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SD sugar production expected to increase post-EPA
Following conclusion of the economic partnership agreement (EPA) between the European Union (EU) and Southern African Development Community (SADC) member states, the local sugar industry expects to increase its production in the next five years.
Swaziland Sugar Association (SSA) Chief Executive Officer Professor Mike Matsebula said if the negotiations had not been concluded and the EPA not initialled, Swaziland would not have been able to export its sugar to the EU post-September 2014.
“We would have been forced to store the sugar in warehouses and wait for the conclusion and initialling. Storing the sugar would have forced us to borrow more heavily than would have been the case otherwise since millers and growers have to be paid weekly for the sugar produced,” he said.
Matsebula said this in turn meant interest costs would have been higher and the net proceeds remitted to millers as well as growers would have been lower.
“As you can appreciate, the conclusion of the negotiations and initialling of the EPA means a lot to the sugar industry in terms of net proceeds payable to millers and growers,” he added. Going forward, Matsebula said production levels would not be affected by the conclusion of the negotiations and initialling of the EPA. He said the industry was actually projecting to increase its sugar production over the next five years.
The country’s sugar exports to the European Union currently account for about 8% of total EU imports. Swaziland is also Africa’s fourth largest producer of sugar after South Africa, Egypt and Sudan.
The country’s sugar cane area has increased by 28% since the 2000/01 marketing year (MY), as more small-scale farmers took up sugar cane cultivation, and access to irrigation increased through significant investments by government, the EU and donor organisations.
As a result, sugar cane production increased by more than 30% to reach its highest level of 5.7 million mega tonnes (MMT) in the 2012/13 MY.
Expectations are that by the 2016/17 MY, the sugar cane area will increase to 65 000 hectares and sugar cane production could be more than 6.5 MMT.
The main features of the EPA with the SADC EPA Group – which comprises South Africa, Namibia, Botswana, Lesotho, Swaziland, Angola and Mozambique – include a goods market access deal with Botswana, Lesotho, Mozambique and Swaziland; as well as a fully fledged development cooperation chapter.
Complying with requirements of the World Trade Organisation (WTO), the EU was obliged to review its internal market. As a consequence the price of sugar paid by the EU will reduce gradually to approach world market prices.
Last year the EU decided to maintain its internal sugar production quota until October 2017, which raised fears that this might render the market less attractive for local exporters.
EU Ambassador Hans Duynhouwer noted that the 2006 EU sugar reforms had transformed the European Union from a net exporter into one of the world’s largest net importers of sugar, which all happened during a period of rising world prices.
“As a result, internal EU prices have fallen less than originally envisaged. ACP (African, Caribbean and Pacific) countries and Swaziland have benefited from this. As you will know, the European Union envisages further sugar sector reforms covering the period 2014 to 2020,” he said.
Duynhouwer said the sugar market of the European Union would be further aligned with world market conditions. He said a key question had been the abolition of the internal production quota as proposed by the European Commission.
Adding, he said the system of internal production quota had exercised an upward pressure on internal EU prices. The ambassador said after consultations and negotiations, it was now very likely that the production quota would be maintained until October 2017 (four more seasons).
“From October 2017, there will no longer be an internal production quota. As a result, internal EU sugar prices will be less high and therefore the market might be less attractive,” he said.
However, he said Swaziland would continue to benefit if it concluded and initialled the EPA. To this end, Professor Matsebula noted that conclusion of the EPA brings more certainty to EU access for Swazi sugar, which was extremely important for planning purposes.
The outcome of the finalised EPA will allow South Africa more access for its agricultural goods into the EU. Matsebula explained that South Africa would have more access for its agricultural goods because it was restricted under the Trade and Development Cooperation Agreement (TDCA) it concluded with the EU a few years back. He said in as far as the rest of the Southern African Customs Union (SACU) was concerned (including Swaziland); the member states have been able to export their agricultural products duty-free quota-free since 2009 under a special EU regulation.
SSA reduces price to compete against overseas sugar
The Swaziland Sugar Association (SSA) has had to reduce the price of its product to ensure it remains competitive against the backdrop of an influx from overseas suppliers into the region.
Chief Executive Officer Professor Mike Matsebula said the influx over the past two years was from overseas suppliers – mainly Brazil and to a lesser extent India and Thailand. He said SSA responded to this influx by reducing the price of Swazi sugar so that it remained competitive vis-à-vis the foreign sugar.
A continued downward pressure on the world sugar price is envisaged for the next few years, followed by a price recovery. An industry stakeholder said this was due to several reasons, including the fact that Brazil was the biggest producer and exporter of sugar in the world, making up 23% of total production and 50% of total exports.
Royal Swaziland Sugar Corporation (RSSC) Managing Director Nick Jackson last year said another reason for downward pressure on sugar prices was that the ability of the sugar cane plant to capture so much of the sun’s energy made it the most efficient feedstock for ethanol distillation.
“This is why Brazil, which ironically is now on its way to becoming a major petroleum producer, has steered its domestic vehicle fleet towards ethanol since the 70s. This means that increasingly less of Brazil’s sugar crop will be available for export,” he added.
Jackson said the over-supply and de-regulation of trade would therefore bring prices off until about 2016 when demand would outstrip supply, and prices would begin to climb again. He said by 2020, sugar producers would need to supply another 20 million tonnes – which would not come from Brazil nor much from Europe.
Meanwhile, Matsebula explained that the influx of foreign sugar into the region was not because the Southern African Customs Union (SACU) had changed its policy towards its sugar industry (that is, Swazi and South African sugar industries).
He said it was because the tariff on imported sugar had declined to zero due to out-dated information being used to determine the underlying Dollar-Based Reference Price (DBRP). Adding, he said latest information has since been used and a new DBRP was gazetted by South Africa (on behalf of SACU) with effect from April 2014.
“As a general point, the Swazi sugar industry is continuously finding ways of reducing production costs at the field, factory and administration levels. This is done on the realisation that cost-competitiveness is key to long-term sustainability of the sugar industry,” he added.
