BSSCT Meeting 21 April 2010 Sugar in Africa: Status and Prospects. Jonathan Innes Booker Tate Ltd

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1 BSSCT Meeting 21 April 2010 Sugar in Africa: Status and Prospects Jonathan Innes Booker Tate Ltd

2 Contents African sugar industry characteristics Benchmarking Focus on Southern Africa Swaziland as an example Opportunities and challenges Trade Agreements Economic Partnership Agreements Ethanol Industry responses Conclusions

3 Industry characteristics

4 Diversity of sugar in Africa Beet in the north (eg Morocco and Egypt) Cane, predominantly in Sub Saharan Africa Rainfed and irrigated Plantation and smallholder Stand alone refineries (eg Algeria, Tunisia, Egypt, Nigeria) Distilleries and ethanol (molasses based) Multiplicity of trade agreements Cant generalise!

5 Sugar in Africa Positive developmental impact Employment creation Tax generating Foreign exchange earning Cane: a good smallholder crop Co-generation potential Ethanol potential

6 Africa Sugar Production and Consumption Source: Czarnikow

7 Primary sugar production : surplus and deficit countries in Africa

8 Where does Africa sell its sugar? Domestic markets Regional markets: potentially high prices due to transport cost/distances EU either under EPAs or as LDCs under EBA USA under the Tariff Rate Quota World market

9 Sugar consumption in Africa (kg/head raw value) North Africa Egypt 35 Morocco 39 Algeria 36 East Africa Kenya 20 Uganda 10 Tanzania 8 Ethiopia 5 West Africa Cote D'Ivoire 11 Nigeria 9 Mali 9 Ghana 9 Southern Africa South Africa 47 Botswana 29 Mozambique 8 Malawi 13 Source: ISO

10 Benchmarking

11 Campaign length (days) Colombia 363 South Africa 256 Swaziland 253 Zambia 245 Tanzania 240 Indonesia 222 Philippines 221 Brazil (Centre/South) 220 Malawi 217 Mozambique 182 Source: LMC International

12 Cane yields (tonnes cane per hectare) Zambia Colombia Malawi Swaziland Australia 90.0 Guatemala 89.7 USA 84.3 Brazil (Centre/South) 81.8 Indonesia 78.2 China 76.4 Source: LMC International

13 Comparative cane sugar yields (tonnes sugar/hectare) Zambia 16.4 Colombia 15.0 Malawi 14.8 Swaziland 13.5 Australia 12.3 Brazil (Centre/South)(1) 12.2 Guatemala 10.8 China 9.7 USA 9.3 (1) ATR yield (sugar and ethanol) Source: LMC International

14 Comparative costs of production Africa in the top ten (2007) Brazil (Centre/South) Malawi Swaziland Guatemala Thailand Colombia India Brazil (North/Northeast) South Africa Zambia Source: LMC International

15 Who s who Illovo (ABF): South Africa, Swaziland, Zambia, Tanzania, Malawi, Mali Tongaat Hulett: South Africa, Mozambique, Zimbabwe, Swaziland (estate) Castell and SOMDIAA: West/Central Africa Tsb Sugar: South Africa, Swaziland Madhvani: Uganda and Rwanda

16 Focus on Southern Africa

17 Sugar mills in Sub Saharan Africa

18 Southern Africa Industry characteristics Irrigated / large scale / efficient/high yields Miller cum planter, increasing number of growers Net exporters Marginal tonnage at marginal prices: importance of additional EU access

19 South Africa small cane farmers

20 Southern African Sugar Industries 30 factories, 2 stand alone refineries 4.5 million tonnes/year production (3% global production) South Africa: 2.3 M t/y, (20% of Africa s total), 14 mills Swaziland (3 mills), t/y Zambia, Malawi, Mozambique ( t/y to t/y) Zimbabwe

21 Southern Africa Sugar Production and Consumption

22 Swaziland as an example

23 Background of the Swazi Sugar Industry Sugar Production MTTQ (2007/8): Sugar Sales VHP Ref Raw Total t t t t SACU t Regional Varies EU Raw/VHP/Ref: t Swaziland domestic consumption t of sugar Low cost in regional terms Highly export orientated Preferential markets and SACU very important Important source of national income and employment, social and developmental impact World Balancing market US Quota Raw t

The Royal Swaziland Sugar Corporation 20 000 ha owned/managed, 11 000 ha outgrowers Grows 2 million tonnes of cane

2 million tonnes of cane per year at 2 sugar mills - 700tc/hr Produces 450 000 t 96 Pol sugar 140 000 t refined sugar 32

24 The Royal Swaziland Sugar Corporation ha owned/managed, ha outgrowers Grows 2 million tonnes of cane Crushes 3.2 million tonnes of cane per year at 2 sugar mills - 700tc/hr Produces t 96 Pol sugar t refined sugar 32 million litres of Potable grade ethanol t of sugar packed & sold under JV Single desk sugar industry marketing arrangement Ethanol sold into South Africa, West Africa and Europe RSSC represents 69 % of the Swaziland sugar industry

25 Royal Swaziland Sugar Corporation hand cutting

26 RSSC Social Services Employs over 3000 people Housing and infrastructure in estate towns and villages (for people) 2 Clinics Assistance to primary and secondary schools Clubs and football team sponsorship HIV/AIDS counselling and treatment

27 Social services

28 Opportunities and Challenges

29 Opportunities and Challenges The Opportunities: abundant land, good climate, preferential market access, domestic market growth, high regional prices, ethanol potential, developmental/social impact The Challenges: remote locations, land issues, water, cost of greenfield development, overlapping trade agreements, poor infrastructure and distance to port, political risk, cost of capital, exchange rates

30 Trade Agreements: Opportunity or challenge?

31 Africa faces two major constraints on trade. It does not produce enough goods, of the right quality or price, to enable goods to break into world market. And it faces indefensible trade barriers which, directly or indirectly, tax its goods as they enter the markets of developed countries Report of the Commission for Africa, March 2005

32 Regional and bilateral trade agreements Delays in finalisation of Doha Round Long Term prospects of WTO and multilateral trade agreements? Proliferation of regional and bilateral trade agreements (over 200 RTAs in place - many more planned)

33 East and Southern Africa Regional Economic Integration Arrangements

34 Membership of East and Southern Africa Trade Agreements

35 New 26 nation Free Trade Area? Combination of COMESA, EAC, and SADC Stretching from Egypt to South Africa 527 million people GDP of US$ 650 billion Will it happen?

36 Regional trade areas in Eastern and South Africa A state of change: Expansion Memberships changing Evolution from Free Trade Areas towards Customs Unions EPA s cutting across RTA boundaries

37 Economic Partnership Agreements

39 EPAs EPAs are trade and development mechanisms defining the relationship between EU and the ACP. Successor to the Cotonou Agreement whose spirit/intent still remains. Must have reciprocity( a big issue) to be WTO compatible. Nominally FTAs but not just about free trade Many groupings, different agendas, not always united Interim agreements initialled/signed LDC s: what have they to gain from EPA membership?

40 The EU s 4 th April 2007 announcement Duty Free Quota Free access with transition arrangements for sugar Timetable: Phase 1 Jan 08-Sept 09: additional access, new non traditional ACP suppliers, guaranteed prices Phase : Free ACP access subject to safeguards, price guarantees until 2012 Post 2015 Duty Free Quota Free access, but what price will prevail?

41 What it means An end to the EU/ACP Sugar Protocol from October 2009 but EU turns from being exporter to major importer. 36% cut in reference prices. Basic price for raws until 2012 is Minimum Price =90% of reference price, uncertainty thereafter Unlimited EBA access ACP non LDC safeguard - but will it be necessary?

42 Proposed Economic Partnership Agreement Blocks in Africa

43 Southern and Eastern Africa EPA configurations

44 EPAs in Africa: where are we now? Central Africa Interim (Goods only) signed with Cameroun. Full agreement being sought. Eastern Africa (EAC) East and Southern Africa (ESA) Southern Africa (SADC) West African Interim framework agreement initialled with EAC Interim initialled with six ESA states Interim Agreement signed with Botswana, Lesotho and Swaziland and Mozambique. Angola and Mozambique have ABA access anyway. South Africa covered under TDCA. Interim signed with Cote D Ivoire, initialled with Ghana

45 Which market to supply? Bulk or bagged? Raw or white?

white sugar at market price Plantation whites?

46 Adding Value In-depth market knowledge Brand Customer approved supply chain short delivery window 100% security of supply No significant market as yet Joint customer development needed Specials and retail EC 2 white sugar at market price Plantation whites? New product Attractive to beet processors and new build refineries Quality premium VHP Increasing value Increasing complexity Limited customer base Lowest value Raw 335/t

47 ACP/LDCs : Direct consumption sugar exports to the EU? EU turning from major exporter to major importer: big opportunities for different grades of sugar Customers demanding high level of service (quality, delivery, traceability, terms) Target deficit areas Good infrastructure and attention to detail. A strong well connected partner required

48 EU reform : potential winners and losers in Africa Potential winners: ACP low cost producers (e.g. Swaziland) which can secure additional access LDCs: low cost producers (e.g. Sudan, Malawi, Tanzania, Zambia, Ethiopia?). These are the largest EBA suppliers so far. Potential losers: ACP: high cost producers LDCs: the higher cost producers particularly those distant from ports but they will instead supply higher priced local/regional markets

49 Ethanol

50 Ethanol in Africa Africa is considered by many to be the next big frontier for making ethanol. Large swathes of the continent s land boast similar growing conditions for sugarcane cultivation to those found in Brazil, a fact which is whetting the appetite of international investors. Moreover many African countries enjoy preferential access to the US or European markets FO Licht s World Ethanol and Biofuels Report, October 2008

51 Royal Swaziland Sugar Corporation Simunye distillery

52 Ethanol Many initiatives: Mozambique, Tanzania, South Africa, Nigeria, Zambia, Sudan, Kenya.. Factors to consider: cane yields, cost of cane, markets for sugar foregone Duty free access to the EU for both ACP and LDC s Molasses based and from cane juice but infrastructure and distribution logistics pose a problem Food vs. fuel, sustainability criteria, cost of capital

53 Industry responses to opportunities/challenges

54 Focus East Africa Reduce unit costs secure protection EAC, COMESA issues Tanzania, Uganda, Ethiopia expanding Southern Africa Expansion and maximise on economies of scale add value, by-products secure additional export markets (via EPA, regional) Swaps capitalise on membership of trade agreements

55 Who is doing what? Some examples Kenya: privatisation (and cogeneration) Swaziland: expansion (EU exports), raws and refined Brazilian involvement in Angola? Malawi: expansion (EU) Tanzania: expansion (EU and regional)

56 Who is doing what? Some examples (contd) Zambia Expansion of production to t (up from t in 2006). Cost of US$ 220 million ha additional estate and grower cane. Factory expansion from 440 tc/h to 640 c/h. Target: EU and regional markets. Sudan Major expansion of production (White Nile and several others) Targeting the growing domestic and regional markets as well as exports to EU

57 Who is doing what? Some examples (contd) Mozambique sugar and ethanol exports. Up to t sugar by 2010? A hive of activity on the ethanol front Mali Illovo project (delays?) Ethiopia Large new project (Tendaho), expansion elsewhere Zimbabwe: longer term prospects? New/expanded refineries: Algeria, Egypt, Nigeria Many other countries have expansion potential.

58 Conclusions

59 Conclusions Growth potential: land/climate/market access, domestic market growth/high regional prices/ethanol potential, swaps? Negative factors: remote locations, land issues, water, cost of greenfield development, overlapping trade agreements, infrastructure and distance to port, political risk, cost of capital, exchange rates

60 Conclusions (contd) Countries gearing up to supply part of deficit in the EU market and also African regional sales Exporting countries are trying to develop capacity to move their products up the value chain to maximise in country returns Relationships and alliances are being developed to maximise returns through development of synergies, economies of scale and the development of niche markets Prospects for ethanol in selected countries Is the future sweet for Africa?...many think so!

62 Thank you Visit our website

Economic Partnership Agreements (EPA) Lucia BALOGOVA European Commission Directorate-General Trade

Economic Partnership Agreements (EPA) Lucia BALOGOVA European Commission Directorate-General Trade 1 Overview Background Ambitions and objectives Challenges Key development aspects EPA scope Alternatives