the pillar of old, but we are all aware that Cane has obtained a new leash of life through molasses/ethanol production, year-round coal/bagasse co-generation of electricity and refining of special sugars. However, there are incomprehensible opacity and unacceptable inequities in the distribution of the overall proceeds garnered from the cane industry. They are of survival concern for the 17,000 or so small planters with 2ha or less, who, despite all odds, still harvest about 35% of nationwide acreages.

They are of wider import for the very fabric of the sugar, energy and by-product industries which are reported to be valued at around $300m for the country. This figure of course does not include massive returns from cane-land conversion into lucrative commercial ventures.

In the curious absence of desegregated economic and financial figures, in the face of what looks like intentional opacity, one has to raise a number of questions, probably a non-exhaustive list. Some have been cogently raised by Eric Guimbeau and several associations of small planters grouped under the umbrella of the Alliance of Sugar Planters’ Association.

a) PROCEEDS SHARING: Strangely enough, despite several competent bodies, Authorities, Chambers or research outfits, it is extremely difficult to get a clear flowchart of where the annual proceeds of Cane Industry (and any EU assistance funds) end up and what share millers, large planter-millers, large estate holders and small to medium planters receive.

One would have thought that the defunct MSA (replaced since 2012 by the Mauritius Cane Industry Authority), the MSIRI, the Chamber of Agriculture, the Sugar Syndicate, the Central Statistics Office or the Universities could compile such vital information, taking account of effective planter shareholdings under the SIE Act, and make it publicly available.

It is noteworthy perhaps that planters in Reunion island, operating under French and EU regulations, face the same opacity. According to a special 2014 issue of ‘Témoignages Reunion’ on the Sugar Cane sector, “Il est donc essentiel de réaliser la transparence totale des recettes de tous les produits issus de la canne afin d’obtenir un partage équitable des recettes entre planteurs et usiniers.”

b) TRANSPARENCY: Speaking of transparency, there have been numerous regular complaints that sugar revenues, marketing and sales figures obtained through the Sugar Syndicate, are allegedly unreliable and veiled with opacity. The same would apply to actual sales revenues of molasses. Is transparency so difficult for a key historical industry that now impacts several sectors of the economy? Surely it is not covered by an Un-Official Sugarcane Secrets Act?

c) PLANTER PARTICIPATION: Is the SIT mechanism bringing real and effective participation of small and medium scale planters to the industry’s future? It has been negotiated in the wake of the Sugar Industry Efficiency Act. We are entitled to review the mechanism and its overall cost-benefits to planters. Is it a costly measure offering dismal returns of 4-5% in a parastatal quango where real planters seem to recoup little direct benefits out of the more lucrative sub-sectors of cane sugar? Ask any cane grower if he knows how much his 2ha of SIT share has brought him as benefits and I somehow doubt if he will have an intelligible answer. Are there other more direct options for small planter empowerment and participation?

d) PROCESSING FEE: Millers have continuously benefited from EU funds to upgrade their equipment, factory processes and bagasse usage for steam and electricity production. In theory, they process canes on behalf of planters and receive a fee for such processing, an apportionment ratio. This fee has remained static for long despite all miller efficiency improvements, stuck at an abnormally high 22%. Isn’t it time for this to be revised downwards significantly?

e) BAGASSE: Planters don’t get paid for the bagasse used by the factory to generate steam and inhouse electricity. It is energy freely “offered” to millers by planters on top of the processing fee of 22%! Surplus bagasse burnt and sold to the electricity grid of the Central Electricity Board according to an article by Mr Jagdish Seebaruth (l’Express 12 march 2012) fetches some Rs 625 per tonne out of which the small planter gets a paltry Rs 24.

The population is now fully aware that sugar miller IPPs get massive profits on the selling price of electricity to the national grid and, with expert advice, have imposed leonine contracts to hold ransom the CEB and the consumers.

But it seems the toasts of millers and miller-planters is buttered several times over, since they also enjoy 50% of the Bagasse Transfer Price Fund (BTPF), not to mention a further share as large planter-millers or as large estate holders. The 35% bagasse input of small planters end up receiving 4-5% of the BTPF through a totally inequitable sharing formula. Bonanza on all fronts!

It is more than time to correct the scandalous anomalies relating to planter share of bagasse pricing. Until such time as the leonine IPP contracts can be re-engineered for the citizen, consumer and national good rather than sectoral interests. At which time, hopefully government would be wise to take expert counsel, not of the World Bank variety who contributed in no small measure to the present skewed situation.

f) MOLASSES/ALCOHOL: Planters are supposed by law to get their full share of the annual yield of 125,000 tonnes of molasses or their future down-market value addition (e.g. as ethanol for export or as transport fuel-mix). According to private sector sources, it boils down in practice to granting planters some Rs 2,200 per ton when local market and export sales are estimated to fetch some Rs 7,000 per ton.

Millers enjoy de facto an outright profit of Rs 4,800 per ton on small planter molasses entitlements while retaining obviously 100% of their own share. The use of intermediaries keeps actual sales figures shrouded in secrecy. There seems to be few domains of the Cane-sugar sector where the balance is not openly or insidiously skewed. Will the national Budget or the upcoming Omnicane ethanol project be the opportunity to redress decades of Molasses sharing imbalance in favour of millers and estate owners even when the legislator intent was clear?

If the country wants a nationally and socially responsive industry playing its full role in a modern Mauritius clamoring for more economic and social empowerment, it is time to use the national budget and, if necessary, legislation and less opaque institutions to induce greater equity and transparency in the sector.

Total proceeds obtained from Cane lands include many things: sugar and by-products, electricity and biomass, benefits from massive caneland conversions and EU accompanying funds. Like in many island plantation economies, these benefits, often shrouded in opacity, have remained skewed in favour of the privileged few. Their perpetuation at a time when the sector will face more upcoming EU challenges, would be obtuse greed. It requires a rethink of old habits from all stakeholders and, in particular, the traditional oligarchy.

Old habits were well illustrated by the public volte-face when the sugar oligarchy rather lamely walked away from the conclusions of the “neutral” international arbitrator jointly appointed by themselves and Government to review leonine IPP contracts! It appears equally obvious that they have also dragged out their feet over the 2000 arpents of land supposed to have been bartered over to government against benefits of the EU-funded Sugar Adaptation Plan.

Some of the cane industry’s larger or more cunning players have taken their share of EU accompanying funds and then removed themselves from the Sugar Producer fold and their countervailing commitments. Old habits die hard. Mr Guimbeau is right in demanding that bold measures be applied to redress the situation for the greater good of the country.

* Published in print edition on 1 August 2014