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Just a hint of sweetness
October 23, 2009
Shannon Sherry
The labour-intensive SA sugar industry is hoping that the recent sharp rise in prices will help it regain ground lost in employment and production.
High input costs and low sugar prices of recent years have combined to squeeze margins. Thousands of small growers have found the going too tough, with about 5000 forced into unemployment in the past season.
Losses in sugar production ' and the industry's export earnings' are estimated at about 10% of the 2,26Mt produced in the 2008/2009 season.
But a recent spike in international prices has brought some hope. Sugar hit a 28-year high above US25c/lb that, if sustained, might make cane-growing profitable again for some small producers. The price is now hovering at about 22c/lb 'still significantly higher than it has been for most of the past three decades.
Trix Trikam, executive director of the SA Sugar Association (Sasa), says the small growers were driven to the wall as they were unable to sustain economies of scale.
But he is cautious about the prospects of prices remaining high. 'We are hopeful that the rise in sugar prices will stimulate production through the entry of more small growers. We hope it will lead to better ratoon management and to better yields.' (A ratoon crop is the new cane which grows from the stubble left behind after harvesting. This enables the farmers to get three or four crops from these before they have to replant.)
Small growers are vital for the industry in SA, politically and economically. Though big sugar farmers could expand their operations into those vacated by small growers, insiders say the structure of the industry makes this difficult. Big farmers subscribe to a fund that subsidises small growers, as stipulated in the Sugar Act.
With about 38200 registered cane growers, the sugar industry employs almost 80000 people directly and a further 350000 indirectly. More than 2% of South Africans depend on the industry.
Also vital to the industry are the sugar mills throughout the cane-growing areas in KwaZulu Natal and Mpumalanga.
These 14 mills 'owned by Illovo (five), Tongaat Hulett (four), Tsb Sugar (two in Mpumalanga), UCL Company, Umfolozi Sugar Mill and Ushukela Milling' have to be kept operating at optimal capacity to remain profitable. Thousands of small growers play a role in the relationship between the mills and the rest of the industry.
At the same time, the industry depends on the mills being close enough to growers to make cane-growing viable. Closure of a mill therefore causes hardship through loss of employment and increased transport costs.
The rising world prices have been driven in the short term by poor weather in Brazil and India, the world's two largest producers. Hedge fund activity and margin buying have also boosted prices.
Drought has changed India from a major exporter to a major importer. Brazil's production has been cut drastically because poor weather has made harvesting difficult, and global financial conditions have reduced demand.
Sasa marketing director Michela Cutts says the market outlook depends largely on what happens in those two countries.
Ethanol prices will also be monitored, because this will determine the proportion of sugar cane that Brazil pushes into bioethanol production. Higher ethanol prices might cause sugar prices to rise.
But Cutts has good news for those with a sweet tooth: 'There will always be sugar. Barring a weather catastrophe, it is unlikely there will ever be a shortage. The market will address any deficit before it becomes a reality with a huge supply response.'
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