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The Sugar Worker, June 2004. News from the Sugar Sector.

Posted to the IUF website 08-Jul-2004

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The Sugar Worker
Information and Analysis for Unions in the Sugar Sector
Volume VI, Number 6
June 2004

Contents




European Union: Proposals for Sugar Reform

On 23 June, the European Commission unveiled its proposals for a sugar reform, which, if approved, would be introduced starting in the 2005/06 campaign.

The European Commission has recommended ending the intervention price system and introducing changes to the national production quotas. The intervention price system would be replaced by a reference price that would be 412 euros per tonne (about US 23 cents/lb at present rates) by 2007/08, one third lower that the current intervention price of 632 euros per tonne (US 35 cents/lb). The new reference price would be the basis for calculating import tariffs, and the trigger level for private storage, a new mechanism to remove sugar from the market is prices fell below the reference price.

The current "A" and "B" sugar quotas would be merged, and the "C" quota would remain as at present. The current 17.4 million tonnes in the total production quota will be cut by 2.8 million, starting with a 1.3 million-tonne cut, followed by three annual cuts of 500,000 tonnes each. Subsidized exports would be reduced from two million to 400,000 tonnes during the phased-in period. The "A" and "B" quotas are related to domestic consumption, with exports of "B" sugar benefiting from subsidies. "C" sugar is exported to world markets without subsidies, according to the EU.

Production quotas of isoglucose, high fructose syrups, will increase by 100,000 tonnes annually, starting in 2005/06. European production isoglucose is under control by an annual production quota of close to 500,000 tonnes. Based in previous experiences, analysts said that a fully liberalized EU sugar market could see a rapid growth in isoglucose use, probably capturing 30-40 percent of the market, equivalent to a yearly 6 million tonnes of sugar in the EU-25.

The European Commission also proposed that sugar beet farmers would qualify for an annual payment that, depending on the country, may cover up to 60 percent of the estimated revenue loss resulting from price cuts. Factories that are not longer economically viable and have not been taken over by another operator would benefit from a 5-year safety scheme under which the national governments and the EU would buy their sugar at 250 euros per tonne (about US 14 c/lb).

The European Commission estimates that the compensation measures would cost 1.35 billion euros per year (USD 1.67 billion), which can be financed through savings from the reduction in export subsidies.
The proposals are to be discussed by the 25 agricultural ministers, and a decision is expected by September/October.

In related news, the European Union concluded agricultural negotiations with Bulgaria and Romania, countries that expect to join the Union in 2007. The EU agreed that the countries would continue importing raw sugar for refining after accession, but has stipulated that Bulgaria's factories must choose whether to process only sugar beets or imported raw sugar. Bulgaria will be allowed to import 198,748 tonnes of raw sugar annually, which was the amount requested by the country. Romania will import 329,636 tonnes of raw sugar annually, below the country's request for 400,000 tonnes. Bulgaria will have a 4,752 tonnes of "A" and "B" sugar (far less than the 250,000 tonnes requested), and Romania 109,164 tonnes. Isoglucose production quotas were set at 56,603 tonnes for Bulgaria, 9,790 tonnes for Romania. (Based on F.O.Licht's ISSR, 25 June 2004.)

Caribbean: EPA Negotiations with European Union

On 16 April, 15 Caribbean states in the ACP group launched the European Union - Cariforum negotiations on the Economic Partnership Agreement (EPA), which, in the context of the Cotonou Agreement, outlines the future partnership on economic development, trade and cooperation. High in the agenda of Cariforum, the Caribbean Forum of ACP States, is the future of trade relations - especially the preferential access for sugar and bananas - whenever the new reciprocal and WTO-complaint EPA comes into effect.

The EPA negotiations, launched in Kingston, Jamaica, have four phases:


The ACP states, particularly the Caribbean countries, are concerned with the future of the preferential access to the EU sugar market, which they see threatened by the proposed reforms to the EU sugar regime. Their concerns have been voiced in several opportunities, the most recent at the 4th Summit of ACP States held in Maputo, Mozambique, 21-24 June, at the same time when the European Commission made know the draft for proposed sugar reforms. (See article on EU reforms elsewhere in this issue.) At the launching of the EU/Cariforum negotiations, EU officials said that preferences on sugar and bananas for the Caribbean would not be disrupted by the proposed reforms. However, changes in access to the EU sugar market (i.e. reduction of the volume on Special Protocol Sugar) and the expected impact of the reduction of EU domestic prices on ACP preferential prices, outline a different future.

South Africa: Transfer Sugar Ownership to Black Population

The South African government has indicated that it expects 30 percent of the commercial agricultural land in the sugar sector to be in the hands of the black population by 2015, as part of its Black Empowerment program. Such goal represents some 78,000 hectares of land to be transferred, according to the Business Day, while industry sources have suggested the establishing farms of about 100-h each, which would represent 780 new medium-scale farmers.

Last October, the sugar industry established the Inkezo Land Company to facilitate the transfer of lands. The Inkezo would keep a database of potential buyers and willing sellers, reduce transaction costs, and provide assistance to farmers after the transfer is completed. Companies like Illovo Sugar, Tongaat-Hulett, Transvaal Sugar and the Union Co-operative, own most of the lands under cane. Some years ago, Illovo and Tongaat started selling company lands to "emerging farmers", and as result the number of medium-scale farmers grew to 180 farmers, controlling about 4 percent of land under cane. According to statistics, there are some 45,000 small-scale farmers involved in the sector. When dealing with sugar factories in the Black Empowerment program, the South African Sugar Association (SASA) is of the opinion that no more mills should be erected, because of the unfavourable market conditions under which South Africa operates, such as the exposure to world markets (recently industry revenues went down because of the strengthening of the SA rand against the US dollar), while drought conditions result in smaller cane crops. These factors are already exerting pressure on the existing factories, SASA said.

In related company news, Angola's finance ministry said that South Africa's Transvaal Suiker Beperk (TSB) may invest USD 250 million in a 150,000-tonne per year sugar factory in the Zaire province, in the north of the country, after winning a tender earlier in the year. Although the process is in the initial stages, TSB is known to be looking for opportunities to expand sugar production in neighbouring countries, as Illovo Sugar and Tongaat-Hulett have done in recent years.

Illovo Sugar, the largest sugar company in the African continent, controls seven mills in South Africa (is about to complete the sale of Gledhow mill, refinery and estates to a black empowerment group), two mills in Malawi and two in Tanzania, and one mill in Zambia, one in Mozambique and one in Swaziland. Interestingly enough, local news from Zambia and Malawi indicate the potential for expanding sugar production, countries where Illovo completely controls the sector. In the financial year ending in March 2004, Illovo reported that 24 percent of its operating profits originated in Malawi and 22 percent in Zambia, a combined 46 percent that compares favourably with the 39 percent profits accounted by the South African operations.

Meanwhile, the South African government is revising the country's Sugar Act, expecting that new legislation will be introduced in 2005. According to international sources, the SA Department of Trade and Industry conducted a review of the industry and found that is one of the most regulated industries within the country but, at the same time, it is less regulated than other industries (Australia and Thailand). The review addressed questions of sharing of proceedings from the sale of sugar between the growers and the millers (67-33 percent basis), and controls on production, marketing and exports.

IUF Africa: Sugar Meeting in Durban, South Africa

Fourteen delegates from seven sugar unions of East and Southern Africa, in addition to the IUF regional secretary and the global sugar coordinator, met in Karridene, near Durban, on 28-30 June. The meeting, the first after the IUF global sugar conference, had three objectives: to learn about developments in the subregional trade agreements (COMESA and SADC); to review current collective bargaining agreements in sugar, and to discuss and agree on the basics of a regional sugar project.

A representative from the Common Market for East and Southern Africa (COMESA) gave an overview of the process in COMESA, focusing on sugar development strategies in the country members and as a bloc, and describing aspects of the negotiations on the Economic Partnership Agreement (EPA) with the EU. On the other hand, two specialists shared information on the sugar issues in the Southern African Community Development (SADC), process of development, and the non-reciprocal treatment between members of the Southern Africa Custom Union (SACU) and SADC.

The meeting reviewed of the current situation of collective bargaining in some 16-sugar operations across East and Southern Africa; an exercise that gave the delegates an overview of the terms and conditions of services in each operation, and the possibilities to improve their own. The delegates also reviewed an outline for a regional sugar project, which aims at strengthening the unions' capacities in collective bargaining to support the upward harmonization of terms and conditions across the region, and to expand the IUF network and research to sugar producing countries in Northern and West Africa.

A visit to the South African Sugar Association (SASA) training centre was part of the program, and included a presentation on the South African sugar industry by SASA officials.

Attending delegates came from Mozambique, South Africa, Swaziland, Uganda, Zambia and Zimbabwe, as well as a representative of a Danish union, involved in union cooperation programs in Southern Africa.

Tanzania: Kagera Mill Reactivated

The Kagera sugar mill and plantations are under a rehabilitation project, with goals to bring production from zero to 100,000 tonnes by 2010, according to local newspapers. The project has already developed 5,000 hectares of sugar cane, creating employment for about 1,500 people, and, in addition to cane growing and processing facilities, the project is also investing in road rehabilitation, infrastructure, and social services such a health care centre, a school, and housing facilities. The project is estimated at USD 120 million, and when complete it would provide 1,700 jobs. Bosch Projects, a South African project management, won the tender to rehabilitate Kagera. The groups has been involved in four other Tanzanian mills, as well as in sugar operations in Sudan, Kenya, Zambia, Zimbabwe and Malawi.

Sugar operations in Kagera date back to 1933, and, after difficult times in the late 1970s, resumed operations with new facilities in 1983. The mill, however, was never able to reach its full capacity, and was closed in 1997. It was privatized in 2001.

Company News

Japan: Mitsui Units to Merge under Shin Mitsui

Shin Mitsui Sugar Co., Japan's largest sugar refiner, signed a deal in early April to acquire two units in the Mitsui & Co., the Taito Co. Ltd. (the country's fifth largest refiner) and KS Corp., a medium-size refiner. The deal is worth some USD 150 million, and the transaction, which involves swapping of shares, will take effect in April 2005. Shin Mitsui already owns two percent of Taito, and 50 percent of KS Corp.

The new company, Mitsui Sugar Co., will control 23 percent of the domestic market, followed by Dai-Nippon Meiji Sugar Co., related to Mitsubishi Corp. with 11 percent share.
According to Reuters, the companies, owners of the "Spoon" brand, the most popular in the country, decided to merge because of tougher conditions in the domestic market, which includes an expected rise in less expensive sugar and falling demand because of health concerns among Japanese consumers.

The Shin Mitsui Sugar was itself the result of a merger between Mitsui Sugar Co. and Shin-Meito Co., a Nissho Iwai Corp. affiliate, in April 2001, said Japan Times.