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

The sweet smell of success: the revival of Zimbabwe’s sugar industry

A recent report by the USDA’s Global Agricultural Information Network has shown that Zimbabwe’s sugar industry is rebounding fast on the back of a 6% increase in area cultivated mostly by private outgrowers who are part of the A2 land reform allocations.  Sugar output in 2012/13 is expected to increase by almost 16% to 430000 tonnes from the 372000 tonnes in 2011/12 season, with 160000 tonnes expected to be exported, earning important revenue for the country.

Much of this is happening in the lowveld of Masvingo province, and in the large estates, including Hippo Valley and Mkwasine where we have been studying sugar production on A2 outgrower plots since 2000 (see video here). The Hippo Valley story reflects the wider picture.

Towards the end of last year the Zimbabwe newspapers carried a double page spread reporting the annual results of Hippo Valley Estates Ltd, which are wholly owned by the South African conglomerate Tongaat Hulett. The highlights were: revenue up by 30% at USD90m, with an operating profit of over USD17m. The commentary was upbeat: “The relatively stable operating environment continues to provide a platform for the recovery, growth and development of the sugar industry … The Company remains focused on its goal to achieve full milling capacity utilization of more than 300000 tons annual sugar production over the next three years”.

Although a way off the target in 2012 at just over 160k tons, total deliveries of cane were up 40% on 2011, with 1.349m tons of cane produced by private growers and the company. Private growers’ deliveries were up 55% on the previous year, and an additional 178k tons was delivered by Green Fuel Ltd, the biofuel company linked to the infamous Billy Rautenbach. With the integration of the once separately controlled estates at Triangle and Hippo Valley, the company envisages a total combined capacity of 4.8m tons of cane production, resulting in 600k tons of sugar.

With both company funds and external support, channelled through the EU, there has been considerable investment in cane production on ‘uncontested’ private land (mostly in the Chipwa and Mpapa areas). Private cane growing has expanded dramatically from the relatively small outgrower arrangements that existed in the past. The company report notes that “in the current season, 611 indigenous private cane growers, farming 11138ha and employing 5569 people will supply 772000 tons of cane generating for them US$50 million in revenue”.

The company estimates that private growing could increase substantially on the basis of existing mill capacity. They estimate an additional 661 growers farming 12742 ha could supply 1.4 million tons of cane each year to the Hippo Valley mill, creating employing for 12000 and additional revenue of US$150m. This would amount to a total employment in the sugar industry of 30000, and a revenue of around US$250m. This would surely be the sweet smell of sugar success.

The rebounding of the Zimbabwe sugar industry is attracting attention in the business press in South Africa clearly seeing the investment value for South African companies. Interestingly and typically, the Business Day report failed completely to mention that the growth of production is being driven by a revived partnership between South African capital and new land reform beneficiaries.

But to achieve such ambitious targets, and to continue the impressive growth, will require much new investment, not least in rehabilitating and replanting cane fields, and supply new water resources for newly cleared land. Sugar has long been a central part of Zimbabwe’s agricultural economy, providing stable revenues for the treasury, and earlier when part of ACP agreements, benefiting from a guaranteed and profitable market. Rather overshadowed by the success of the tobacco sector, sugar has not been much in the spotlight, but deserves to be. Just as in tobacco, but in a more organised, estate linked production system, an increasing proportion of production is now coming from outgrower areas allocated as A2 plots as part of the land reform.

As we showed in our book, production in these sites in Hippo Valley in the remote lowveld area of Chiredzi district (and also in Triangle and Mkwasine estates) increased over time from the establishment of A2 plots in 2002. In parallel these farmers accumulated equipment, transport and invested in their land. They also employed considerable amounts of labour. As we documented, they had at that time an uneasy relationship with the core estate. The estate management did not know how to deal with the new outgrowers. They had been used to dealing with a relatively few white and Mauritian outgrowers, but now there were hundreds (around xx plots are registered in Chiredzi district as A2 farms across Hippo Valley and Mkwasine). Many new farmers felt they were being squeezed, with low prices offered, quality controls dubiously applied and transport being supplied late. They thought, perhaps correctly, that the estate management was waiting for them to give up, so the old regime which was easier to manage and control could be reinstated.

From around 2007 when the economy was in freefall sugar production collapsed. Payments being offered in Zimbabwe dollars were meaningless and credit arrangements and cheque payments were wiped out by hyperinflation. Many did indeed give up, ripping out their cane and planting other crops, including maize and tomatoes. But with the stabilisation of the economy through dollarization in 2009, the situation changed. The incentives to reinvest in sugar production returned, and the estate management changed its tune. Now they needed cane desperately so they could break even running the huge mills and vast estates. They belatedly realised that they had to accept private outgrowers, and encouraged them to reengage. And in the period from 2009 they have done on a massive scale as the company figures show.

Now the company is more upbeat about the new outgrower model. It is not as if this is alien to them, as in other operations in the region, this sort of relative smallholder model is dominant. Indeed compared to operations in Zambia and South Africa the new A2 plots are large, average 20-30ha, enough to produce a substantial amount of cane, and some other crops besides. Cane farmers in our study sample in Hippo Valley are much more optimistic now. We are currently doing a resurvey of the small sample we investigated in 2007-08, and I will report back the results in due course.

However there are constraints. The company report alludes to these obliquely mentioning the performance has been “despite the prevailing liquidity and socio-economic challenges”. These are many of course, not least the on-going uncertainty over tenure arrangements in the outgrower areas. Leases have been promised, but only offer letters exist. More significantly there has been a rumbling of discontent among the Shangaan political elite from the area, complaining that ‘outsiders’ got the prime sugar areas. Some influential people have barged others out of their plots, asserting their ‘indigenous’ rights. Most A2 sugar farmers are indeed from outside the area; many are (or were) civil servants, many from the ministry of agriculture. In the scramble for A2 plots through a chaotic and patronage-influenced allocation system, sugar plots were seen as prime targets for those in the know, and they carefully filled their forms and ‘business plans’ to ensure they were successful. By the mid-late 2000s many regretted this move, but now they are much more happy, which is why the land is become contested again.

Questions of finance (or ‘liquidity’) are also significant, as the company notes. It is not cheap to farm sugar: you need equipment, significant amounts of inputs, a lot of labour, irrigation and expensive transport. And you need to replant on a sustainable rotation: crops planted one year may not yield significantly for several years hence. At the farm level cash flow is the perennial challenge, and without effective credit and banking systems in rural Zimbabwe, this is tough without company support. Yet reliance on a single company, just as any contract farming arrangement, puts the grower at a disadvantage in terms of negotiating a good deal. But there are also other pressing financing issues in the sugar sector. The infrastructure was originally built in the 1950s and 60s, and much of it is decrepit and in need of repair. Irrigation canals need constant attention, as do rail lines and mill machinery. Extending farmed areas requires clearing, levelling and laying of canals. None of this is cheap. With profits being scarce in recent years, the company has not invested. External strategic investments financed by the EU under the post ACP regime Adaptation fund are constrained. Euro 45m have been allocated, but only 10m euro have been released to date via the Canelands Trust, a body controlled by the company. Due to sanctions, only areas which were not part of the ‘fast-track’ land reform programme are eligible, meaning that most new private outgrowers – the largest producers today of Zimbabwean sugar – cannot benefit from the industry rehabilitation programme (at least officially – there is course there is considerable leakage and wider investments benefit everyone). These anomalies created by the political stand-off between the EU, and other western donors, and the Zimbabwean government, despite much evidence that sanctions do more harm than good, continue, and are likely to at least until after the next elections.

Meanwhile, and despite these constraints, the sugar industry continues to grow, providing livelihoods, income and employment for many, and much needed revenue for the government exchequer too.

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