By Fabien De Marassé Enouf and Devesh Dukhira
The ex-Syndicate price paid to producers for their 2023 crop sugars reached a new record level of 30,951 rupees per ton. This represents a 21% rise over the previous crop’s price of 25,554 rupees. I should recall here the circumstances which brought about the remarkable escalation in selling prices in 2022, namely an exceptional combination of (i) high global prices with the NY#11 raw sugar futures having attained 18-20 US cts/lb, (ii) a 12% year-over-year decline in the EU crop production against a low stock environment, and (iii) an upsurge in production costs in the EU triggered by the Russian invasion of Ukraine.
These market influences persisted when our harvest started in 2023, firstly with the raw sugar futures hovering to 24-26 US cts/lb and secondly amidst concerns of another poor European beet crop. This new price is more than 3 times higher than the disastrous price of 8,700 rupees seen in 2018 when our sector had faced probably the worst market conditions ever. And that was only 5 years ago. Such a surge over a short lapse of time illustrates the volatility of sugar prices, hence the need for the Mauritius Sugar Syndicate, as the commercial arm of the industry, to have the required market strengths, skills and flexibility, to always be in a position to take advantage of the best sales opportunities within its markets.
In addition to the increase in sales prices, the reversal of the declining trend in cane harvest to 2.45 M tons of cane, i.e. almost 9% higher than the 2022 Crop, was another notable achievement for the sector. This is despite the 9% decline in the area harvested, though we believe that part of this decrease is on account of the larger surfaces having been replanted, and these should come back into production. In fact, the noteworthy review in the price of bagasse in 2021 and the rising sugar prices since then have incited growers to invest in better cultural practices, including the accelerated replantation of their old cane ratoons. The financial support provided by Government to this end, namely grants to smaller growers under the MCIA Cane Replantation Scheme as well as soft loans under the DBM Cane Revolving Fund, should be commended. As a result, as stated in the last Budget Speech, almost 10,000 arpents of land have been replanted over the last 3 years.
The 2023 crop outturn was also supported by improved weather conditions, especially during cane growth, with average cane yields having risen to 68.4 tons per hectare and sugar yields to 6.7 tons per hectare. The abundant rainfall seen over the beginning of this year and the ongoing replantation efforts augur well, with the next crop outturn forecasted to be even higher.
It is reassuring to note that confidence has been largely restored amongst producers after the revised remuneration for their bagasse in 2021. Together with molasses, the co-products of sugar accounted for 14% of growers’ total proceeds for the period under review. The National Biomass Framework published in June 2023 re-emphasized the importance of bagasse as a major source of biomass towards attaining Government’s objective to produce by 2030 60% of the country’s electricity needs from renewable sources, thus setting the scene for a sustainable cane industry.
The sugar co-products should henceforth provide a minimum revenue level for producers, thus mitigating the effects of sugar price volatility highlighted earlier. It is, however, necessary, to continuously adjust the price of bagasse and other biomass so that it reflects the market rate of the avoided fossil energy sources and remains relevant as an incentive to produce more local biomass. The price of 3.50 rupees per KWh of electricity set back in 2021 is already out-of-date and requires an urgent review!
Structural constraints
We are all conscious, on the other hand, that despite the improved revenue of the sector, cane land attrition is unfortunately persisting, mostly because of structural constraints. Though there is no official figure available, we estimate that over 10,000 hectares of land have been left astray over recent years. If we base ourselves on the total proceeds obtained for the 2023 Crop and the average yields achieved, the revenue shortfall is estimated at over 2 billion rupees. The recovery of these lands for cane cultivation will not only increase producers’ income but also consolidate the competitiveness of the sector, while providing the Syndicate with added market strength and flexibility to seek the best value for its sugars. No effort should be spared to reverse this trend.
Scarcity of local labour remains the main challenge faced these days.
Scarcity of local labour remains the main challenge faced these days. While some 80% of land under cane is mechanized, the remaining fields still require manual harvesting. We need a fast solution to a fast-impacting problem. We hope that the labour issue will be eased with the proposed amendments to the Workers’ Rights Act to provide more flexibility for the recruitment of foreign workers while ensuring that such employment costs remain viable for planters, despite fluctuations in their annual sales revenue. The timing of implementation remains key!
Another topic of prevailing concern is availability of water for industrial and agricultural use. While we fully concur that the priority should be to provide enough water for domestic purposes, the precautionary approach adopted by the Water Resources Unit, with the continuous renewal of the CWA Dry Season Regulation over the last 2 years, coupled with additional irrigation quotas in certain regions, has become highly prejudicial to the sector. As producers, we would like to be part of a sustainable solution, including better storage, distribution and management of the national water supply.
Sugar market dynamics
When the Syndicate started selling sugar from its 2023 Crop, world prices had continued their escalation since the drastic fall of 2017/18. In fact, after the bumper global crop of over 180 M tons sugar in that year, it has continuously failed to keep up with world consumption and, according to the latest International Sugar Organization records, it is expected to have reached that level only in 2023/24, while global consumption has meanwhile risen by almost 12 M tons. This has resulted in a gradual stock depletion.
Stock-to-consumption ratio has accordingly declined from 61% in 2018/19 to 54% in 2023/24, and could dip further to 53% this year. Global sugar prices consequently increased continuously, except for the provisional decline of early 2020 due to the Covid-19 confinements.
The noteworthy price rise in 2023 has been supported by speculators pitching on the decline in the 2022/23 Indian crop to 32.8 M tons, compared with over 36 M tons in the preceding year, while the Thai crop outturn was expected to fall to under 9 M tons in 2023/24, from previous highs of 14 M tons, both because of adverse weather conditions. The Indian sugar production did not improve in 2023, while the sector meanwhile embarked on an ethanol programme, with diversion of over 4 M tons equivalent sugar in 2022/23. Consequently, amid fears of the poor crop and rising domestic prices, the Indian government has since June 2022 banned sugar exports. Since India is the world’s second largest sugar supplier after Brazil, this decision further increased pressure on global prices.
In fact, the world market became more reliant on Brazil as its share of global sugar exports rose from 38% in 2021 to 45% in 2022 and is expected to have surged to 55% in 2023. The fear in 2023 that their 2023/24 crop harvest might not be good, after its production had fallen to 32 M tons in 2021/22 from nearly 40 M tons in the preceding year, enticed further speculation in the futures market, with the number of long positions having increased from nil to over 8 M tons sugar equivalent over the first half of 2023.
Meanwhile, the European Union, the traditional export destination for Mauritius sugars, experienced a tightening of supplies further to the drop in its 2022 beet crop to 14.6 M tons sugar, while its stocks were already low. The price increase over 2022/23 because of this low outturn, combined with the surge in production costs, persisted over the start of the new marketing year, especially that the 2023 Crop was not expected to be much better while import parity remained high. The average ex-works price of a ton of white sugar, which had risen from € 449 over 2021/22 to € 762 in 2022/23, therefore continued to grow, attaining € 841 in October and € 857 in December 2023 according to the EU Sugar Market Observatory.
Competition on the domestic market has decreased.
This price evolution motivated sales of Mauritius white sugar in the EU. Export prices achieved for Mauritius sugar in the EU hence rose by a further 9% over the preceding crop. Nonetheless, with the surge in inflation, triggered by the Ukrainian war, sales of special sugars decreased, in fact by over 20% compared with the previous year. Sales of direct consumption raw sugar to Kenya, which had exceeded 35,000 tons in 2021/22, have also not recovered meanwhile as this market remained flooded with low priced world market sugars.
While almost 100,000 tons white sugar from our 2023 Crop had initially been earmarked for the EU, the Syndicate had to review over the course of the year its sales strategy, made possible thanks to the flexibility provided under the commercial arrangements with its partners like Cristalco. In fact, further to the duty-free access extended by the EU to Ukrainian agricultural products as from mid-2022, as a support to this war-inflicted country, their white sugar exports to the EU increased from a historical 20,000 tons to 430,000 tons over the 2022/23 marketing year. They surged to 660,000 tons in 2023/24.
Meanwhile, with an acreage increase, thanks to higher prices achieved in the preceding year, the EU beet crop ended being larger than expected, in fact some 1 M tons over the previous campaign. EU buyers consequently reduced their price offers, and Spot prices which had neared € 1,000 per ton in early 2023, started declining thereafter, reaching some € 700 per ton by March 2024.
Meanwhile, the 2023 Mauritius crop harvest also improved compared with the initial estimate of 220,000 tons. In light of the changes in the EU market conditions, the additional 18,000 tons production had to be sold as white sugar to the regional market, where deliveries rose to 27,200 tons from 11,300 tons in the preceding crop. The main destinations include Kenya and Madagascar, the latter market having become even more attractive this year as the MFN tariff on sugar was raised from 10 to 20%, hence improving the margin of preference for COMESA and SADC suppliers. These regional sales were complemented with another 87,000 tons white sugar refined from raw sugar imported on behalf of Omnicane.
With the decline meanwhile in global prices, the threat of cheap imports is imminent.
In the same vein, higher global prices, together with weakening of the Rupee and higher inward freight rates, have increased import costs, and consequently competition on the domestic market has decreased. The Syndicate managed to recover its local market share, with its sales increasing to almost 35,000 tons over the last year. With the decline meanwhile in global prices, the threat of cheap imports is imminent, especially that sugars from SADC/COMESA as well as for industrial usage are still admitted duty-free. We would therefore like to renew our appeal to Government to protect the domestic market from such unfair competition in the interest of the local industry.
World market sugar prices have indeed meanwhile declined as production prospects for the 2023/24 Brazilian crop improved over the year, from 38 M tons in mid-2023 to a latest estimate of 46 M tons, on account of better weather and also a higher sugar mix at the expense of ethanol. Together with a temporary decision in India to reduce conversion of cane juice into ethanol, there was a loss of interest among non-trade buyers in November 2023, which entailed a significant sell-off of funds, resulting in a fall of some 20% in the sugar futures at that time. Fortunately, most of our 2023 Crop sugars had already been sold, but these falls in prices are influencing sales negotiations for the 2024 Crop.
Considering the increasing market exigencies towards sustainable production standards, we have pursued, together with the producers, our goals towards certification of the origin, be it from an environmental, social or governance perspective. Bonsucro-certified sugar availability has grown to some 53,000 tons, the MSS Multi-Purpose Cooperative Society set up in 2021 to regroup independent small cane growers, was successfully certified in June 2024 as a Fairtrade Small-scale Producer Organisation, increasing the availability of Fairtrade certified sugars to almost 17,000 tons. The total production of certified sugars has attained almost 30% of the country’s crop harvest.
Ongoing transformation process
The exceptional sugar prices of the last two seasons have started normalizing this year, and we should now be prepared for a drop in our sugar revenue. While the Syndicate has developed the agility to shift between its sales mix and export destinations, we are confident that it is well equipped to reap the highest price opportunities at any one time and ensure that growers and millers have the means to continue to invest in the improvement of their cultural practices and production processes.
While the need to maintain cost efficiency – from the fields to final delivery to the end customer – is a sine qua non, it is also essential to maintain a minimum production level to ensure a sustainable cane industry. We therefore solicit the support of government to address the persisting challenges regarding labour scarcity and the overdue indexation of the price of co-products, to name a few.
Without any doubt, the thorough transformation undertaken by the industry since the abolition of EU guaranteed prices some 15 years ago has enabled us to enhance our competitiveness while taking advantage of the best market opportunities for our sugars. This ongoing transformation process is as relevant today as it was back then and remains the only option we have to preserve the future of our industry. As a famous President once said: “The most reliable way to predict the future is to create it.”
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