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AfricaMoney | August 24, 2017

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Economy ExpertSpeak: Mauritius must improve sugar sector competitiveness to maintain EU market share

Economy ExpertSpeak: Mauritius must improve sugar sector competitiveness to maintain EU market share

Jean Li Yuen Fong, Director of Mauritius Sugar Producers’ Association (MSPA), noted that the industry would move from an essentially raw sugar producer to a producer of value added products, such as refined and special sugars. (Image: MSPA)

Jean Li Yuen Fong, Director of Mauritius Sugar Producers’ Association (MSPA), spoke to AfricaMoney on how measures taken by the EU Commission have critical repercussions on the island economy at it stands at the brink of the abolition of the sugar quota in 2017. Our economic expert commented on the importance of the MAAS’ provision to transform the sugar industry into a sugar cane cluster. He emphasized that Mauritius must improve the competitiveness of its sugar sector to maintain its market share in Europe.

Edited excerpts from an interview:

What would be the impact of the abolition of the EU sugar quota in 2017 on the Mauritian sugar sector?

Up to now, the sugar sector in Europe is highly regulated as the different member countries are not allowed to produce sugar beyond a certain level. Hence, the decision of the EU Commission to abolish sugar quotas in 2017 means that there will no longer be any limit imposed on the production of EU beet growers supplying the EU market. Given that Mauritius is a supplier of the same market, Mauritius thus runs the risks of being displaced by the beet growers as from 2017 unless we take the appropriate measures to safeguard our interests.

According to you, what are the strategies that could be set forward to counter these repercussions?

There is only one way forward and that is to be competitive on the export market. Previously, the EU market was regulated by production quotas imposed on beet growers and, with the abolition of such quotas in 2017, the market will be solely regulated by prices. This means that the most competitive suppliers will increase their market share at the expense of the less competitive ones. Therefore, Mauritius has no other alternative than to keep improving its competitiveness in order to maintain its exports on a market where prices will be determined by the law of demand and supply.
It is expected that prices will be highly volatile and there will be ups and downs. In this situation, producers must absolutely lower their production costs significantly if they want to compete with the European beet growers on their own territory. As a matter of fact, the market has already reacted to the decision of the EU Commission to abolish production quotas in 2017 by a marked decline in sugar prices over the recent months so much so that the Mauritius Sugar Syndicate has decided to review the price estimate to producers from Rs 16,500 to Rs 16,000 per tonne.

On the labour front, it has been claimed that the MSPA to refuse to negotiate before the National Remuneration Board concerning salary compensation and other benefits which workers of the sugar industry have been demanding. Your comments?

Our local labour laws actively promote the use of collective bargaining, whereby employer and employees sit around a table and decide, together, on the conditions of employment applicable to a specific enterprise or industry. The NRB, on the other hand, is a body that makes recommendations to the Minister of Labour, Industrial Relations and Employment concerning minimal remuneration and terms and conditions of employment in sectors where collective bargaining does not exist. Therefore, it is not correct to say that the MSPA had refused to negotiate before the National Remuneration Board.
The sugar sector has been a pioneer in terms of collective bargaining and we were the first industry to kick-start such a process. Collective bargaining leads to a global package, for a given number of years. One should have recourse either to the NRB or to the collective bargaining process, but not the two together. The International Labour Office (ILO) also clearly stipulates this fact.

The MSPA foresees taking steps such as calling on certain independent institutions like the CCM, arbitration court, ministry or others, in order to proceed with the discussions between your association and the labor unions. Your views on the way forward?

Collective bargaining in Mauritius is governed by the Employment Relations Act 2008. This piece of legislation stipulates very clearly the procedures that have to be followed by both the employer and the recognized trade unions when they engage into collective bargaining. It also provides for dispute settlement procedures, for example the reporting of labour disputes to the Commission of Conciliation and Mediation or to the Employment Relations Tribunal for voluntary arbitration.
The members of the MSPA have decided to report a labour dispute to the CCM as the negotiations were not moving forward despite various concessions having been made from our side. Given that the previous collective agreement has expired in December 2013, it was becoming urgent to reach an agreement and put an end to any potential industrial relations turbulence. As time was an issue, we therefore decided at the beginning of this year to seek the assistance of the CCM with a view to conciliating the parties in their mutual interest.
Unfortunately, the proceedings of the CCM are taking a longer time than prescribed by law and we are now urging the Commission to submit its report in strict conformity with the Employment Relations Act.

Can you comment on the economies of scale sought to be achieved from the consolidation of the sugar factories in Mauritius into four big factories?

The centralization of our milling activities is one of the main measures of the local sugar reform. It has enabled us to reduce production costs of the industrial plants through economies of scale. In the nineties, there were more than 20 sugar factories operating in Mauritius and the number has been decreasing over time to reach 4 in 2014 which is the target of the Multi Annual Adaptation Strategy (MAAS). During the same period, the average annual sugar production per factory has trebled from 30,000 to 100,000 tonnes, thus allowing the producers to overcome the numerous obstacles facing the sector during all these years.
It is important to note that the centralization process has facilitated the modernization of the milling sector in terms of production technology, upgrading of equipment, computerization of key operations, etc. Moreover, it has also allowed the country to make a more efficient use of bagasse for electricity production in the new power plants that have been built in the context of factory closures.

The Multi Annual Adaptation Strategy (MAAS) makes provision for the transformation of the sugar industry into a sugar cane cluster. Can you please give your views on the same?

Previously, our main product was raw sugar and the near totality of our production was exported to Europe for refining at a guaranteed price under the Sugar Protocol. Following the implementation of the EU sugar reform in 2006 whereby prices have been cut by 36% over 4 years, and the abolition of the Sugar Protocol in 2009, it was important for Mauritius to restructure the sugar sector for its economic viability. In that context, the MAAS provides for the transformation of the sugar industry into a sugar cane cluster meaning that the industry would move from an essentially raw sugar producer to a producer of value added products, such as refined and special sugars, and where the co-products, i.e. bagasse and molasses, would be used for the production of electricity and ethanol respectively. This would pave the way for the establishment of a competitive, viable and sustainable sector. Currently, our whole sugar production is being exported as refined and special sugars and a distillery is now operating at Omnicane for the production of ethanol.

Finally, what, according to you, is the way forward for the Mauritian economy?

The sugar sector is an export oriented activity and most of our production is sold on the EU market which remains up to now the most remunerative market for us. We cannot ignore the various measures being taken by the EU Commission in the context of their own sugar reform and of their obligations towards the World Trade Organization and which would have a direct bearing on our economy. As said earlier, we need as a matter of first priority to improve the competitiveness of our industry if we want to maintain our market share in Europe; it would even be more difficult to penetrate other world markets which are already supplied by cheaper sugar producing countries like Brazil and Australia.
I believe that this battle of competitiveness can be won in our own country by adopting the right policies for the full integration of the sugar sector to the emerging economic environment. In an open market, the sugar sector must be treated at par with the other economic sectors of the country.

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