Before matters get out hand, the onus is on the Prime Minister to act as the ultimate bulwark to ensure through appropriate oversight and scrutiny that all ministerial decisions serve the public good rather than vested interests…
Mauritius is going through troubled times. We knew from the outset that entrusting the management of the affairs of the State and key ministries dealing with complex sectors facing daunting challenges to neophytes was fraught with risks. From the word go, wayward troops and those not willing to put in the effort to learn have not been disciplined and brought into line by the Prime Minister to ensure coherent government action. Too many loose cannons and bumbling busybodies have been allowed to hold sway. The confusing babel of conflicting views on a host of important issues such as the Double Taxation Avoidance Treaty or the BAI saga or on sources of financing of flagship projects have further muddled an already messy situation.
Playing with fire
A glaring case in point is the series of flawed decisions canvassed by vested lobbies, taken on board by the Ministry of Agriculture and its officials who are obviously out of their depths in respect of the sugar cane sector. The latest bungle concerns decisions relating to the importation of 42,000 tonnes of sugar for tolling purposes and export for the benefit and sole account of Omnicane.
The Mauritius Sugar Syndicate (MSS) is the only body authorised to import and export sugar. It should be recalled that the request of Medine to become an authorised body to export sugar was logically turned down some time ago by the previous Minister of Agriculture. Apart from the MSS, no company, miller or individual has ever been allowed to import sugar for refining and subsequently export it on its own account.
Worse still, they have also blithely been authorised to discharge and store the sugar at the Bulk Sugar Terminal (whose annual budget is financed by sugar producers and which is owned jointly by the government and sugar producers) at a nominal cost of some Rs50 per tonne which is a paltry charge when compared to the substantially higher unit cost of storage incurred each year by the Syndicate and thus by sugar producers.
Did they get an official authorization before importing the sugar? Who gave this authority without getting the views of sugar producers? Sugar producers have publicly taken position against it. Or was it all done under the nose of the authorities?
It should be noted in this context that most refineries in the world including those in our region involved in tolling are port refineries (e.g. Dubai, Saudi Arabia, Kandia and Haldia in India) as it minimizes costs and enables cost efficient imports and exports of sugar instead of doing so from inland hinterlands.
Why is there so much largesse by the Ministry in favour of a miller which has the financial clout and means to import such a large cargo of raw sugar (valued conservatively on the basis of current world sugar prices at some $15 million) at a time when there are more pressing issues which the Ministry should have been tackling in priority?
– Thus, more than 3000 ex-workers of the sugar industry are still waiting since 2007 to receive their VRS/Blue Print plot of land benefits.
– The long outstanding 2007 government-MSPA commitment to allocate 35% shareholding to the sugar cane planters and employees of the sugar industry into the diverse ventures of the sugar cane cluster using their by-products as feedstock such as power plants and distilleries is yet to be fulfilled nine years later.
– It is also shocking that the policy directive ordering the elimination of sugar estate camps initiated in the 1985 Action Plan for the sugar industry is still not completed more than 30 years after and has only now entered in its final stage with two sugar estate camps still to be phased out.
– An equally burning issue is the unsatisfactorily explained quantum fall in the sugar content per tonne of cane of the 2015 crop which further enhances losses incurred by sugar producers, glibly attributed to the negative impact of climate change, ‘qui semble avoir bon dos’. It is therefore imperative that a competent technical committee with independent assessors be urgently set up to fathom out with credible answers the real causes of this unusual quantum fall in sugar content.
– The stark income equalities within the sugar cane sector needs also to be substantively addressed. With only four mills, the SIT shareholding in mills and the dissolution of the MSPA, the representation of the sugar producers on diverse institutions of the sugar industry need to be urgently recast accordingly to reflect this materially changed new situation.
Has the Ministry or the MCIA and more importantly the ‘government of the people’ lost their bearings in respect of the real priorities of the sugar cane sector? Is all this happening under the watch of the Minister? The planters and workers of the industry have waited for too long. It is time to deliver on those promises without any further delay so as to bring comfort to them after a lifetime of commitment to the sugar sector and the hardships endured.
The present structure of the sugar industry and the safeguards enacted over the years to ensure fair arbitrage among the stakeholders of the industry is the result of hard-fought battles by cane planters since independence, careful and judicious thought aimed at striking the right balance among the conflicting interests of the stakeholders.
Similar arbitrations take place in all the sugar industries across the world. This relates inter alia to the independent assessment of the sugar cane weight and sugar and molasses accruing to each planter and a transparent method of establishing a common price payable to all sugar producers from the proceeds of the sale of diverse sugars marketed by the MSS. All the by-products from the canes of the planter also accrue to him.
Such a fair, transparent, independent and trusted mechanism is the cornerstone of the sugar industry which binds it together. This mechanism based on trust in institutions such as the Control Board or the MSS cannot be replicated, least of all by a vested stakeholder.
Is there an insidious agenda being steered by lobbies under the nose of bemused Ministry officials to dismantle this trusted mechanism which has been painstakingly built up through arduous battles since independence and which has stood the test of time? Such a legacy would be damning for the government. It would thus be foolhardy to tinker with it. This would be akin to stoking a hornet’s nest and playing with fire. It would be a recipe for ire and revolt. Before matters get out hand, the onus is therefore on the Prime Minister to act as the ultimate bulwark to ensure through appropriate oversight and scrutiny that all ministerial decisions serve the public good rather than vested interests, before vetting them or otherwise.
Throwing good money after bad
In this well-tested set up, the role of the sugar factory or refinery is to mill sugar. The production of all sugars is subcontracted to the mills who are paid 22% of the planters’ sugar as milling fee or a manufacturing premium in the case of special sugars and a refining service fee in the case of the production of white refined sugar.
In the case of the refineries at Omnicane and Alteo the refining service fee also included a fixed element to ensure a total payback by 2015 of the substantial loan element representing some 60-70% of the total investments to build their refineries. All sugar producers and planters have thus paid some Rs3,000 per tonne as refining service fee to these two mill companies which has been annually deducted during the 2009-2015 period from the crop receipts of sugar producers and planters.
In effect, the sugar producers and planters have therefore helped finance the cost of these refineries and for all intents and purposes are stakeholders of these refining facilities.
Under these circumstances, how can Omnicane be allowed to import sugar for refining in a refinery financed by all sugar producers and sell it on its own account when the import and export responsibility of sugar in the country lies solely with the MSS? This is the more questionable as such a venture is in competition with the marketing efforts of the MSS in the region facilitated by market access advantages from regional trade agreements negotiated by the government, in a context where sales to the EU market are no longer viable. It causes prejudice to the planters and sugar producers, the more so as the region is already a beehive of competition by sugars from South Africa, Thailand and port refineries in the area.
Furthermore, the four mills in Mauritius including their corporate farms only own a fraction of the sugar milled by them. For example, for the 2015 crop, Omnicane including its corporate farms produced some 42,000 tonnes of sugar whereas a significantly higher tonnage of about 75,000 tonnes was produced by it from planters’ canes. Without canes from the planter out growers, the mills cannot run economically. It is abundantly clear that no mill can therefore claim to market sugar milled by it when a large share of that sugar does not belong to it.
More importantly, it is evident that the Mauritian sugar industry is not competitive and unable to cover its costs in the context of the present liberalised, lower priced and more competitive market conditions. This reality is also confirmed by the Landell Mills report issued last June. After a relatively short time of remunerative prices under protected EU market conditions, the sale of white refined sugar started in 2009 now faces a radically different and basically opposite market situation.
Instead of generating additional revenue, the sale of white refined sugar engenders losses for sugar producers since the 2013 crop as the net price obtainable is ‘far below the viability price of producers throughout the sector’ estimated last year in the LMC report at the around Rs16,000 per tonne. The net price obtainable has been artificially propped up annually by the lifeline of a serum of some Rs 2,000-3400 per tonne for the 2014 crop and Rs 2,000 per tonne for the 2015 crop, drawn from the substantial reserves of the Sugar Insurance Fund Board (SIFB) of more than Rs 5 billion, built over years from crop insurance premia paid by sugar producers and planters.
It must be added that the sugar industry is also propped up by a high domestic price of Rs 21.50 per kg (Rs 21,500 per tonne) for both direct consumption and industrial sugar. Domestic consumers have also been burdened by the imposition of a levy of Rs 2.70 per kg on domestic sales of sugar as from 2011 which was increased to Rs 3.70 per kg in March 2014, in order to transfer the recurrent annual costs of the dock workers’ pensions which was borne by the sugar industry amounting to more Rs 100 million per year to the local consumers. ACIM was clearly caught napping!
By what warped rationale should domestic consumers from all walks of life pay the obligations of sugar producers which include those of the corporate sector towards dockers? This is neither fair nor moral. To crown it all, there is now a proposal by the Minister to impose a duty of 15% on sugar imports for the domestic market. Why should domestic consumers be again penalized to provide a lifeline to continue the uncompetitive production of sugar?
As a producer, it fundamentally makes no commercial sense to ask sugar producers and planters to annually pay some Rs 3,000 per tonne as refining service fee upfront and continue the costly production and sale of white refined sugar in a market context generating continued losses since 2013. And then to annually make good their losses from SIFB reserves.
In plain terms, the production of white refined sugar which appears more and more to be a white elephant must rationally and logically be stopped. We also need to prevent the sugar industry from throwing good money against bad and basically, halt the squandering of the valuable SIFB reserves which can be more usefully used to re-engineer the future of the sugar cane industry for the benefit of sugar producers and planters.
The sugar industry is at a crossroads. This is not the time to bury our heads in the sand but for clearheaded and bold decisions including cutting the dead wood in the light of the ground realities of the market and what is commercially viable and feasible. It is also not the time for commercial adventurism but for pragmatism and good commercial sense based solely on viable options for the future with everyone on board. Let’s cut the… nonsense.
* Published in print edition on 18 March 2016