Sugar looks to ethanol to help pick up speed
Industry hard hit by imports, ballooning local costs
‘IF there’s a way to do it better . . . find it,” reads the quote on the brown Huletts sugar packet in my hand, very appropriate for the situation the South African sugar industry finds itself in today.
South Africa has been producing sugar on a large scale since the first Indian labourers docked in Durban in 1860. The sweet cane has been processed mostly to be used in food and drink.
However, due to significant increases in costs and increasing global competition, the industry believes that the way to “do it better” could lie in diversification into markets such as ethanol that can be used for fuel.
Cheap sugar imports from India and Brazil have been eating into the South African market, despite the country being a surplus producer of sugar.
The South African government recently introduced some protection for the industry by hiking import tariffs on sugar. The domestic dollar-based reference price was increased from $358 (R3 808) a ton to $566 a ton on imported sugar, which is often subsidised in its country of origin.
According to Standard Bank, imported sugar from Brazil and Asia has been landing in South Africa at $700/t, with local sugar being sold at $916/t. The bank expects that the new tariff will increase the prices of imported sugar by about 18%.
The South African Sugar Association asked the commission to more than double the reference price, to $764.34/t.
Managing director at Illovo Sugar, Gavin Dalgliesh, said while the company was grateful for the decision by the government to hike tariffs, the level of protection was lower than applied for and so only provided for marginal protection.
This could quickly be eroded because of changing market conditions that include exchange-rate fluctuations and cost increases. “It is unlikely to be sustainable in the long term.”
He added: “We look forward to future engagement with the government regarding the protection of the industry from cheap imports.”
Even though South Africa produced 2.34 million tons of sugar this financial year and local demand was 2.28 million tons, the local industry lost out to cheaper imported sugar.
About 450 000 tons of imported sugar entered the market, together with 330 000 tons of sugar that came from Swaziland, which resulted in the industry having to export 840 000 tons of sugar and sell it at discounted world market prices.
Estimates suggest that cheap sugar imports and being forced to sell excess local sugar at discounted prices are costing the industry $50-million a month.
“Sugar imports were starting to spiral out of control with dreadful consequences for rural communities who depend on the sugar industry for their livelihoods,” said TSB Sugar corporate affairs head Vusi Khoza.
However, he said government intervention could only provide temporary relief and that long-term sustainability would only be achieved through cost reduction and increased efficiency throughout the entire value chain.
On a recent trip to the sugar fields in the KwaZulu-Natal Midlands, Trix Trickham, who heads the sugar association, said smallscale growers were the first to feel the pain during difficult times.
“In the past two to three years our small scale growers, mostly from rural black communities, have halved, to 25 000 growers,” he said.
On a wet day in the fields, Muziwemali Thusi said growing sugar cane had helped him “build a house where before there was no house”.
Many of the sugar industry’s headaches could be relieved if South Africa managed to kick-start the production of ethanol as a fuel source. The government has set October 1 2015 as the date from which fuel producers will have to blend diesel and petrol with biofuels, such as ethanol.
A viable ethanol industry would also see sugar fields of small growers replanted.
Trickham said it would cost the industry about R20-billion to convert mills to also produce ethanol.
“It would all depend on the government subsidy if this industry will be viable. But I know the sugar industry needs to up its revenues and producing ethanol would be one good way to do so.”
Major sugar producers in South Africa, including Illovo and TSB (Selati), indicated that they were waiting for the necessary regulation to be passed before they could decide on ethanol plans.
Support mechanisms, such as subsidies, for ethanol production from sugar cane in South Africa are expected to be published within the next three months.
Tongaat Hulett identified the opportunity to convert one of its four mills to ethanol, which would pro- duce about 125 million litres of fuel, according to a recent report produced by Merrill Lynch. Tongaat did not respond to requests for comment.
TSB said it was involved in ethanol production through its investment in Swaziland’s Royal Swaziland Sugar Corporation and was also looking at opportunities in Mozambique.