Budget 2015 Sector Scan: Sugar reels on year-end strike & looming end of EU quota
The Mauritian sugar sector finds its existence under threat as strikes heavily impacted productivity in the last harvest of December 2014, even as the imminent abolition of the EU sugar quota in September 2017 poses a question mark on the sector’s future. (Image: Composite)
Following the financial services (http://bit.ly/1A406pW) tourism (http://bit.ly/1aXomnP) and ICT sector scan (http://bit.ly/1wXlSzP), AfricaMoney ends the week with the pioneering sector that once defined Mauritius, and still represents a huge slice of Mauritian history — the sugar sector. An industry which dates back to 1639, the sugar sector became the very lifeblood of our economy from the early 19th century to the later part of the 20th century, but finds its existence under threat as strikes heavily impacted productivity in the last harvest of December 2014, even as the imminent abolition of the EU sugar quota in September 2017 poses a question mark on the sector’s future.
Historical Overview of the Sugar industry:
As a major agricultural historical legacy of British and French colonisation, sugarcane is undeniably the main agricultural activity that later led to the expansion of agriculture as one the pillar that supported the Mauritian economy. Sugar was manufactured for the first time in 1696, which later expanded in the 19th century, to become 150,000 tonnes in 1862 from 52,000 hectares of sugarcane. In present times, the sugar sector has developed with an annual production of about 600,000 tonnes of sugar from around 72,000 hectares of cane. Sugar cane has been cultivated in Mauritius for nearly 400 years now and it occupies around 45% of the surface of the island, it therefore holds an important place in the landscape and the ecology of Mauritius.
In the mid 70s, in order to diversify its national economic base, Mauritius embarked on a vigorous development programme that has seen manufacturing and tourism sectors become major foreign exchange earners. In the last decade, Mauritius has further diversified its economy with the addition of ICT and Services (BPO, financial, medical, etc) sectors. As a result, the country has successfully graduated from a monoculture economy to that of an industrialised one.
About 45 per cent of the island’s surface is being used for cultivation, of which roughly 90 per cent is sugar cane, the balance being tea, tobacco and food crops. Historically, sugar cane cultivation was the main agricultural activity in Mauritius. Following a cut in the European Union’s guaranteed sugar price (leading to a fall in sugar prices by 36 per cent between 2005 and 2009), falling production levels and the global food price crisis, the Ministry of Agro-Industry and Food Security emphasised the need to diversify the agricultural sector.
Apart from sugar, the other main agricultural products of Mauritius are food crops, livestock and poultry, and marine products. Environmental damage is a major impediment to agricultural and fisheries productivity. The islands are densely populated, and the growing places considerable pressure on both land and marine resources. As a diversified agricultural sector, the Ministry of Agro Industry and Food Security set out focus on other areas such as Food Security, Increase in production of priority crops, self-sufficiency and the sensitization on the benefits of healthy food and living.
Sugar sector contribution to the Mauritian economy:
World market prices for sugar continues to fall on back of production exceeding consumption.
Sugar, once the only Mauritian export, had switched completely to the production of high-value added refined sugar. In addition, the ratio of the agricultural sector to GDP has decreased from 4.3 percent in 2009 to 3.8 percent in 2010 and less than 2% of GDP today.
Nonetheless, when coupled with electricity production, real estate and hospitality, the “sugar” estates remain important players of the domestic landscape. The plunge in prices meant the local industry would export raw sugar for less than the cost of production. This triggered the industry’s radical up-evolution from the manufacturer of an unfinished product to the exporter of a ready-for-consumption finished product.
The area of land under cultivation has been steadily declining since the mid-70s in-line with the country’s diversification strategy first into manufacturing, and second into services during the 90s.
However, the sugar industry still remains one of the pillars of the Mauritian economy: today, the corporate sugar cane sector accounts for over 5,000 direct employment providing an income to over 60,000 Mauritian families including 30,000 small planters.
Centralisation of the private sugar production factories which were reduced to only 4 in total namely Alteo Ltd, Omnicane Ltd, Medine Ltd and Terra Mauricia Ltd which are all listed companies on the Stock Exchange of Mauritius. Industry more competitive and enhance efficiency, 5 state owned sugar companies will be privatised.
Going from sugar to the agro-industry overall, the latter contributes 3.5% to the Gross-Domestic Product and generates around 47,700 jobs. This sector occupies around 62 000 hectares of land mass under cultivation. Agro-Industry reveals a diverse range of expansion for investment opportunities such as:
1. Seed production for the local and international market
2. Production of food crops for export
3. Processing of fruits and vegetables
4. Bio farming
5. Dairy farming
6. Poultry & Pig farming
7. Technology based farming
8. Agro-projects in the regional markets
Key Challenges facing the sugar sector:
Abolition of the EU sugar quota looms large
Why companies are moving away from this traditional sector which was once the pillar of the Mauritian economy is mainly because of uncertainties in the path of a sugar cultivator in Mauritius, given the imminent abolition of the EU sugar quota in September 2017.
The sugar quota, on which Mauritius depends a lot for the guaranteed sugar market, will soon come an end and Mauritius will on a liberalized market bringing uncertainties of the future of the industry.
Losing competitiveness on the world market
To face a liberalized and competitive environment with larger countries such as Brazil and Australia producing cheaper sugar, it is becoming difficult for Mauritius as production exceeds consumption making things increasingly tougher, while price of sugar keeps on declining consecutive leading to low revenue generation.
Small planters moving away from cultivation
With sugar becoming less competitive, small farmers are abandoning the sugar cane fields, thus leading to even lower production levels of sugar from Mauritius.
Workers in the sugar sector bargains for salary raise
Workers in the sugar industry pressurised for a pay hike in 2014 amidst unfavourable circumstances in the sector, which also includes production stagnation, delayed harvests putting sugar operators in a difficult situation and impacting productivity levels of the latest harvest in December 2014.
Climate and Environmental:
With rising sea levels, altered rainfall patterns and more intense storms, climate changes are threatening Mauritius’ ecosystem and economy, as increasing pressure is placed on agricultural and aquatic resources. According to the Mauritius Meteorological Services, the number of consecutive dry days is increasing and while the number of rainy days is decreasing, heavy rainfall events (leading to flash floods) has increased, as has the frequency of extreme weather events, including storms of tropical cyclone strength.
Exacerbating these impacts are the inherent vulnerabilities of being a small island: limited land area, susceptibility to natural disasters, limited natural resources and sensitive ecosystems. Unsustainable practices, including sand mining leading to coastal erosion, and soil erosion are further compounding the situation. Nevertheless, environmental degradation, mainly because of deforestation and unsustainable agricultural practices, is receiving growing recognition as a threat. The island was once covered by dense, tropical forest, however native forest cover is now approximately two per cent of its original extent.
Marketing and Advertising:
The absence of a proper marketing strategy with modern market facilities poses another set of constraints for the development of both Mauritian sugar and the non-sugar agricultural sector. In the present practice, there has been no efficient link between the production line and the marketing system, such that it has, up to now, not been possible to effectively plan production according to the market demand. As a result, the country is often confronted with extreme situations whereby at times there is a shortage of certain items of food crops on the local market, while there is overproduction at other times.
Re-Structuring at a Institutional level:
At the institutional level, weaknesses, real or perceived, relate to coordination in information dissemination, strategy with the service-orientation to farmers/agro-entrepreneurs and response to the needs and requirements in the agricultural supply chain.
At the level of the planting community, attempts to regroup planters and farmers under associations and cooperatives have often been unsuccessful. This has hindered the possibility of the planting community of benefiting from existing facilities that they could have secured as a group (e.g. mechanisation and irrigation facilities).
Potential areas of focus for the development of Mauritius Sugar Sector:
Innovative and quality driven
Amid fierce competition on the world market, to capture a good market share, innovative is of prime importance together with improvements in the quality of the product. Sugar producers must add more value than just producing raw sugar, instead refined sugar of different varieties shall be the focus together with quality.
Small planter focus
Small planters should be provided with adequate support that gives them the requisite confidence to continue to cultivate sugar cane. The price at which sugar cane is bought from them should be viable enough to prevent them from abandoning their fields.
Mitigate the impact of EU liberalisation
The Mauritian Government shall come up with measures in order to mitigate the impact of the liberalisation to the EU. The local industry will surely be impacted by the abolition of the quota, however, opportunities exist on the regional front whereby countries are witnessing sugar deficit and Mauritian companies can leverage their expertise and invest in these regions.
Conducting more research on refined sugar production, which is an area of focus, will help to boost this sector. Cost reduction and quality improvements must be on the agenda of sugar operators to make Mauritius refined sugar more favourably perceived on the market and to ensure that it satisfies demand for quality products.
Energy and fuel production
Focus must also be centered on increasing energy and fuel production with bagasse, and the government must help to support producers by finding potentials and encouraging the usage of such green fuels in Mauritius itself.
Looking for opportunities in Africa
If planting sugar cane is not favourable in Mauritius given high cost, Africa has plenty of land, which can be used for sugar cane planting and production of raw sugar, that can then be transported to Mauritius and finally transformed into refined sugar for exportation in Europe and the United State of America. Alteo has already stake in Tanzanian company where things are faring well with a yearly production of 90,000 tones.