BSSCT Meeting 21 April 2010 Sugar in Africa: Status and Prospects Jonathan Innes Booker Tate Ltd
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
Industry characteristics
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!
Sugar in Africa Positive developmental impact Employment creation Tax generating Foreign exchange earning Cane: a good smallholder crop Co-generation potential Ethanol potential
Africa Sugar Production and Consumption Source: Czarnikow
Primary sugar production : surplus and deficit countries in Africa
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
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
Benchmarking
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
Cane yields (tonnes cane per hectare) Zambia 121.6 Colombia 113.3 Malawi 109.3 Swaziland 101.0 Australia 90.0 Guatemala 89.7 USA 84.3 Brazil (Centre/South) 81.8 Indonesia 78.2 China 76.4 Source: LMC International
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
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
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
Focus on Southern Africa
Sugar mills in Sub Saharan Africa
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
South Africa small cane farmers
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), 675 000 t/y Zambia, Malawi, Mozambique (250 000 t/y to 300 000 t/y) Zimbabwe
Southern Africa Sugar Production and Consumption
Swaziland as an example
Background of the Swazi Sugar Industry Sugar Production MTTQ (2007/8): Sugar Sales VHP Ref Raw Total - 280 000t - 220 000t - 135 000t - 635 000t SACU 320 000 t Regional Varies EU Raw/VHP/Ref:170 000t Swaziland domestic consumption 30 000 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 16 000t
The Royal Swaziland Sugar Corporation 20 000 ha owned/managed, 11 000 ha outgrowers Grows 2 million tonnes of cane Crushes 3.2 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 million litres of Potable grade ethanol 96 000 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
Royal Swaziland Sugar Corporation hand cutting
RSSC Social Services Employs over 3000 people Housing and infrastructure in estate towns and villages (for 20 000 people) 2 Clinics Assistance to primary and secondary schools Clubs and football team sponsorship HIV/AIDS counselling and treatment
Social services
Opportunities and Challenges
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
Trade Agreements: Opportunity or challenge?
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
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)
East and Southern Africa Regional Economic Integration Arrangements
Membership of East and Southern Africa Trade Agreements
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?
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
Economic Partnership Agreements
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?
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 2 2009-2015: Free ACP access subject to safeguards, price guarantees until 2012 Post 2015 Duty Free Quota Free access, but what price will prevail?
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?
Proposed Economic Partnership Agreement Blocks in Africa
Southern and Eastern Africa EPA configurations
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
Which market to supply? Bulk or bagged? Raw or white?
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 sugar @ 335/t
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
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
Ethanol
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
Royal Swaziland Sugar Corporation Simunye distillery
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
Industry responses to opportunities/challenges
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
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)
Who is doing what? Some examples (contd) Zambia Expansion of production to 440 000 t (up from 255 000 t in 2006). Cost of US$ 220 million. 10 500 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
Who is doing what? Some examples (contd) Mozambique sugar and ethanol exports. Up to 400 000 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.
Conclusions
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
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!
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