Interview: Devesh Dukhira, CEO – Mauritius Sugar Syndicate
* ‘If the co-products are adequately remunerated, and the required framework is in place to assure cost-efficiency, cane cultivation should become a viable operation’
What’s the future of the sugar industry? Is it indeed a “sunset industry” that economists have been saying for years now? The Mauritius Sugar Syndicate, which is the commercial arm of the sugar sector and is responsible for the marketing and export of all the sugar produced locally, thinks differently. In fact it is placing much hope on the World Bank’s study detailed to come up with a competitiveness analysis of the sector as well as its recommendations on how to assure its long-term viability. These have to be promptly implemented, says Devesh Dukhira, CEO of the Syndicate, to check the further abandonment of lands under cane cultivation and to give the industry a new start. Read on.
Mauritius Times: “2020 will be a crucial year for our sugar sector. We need bold actions to reflect the true value of its contribution to the country… It is far from being a sunset industry as some people might have perceived,” stated Nicolas Maigrot, President of the Mauritius Sugar Syndicate at its annual general meeting on 28th Sep 20. Do you really think that it’s really not a sunset industry and can “look forward to a brighter future”, as the MSS’s president further stated?
Devesh Dukhira: We often tend to ignore the contribution brought by the sugarcane industry beyond the sales of sugar. Sugar revenue has certainly been under pressure since the abolition of guaranteed prices under the defunct ACP/EU Sugar Protocol, but producers have so far not been able to derive full benefit from the cane co-products which should have complemented these sugar proceeds. As these resources have been optimized over the years, bagasse, for example, now accounting for 14% of the electricity produced for the national grid, it is essential that they be remunerated adequately. We now have to refer to a ‘Cane Industry’, with sugar being only one of the components.
As for sugar supply itself, the industry has shifted from a supplier of essentially basic raw sugar meant for further processing during the Sugar Protocol days, to exclusively direct consumption sugars. Sales of the value-added special sugars, which stood at below 70,000 tons in the preceding decade, increased to 120,000 tons by 2011 and has now surged to some 140,000 tons, the market base having meanwhile been diversified to over 55 countries worldwide.
The MSS has set as objective to increase further its production to some 180,000 tons over the next 4-5 years, but competitiveness, hence cost efficiency in the fields and in the mills as well as along the supply chain, is key to attaining this target.
The recent Covid-19 pandemics and related confinement have increased our awareness of the importance of the sugar sector. It not only assured sufficient sugar and energy supplies for the domestic market, but export revenue was the least interrupted as demand was much less affected. Some 40,000 tons sugar were exported during the 10 weeks of lockdown.
* “2020 will be a crucial year for our sugar sector,” stated the MSS’s president, adding that “after having suffered over 10 years of depressed revenue levels,… we are being given a very last chance to take the required decisions to give a new start to the sugar industry.” In concrete terms, what are the “bold actions” the MSS has in mind?
Government, cognizant of the dire financial difficulties faced by sugar producers, approached the World Bank last year for a competitiveness analysis of the sector and also its recommendations on how to assure its long-term viability. The consultants are supposed to submit their report next month.
Although most stakeholders, after several years of deliberation, are aware of what is needed to attain the viability price, which is now closer to Rs 17,500 per ton sugar, it is useful, even essential, that these measures are validated by international consultants in thorough impartiality, so they can be accepted by all parties and promptly implemented. Time is of the essence. The significant land abandonment in the absence of bold reforms speaks for itself: without bold and urgent measures, the shrinking of the cane acreage is bound to persist which will add to the escalating loss in competitiveness.
As the President stated in his speech, the economic viability of the cane industry rests on two fundamental reviews, namely (i) a thorough improvement in its competitive edge, and (ii) a profound enhancement of other revenue streams, especially from cane biomass.
* But how much further should the Government go to support the industry than what have already been made available to it – directly or indirectly, like rupee depreciation,the protection of the domestic market through the imposition of 100% tariff duty on imported sugar, an overall payment of Rs 25,000 per ton for the first 60 tons sugar for the 2019 harvest, additional remuneration for bagasse under the Sugar Cane Sustainability Fund for the 2017 and 2018 crops? That may not be sustainable in the long run given the state of the government’s finances, isn’t it?
Producers are not asking for financial support from Government but simply an adequate remuneration for their products. We fail to understand how the Central Electricity Board is willing to pay the market price for coal or heavy fuel oils, but unwilling to remunerate the local substitute, i.e. bagasse, at an equivalent value.
Moreover, certain sectors of the economy are enjoying subsidies in their energy bills: while they probably need them given the difficult market conditions, such support cannot be done to the detriment of the sugar sector which is also fighting for its survival. If bagasse were to be compensated for its calorific value at the equivalent level for heavy fuel oil, planters should have no difficulty in attaining their present viability prices. The additional remuneration for bagasse under the Sugar Cane Sustainability Fund for the 2017 and 2018 crops in fact set the tone in this direction but it was insufficient and was not renewed beyond that.
As regards the imposition of the 100% import tariff on sugar, it unfortunately has had no impact on imports as they are now coming from COMESA and SADC countries, which enjoy duty-free access under the respective trade provisions, and also through industrial users which are exempted of same. Such protection is sought because there is no level playing field as we are having to compete with sugar imported at world market prices.
I should emphasize that since only one third of the global sugar production is traded, exports are often cross-subsidized, which together with the domestic support extended to producers in several countries, distort global sugar prices: they are presently around half of the world average production cost and sugar is presently being imported in Mauritius at such price levels.
As these sugars are displacing our local produce, which has therefore to be exported, it represents a significant revenue shortfall for the sector, estimated at some Rs 200 M for the 2019 crop. Paradoxically, the same COMESA & SADC countries which are supplying sugar to Mauritius, impose non-tariff barriers to keep out our sugars, which therefore have to be exported farther afar.
* Doesn’t all this indicate that without Government’s financial support, the sugar industry would have gone bankrupt, and it might have necessitated the selling off of part of its lands as it did with the ‘Petit & Grand Morcellements’ in the 1920s to keep it going?
Producers have been seeking financial support pending a thorough reform of the industry. I am not sure such assistance will be required once they secure an adequate remuneration for their co-products and the necessary framework is in place to assure cost-efficiency at all levels with the MSS increasing at the same time the portion of value-added sugars in its sales mix.
Obviously, in return, the planters should also adopt good cultural practices, ensuring timely cane replantation, application of fertilizers, etc., to assure the highest yields.
* Following the drastic fall in market prices in 2017, farmers in some countries, for example Russia with a 20% year over year (YoY) reduction in beet area and Thailand with a further 8% YoY reduction for the 2020/21 season, are switching to more attractive crops, while factories shut down or shift to ethanol. Isn’t that the logical thing to do if we want to avoid further land abandonment here?
Cane is one of the rare crops resistant to cyclones and droughts, to which the country is vulnerable. To my knowledge, we have not yet found another crop which could replace cane cultivation on a large scale in Mauritius.
In addition, as already indicated, we should not look only at the sugar produced but also the biomass which reduces our energy import bills. I would like to reiterate that if the co-products are adequately remunerated, and the required framework is in place to assure cost-efficiency, cane cultivation should become a viable operation in the island.
Even for the sales of sugar, we are well placed to focus on niche market segments to fetch us the highest value obtainable on the strength of the expertise built up over decades in the production of value-added sugars. We can also benefit from the market trend worldwide in favour of healthy products, especially in emerging markets like China, with which Mauritius has already finalized a bilateral free trade agreement.
* In fact, the acreage of lands previously under sugar cane cultivation and abandoned for various reasons but mostly due to unfavourable returns from the current sugar prices has increased down the years. It will require a lot of convincing for planters, mostly the small ones as well as the medium-sized sugarcane land holders, not to abandon their lands, isn’t it?
Producers first need visibility on the financial viability of their operations, hence the urgency for a thorough reform of the sector. Once that is in place, and sugarcane cultivation becomes sustainable, Government will need to adopt measures to curtail further land abandonment. It will require a coherent approach in this regard with a view to maintaining a minimum surface under cane. With the input of the related support institutions, it should also ascertain that planters adopt good cultural practices to assure the highest yields. In the same vein, the influence of climate change on cane yields should be properly assessed and remedial actions taken to minimize any adverse impact.
An ageing growers’ population represents a challenge, and it is essential that the younger generation be encouraged to go back to agriculture. The Covid-19 pandemic should have been a wake-up call in this regard, given the resilience shown by the sugar industry, both with regard to production and export demand, during the related lockdown.
* What’s the feeling in the industry as regards the inputs of various Government institutions, namely the Mauritius Cane Industry Authority and the Mauritius Sugarcane Industry Research Institute, etc., towards supporting the industry to overcome its persisting difficulties?
The Mauritius Cane Industry Authority (MCIA) has a key role in advising Government on the policies to be adopted to assure the viability of the sugarcane industry and consequently implementing the strategic decisions taken for this purpose. It is working in close collaboration in this regard with the consultants of the World Bank in the exercise currently undertaken. We hope it would already have ensured during the consultations that the recommendations to be made can be implemented without further delay, hence stopping the haemorrhage of further abandonment of land under cane cultivation.
The MCIA has recently been given the responsibility to set up a land bank to recover abandoned lands and restore sugar production to reach at least the 400,000 tons level and likewise increase the share of bagasse in the energy mix. It is estimated that at least 10,000 hectares of abandoned land are presently unutilized, hence easily recoverable provided the necessary reforms are implemented.
* Where do matters stand in terms of maximizing opportunities, such as working on by-products and sugar-based new products, which would compensate for revenue shortfalls from low sugar prices?
In a recent study financed by the ‘Agence française de développement’ on the Bioelectricity Strategy for Mauritius, Nodalis underscored the need to introduce an adequate remuneration for bagasse, though they have benchmarked it on coal. It is already a first step in the right direction though it is believed that the comparison should rather be with Heavy Fuel Oil used by the CEB in its thermal power plants.
Likewise, distillers/bottlers of absolute alcohol for domestic consumption now make a financial contribution to cane growers for the molasses used as raw materials, which has substantially increased their revenue derived from this co-product. The World Bank consultants would probably assess whether this new level of revenue from molasses is adequate.
* We see that the sugar industry is now flagging the environment narrative to strengthen its demands for more government support: “Apart from being the most efficient converter of biomass into energy, the cane plant prevents soil erosion, thus protecting our water streams and lagoons, and, moreover, has excellent carbon capture properties.” Earlier it was about the preservation of jobs, and this has been gradually diluted by the application of the Voluntary Reduction Schemes. Does that make for a convincing argument?
The industry must adapt to the evolving socio-economic environment of the country. While it was the main provider of employment when it was the backbone of the economy, its importance in this respect has declined as the economic base broadened.
On the other hand, as people turned to other sectors for jobs, availability of labour for sugarcane plantation became scarce, so much so that the larger growers have had to invest in mechanical harvesting. This challenge is even more pronounced among the smaller growers, who are not able to invest in mechanization while they are confronted with an ageing manual workers’ population.
On the other hand, as we are all suffering from the impact of climate change, it is everyone’s duty to play a part towards the protection of the environment. The contribution of sugarcane in this respect has probably not been adequately recognised in the past. A study conducted earlier this year by the German firm Soil & More Impacts highlighted that the average carbon and blue water footprints for cane sugar in Mauritius from field to harbour amount to only 0.36 Carbon Dioxide Equivalent (CO2e) per kg sugar and a mere 6.8 litres per kg sugar cane respectively, significantly better than the global generic averages of 0.43 CO2e per kg sugar and 50 litres per kg sugarcane.
Most notably, it revealed that generation of renewable electricity from bagasse results in emissions of -0.53 CO2e per kg sugar, thus exceeding the negative climate impact of the entire domestic cane sugar production process by 0.17 kg CO2e per kg sugar. Such a strength cannot remain unnoticed while countries worldwide are taking required actions to fight climate change.
* Published in print edition on 13 October 2020
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