Press report indicate Mozambique’s sugar production is expected to rise by 21% to 295,000 tonnes in 2008. According to a Tongaat Hulett spokesperson the idea behind the expansion of production in Mozambique ‘is to take advantage of the European market in the context of the “everything but arms” initiative’, which allows full duty-free access for sugar from 2010. Tongaat-Hulett aims to increase production from 140,400 tonnes to 177,000 tonnes by 2009 on the basis of an investment of US$189 million. An additional 7,500 permanent and seasonal jobs should be created by 2009.
Meanwhile press report indicate ‘serious trouble’ in the Belize sugar industry, with bad weather and skyrocketing fuel prices (some 50% of production costs) squeezing farmers. Production this season could be as much as 300,000 tonnes of sugar cane below the target of 1.1 million tonnes. Barbados sugar production is also down to only 31,611 tonnes (from 33,900 tonnes in 2007). This is 45.4% below the level of production in 2000, with exports expected to be only 27,400 tonnes, down from 54,000 tonnes in 2000. Earnings per tonne in local currency however are now 43% higher than in 2000, highlighting the importance of exchange-rate movements to the future financial viability of sugar production in many of the Caribbean sugar producers. Government policy initiatives in Barbados are trying to reverse the downward trends in land under sugar, as part of wider efforts to develop ‘branded’ high-quality sugar exports.
Difficulties in meeting export commitments are also being faced in Fiji as a result of sugar-cane supply problems.
Meanwhile the WABCG has reported a strengthening of the world sugar price in response to higher energy and grain prices. October sugar rose to a weekly average of 13.68 cents/lb, up from 11cents/lb in early June.
AIM, June 16th 2008
http://allafrica.com/stories/200806161359.html
Belize Times, June 17th 2008
http://belizetimes.biz/content/view/1532/9/
Fiji Times, July 1st 2008
http://www.bilaterals.org/article.php3?id_article=12556
WABCG Flashmarket, Week 27, June 30th to July 4th
www.wabcg.org
Exchange rate issues are likely to be critical to Caribbean-EU sugar-sector relations. With most of the Caribbean’s imports coming from the USA, a weak dollar means that not only are earnings on sugar exports to the EU higher in dollar terms, but every tonne of sugar exported will buy more imports from the USA. This currently insulates the Caribbean sugar industry from the price reductions under way on the EU market. This issue is however rather more complicated than this suggests.
The very weakness of the US dollar is in part fuelling the global commodity price boom. Rising commodity prices (oil in particular) eventually feed through into rising input costs for the sugar industry (from transport costs to fertiliser cost), which over time reduces the gains accruing from the weak US dollar in terms of exporting sugar to the EU. The question arises what will happen to the economics of sugar production in the Caribbean when the US dollar increases in value against the euro?
The EC’s March 2008 ‘Prospects for agricultural markets and income in the EU’ projects a €/US$ exchange rate of 1:1.25 by 2014. By this time price guarantees for ACP sugar exports will have disappeared and EU sugar prices will be market determined (with the minimum guaranteed price of €301.5 being discontinued from October 2012). Given that EU prices are cost, insurance and freight (cif) and world market prices are cited free on board (fob) at an exchange rate of €1 to US$1.25, world market prices would only need to be around 14cents/lb for there to be no significant commercial advantage in exporting raw sugar to the EU market compared to the world market. The question facing Caribbean sugar producers is thus: what would be the impact of a 22.6% devaluation of the euro against the US dollar on the economics of sugar production for the EU market in the Caribbean?
EC annual average exchange-rate assumptions March 2008
2006
2007
2008
2009
2010
2011
2012
2013
2014
US$/€
1.26
1.36
1.42
1.42
1.38
1.35
1.32
1.28
1.25
The diverging trends within the ACP, declining production in the Caribbean and Pacific and expanding production in southern African LDCs are consistent with these underlying competitiveness considerations and patterns of investment over the preceding seven years.