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EU abolishes quotas : sour future for our sugar?
European Union is abolishing all sugar quotas as from 1 October 2017. Already, there is huge concern in the sugar sector in Mauritius. Is this the end of an era or the beginning of a new adventure with innovation, creation and diversification for a sector that contributes less than 1% to GDP?
European sugar quotas will be abolished on 1 October 2017. Local players in the sugar industry are anxious about the implications. In Mauritius, the Mauritius Sugar Syndicate (MSS) is recruiting a foreign expert, Laurent Courteille, who will assist sugar producers to negotiate a better price with foreign buyers. On its side, the government of Mauritius is working on measures to further support the sector for a smooth transition. But why are the quotas being abolished? Indeed, the European Union is obliged to abide by the rules of the World Trade Organization (WTO). The WTO is against quotas, guaranteed prices and state intervention in the market, as this distorts market forces, economic freedom and equilibrium prices. For the WTO, the world price must be used as a reference price. Mauritius will thus have to compete with major world sugar producers and the price will no longer be a guaranteed one.
It should be noted that Mauritius suffered the first sugar shock in 2006 when the European Union had lowered the sugar price by almost 36%. However, in return, the European Union had tried to help the country through various aid and development programs. The objective of the concerned authorities is to produce at least 400,000 tonnes of sugar in order to support the cane-based ctivities, such as bagasse, molasses, vinasse or bioethanol. Note that bagasse generates 350 GWh of energy, saving us the import of 200,000 tons of coal or 80,000 tons of heavy oil.
Indeed, it is the high value addition in the sugar industry that has so far saved it from decline, despite numerous challenges faced on various fronts. The sugar sector has evolved from a labour-intensive one to a highly mechanized industry, sparing it the labour shortage syndrome. Huge diversification, higher productivity and the restructuring production facilities to achieve economies of scale and higher efficiency have all led to sustain the industry. Mauritius now exports mainly refined sugar and special sugars, intended for direct consumption. On the other hand, the sugar groups in Mauritius have long diversified their activities into other sectors, such as energy production, real estate and hospitality, distribution trade and crop farming.
There are 102 sugar producers around the world. Of these, eight grow sugarcane and sugar beet, 30 grow sugar beet only, and 64 cultivate only sugarcane. Among the major sugar producers in the world, in addition to Europe, there are Brazil, India, Thailand, China, the United States, Mexico, Australia, Pakistan and Russia.
Importers of sugar
The main importers of sugar are the European Union, the United States, Russia, the United Arab Emirates, India, Indonesia, Iran, South Korea, Japan, Malaysia, Canada and China. All these countries are future potential customers for our sugar.
Sugar in Africa
Africa does not produce even half of its consumption. With Egypt, Nigeria is one of the continent's largest importers. But with diminishing purchasing power and rising world prices, the West African giant is investing seriously in local sugarcane production. Mauritius can play an important role in the sugar sector in Africa. We can not only sell our sugar but also our expertise and also help develop the sugar industry, or rather the cane industry, in African countries. Moreover, local sugar groups have already established themselves in Africa.
The Sugar Protocol
The Sugar Protocol has been an important feature of European policy towards the ACP countries since 1975. The Protocol, which was annexed to the first Lomé Convention, granted certain ACP countries, including Mauritius, preferential, non-reciprocal conditions for sugar exports. These conditions had been maintained in the subsequent Lomé Conventions and in the Cotonou Agreement. Under the Protocol, the European Community undertook to import specific quantities of sugar cane (unrefined or white) free of duty from these countries, which they undertook to deliver.
As of 30 June 2017, the cane surface area harvested was 2,643 hectares, producing about 197,192 tons of cane and 16,454 tons of sugar. The extraction rate in June 2017 was 8.34% while in June 2016, it was 8.63%. It is estimated that sugar production in 2017 will be around 350,000 tons, which represents a decrease of 9.4% from 2016. In 2016 we harvested 3,798,448 tons of cane and produced 386,277 tons of sugar. The sugar sector contributed 0.8% to the Gross Domestic Product in 2016.
Understanding : EU sugar market
The European Union (EU) is the world’s largest producer of beet sugar and is also the main importer of raw cane sugar for refining. The European sugar market is regulated by various instruments: production quotas, the fixing of a minimum price for beet and commercial mechanisms. With the end of quotas, competition will become fiercer within the European Union itself among the member states, and this will have a definite impact on price. Some of the members have a comparative advantage over others on beet sugar production and they can produce at lower cost, so on a large scale they can sell cheaper. If buyers get a good deal at home, they will have no incentive to import sugar from other countries, such as Mauritius. The EU imports cane sugar to be refined mainly from the African, Caribbean and Pacific (ACP) States and the Least Developed Countries (LDCs), which enjoy access to the EU market outside the quota and free of duties. It should be noted that the European Union produces about 50% of the sugar beet consumed in the world, making it the world’s largest producer. However, beet sugar accounts for only 20% of world sugar production. The rest comes from sugar cane. Sugar beets are grown mainly in northern Europe, where the climate is best suited. The most competitive producing regions are northern France, Germany, the United Kingdom and Poland. The EU also has an important refining sector for imported raw cane sugar. EU sugar production in the 2016/2017 marketing year is provisionally estimated at 16.66 million tonnes on an area of 1.4 million hectares at an average yield of 11.8 tonnes per hectare. This includes 250,000 tonnes of sugar from cane grown in the French Overseas Departments.
Kreepalloo Sunghoon : “Mauritius should capture the African Market”
The president of the Mauritius Sugar Syndicate (MSS) Kreepalloo Sunghoon states that, for nearly 150 years, Mauritius has been building a trusted and a long lasting relation with the European countries. “The European countries rely on us for the supply because of our quality and adherence to deadlines. We are analysing the situation and assessing the needs of our clients. We have opened a small office in Europe and appointed a Sales Executive to attend to our clients. The Sales Executive will be providing us with information and we will fulfill the demands,” he says.
However, as observed by him, Europe produces a huge sugar volume annually and even has the capacity to export now. According to him, it is high time for Mauritius to diversify its market. “We need to keep our quality and be more competitive in our prices. At the same time, we should not be dependent on Europe only. As per some figures available, African countries import around 3 million tonnes of sugar yearly. This is an opportunity for Mauritius. We need to capture the African market along with Arab countries,” he adds.
Furthermore, the MSS president reveals that we should not hold high expectations on the revenues from sugar exports. “Now, we should look for other alternatives to be more profitable in this industry rather than expecting much on exports of sugar. We need develop our bagasse and molasses sub-sectors. The estimated revenue of non-sugar products is approximately 15%. There is need to work further on this. There are other products that we can promote like ethanol or non alcohol for pharmaceutical products or even fertilisers. If we want to be profitable, then we need to diversify our products,” says Kreepalloo Sunghoon. “If we maintain our position and remain at a standstill, in five years, there will be no sugarcane. “Earlier, we had around 28,000 planters and now it has decreased to 14,000. The number of small planters is already on decline. If nothing is done now, it will be no surprise to be left without anything.”
He further highlights that the sugar industry was already facing the issue of lack of labour and now with this situation, planters will find themselves in a difficult situation to recruit workers. “The government had come up with schemes but the expected results were not achieved. It was expected to increase production by 20% but nothing as such was achieved, instead productivity has known a decrease.”
Eric Ng : “A risk for the industry to phase out”
Economist Eric Ng explains that with the abolishment of the quota system, Mauritius will have less inflow of currency and small planters will have less revenue. “With this measure, small planters will suffer the most. They will not only see a decrease in their revenue, but they can also experience losses. It will be difficult for them to diversify their production. The government will also be in a delicate situation as it will have to take measures to alleviate the burden of the small planters.”
The economist states that there is a big risk for the sugar industry to phase out if the necessary measures are not taken. “The industry needs a new boost. New policies are needed. Planters need to diversify their revenues. They have to look for alternatives in terms of bagasse and molasses.”
The export market needs to be reviewed, says Eric Ng. “India is an interesting market but it is not an open one. However, with negotiations, we can reach agreements. Another interesting market is that of special sugars. We need to produce more special sugars; this will add value to our industry.”
Suttyhudeo Tengur : “The end of the industry”
Suttyhudeo Tengur, president of the Association for the Protection of the Environment and of Consumers and also a key observer of the agricultural sector, confides that the end of the quota for beetroot sugar producers in Europe as from this month is a severe blow to ACP sugar producers, and Mauritius being the main player in this group, will suffer a lot. “The end of the Sugar Protocol was not enough a blow on our head. The sugar prices have fallen drastically and will fall more in the coming years as beetroot sugar producers flood the EU sugar market. How can farmers cope with no profit on their plantations after toiling for a whole year?”
He further adds that “things are getting worse with climate change. On the one hand, prices are declining and on the other, production also. This year, we’ll be short of about 30,000 tons, as compared to last year’s production. We are going towards the end of this industry, though I personally feel something should be done about it because sugar cane is a multi-functional plant that not only gives us sugar but renewable energy, ethanol, molasses, and it also protects the environment.”
Arvind Nilmadhub : “Maybe a blessing in disguise”
Economist Arvind Nilmadhub told News on Sunday that the abolishing of quotas is not the end of the world. “We must see this as an opportunity to reinvent ourselves, to diversify our markets, our activities and to see how we can innovate. If we continue to operate under protective nets, we will never leave our comfort zone. We must face a shock in order to review our situation. Look at Singapore, they did not have sugarcane so they built up other economic sectors. If sugar has made its time, something else will come, we should not feel desperate. Even in the agricultural sector, there are excellent opportunities in many segments that remain untapped.”
Trilock Ujoodha : “The sugar industry can disappear”
Trilock Ujoodha, 58, is the president of Sugar Cane Metayers and Small Planters Association. He is the 3rd generation of his family to work as a sugar cane planter. After so many years of hard work, today he is disappointed to see this industry in such a state. He sees no succession after him. He has been planting sugar cane on eight acres of land. “I have been in this industry all my life. It is my livelihood. I am bringing up my two children through this activity. But now it has become difficult. I have to work as general worker or labourer to be able to feed my family.”
He cannot understand why the authority has delayed in taking actions when they were fully aware of the situation. “Authorities have known about the abolishment of the quotas for a long time. When we approached the deadline, they were reacting out of despair. If they would have invested massively earlier, our sugar industry would have seen better days. It is very difficult for small planters to survive,” he explains.
For him, the sugar industry would have had a better future. “In the production of sugar, nothing goes waste. From its bagasse to molasses, everything can be used and are profitable. Unfortunately, small planters have never been consulted before. We could have brought forward ideas as we have been expanding in this field. We have more knowledge than most of the advisors on various boards.”
According to him, the sugar industry can disappear if immediate measures are not taken. “There will be no succession if the industry runs losses. The young generation will not agree to take over an industry which is not profitable. It is time to exploit other markets. We have very good quality of sugar. We cannot be dependent only on Europe. Why open an office only in Europe? Why not enter the African countries?”