Interview: Devesh Dukhira, CEO – Mauritius Sugar Syndicate —
Remuneration of cane by-products: “It has to be a win-win situation with fairness vis-à-vis all stakeholders”
The Mauritius Sugar Syndicate has clubbed together producers of sugar since 1967, on whose behalf it has marketed our sugar production for the benefit of all producers.
Now that the protections which past governments had secured for the sector by way of above-market prices and guaranteed quotas are virtually out, big companies are contemplating going their own separate way to market their production. This leaves the MSS with an even smaller quantity of sugar – already far below peak production of past years due to the situation having become uneconomic for smaller planters, especially – to sell and distribute equitably among the remaining producers, if government allows the big producers to reap their benefits separately from the rest. We asked the new CEO of the MSS, Devesh Dukhira, his views on how he proposed to deal with the foreseeable diminished role of the MSS with respect to producers being left out and whether collective marketing and sale of sugar still offered a good perspective for Mauritius.
* There is ongoing debate about the sugar industry’s future. And it does not appear from the mixed reviews the Landell Mills report has been received with, that another new lease of life would indeed be given to what earlier had been qualified as a “sunset industry”. How does the future look like when seen from the Mauritius Sugar Syndicate perspective?
The sugar industry has indeed been confronted with a number of challenges over the last decade namely with the WTO ruling against the EU Sugar Regime in 2006, when the EU Commission subsequently decreased the EU intervention price for sugar by 36%, followed by the denunciation of the ACP/EU Sugar Protocol in 2009. Mauritius, which had an annual Sugar Protocol quota of 506,000 tons in the EU, where prices obtainable had been around three times higher than world market prices, and which consequently absorbed over 90% of its sugar exports, has had to adapt to the new market environment accordingly.
Besides the 70,000 tons of the high value added special sugars, which had been developed and marketed since the 1970s, the Syndicate then had to review its marketing strategy for the remaining proportion (the bulk) of the country’s production which had so far been exported as raw sugar for overseas refining. It had no other alternative than going up the value chain and the decision was taken to refine these tonnages locally, which, in addition to retaining value within the industry, allowed the Syndicate to explore opportunities in different market destinations and reach closer to the end customer. Despite the price reduction, the EU remained the most remunerative market destination for the white refined sugar and, pursuant to extensive consultations with a number of market players, the Syndicate consequently established a commercial partnership agreement with Suedzucker, the market leader in EU, with the view to reach the most remunerative market segments: over 200 customers have been supplied with Mauritius white refined sugar over the last 6 years. In parallel, the industry increased production and sales of the special sugars to 120,000 tons, already considered as ambitious given that they are targeted at niche market segments: the sales objective was already met for the 2011 crop and today the Syndicate is supplying these value-added sugars to around 100 buyers in some 45 countries worldwide.
With the EU decision taken in June 2013 to liberalize production quotas as from October 2017, instead of the current situation where EU beet producers are limited by a quota of about 13 M tons out of a total EU consumption of 16.5 tons, the Syndicate has had to adapt its marketing strategy again. Cane sugar supplies, which were making good the beet sugar supply deficit so far under the previous EU sugar regime, would consequently be facing fiercer competition from such other producers with prices expected to decrease to align closer to world market prices. It therefore became essential to differentiate Mauritius sugars in the market while targeting specific market segments, even for the white sugar. The Syndicate had consultations in this respect with the key market players in EU, including the existing commercial partner, and they had all expressed interest in a partnership with the Syndicate to enable it to meet its goals. The Syndicate finally concluded long term agreements with two major EU distributors, namely UK-based British Sugar and France-based Cristal Co, and is also in discussion with a number of other buyers for the purchase of its white sugar, again with the object of selling at the highest price attainable. Supplies to these distributors will start as from the 2015 crop.
On the other hand, although the EU has, till last year, been the most remunerative market destination for Mauritius sugars, it is expected to be more volatile henceforth, possibly falling under world market prices subject to the Euro/US Dollar exchange rate. The Syndicate has consequently embarked on a market diversification strategy with focus on the region: already for the 2014 crop, some 40,000 tons of white sugar, i.e., 10% of the country’s production, will be exported to East Africa. This is in addition to the sales of an almost equivalent quantity of special sugars being sold to over 20 non-EU destinations, including the US.
Locally produced sugar is therefore well sought after and we believe it is already well positioned in export markets for a sustainable future. It is however essential that the industry maintains its quality edge, in terms of food safety and traceability, but also its reliability of supplies and competitiveness.
* Does the current stand adopted by some conglomerates, such as Omnicane and Terra, to negotiate and sell their production by themselves seem to indicate that sugar producers are increasingly having to go after their individual strategies rather than through a central marketing agency like the MSS? Where, in your opinion, will that take us, finally?
It should firstly be recalled that under the Mauritius Sugar Syndicate’s Articles of Association of 1967, the Syndicate has as object the sale of all sugars received for the account of its members — comprising millers, large and small planters – and the distribution of the sale proceeds among these members. It has therefore been the single marketing and exporting desk for the industry, representing the interest of ALL sugar producers, with multiple benefits in respect of economies of scale, a coherent approach to marketing of the sugars in export destinations, hence value maximization, and flexibility to adapt to different market conditions. It has stood the test of time.
With erosion of our trade preferences and increasing market volatility, certain members producing direct consumption sugars are indeed putting into question whether these benefits can outweigh the flexibility of having their own marketing and sales strategies. I should highlight that, under the present regulations, all sugars are placed under the responsibility and in the custody of the Syndicate which sells them on behalf of ALL producers. However, if any miller or refiner decides to sell its own sugar, and provided the required authorization is obtained from Government for each one to go his separate way, it will have to negotiate purchase of the raw materials, albeit in the form of the sugar cane or raw sugar feedstock. The payment system will therefore have to be reviewed.
I would like to stress that while reflecting on its post-2015 marketing strategy, the Syndicate has done its best to incorporate the views and ambitions of all its members, including the different industrial conglomerates, both in terms of flexibility and value-addition. Although the country’s annual sugar production of a mere 400,000 tons is insignificant compared to global production of 180 M tons, it remains an important player on the global scene; by staying united we can face fierce competition through a central marketing agency but still with the required flexibility to adapt to increasingly volatile market conditions. It goes without saying that by standing united, we can continue benefiting from economies of scale in our various operations, but also take advantage of the flexibility in sales.
* There is also growing apprehension that the circumstances as they exist today might be compounded for cane planters generally and especially so for small planters if sugar companies were to move out of the Sugar Syndicate – that is if the MSS were to be disbanded. Would that be in the best interests of the planters – and of Mauritius?
The Syndicate’s payment system is the most transparent for all categories of producers and is often quoted as a reference by other sugar cane industries worldwide. The planter presently benefits from the final sales prices, including for the value-added sugars, from which are deducted operational and logistics costs: any value maximisation or cost saving is added to the common kitty and therefore profits all the planters directly.
The alternative to the Syndicate’s payment system, where planters are currently paid on the sucrose content of their canes, would be payment for the standing cane. It is premature to say whether the planter would be better or worse off under this new scenario as we do not yet have all the elements of this new approach. What we know is that it will entail a complete review of the existing framework and will have to involve all stakeholders. Anyway, adoption of such a new framework will necessarily have to be undertaken in close consultation between planters and millers and will have to be a win-win. It cannot end up with winners on one side and losers on the other. Any such outcome would not be sustainable for the industry.
* The growing number of small planters who have abandoned — for different reasons, including the constantly falling price of sugar and labour shortage, etc – their plantations down the years bears testimony to the helpless loss of hope of an important stakeholder in the sugar sector. To bring them back to tend their fields again may look like a tall order in the present circumstances, isn’t it?
The number of planters has indeed decreased substantially from a peak of 35,881 in 1987 to 14,922 in 2014. It should be highlighted that as planters have invested in the education of their progenies and many of them have become professionals working in different sectors of the economy, they rely less and less on cane plantation for their living. Consequently, those having smaller plots of land tend to abandon cane cultivation especially with the prevailing labour constraints. Government has tried to regroup these planters interested in pursuing cultivation so that they can benefit from economies of scale while certain mills have also introduced the Planters Harvest Scheme to help them overcome the labour issues.
On the other hand, we note a revival of interest among small growers whose production is certified Fairtrade: this is a concept where the final consumer, including of a sugar containing product, pays an additional premium being cognizant that a group of farmers down the supply chain will benefit from it. Fairtrade comes with a set of criteria in respect of good cultural practices, good governance, and preservation of the environment. The Syndicate has played an active role in the promotion of Fairtrade sugar, not only in the sales of the certified sugars but also in encouraging planters to become certified.
To date some 4,500 planters regrouped in 27 cooperatives benefit from Fairtrade with an additional revenue of some Rs 43 M paid as premium for 22,000 tons sugar produced annually. The Syndicate should be able to sell twice that amount of Fairtrade sugar as from the 2015 crop and has been assisting the certification of additional cooperatives to reach this objective. Fairtrade is clearly going to encourage the more foregoing, innovative planters to stay in production.
* A whole range of measures were made available to planters down the years to enhance the productivity of their cane production – from de-rocking to replanting, etc… If it can be justifiably argued that the cane industry has indeed a future, this might require another set of incentives to the planters for them not to abandon their cultivations. What else could be done to free them from the gloom that has beset them currently?
The industry has already undertaken whatever investment required to improve efficiency in the fields or at the industrial level. In addition to ensuring competitiveness of the final product throughout the supply chain, it is essential that each category of producer obtains a fair share of the export revenue in order to remain sustainable. The revenue can extend beyond the value of the sugar: as already mentioned, the Fairtrade certificate provides a boost to small growers grouped in cooperatives: although the whole premium of US $ 60/ton payable does not flow into their pockets as a direct additional revenue that they can dispose of as they wish, they can nevertheless use this payment to reduce their production cost and improve their efficiency through adoption of defined projects.
Planters must also be better organized and structured to become credible partners when it comes to consultations with the industry, its institutions and the Government. Their regrouping into an Alliance of Sugar Producers Association (ASPA) is a right move in this direction: the days of rent seekers are over and if they want to be heard and understood, they would need to come up with clear and credible arguments based on sound and reasonable demands.
* How about a better – and more reasonable – share in the by-products of the sugar industry – molasses, ethanol and energy production, etc., by making them shareholders in the diversification process that has benefited the big conglomerates so far? Would that look like a more sustainable way forward to a whole group which has contributed enormously to the sugar sector in difficult times?
The Syndicate’s prerogative is only the marketing and sales of sugar which planters’ representatives claim to still represent some 92% of their present revenue from the cane. There is indeed a lot of pressure on revenue derived from their sugar, while the industry is now referred to as a sugar cane industry rather than a sugar industry. The issue of remuneration of by-product is a very complex one and does not form part of the Syndicate’s mandate. The only comment I can make is that any proposal on the remuneration of by-products has to be established along the same principles as for sugar: in the end it has to be a win-win situation with fairness vis-à-vis all stakeholders.
* It is reported that China is presently striving to start its own cane and sugar based green chemical industry. Better utilization of by-products from cane and sugar-based new products development would be under way or are being explored. We might not keep pace with the Chinese on this score but what would Mauritius need to do to go in this direction of reinforcing its sugar industry as China is doing?
As I stated earlier, Mauritius sugar is well sought after in the markets where it is present. Though the industry should continue exploiting opportunities for its by-products to relieve pressure from its sugar revenue, we should not divert completely from sugar. I should highlight that, as for any commodity, the sugar market is volatile: there are ups and downs; we have now reached a trough and prices can only improve.
According to the International Sugar Organisation, after four years of world sugar surplus, a deficit era is starting soon and this will impact positively on market prices. Besides, the annual increase in world consumption is to the tune of 2% i.e., an additional 3.5 M tons sugar are required every year but new investment to enhance production is not keeping pace. The world market should therefore soon start a deficit cycle and prices can only increase. However, let us bear in mind that our industry is currently operating below its breakeven price and that any future increase in price will just restore a reasonable level of profitability and should be managed with care. Of course all this should not prevent us from maximizing opportunities, such as by working on by-products and sugar-based new products.
* The Mauritian sugar sector made hay so long as the sun of the Sugar Protocol shone, such that it could diversify to other economic activities, like the hotel industry, export manufacturing, financial services, etc, but now, shorn of the protective shelter that the political price, negotiated and provided for thanks to our quota on the EU market, we’ll have to compete on equal terms with other players worldwide. What will it take to survive – and prosper?
We must face the reality. We should face market forces increasingly. Mauritius’ production is insignificant compared to world production of 180 M tons. So we cannot change much in global market parameters. Moreover, the industry has acquired solid experience not only in food safety and quality, but also in logistics, hence reliability of supplies. The new market trend is ‘sustainability’ and corporate buyers in developed countries are setting objectives with respect to the sourcing of their raw materials and other supplies in a sustainable manner. Mauritius is well poised to position itself to meet market demand under these emerging conditions. The industry will have to capitalize on these strengths and should, without any doubt, prosper in future. However, competitiveness and flexibility remain key to our future.
* The Rose Belle Sugar Estate project was expected to showcase the government’s will to undertake a profitable and prosperous sugar activity and show the way to others. It ended up parceling out land and the appointment of political nominees to do what exactly? Do you have an idea why it did not become the torchbearer it was supposed to be for the whole industry?
Any project needs clear goals, objectives and milestones to ensure that everyone understands what needs to be achieved. In the case of Rose Belle, it can be argued that essential vision and committed leadership were missing, hence the negative returns. Furthermore, efficiency is the key word when we operate in a competitive environment. In the absence of protective shelter, we cannot procrastinate but have to ensure that our goals are objective and achievable, to the benefit one and all.
* Published in print edition on 10 July 2015