Southern African sugar: new trends and opportunities?

Sugar is becoming an increasingly important commodity across the region. New areas are being planted and mills are being commissioned in Malawi, Mozambique, Tanzania, Swaziland, Zambia and elsewhere. The implications of the changing sugar (and ethanol) economy were the subject of discussions at the inaugural meeting of the Southern African Sugar Research Network that was held at the Institute of Poverty, Land and Agrarian Studies at UWC in Cape Town last week, and we heard fascinating presentations from each of these countries, as well as from South Africa itself.

Most of the regional growth is being driven by the expansion of two South African companies – Illovo and Tongaat Hulett. A review of their turnover and profits shows that significant proportions are being made outside South Africa. For Illovo, a substantial proportion of their profits are generated in their still fairly limited operations in Malawi, while over 40% of Tongaat’s operating profit is derived from Zimbabwe, where revenue increased by 19% and profits by 11% last year. The influence of Southern Africa’s powerful BRICS country, South Africa, is through its corporate sector, and not the grand-sounding government statements full of regional cooperation and integration rhetoric offered at summits.

The region indeed is increasingly important for South African capital. In the agri-food sector, we have seen the expansion of retail, with Pick n Pay or Shoprite nearly ubiquitous, now it’s the turn of the big production players. The availability of land, cheap labour and benefits from state investments in infrastructure (often water supply and irrigation on now defunct state farms) has been important. The EU sugar regime also provides support to sugar industries outside South Africa under the sugar adaptation protocols that exists to support the switch of strategic national sugar industries to new market conditions in Europe. This comes in very handy for South African companies, and helps subsidise operations, and position marketing from a ‘low income country’ base.

Where does this leave the Zimbabwean sugar industry that has since the 1960s been the mainstay of the lowveld’s economy? Since then the industry has produced significant foreign exchange for the national exchequer not to mention employment, ethanol, various industrial products, and of course raw cane sugar which is consumed in large amounts in Zimbabwe. Tongaat Hulett dominates Zimbabwe’s sugar industry owning Triangle and being the majority holder of Hippo Valley. It produces sugar across over 40,000ha of irrigated land, has milling capacity of around 600,000 tonnes and employs around 25,000 people.

In addition, the company deals with the sugar produced by over 800 new outgrowers who were allocated land as part of Zimbabwe’s land reform after 2000. They farm around 15,000 ha, formerly estate and white owned outgrower land, with farm sizes averaging about 25ha. After a disastrous period during the collapse of the Zimbabwean economy, sugar production has increased again, with around 460,000 mt being produced last year. The rehabilitation of sugar land has been assisted by support from the European Union as well as significant investments by Tongaat Hulett and of course by farmers themselves.

Since 2002, we have tracked 38 outgrower sugar farmers in Hippo Valley in the southeast lowveld looking across the years at production levels, input applications, farm investment, labour hiring and so on. Plot sizes now average 24.3 ha, and all are irrigated. In our sample, the average output last year was 1690 mt, produced on 20.5 ha, representing a yield of 83.6 t/ha. This is a very respectable output and yield, and indeed better yielding than much nearby estate land.

As with the other sugar areas, these ‘new’ A2 farmers are relatively elite, mostly men, and come from a variety of backgrounds. In our sample around half were civil servants (47%), while about a third were former estate employees (34%). The rest included NGO workers (3%); politicians (3%), and business persons (8%). 10% were ‘war veterans’, all civil servants at the time of land allocation. Over half were qualified with ‘Master Farmer’ certificates, and their average age is now 53. Today 39% stay at the plot, while the rest commute. 29% remain employed elsewhere, but this has declined over time as more have committed to sugar farming. Many challenges have been faced over the past 12 years, but the farmers are optimistic about the future.

With outgrowers producing a significant proportion of the total output, is this model the likely future for the sugar areas of Zimbabwe? Outgrowing approaches are much touted across the region, but the arrangements differ widely, as we heard in the presentations at the Cape Town meeting. In some areas, local people are offered dividends on land that is farmed by the estate, with their involvement simply receiving a cheque. This approach, exported from some ‘land reform’ schemes in South Africa, is used by Illovo for example in Zambia. In other areas, farmers have very small plots and often receive less than they put in. This massively discourages outgrowers who are forced to grow food to survive in plots elsewhere, as we heard from Tanzania. There are huge variations in the terms of the contract between farmers and the mill. In Zimbabwe, the mill retains 26% of outgrowers’ output to cover costs of milling, transport and so on, while in other countries this proportion is much higher.

The expansion of South African capital through the region is having, it seems, diverse effects. While the ‘logic of capital’ is to seek profit and accumulate wherever it can, it results in different arrangements and different deals – with states, with labour and with outgrower farmers. In some countries this deal seems highly detrimental to local livelihoods and employment conditions, simply resulting in extraction and exploitation. While in others, and this includes Zimbabwe, the deal is more balanced. Tongaat Hulett knows they are on notice in Zimbabwe, given the political pressure for land reform and now ‘indigenisation’. But equally the Zimbabwean state cannot afford to let the sugar estates fail. There are too many people employed, too much valuable infrastructure and too much tax revenue to lose.

Since the estates were first established by Murray MacDougall in the late 1930s, there has been a close interaction between private capital and the state. Sometimes coming in to bail out, sometimes letting the private sector have free reign, the relationship has always been carefully managed, and has always been intensely political. This is true today as it was before. The unspoken deal to spare most of the estates from mass land redistribution has been maintained, and while the estates were initially sceptical at the expansion of the outgrower model with smaller plots that they said were ‘unviable’, they have changed their tune of late. As the success of the outgrowers has grown, the rhetoric has shifted to one of ‘empowerment’ and ‘partnership’, and indeed the company has backed its words with substantial funds for cane rehabilitation.

For the longer term, my guess is that there will be shifts towards more land being released from the estates to new outgrower areas as part of deals with the Zimbabwean state, who will be in need of more high value land for redistribution in the future. Indeed the pressure is already on, with Shangaan leaders from the area demanding that they get a share of the sugar bonanza, while political elites and others have inserted themselves in the outgrower areas; shifting aside others particular around the 2008 election period, including most of the white outgrowers who were originally allocated smaller subdivisions of their farms. Today, the political rhetoric around the sugar estates, as ever, remains high.

For the estate owners, if outgrowers can deliver when given the right support, why not release more land? While outgrowing is often presented as a ‘win-win’ ‘inclusive’ business model for large scale farming, from another perspective it is a perfect solution for the estate and big capital. Trapped in a monopoly controlled supply arrangement, outgrowers take on all the production risks, and have to manage always troublesome labour; and anyway the profits in sugar, many observe, are to be made in milling and processing, not in farming. This is no doubt the logic for the diverse outgrower arrangements being pushed across the region by South African capital. And in Zimbabwe the same, if under rather different political terms, likely applies. Currently, it suits everyone: the company, the state and elite land reform farmers who make reasonable returns. For now at least, it looks like this carefully balanced political-economic deal is the only option for Zimbabwe’s sugar sector.

This post was written by Ian Scoones and originally appeared on Zimbabweland

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3 Comments

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3 responses to “Southern African sugar: new trends and opportunities?

  1. am

    There seems to be a slight downturn in the retail price maybe that is due to the increase in production. This time a 2kg packet cost about $2.10 but now it is $1.95.

    How much profit does the typical out grower mentioned above make on is mt. It would appear to be a significant amount of money.

    How much does it compare with tobacco. It is not comparing like for like or a suggestion to change from one to the other but just for information.

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