Sugar Industry - blurred Future : a One-Billion-rupee Rescue is Expected 

Since some years now, our sugar industry has been in troubled waters. Last year, the European Union abolished all the sugar quotas. This has had a serious impact on our sugar sector. This year, the price of sugar has dropped.

To be able to cope with this delicate situation, the government has set up a Ministerial Steering Committee, which will be chaired by the Prime Minister. Besides, Rs 1.3 billion is expected to be injected for the upcoming five years. Is the future of this sector in the blur?  

Figures : what do they reveal? 

As of 30th 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%. 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 (GDP) in 2016.

Source: Mauritius Sugar Syndicate

Mahen Seeruttun : “The sector is really threatened by real risks”

The Minister of Agro-Industry, Mahen Seeruttun, reveals that in response to critical issues which the sugarcane industry is facing, the government has established a Joint Technical Committee (JTC) in August 2017. According to him, this committee submitted its report and recommendations to him a fortnight ago which he subsequently handed over to the Cabinet.

He states that since this issue concerns several sectors, the Cabinet decided to set up a ministerial committee under the chairmanship of the Prime Minister to study the recommendations made by the JTC and to come forward with appropriate decisions and measures to allow the industry to remain viable and sustainable. He confides that the technical committee has submitted its recommendations regarding certain measures that must be applied immediately, in the short and medium terms.

“Financial measures and proposals have been made to ensure the viability and ensure the profitability and income of producers over the next five years. These measures and recommendations are aimed at ensuring the profitability of the industry while maintaining its role and contribution to energy production, continuing to play its role in food security for the next five years while preserving the environment.”

Commenting on the current situation of this sector, he says, “The industry has an important multifunctional role in the economy. The abolition of guaranteed prices under the sugar protocol in 2009 and the subsequent liberalisation of production quotas in October 2017 at the EU level led to a reduction in revenues for Mauritian sugar. The sugar income is now based on the world price. Prices have reached their lowest level in the last two decades, while production costs have been rising steadily. This has a direct impact on the profitability and viability of the sugarcane industry.”

When asked about whether the sugarcane industry is at risk, the Minister highlights that with a status-quo approach, the sector is really threatened by real risks, such as the abandonment of fields under cultivation, lack of canes at the mill for grinding, for the production of sugar and other co-products of the cane and especially the production of energy from bagasse and without forgetting the problem of lack of manpower.

“The sugarcane area has declined on an average of 1,500 hectares per year over the last decade. The announcement of the sugar union for an income of Rs 11,000 per ton of sugar will probably accentuate the decline in areas under cane crop if nothing is done. The main reasons for decreasing the area under cultivation and the abandonment of land by planters are the increase in the cost of production, the decline in income, the aging of planters and workers, the reluctance of young people to engage in cane growing, lack of economies of scale in operations for small scattered plots and succession issues. This is why an abandoned land identification exercise is being set up and rehabilitated as soon as possible.”

Jugdish Bundhoo : “The price of white sugar has dropped”

The Chief Executive Officer (CEO) of Mauritius Cane Industry Authority states that the current situation is dictated by the income we receive. Referring to the harvest season of 2016, he explains that the price was Rs 15,000 per ton while this year, the price will be around Rs 11,000. He underscores that there is a gap between the income we receive and the price of viability. 

He argues that price that prevails on the European market has an impact on us. “It is important to understand that we are an export-based industry. 90% of our sugars are exported, whether it is white sugar (refined white) or special sugar. Special sugar brings us a premium. But the price of white sugar has dropped.” 

He further adds, “There are other components that come into play, such as the price of molasses. According to our laws, it comes from a basket of prices. The molasses as a product itself is no longer exported, but some of them are used for the production of alcohol, which is then exported. So when we take the price of viability, we have to take into account the income from molasses and bagasse. And when we add all of that, we cannot bridge that gap between the selling price and the viability price. Hence the setting up of the Joint Technical Committee comes into play.” 

The CEO is of the view that the sugarcane industry is really threatened. He refers to the outcome of having small planters abandoning their culture. “For the factory to work there is need for a critical mass working to ensure their survival.” 

When asked about what should be done in such a situation, he replies, “If we do not anything, the sector will dissapear. We cannot abandon this industry either. It has a multifunctional vocation such as sugar and molasses for the production of alcoholic drinks, which are exported. This brings in foreign currencies. If we sell the product on the local market, we reduce our importation. There is also an environmental aspect. Without cane, we would have had a big erosion problem. The cane is also beneficial to the tourism sector. We welcome some 1.3 million tourists annually, not only for the sun and the sea, but also for this beautiful sugar  cane landscape that offers an additional attraction. Added to that, we produce between 15 to 16 percent of our energy with bagasse. If there was no bagasse, we would have used coal, for example. And today, that equates to 200,000 tons of additional coal that we would have bought. In addition, the cane industry generates 4,500 direct jobs. If you add indirect jobs, such as transportation, freight, etc., this figure increases considerably.”

Asked about the injection of Rs 1.3 billion in this sector, he clarifies that “we have a gap between the selling price and the viability price. We think that next year, the price will remain more or less the same. We must find a way to obtain as well as to offer this visibility over four to five years and thus keep this industry viable. We will have to take steps to fill these gaps and keep producers in the production chain. There will be permanent and temporary measures. For example, the measures taken by the Sugar Industry Fund Board in 2014-2015 were temporary. Then in September 2017, the government made the decision to support planters, which was another temporary measure. But there will also be permanent measures.” 

The CEO also lays much emphasis on diversifying the industry. He avers that there are many ways to do so, especially from value-added products. “Today, we are among the largest producers of special sugars, with production ranging from 110,000 tons to about 130,000 tons annually. We are trying to see how to shift the production of white sugar to that of special sugars.”

Devesh Dukhira : “The prevailing market situation is really difficult”

The Chief Executive Officer (CEO) of the Mauritius Sugar Syndicate, Devesh Dukhira, believes that the prevailing market situation is really difficult for the sugar industry. “With an excess production around the world, the price has drastically decreased. This has obviously impacted on the revenue for the sugarcane industry in Mauritius, especially that its preferential agreements with the EU have long been eroded. With decreasing revenue, the planters are disheartened.” 

But for the CEO, this situation would not last forever as this is a cycle. He reveals that the main reasons for this collapse are due to external factors. “Market prices were much better for the previous crop, and they can return to such levels in a few years ahead. Whenever prices are remunerative, producers globally have a tendency to invest in additional capacities, which is likely to result in subsequent production surpluses, which will in turn put pressure on prices afterwards. Hence for the 2017/18 campaign, Thailand would be producing a record 14 million tons of sugar, India would produce 31 million tons, compared with 21 million tons in the preceding crop. Even in the EU, in anticipation of abolition of production quotas in October 2017, the surface under beet cultivation had been increased by some 17%, resulting in a 25% production growth to almost 21 million tons. Climatic conditions were favorable and they had a very good harvest.” 

However, according to him, there are some internal factors as well that need to be taken into consideration. “In the local context, what we have perceived over the past years is that the cost of production as from the field has continued increasing while sales revenue has fluctuated in light of world market prices. Planters are thus being squeezed when market prices fall. Therefore, they find themselves in a difficult situation where their revenues get much lower than their operational costs. The ex-syndicate price to be paid to producers for the 2017 Crop, for instance, is estimated at Rs 11,000 per ton sugar, which was the level paid some twenty years ago while production cost has meanwhile increased significantly.” 

As solution, the CEO believes that the industry should firstly improve its competitiveness and secondly optimize its other revenue streams, namely from the co-products of sugarcane like its biomass. “We need to meet these two objectives as soon as possible to ensure the viability of the industry.” 

Commenting on the increase of tax on imports, he declares that “all countries around the world protect their local industries from imports, given that world market prices can be much distorted. There is nothing new in that. For instance, in India, the import tax is 100%, in Europe, it is 419 Euros per ton, in Kenya it is 100% and in China, it is 95%. In Mauritius, currently, it is only 15%.” 

Concerning the Environment protection fee, he recalls that this initiative is meant to protect the greenery of the island. “In Mauritius, we have around 50,000 hectares of sugar cane fields. It embellishes our country, especially as a tourist destination: greenery should exist forever on the island. Secondly, sugarcane is one of the rare crops that are cyclone and drought-resistant, hence cannot be easily replaced on such large scale.”

Pierre Dinan : “Reform in this sector is required” 

Economist Pierre Dinan underscores that since three years, the authorities and the government knew that the situation would get worse, yet nothing concrete has been done. He states that unfortunately, the sugar industry has been one of our major economic pillars and represented around 95% of our exports years ago and today, it represents less than 10%.  Now, according to him, the situation is deteriorating and he points out that there exist various reasons for this downfall.

Firstly, he recalls that for more than 40 years, Mauritius was being protected by the European countries and with the abolishing of the quota, we are no doubt competing with other countries. “Mauritius has great potential when it comes to sugarcane industry. There is no doubt that we have know-how in this industry but we need to look beyond only the production of sugar now. The fluctuations of price are surely to our detriment and we unable to cope. Hence, why not exploit other alternatives?”

The economist argues that energy is one major alternative that Mauritius needs to invest in more. “We need energy and why not produce more energy for our own use? While the price of petroleum knows a hike every year, alternative energy is a solution for us. Another alternative is the production of special sugars. There is demand for special sugars, why not go in this direction? Likewise, research has shown that sugarcane can be of great use in the pharmaceutical industry.” Pierre Dinan highly recommends a reform in this sector. “If we are only focusing on production, then we will fail miserably. Our cost of production is extremely high and the price we are getting is low. European countries are looking at other countries and beetroot sugar producers.” 

Commenting on a question concerning government subsidy, he replies: “Why is the government giving subsidy and for what? The government cannot give subsidies to produce only sugar. It will be a major error. There is need to invest in other alternatives. Luckily, our economy is a diversified one and we are able to cope.” 

Trilock Ujoodha : “The sugar industry is in the red zone” 

Trilock Ujoodha, the president of Sugar Cane Metayers and Small Planters Association, avers that the sugar industry is in the red zone and if nothing is done, it will disappear. “Earlier we had around 40,000 small planters and today, this number has gone down to 12,000. The size will continue to shrink till it will fade out. Every year, 1,000 acres of land are disappearing. We are not able to break even. Some of the planters are even taking loans from cooperatives for their survival.”

Trilock suggests that the price of the bagasse and molasses needs to be reviewed. “Sugarcane is one of those crops from which nothing is wasted. From its leaves to its roots, everything can be used efficiently. So why concentrate on sugar only? On the other hand, why does Mauritius always focus on the European market? We should try to find niche markets, as we have good quality product.” 

Kreepalloo Sunghoon : “In three years, all small planters will disappear” 

The secretary of the Mauritius Sugar Syndicate (MSS), Kreepalloo Sunghoon, predicts that if the current situation persists, then in three years, all small planters will disappear. “We are in a very difficult situation. Today, in 2018, we have less than 13,000 planters in Mauritius. In addition, with consistent decreasing, the doom is not so far. Today, planters are not willing to harvest as they know they will lose money. There are so many lands being abandoned. The cost of operations is far more than what they received per tons of sugar. This situation was already predicted in 2006 in the Multi Annual Adaptation report. But no measures were taken.”

The first reason given by Kreepalloo Sunghoon is lack of consultation with all stakeholders. “Whenever the government takes a major decision, no consultation is done with all stakeholders of this sector. For example, the decision of closing various factories or the decisions for not exporting molasses were taken without much consultation. The second reason is that less importance is given to planters. With time, planters began to suffer. If the government is willing to inject Rs 1.3 billion, the small planters will receive only Rs 140. So, there is no equitable distribution.”

As solutions, the secretary states that a new mechanism of payment is crucial. “If the planters are paid adequately, they will not lose interest. Planters should be paid Rs 2,000 per ton if the sugarcanes are taken from their fields and Rs 2,500 per ton if they have to transport it to the factory. This will help planters.”

Jacqueline Sauzier : “This industry is important in our local economy”

The General Secretary of the Mauritius Chamber of Agriculture, on her part, underlines that the sugarcane industry has experienced several waves of pressure and difficulties, yet it has been able to reinvent itself. However, she believes that the recent events such as end of Sugar Protocol and liberalisation of sugar beet production in Europe have shaken our local industry.

“The industry has adapted itself to the constraints whenever needed. Heavy investment has been made to identify new streams.  We have moved from a sugar producing country to a value-added sugar producing country, such as refined sugars and special sugars. We have also improved our by-products by producing electricity from bagasse and by allocating some of the molasses to local distilleries for the production of alcoholic beverages. The main constraint of the industry lies in the fact that the local market absorbs only less than 10% of the national sugar production, so that we are entirely dependent on export markets for the sustainable development of the sector. Lower prices in the global market as well as in our traditional markets have a direct impact on the profitability of our sugar operations.”

For her, the industry is in a critical situation. “The financial results, as presented by several companies in this sector, demonstrate how critical the situation is. For example, while the price paid to producers has fallen by more than 30% in recent years, payroll costs directly impacting our production expenditures have increased by more than 60% between 2010 and 2017.” 

According to her, the cane industry represents at this stage less than 3% of Gross Domestic Product. But she points out that we must not forget that there are economic activities parallel to this industry that are of paramount importance in our economy, for example the production of electricity from bagasse. “16% of our energy produced from bagasse, production of rums from molasses, production of animal feed from bagasse and molasses, production of ethanol, or production of fertilizers from machining waste from the cane. If we combine these various economic activities, we would probably exceed the 10% of GDP. This industry is important in our local economy.”