With preferential trade agreements expiring, Mauritius’ critical sugar industry is facing challenges. But some are better placed to adapt than others.
Over the past 47 years of independence, Mauritius has developed from being a poor mono-crop economy, which many believed was doomed to fail, into a vibrant upper-middle-income country. Much of this rise has been thanks to the tiny island’s ability to diversify into sectors such as textiles, tourism and financial services. But through this journey and still today, the economic pillar of sugar – once by far the most important pillar of Mauritius’ economy – should not be underestimated.
Across the island, one is never far from vast fields of the sugar cane stretching out under the blue skies. The crop is cultivated on around 85 percent of Mauritius’ arable land, while sugar exports account for around 20 percent of export earnings. However, after centuries of growing and trading the crop, some observers looking to the future of the industry are being left with a bittersweet taste in their mouths.
Historically, preferential trade agreements have been crucial to the success of Mauritius’ sugar sector. Beginning in 1975, the so-called Sugar Protocol meant that Mauritius—along with other African, Caribbean and Pacific (ACP) States—enjoyed guaranteed prices for its sugar. These fixed prices were much higher than world prices.
But in 2003, the protocol was successfully challenged at the World Trade Organisation (WTO). And following on from this, the preferential trade agreement was disbanded in 2009, with a transitionary period set up to help countries adapt. This interim period was meant to end in 2015, but the date for when quotas will finally end was subsequently extended to 2017.
Nevertheless since 2009, sugar prices have dropped and fluctuated dramatically, forcing many sugar companies to rethink their business models.
A sweet deal
At Chamarel, a small village lying in a fertile valley in the southwest of the island, a new strategy of adding value and diversifying the sugar economy is already well under way. Sugar cane here is now cultivated exclusively for the production of rum. Juice is extracted from the cane and then pumped into the fermentation tanks where it is transformed into alcohol, before being distilled and bred to refine the spirit.
Today, six factories produce agricultural rum in Mauritius for both the local and export markets, where demand is increasing.
“The price of sugar has gone down too much,” says Olivier Couacaud, commercial director at the Rhumerie de Chamarel. “Some years back, we were getting $480-$530 per ton for sugar. Last year, we got $360-$390. We can never be profitable with $360 a ton. We thus took the challenge of diversification towards agricultural rum.”
Rum, however, is just one sugar product now being manufactured on a large scale. Although the number of major sugar companies has declined to just four in 2014, new factories are processing more cane, producing a residue known as bagasse, which can be burned to produce electricity, and making ethanol. Mauritius’ sugar companies are also refining and marketing their own sugar these days.
Previously, the industry sold its raw product to the British firm Tate & Lyle, but today Mauritius sells most of its refined and special sugar directly to big consumers in Italy, Spain, Greece, the UK and Belgium as well as to smaller markets in the US and China.
A bitter pill
By moving up the value chain and diversifying, Mauritius’ sugar companies have remained profitable and kept their heads above water.
Yet many Mauritians are still looking with trepidation to the 2017 deadline, when the EU’s sugar quotas will be abolished.
This will allow any producer to market as much sugar as
it wants in European markets and could well contribute to
existing oversupply and drive down prices even further.
“It’s normal – prices will decline and we have to adapt to this new situation if we want our industry to survive. It will be no longer business as usual,” says Mahen Seeruttun, Minister of Agro-Industry and Food Security.
Not everyone agrees with this prediction, with some suggesting cycles of production and price will eventually reach a workable equilibrium. “There is a balance that will be installed on the EU market and the price would probably go up,” says Jean Li, director of the Mauritius Sugar Producers Association (MSPA).
Nevertheless, Mauritius has made a case to the EU for additional accompanying measures to mitigate the impact of the liberalisation of quotas, emphasising the damaging impacts the move could have on the island.
At the same time though, it is also looking to the future viability of the sector.
“The government is working on a study on the socio-economic, trade and environmental impact assessment of the abolition of the internal sugar quota in the EU market on the island’s economy,” says Seeruttun. This, the government hopes, will “ensure the long-term sustainability of the cane industry”.
As seen by the diversification of the sugar sector, many changes have already been happening, but while these initiatives have enjoyed some success for big companies, many small-scale farmers, who are responsible for cultivating about 40 percent of the land used for sugar cane, say that they have not benefited from these trends.
Jugessur Guirdharry, a sugar farmer from Union Park in southern Mauritius, claims that small producers get little profit from selling their cane to the diversified sugar factories. “Apart from the price of sugar, we get only 7-8 rupees per ton of bagasse used by the power plants to produce electricity that is sold at high prices on the national grid [and get paid for] neither our molasses nor for the ethanol that the factories produce out of our canes,” he says.
Like the bigger sugar companies, this situation has led struggling small farmers to adapt or die too. Some, such as Sen Dabydoyal, have registered as fair trade producers, which brings in an additional $60 per ton. Others are planning to move from sugar cane culture to cultivating Arundo donax, a plant used in the production of bio-diesel. But a significant number are simply abandoning their land: 19 000 hectares have reportedly been left by smallholders over the last few years.
With the dismantling of the Sugar Protocol, and with the 2017 deadline fast approaching, those working in Mauritius’ historic sugar sector are faced with both opportunities to move up the value chain and diversify on the one hand, and potentially grave risks on the other.
But while big sugar companies may be benefiting from branching into new cane-based activities, it is small famers like Dabydoyal that may be affected the most.
“We have not yet reached the end of the road but it is not far,” he says. n
*Ackbarally writes for African Business Magazine, he is based in Mauritius.