Article by Kevin Tutani
SUGARCANE is the source of, between 80- 85% of the world’s sugar supplies, with the other 15% derived mainly from sugar beet and corn starch. Of global production, one third is sold in export markets, whilst two-thirds are traded in domestic markets. This means that the largest producers are also among the largest consumers. Top producers include Brazil, India, China and Thailand, who made up 70% of global production in 2020. The sugarcane plant is vital for use in foodstuffs and in the manufacturing of various products such as ethanol, animal stock feed, fertilizers, paper, plastics and various types of chemicals.
This column introspects the Zimbabwean sugarcane value chain, providing proposals on the necessary steps required for the survival and growth of the industry.
Zimbabwe’s sugar value chain is reported to have about 14 772 employees. Effectively, this means that the local sugar industry is one of the largest private-sector employers in the country. Indirect jobs arising from this sector are likely to be three times more, with thousands more in households, dependent on incomes from the value chain. Production levels currently reach 500 000 tonnes of sugar per year. Approximately 350 000 tonnes are consumed domestically, whilst the rest is exported.
The eminent sugarcane-producing company in the country is Tongaat Hullet, which owns Hippo Valley Estates and Triangle Estates (also Triangle Limited). Tongaat Hullet produces just over half (56%) of its sugarcane requirements, with the rest (44%) coming mainly from, about 1200 small-scale farmers, who are mostly out-growers contracted by the corporation.
The firm, which is the sole raw sugar manufacturer in the country, enjoys approximately 52.3% market share in the domestic economy, whilst the remaining share utilizes imported sugar. Through Triangle Sugar Refinery, the company has a sugar refining capacity of 140 000 tonnes per year. More refining capacity can be accessed through a separate company, Goldstar Sugar, which can refine up to 250 000 tonnes per year. In Zimbabwe, sugarcane is also cultivated for ethanol, with Green Fuel and Hippo Valley (a subsidiary of Tongaat) as the main manufacturers.
The local sugarcane value chain has experienced a series of severe challenges, some of which exist to this day, and will need to be resolved for the survival and growth of the sector. A failure to defend or invest in the industry might be tantamount to wilful neglect of the thousands of people who depend on it for sustenance.
One of the major problems the industry faces involves cheaper sugar imports which are usually priced lower than the local product. Through Statutory Instrument (SI), 98, of 2022, and SI 80, of 2023, Treasury lifted restrictions on the importation of basic commodities (including sugar) in order to increase supplies and manage inflation in the domestic market.
Resultantly, Hippo Valley Estates, in their recently issued half-year financial statements, conveyed that stiff competition from foreign sugar brands is expected to dent annual sales by about 5%. The company noted the presence of 17 exotic sugar brands which are sourced from countries that publicly subsidize their sugar industry. If the situation persists, the corporation outlines that recovery and growth of the local sugar industry may become challenging.
To add weight to Hippo Valley’s concerns, it is essential to illustrate that, the international price of sugar is terribly distorted (too low) due to strong government interference in the industry, around the world. Briefly elaborating past and present realities of the Brazilian sugarcane value chain, should help to clarify this.
Brazil is the largest producer of sugarcane, globally, with an annual production above 650 million tonnes. The country is responsible for about 45% of world sugar exports. Due to experience and some benefits which come with production at a large scale, the cost of producing a tonne of sugar is far less in Brazil, than in most other places in the world. Thus, Brazilian sugar is much cheaper than that from other countries. However, the nation did not get to such a productive stage without massive government assistance, some of which is still provided, to date.
Due to mandatory petrol and ethanol blending, about half of Brazil’s sugarcane is used to produce ethanol, mainly for the domestic sector. The other half is used to make sugar for local consumption and exports. Petrol blending ranges from 18- 27.5% ethanol content, with a number of cars operating on 100% ethanol. Due to the government’s stance on fuel blending, about 90% of new vehicles currently sold in Brazil are “flex-fuel” cars, which can take either petrol, blend or pure ethanol. The total stock of the light vehicle fleet in the country is made up of about 70% flex-fuel cars.
This has managed to strengthen and provide a market for the domestic sugarcane value chain as producers worked to fill a huge secured market. Other direct and indirect subsidies such as direct payments to farmers and processors, lower tax rates and special interest rates on government loans, are also part of the country’s value chain.
This is almost the same with India, the second-largest; producer, consumer and exporter of sugarcane and sugar. The Asian nation pays direct subsidies for sugar exports. This is meant to encourage local economic activity and assure food security, among other goals. Ironically, Brazil has lodged a complaint against India, at the World Trade Organisation, in protest against the Indian government’s support for sugarcane farmers.
Swaziland, Zambia and South Africa also produce cheaper sugar than Zimbabwe, whilst government assistance to producers is assured. Therefore, deregulation of sugar imports is not advisable.
The problem with allowing the local sugar industry to collapse is mainly centred on the fact that the country will be food insecure since sugar is an essential part of nutrition. This means that disruptions in foreign supplies can leave the nation vulnerable.
Apart from that, sugarcane is a crop of both the present and the future. Ethanol, which is made from sugarcane, will be vital in the country’s goals to reduce greenhouse gasses. At present, petrol vehicles in Zimbabwe, use a blend of between 10% to 20% ethanol content, depending on the availability of ethanol supplies. Ethanol can produce as much as 90% less CO² than fossil fuels.
Increasingly using sugarcane-based fuel, will result in reduced fuel imports on the part of Zimbabwe. This is excellent for the economy as it helps to grow the domestic ethanol industry, create jobs, ensure energy security and strengthen the nation’s local currency. Additionally, ethanol is cheaper and will lead to savings on the part of consumers.
It is noble to clarify that, fuel-grade ethanol is safe for use and blending, at a rate of up to 25%, for petrol-run vehicles. Unless the manufacturer makes a defective product or the distributor blends it with other unsafe chemicals, a standard petrol engine cannot break due to blended ethanol content, below 25%.
Additionally, with only a few modifications, a regular petrol vehicle can take as much as E85 (85% ethanol and 25% petrol). This can be achieved by making minor adjustments, such as upgrading the fuel pump and injectors. Getting back to economics and the sugar value chain, it therefore makes sense if the government encourages motorists to upgrade to E85 vehicles and provide commensurate rebates to those who transition. This will assist in strengthening the sugar value chain, from small-scale farmers to sugarcane processors.
Rebates may include reducing vehicle license and toll fees for motorists who use E85 vehicles. To avoid fraud, the system may issue a new and reflective number plate and vehicle registration book for consumers who upgrade. If the proposed policies find success, then the next target might be to blend diesel with its commensurate biofuels. Such policies may seem radical and earn resistance in the present but they can be a crucial part of managing energy security, going forward.
Ethanol’s importance goes beyond fuel blending, as it can be used in generating electricity. Currently, local sugarcane processors, use a production method called co-generation, where ethanol and other sugarcane by-products, such as bagasse, are used to concurrently provide both heat and electricity, in the processing of sugarcane.
This is how Chisumbanje-based Green Fuel, generates its own electricity and aims to provide an extra 32 Megawatts to the national grid, once part of its short-term expansion is completed. In the medium to long-term, the company has more ambitious plans, with regards to energy supplies to the national grid.
Since Brazil is adept at creating ethanol power plants, it also provides references for much more to learn in that area. As the sugarcane-derived fuel is renewable, integrating ethanol power plants is imperative for energy security.
In order to cement the expansion of the local sugar industry, by-products such as stock feed and fertilizers, will need to be integrated into the mainstream economy, commercially. This may involve engaging manufacturers and retailers to offer support through commitments to take a predetermined portion of supplies from the sector. In South Africa, after taking note of the receding sugar industry, stakeholders (including the government) drafted a Sugar Value Chain Master Plan, in November 2020.
Part of the mechanisms proposed in this plan included approaching major food and beverage, manufacturers and retailers, requesting them to commit to stocking at least 80%, of South African-produced sugar, as part of their total inputs.
A number of entities agreed and made signed commitments, to prioritize South African sugar over cheaper imports. Resultantly, since the implementation of the Master Plan, domestic sugar sales increased by 40%, on a retail level, in just two years.
In that same manner, locally made sugarcane products and by-products can be provided an opportunity for growth. Assurances from prominent firms such as Delta, Pepsi, FMCG retailers and chemical manufacturers, will be vital for creating a robust value chain. However, local products have to be of competent price and quality.
Studies into the feasibility of cultivating sugar beet and corn, for sugar and their by-products, may also prove useful, and assist in consolidating the sugar industry. Areas unsuitable for sugarcane may be used for sugar beet or corn.
This can be so, since, for example, sugarcane and sugar beet require almost opposite climatic conditions. Excellent results may be reaped, if districts neighbouring Chiredzi, which is the sugarcane mainstay, are utilized for alternative sugar crops.
After an intricate approach outlining sugar dynamics, it can thus be understood that utilizing the local sugarcane value chain, to the highest level possible, will provide key benefits to the Zimbabwean economy.
Remarkably, even though the sector is currently not competitive, compared to foreign industries, it remains the largest private sector employer in the country. Appropriate measures to revive it, will assuredly benefit the overall economy and guarantee a smooth transition by reducing uncertainty into an obscure future.
Everything considered, macroeconomic stability will be essential in order to increase the chances of this sector’s success.
Kevin Tutani is a political economy analyst-, he can be contacted at tutanikevin@gmail.com
