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The Sugar Worker, December 2005. News from the Sugar Sector.

Posted to the IUF website 31-Dec-2005

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The Sugar Worker
Information and Analysis for Unions in the Sugar Sector
Volume VII, Number 12
December 2005


Trinidad: Three Options for a Beleaguered Industry?

A recent report on the cane and sugar sector in Trinidad identified three possible future options: completely stop production, revival, or partial diversification. The report prepared by Kairi Consultants Ltd. was delivered to government officials on 16 December, and then leaked to the press and sugar groups.

A complete cessation of production should be done in an "orderly" way, said the report, with the closing farming and processing operations starting as early as next year, while supporting the farmers' move to other crops and activities. This path is not very difficult to imagine given the sorry state of the sector, which has been toying with collapse for the past two years. The option of "revival" is an "upgrade" of current operations, with technical and other improvements, in particular allocating some of the Caroni lands previously under cane to farmers, who should expand their operations. The third option is a diversification program, which should keep only lands best suited for the production of "high quality sugarcane".

Commenting the report, a farmers association said that they have invested over 1.2 billion Trinidadian dollars (TTD 7.4= USD 1.00) in some 45,000 acres of land under cane, and moving "away" from sugar is very difficult for them. The association suggested a financial compensation equivalent to at least seven years of production.

It is expected that the government would act upon the recommendations of the report before the start of the 2006 harvest by 15 January. The farmers association said, however, that the 2005 season was "terrible" and 2006 might be a "total collapse".

Jamaica: Local Farmers and Brazilian Group Interested in SCJ

The All-Island Jamaica Cane Farmers' Association (AIJCFA) said it has formed an alliance with the Brazilian company Aracatu to bid for five government-owned sugar factories, currently under the Sugar Company of Jamaica (SCJ).

When the Jamaican government last November announced plans for the closure of Long Pond and Bernard Lodge, the AIJCFA said the government should transfer them to the farmers, and the prime minister responded that the government would offer the factories for one dollar to any investor with a sound financial plan and no need for the government's financial support.

The AIJCFA chairman told the press that they had been in contact with Aracatu before the government announcement, and agreed to "go forward together in a bid" for the factories. He said that the partners would complete a due dilligence to determine the level of investment required. Initial information indicates that the Brazilian Aracatu would consider investing some USD 300 million in producing an additional one million tonnes of cane, some 300,000 tonnes of sugar, and ethanol to supply the domestic and export markets.

Aracatu is reported as a medium-size company with assets of USD 150 million, and revenues of USD 200 million. AIJCFA is said to represent some 10,000 farmers, the majority of whom are registered with the Sugar Industry Authority to deliver cane to the state-owned factories. The farmers, local papers added, employed almost 30,000 of the 39,000 worker hired by the industry, and supply about 45 percent of the cane processed by the factories.

The government has established a committee to look at proposals for the SCJ factories. Members of the committee said that investors from Canada, China and India, in addition to the Brazil-Jamaica group, are interested parties. The five SCJ factories are Bernard Lodge, Duckenfield, Frome, Long Pond and Monymusk.

In related news, the Agriculture Minister said that the government in putting in place a JMD 200 million revolving loan program to help farmers to increase production. The funds would be accessed through the Sugar industry Authority. In addition, the government is also committing some JMD 50 million to improve road infrastructure. (USD 1.00 = JMD 64.94)

The 2005/06 harvest started in early December, and the island expects to reach some 177,000 tonnes of sugar. The Jamaica Cane Products Sales, which markets the locally produced sugar, estimates that some USD 78 million would be earned through the sale of 150,000 tonnes to the European Union.

Pakistan: Cane Price Disputes, Mills Closed, Indian Imports

On 25 December, some 28 mills in the Sindh province resumed crushing, almost a month after halting operations in protest for rising cane prices. A Sindh government official said that the mills did not resume operations after Eid-ul-Fitr, when the holy month of Ramadan ends. (This year Ramadan ended on 2 November.)

Against the background of structural and policy problems, the current dispute saw a government's decision to almost doubled cane prices to USD 26 per tonne (60 Pakistani rupees per 40 kilograms). At the start of the 2005/06 season last October, the cane price fixed by the government was 48 rupees per 40 kg (by 22 October), but the growers refused to deliver their cane amidst complains by millers, who said they were operating at a third of their crushing capacity, and losing millions of rupees per month. The cane price was eventually raised to 60 rupees per 40 kg (by 16 December), but the millers have refused to comply with what they considered a unilateral decision. The Pakistan Sugar Mills Association (PSMA) said that, in comparison, prices for cane are 45 rupees per 40 kg in Punjab and 48 rupees in the North-West Frontier Province. A meeting with the sugar parties on 23 December agreed on 58 rupees per 40 kg, before the mills resumed operations.

While mill owners had assured that factory workers would not be affected, cane growers all over Sindh threatened to run the mills themselves. For instance, in the Tando Mohammad Khan district where five mills are located, cane growers were ready to run mills and pay the new price fixed by government, reported local papers. The growers complained that millers have delayed the start of the season for three months, which have affected some 70 percent of the crop. They added that, because their cane has not been harvested, they have not been able to grow other crops such as wheat and rice. The Tando Mohammad Khan district concentrates about a quarter of the cane in the Sindh province. A parallel process is that the dispute has encouraged smaller farmers to divert a higher than usual volume of cane to gur production.

Government and industry estimates the 2005/2006 harvest would produce between 2.8-3.0 million tonnes of sugar, compared to an annual domestic consumption of 3.8 million tonnes. Imports from India seem to be the option to follow. A report by Dow Jones Commodities said on 28 December that Indian sugar mills and trading companies had finalised contracts on 78,200 tonnes of refined sugar to be exported to Pakistan, at prices fluctuating between USD 365-385 per tonne. These are for prompt delivery and the sugar will be transported by train to the Wagah border, in the northern state of Punjab. The volume surpasses already the 50,000 tonnes that the Indian Sugar Mills Association said their country was expecting to export to Pakistan before the end of January. News from trade sources said, however, that Indian traders and mills have started to hold their sugar, expecting higher international prices. Some market analysts believe that raw sugar prices may climb to between 15 and 16 cents per pound in 2006; in fact, the International Sugar Agreement (ISA) daily price for October was the highest in five years.

Last August there was news that Pakistan was resuming imports of sugar from India after a four-year ban, and speculation was for exports of between an annual 300-400,000 tonnes of refined sugar. Also important was the proposal to reopen the Wagah border, allowing for a considerable reduction in freight costs, and delivery time as shipments by train to Karachi takes about three days, instead of the usual 10-12 days required for shipping it from either the west of east coast of India.

United States: 2006 Quota Increase Due to Hurricanes

On 2 December, the US Department of Agriculture (USDA) announced a further increase of 450,000 short tons raw value (408,237 metric tonnes) in the tariff-rate quota (TRQ) for Fiscal Year (FY) 2006. The decision was in response to damages to cane crops and disruption in refining operations as a result of hurricanes affecting Louisiana and Florida, delays to beet and cane harvesting, and transportation problems, said the USDA.

The TRQ increase is composed of 300,000 short tons of raw sugar, and 150,000 tons of refined sugar, bringing the new totals for FY 2006 to 1,651,497 tons in raws, and 232,815 tons in refined sugar. The US Trade Representative would allocate the increase in raw sugar imports to beneficiary countries, imports that would require a certificate of quota eligibility. Imports of refined sugar, however, would require compliance with technical specifications but not a quota certificate. Availability of refined sugar appears as the most pressing aspect, as Hurricane Katrina affected operations of the Domino refinery, near New Orleans, Louisiana. The plant processes some 950,000 tonnes of refined sugar, and resumed operations only on 12 December.

Amalgamated Sugar Closes Nyssa Factory
Management of the Snake River Sugar Co., parent of Amalgamated Sugar Co. said that the beet processing plant at Nyssa (Oregon) would be closed indefinitely, after not operating in 2005. They also said that some equipment would be transferred to other factories, and that the company is considering using the plant to produce ethanol.

In January this year, the company temporarily stop production at Nyssa because of a combination of several factors, including excess of production capacity within the company, growing importation of sugar containing products, the system of domestic marketing allotments, and pressure from international trade agreements. The company's board decided to reduce production, as well as acreage, expecting to cut costs and improve beet payments. The company also said it did not expect a major impact on beet growers in Oregon and Idaho, who supply to Nyssa, as they had agreed to a 16 percent reduction in acreage in 2005.

Close to 400 workers (167 full-time, and 260 seasonal or campaign workers) who lost their jobs this year were eligible for extended unemployment insurance benefits, subsidized health insurance coverage and retraining programs by the federal government, according to the Oregon branch of the AFL-CIO.
Amalgamated Sugar is a farmers cooperative and owns three other beet-processing plants: Nampa, Twin Falls and Paul; all located in Idaho.

Beet Farmers Keep Subsidies
In related news, the US Senate discussed in mid December a new budget cuts bill, which Republican leaders consider a must to be passed, according to Los Angeles Times. They faced, however, the possibility of not gathering enough votes, and were ready to negotiate. The newspaper describes the negotiations in some detail, which boiled down to switching one vote from within the Republic senators. Two senators were in the balance: one wanted that the proposed savings on Medicaid, the federal health care program for the poor, included in the budget cuts were to be achieved at the expense of the drug companies and other providers, instead of reducing benefits. The second senator was looking to delete a provision that would have eliminated some USD 30 million in subsidies to sugar beet farmers. The provision was deleted from the Senate version of the bill, and the Senate reached a 50-50 vote, which was decided by vice-president Cheney in favour of the "yes" side. The bill is not ready for Bush's signature, however. After the House passed the compromised bill and adjourned for the holidays, said the paper, the Senate made some minor changes that will require another House vote in January. The article is worthwhile reading as an example of how politics plays its part in sugar business in the US, and elsewhere. It is available here.

European Union: Reactions to Sugar Reforms

The November issue of The Sugar Worker reported the reaction to the agreed reforms of the Sugar Regime of the European Union of some of the sugar actors. As mentioned then, Tate & Lyle welcomed the decision; in particular, the extension of the transition period, the reduction in the cut in sugar prices from 39 to 36 percent, and that costs for beet processors and cane refiners would be "in line". Associated British Food (ABF), with sugar operations in the UK and Poland, also welcomed the agreement; while the Spain-based Ebro Puleva said it was "reasonably" positive, underlining the compensation package.

Other European sugar processors have made their opinion known, which, in general, is positive towards the agreed reforms. For instance, Agrana, the Austrian subsidiary of the German S�dzucker, said they plan to maintain present output volumes even after the reform is introduced. The company said that their growing areas are located in favourable regions in the EU, and reduced sugar prices would go hand in hand with lower beet prices. In addition, the actual market prices would depend on how the less competitive processors restructure, encouraged by the available restructuring funds. Agrana also believes that an increase in the production quota of isoglucose (corn sweeteners) would benefit their operation in Hungary, and their new bio-fuel plant in Pischelsdorf, which would come on line in 2007, would help absorbing some of the sugar surplus production. Agrana plans to rationalise production and reduce costs, and would take appropriate decisions by the end of the 2005/06 financial year. Agrana operates in Austria, Hungary, Slovakia and the Czech Republic.

Top management of Danisco, the Danish food conglomerate, said the new direction is necessary to ensure competitiveness and agreed with the basic elements proposed by the European Commission; and added that some details need be clarified such as the terms for exports and imports and the sugar destined for non-food uses. Danisco will finalise the planning of future activities once the reform package is announced by the end of January. Danisco operates in Denmark, Sweden, Finland and Germany.

Reactions from European beet growers associations were more diverse than the processors'. For instance, the National Farmers Union (NFU) of the United Kingdom, said that the reform removes some uncertainty and they had achieved some of their lobbying objectives, like avoiding the compulsory quota cut in favour of a voluntary restructuring program, and that decoupling payments have been agreed in most of the EU member countries. Just before the 22-24 November meeting of the Agriculture Ministers of the EU which reached the agreement, the NFU said that the UK government should ensure that "Britain's natural advantage as a sugar beet producer is not lost in the final outcome."

Such perspective is quite different from the Irish beet farmers. A trade source reported that a meeting of the sugar beet committee of the Irish Farmers Association "unanimously" concluded that beet production in Ireland "has ended," that there is no future with a 36 percent cut in the sugar price. Greencore, owner of the beet processor Irish Sugar, said they would continue producing sugar for as long as it is commercially viable. Nonetheless, a trade source remarked, the maximum achievable through the compensation package ends in 2007, and it is difficult to see Greencore continuing operating after that.

French sugar beet farmers strongly criticised the reform, saying it would make Europe dependent on imports, and that benefits countries like Brazil and Australia but not the developing countries. Meanwhile, Polish farmers said that they could face lower beet prices because lower labour costs and farmers' lower income expectations, but a Polish source said it might not be the same with the Polish Sugar Company (KSC), which may have to close some factories. The KSC accounts for about 40 percent of the country's sugar production, and it is in need of capital investment.

The European Federation of Food, Agriculture and Tourism Trade Unions (EFFAT), regional affiliate of the IUF, was disappointed by the agreed reform, and its negative impact on the jobs of some 25,000 people directly employed in the sugar industry and 125,000 employed in allied industries. EFFAT pointed out that while some aid has been earmarked for regions affected by the process, little has changed in relation to opening jobs to replace those lost by the sugar reform. EFFAT added that the ACP countries are by far the biggest losers in the reform process.

The Guyanese Minister of Foreign Trade, spokesperson for the sugar producers in the Caribbean Community, said that the EU decision was "outrageous and unconscionable", putting at risk the livelihoods of tens of thousands of farmers and their families, and betraying the long-standing relationship between Europe and the Caribbean. The ACP Group, which also includes the Caricom producers, deplored the insensitivity of the EU to their sugar situation, comparing the multibillion-euro compensation package offered to the EU sugar sector with the 40 million euros offered to 18 ACP sugar exporters in 2006, and "vague" promises for subsequent years.

While the ACP countries deplored the EU decision on the sugar reforms, Illovo Sugar, the South Africa-based company which dominates the industries in Southern and East Africa, comprising ACPs and LDCs, said that "the reform package is expected to benefit the group." Illovo Sugar explained that in the short term revenues in some countries, like Swaziland, will decline, this "will equalise the price paid for all raw sugar imported into the European Union," that is from other Illovo operations. While cuts in sugar prices will have a negative impact on existing export quotas, Illovo expects that the open market for the LDCs which starts in 2009 would provide the company with opportunities to increase exports to the EU and benefit their operations in Malawi, Zambia, Tanzania and Mozambique. Illovo foresees that the EU price after the reforms are introduced might be a 50 percent higher than the current world price. It should be mentioned that the chairperson for the LDC London Sugar Group, which lobby the EU on sugar matters, is the director for Illovo operations in Africa (except South Africa).

In related news, Finland was able to secure a special clause in the EU reforms, which allows the country to pay a subsidy of 350 euros per hectare to its beet farmers, in addition to the EU compensation of more than 400 euros/h to be paid to all member states, said an international source quoting the Helsingin Sanomat. Under the new regulations, Finland would close one of two factories, and will increase by 25 per cent (to 90,000 tonnes) the annual production of the remaining factory. Danisco owns both Finnish factories.

South Africa: BEE Farms Repossessed

The Ithala Development Finance Corporation has repossessed five farms established under the Black Economic Empowerment (BEE) plans as farmers failed to make payments, reported the Sunday Times in early November. A spokesperson for Ithala said that the corporation has financed some 256 loans with a total value of 155 million South African rands (USD 24.4 million), and only five farms have failed. The medium-scale farms are part of an initiative by Illovo Sugar, Tongaat Hulett and Ithala started in 1996. The sugar companies released the lands to emerging black farmers while Ithala financed the sales and offered a financial package and advice for prospective farmers. According to Ithala and the sugar companies, many of the BEE farms are operating successfully, and only few of them face difficulties.

Illovo Sugar echoed Ithala saying that from 42 farms sold in the Sezela area, only one farmer failed and he was in the process of reselling the farm. Illovo said that about 8 percent of the total farms have failed, and added that there is a process of farm consolidation, by which successful farmers are buying or renting other farms. A spokeswoman for Canegrowers, the South African Cane Growers Association, said they were aware that some BEE farmers had encountered difficulties, and an analysis from August 2004 of 45 emerging farmers in the cane-supply area of the Darnall factory revealed that 78 percent of the farms were operating satisfactorily, 18 percent were borderline, a 4 percent faced repossession.

Mexico and the United States: Correction On Second Tier Tariffs

In the November issue, we wrongly quoted the second-tier tariff on Mexican sugar exports to the United States under NAFTA at US 7.6 cents per pound. Of course, it is not per pound but per kilo. Our apologies. The second tier tariffs for Mexican sugar exports in US c/lb are:

Year Raw Refined
2005 4.53 4.80
2006 3.02 3.20
2007 1.51 1.60
2008 0 0

To all Sugar Workers and our Readers
Season's Greetings
May 2006 be a Better and Happier Year

From the people who bring you The Sugar Worker