in the South African Sugar Industy 2014 - BFAP€¦ · S A CANEGROWERS contracted the Bureau for...

Understanding the Factors that have Impacted on Cane Production in the South African Sugar Industry

impacted on Cane Productionin the South African Sugar Industy

2014

Understanding the Factors that have


Understanding the Factors that have impacted on Cane Production in the

South African Sugar Industry

Identifying Potential Business Options for Future Development

2014

SA CANEGROWERS contracted the Bureau for Food and Agricultural Policy (BFAP) at the University of Pretoria to conduct a study on the key drivers that have in� uenced and led to the current state of the South African sugar

industry and to propose some business options to stimulate cane production.

This document constitutes the project report and is divided into two sections / phases:

Phase IUnderstanding the Factors that have Impacted on Cane Production in the South African Sugar Industry

Phase II Identifying Potential Business Options for Future Development

September, 2014

Preamble

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Disclaimer

The views expressed in this report re� ect those of the BFAP authors and not necessarily that of SA CANEGROW-ERS. While every care has been taken in preparing this document, no representation, warranty, or undertaking (expressed or implied) is given and no responsibility or liability is accepted by BFAP as to the accuracy or complete-ness of the information contained herein. In addition, BFAP accepts no responsibility or liability for any damages of whatsoever nature which any person may su� er as a result of any decision or action taken on the basis of the information contained in this report.


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PHASE 1Understanding the Factors that have Impacted on Cane Production in the

South African Sugar Industry

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1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

2 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

3 Cane production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

3.1 Area under cane . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

3.2 Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

4 Factors a� ecting area and yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

4.1 Large-scale grower indicated factors a� ecting cane area and yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

4.1.1 North Coast – Darnall, Gledhow and Maidstone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

4.1.2 South Coast – Sezela and Umzimkulu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

4.1.3 Zululand and Tugela – Umfolozi, Felixton and Amatikulu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

4.1.4 Midlands – Noodsberg and Eston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

4.1.5 Northern Irrigated –Malelane, Komatipoort and Pongola . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

4.1.6 Identi� cation of main factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

5 Economic factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

5.1 Input costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

5.1.1 Farm sta� and labour . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

5.1.2 Fertiliser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

5.1.3 Fuel, lubricants and mechanisation maintenance and transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

5.2 RV payment system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

5.2.1 RV payment system’s impact on allocation of proceeds to farmers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

5.2.2 RV’s impact on sugar production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

5.2.3 Felixton’s Brix minus pol issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

5.3 Pro� tability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

5.4 Economic factors – conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

6 Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

6.1 Main agronomic factors limiting sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

6.2 Analysing each factor in the context of Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

6.2.1 The decline in organic carbon levels in the soils . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

6.2.2 Increasing soil acidity on sugarcane � elds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

6.2.3 The depletion of certain essential plant nutrients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

6.2.4 Compaction of soils due to heavy machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

6.2.5 Increasing insect pressure – Eldana, Thrips and Nematodes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

6.2.6 Farming for RV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

6.3 Sustainability factors – conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

7 Socio-political factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

7.1 Land reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

7.2 Grower – miller relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54


Table of contents


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7.3 Urban Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

7.4 Socio-political factors – conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

8 Summary and Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Tables

Table 1: Change in area under cane according to grower types for the 16 year period 1996/97

to 2012/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Table 2: Simulated and actual yield change per year for large-scale growers and small-scale growers

for 2001 to 2010 (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Table 3: Sugar cane inputs – share of total input expenditure comparison for 1985/86 and 2011/12 . . . . . . . . . . . . . . . . . . 27

Table 4: Annual percentage expenditure change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Table 5: RV vs sucrose payment system - impact for each mill area (in million Rands for the

speci� c season) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Table 6: RV compensation payments (R/ton of cane) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Table 7: Share of divisible pool comparison under RV and sucrose payment systems, for

di� erent production scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Figures

Figure 1: Total SA tons cane harvested (not including SASRI research farms) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Figure 2: Production trends in milling areas where production has increased or remained

relatively stable (tons cane) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Figure 3: Production trends in milling areas where production has decreased (tons cane) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Figure 4: Comparison of RV tons harvested for coastal versus inland and irrigation regions (RV tons) . . . . . . . . . . . . . . . . . . . 13

Figure 5: Area under cane for miller-cum-planters, large-scale growers and small-scale growers

(hectares) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Figure 6 a-o: Mill region speci� c area under cane according to grower type 1996/97 to 2012/13 (ha) . . . . . . . . . . . . . . . . . . . . . . 15

Figure 7: Registered small-scale growers and number who delivered, 1972-2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Figure 8: Large-scale farmer area under cane according to production regions (ha). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Figure 9: Number of large-scale growers accrording to the di� erent production regions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Figure 10: Total area under cane change for di� erent milling regions (ha) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Figure 11: Area change comparing coastal and inland cane production regions (ha) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Figure 12: Rainfall indications (June-May) for mill areas in main production regions (measured in mm). . . . . . . . . . . . . . . . . . 21

Figure 13 a-m: Cane yield in tons of cane per harvested area and RV tons per harvested area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Figure 14: Real input expenditure trends per hectare for industry (R/ha) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Figure 15: Comparison of standardised real total � xed and variable cost per hectare and per ton . . . . . . . . . . . . . . . . . . . . . . . 28

Figure 16: Real total cost index for Coastal, Midlands and Northern Irrigated regions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Figure 17: Real farm sta� expenditure per hectare for the three main production regions (R/ha) . . . . . . . . . . . . . . . . . . . . . . . . 29

Figure 18: Real farm sta� expenditure per ton of cane produced for the three main production

regions (R/ton) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Figure 19: Real fertiliser expenditure per hectare (R/ha and 2000 index value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Figure 20: Real fertiliser expenditure indexes for production regions (2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Figure 21: Real fertiliser expenditure per ton cane produced (R/ton) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

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Figure 22: Real fuel and lubrication, mechanical maintenance and real cane transport

expenditure per hectare compared to the real fuel index (2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Figure 23: Nominal and real RV price per ton of cane (R/ton) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Figure 24: RV percentages for di� erent production regions 1987 to 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Figure 25 a-m: RV% compared to the RV tons per hectare harvested for the di� erent production regions . . . . . . . . . . . . . . . . . . . 34

Figure 26 a-j: Net impact of the RV payment system compared to the sucrose payment system,

after farming for RV compensation is taken into consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Figure 27: Real revenue per hectare for di� erent production regions (R/ha) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Figure 28 a-f: Comparison of RV% with sugar extraction per RV ton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Figure 29: Comparison of industry cane tons harvested and mills’ extraction ‘e� ciency’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Figure 30: Industry sucrose loss percentage – sucrose content in � nal molasses, bagasse,

� lter cake and undetermined losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Figure 31: Industry pro� tability per hectare (R/ha) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Figure 32: Coastal milling regions pro� tability per hectare (average for Amatikulu, Felixton,

Darnall, Maidstone, Gledhow, Sezela and Umzimkulu) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Figure 33: Midlands pro� tability per hectare (average of Noodsberg, Eston and UCL) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Figure 34: Northern Irrigated regions pro� tability per hectare (CANEGROWERS’s’ calculations) . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Figure 35: Percentage area trashed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

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THIS REPORT CONSTITUTES the phase one report, shedding light on the factors that have impacted on cane production in the South African sugar industry.

Cane production has decreased signi� cantly since 2000/01 driven by both a decrease in area under cane and cane yield. A 51% or just over 47 000 hectare decline in small-scale grower area under cane was the main driver of area decrease. A considerable decrease in miller-cum-planter cane area was largely mirrored by an increase in large-scale grower area under cane. This expansion however mainly took place in the Midlands and Mpumalanga while the Coastal area under cane decreased substantially. Cane yield decreased more than what can be explained by bad weather, especially in the South Coast, North Coast and Zululand production regions. In the nine years 2001-2010 South Coast large scale growers yield decreased by more than 11%, on the North Coast large scale growers yield dropped by nearly 20% and in Zululand by nearly 16%. Zululand small scale growers yield decreased by nearly 38% for the same period while North Coast small scale growers yield dropped by 23.6%. The area and yield declines were explained at the hand of economic, sustainability and socio-political factors as indicated by large scale growers and as far as possible supported by CANEGROWERS data. The pro� tability of cane farming has decreased signi� cantly for dryland farmers since the early 2000s and especially for Coastal farmers. Midlands farmers’ net farm income percentage for the period 2000/01 to 2011/12 has decreased by 26% while Coastal farmers’ percentage has dropped by 54%. Increasing input prices played a substantial role in the dwindling pro� tability with the real average industry expenditure per hectare of cane increasing by 33%, driven mainly by increased fertiliser, labour and fuel prices. Though the RV price did not increase from 2002/03 to 2005/06, it did increase by more than 50% from 2005/06 to 2011/12 but grower reaction to the price increase was limited by drier than normal conditions for a number of seasons.

The RV payment system that was implemented for the � rst time for the 2000/01 season, had an impact on farmer revenue by altering the allocated proportions of the divisible pool, largely to the bene� t of Midlands and Northern Irrigation farmers who produce higher quality cane than their Coastal counterparts. The direct net � nancial impact of the payment system, after ‘farming for RV compensation’ was taken into consideration was shown not to be a substantial driver of decreased pro� tability when compared to increasing input costs, depressed RV price 2001/02-2005/06 and adverse weather conditions. These calculations were however done using aggregate mill region data and it is likely that the pool share (and revenue) of underperforming farmers (bottom 25%) and the majority of small scale growers decreased substantially, while better performing farmers within ‘losing areas’ bene� tted from the RV system. A key premise for the introduction of the RV payment system was that increased cane quality would lead to increased sugar income. Farmers in most areas reacted to the cane quality incentive (low quality penalty) and produced and delivered higher RV% cane. The mills however did not produce more sugar from the higher quality cane and sugar extraction e� ciency has in fact decreased considerably, at a great cost to growers and millers, but especially to growers. While there is a clear link between cane tonnage harvested and delivered (throughput) and sucrose extraction rates, mill e� ciency in the Irrigation and Midlands areas, where production has increased or remained relatively stable, has also decreased. The uncertainty brought by land claims resulted in, initial as well as longer term, disinvestment in soil health and ratoon replacement, with the e� ect that farmers’ yield potential decreased. Increasing input prices, combined with a depressed real RV prices (2000-2005), less than ideal rainfall conditions and waning yields resulted in inability of farmers to implement Best Management Practises (and SUSfarm guidelines) and rectify their ‘unhealthy’ production systems.

Phase I: Executive Summary

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– 10 –

THE SOUTH AFRICAN sugar industry is more than 150 years old and is important not only for its contribution to GDP (2009-2012 sugar cane was the largest agricultural

commodity produced in South Africa by volume, and the 7th largest by value and represented 17.4% of the total annual value of � eld crop production (FAOSTAT, 2014; DAFF 2011)), but also as a contributor to direct employment in both sugarcane production and processing as well as indirect employment in the support industries (chemical, transport, etc). According to a NAMC report by Conningarth (2013) the sugar industry directly employs approximately 113 000 workers, which constitutes 0.9% of total employment in SA but importantly 5.1% of total employment in KwaZulu-Natal and Mpumalanga. The same study estimated that nearly 600 000 people in mainly the rural areas of KwaZulu-Natal and Mpumalanga are dependent on workers employed in the sugar industry. BFAP estimates the direct sugar workforce a bit lower, closer to 80 000 workers, but the role of the sugar industry as a provider of livelihood for the rural poor cannot be overemphasised. The industry has also long been a signi� cant contributor to foreign exchange earnings, with net exports of all sugar products between $200m and $300m since 2000. However, over the past decade, sugarcane tons harvested decreased from 23.8 million in 2000/01 to 16.7 million tons in 2011/12; i.e. a drop of 7.06 million tons or 29.7% in eleven years. This decline in production has raised a number of questions regarding the general wellbeing and future of sugarcane farming in South Africa. Apart from rising input and transportation costs, industry experts argue that a number of external in� uences such as urbanisation in the coastal regions, land claims, unsuccessful land reform projects and high fertiliser prices have all contributed to this declining trend. In the past decade, seasonal droughts have also impacted

negatively on the � nancial position of sugarcane farmers. In addition to the less than ideal sugar cane production milieu, some role-players in the sugar sector are questioning the validity and equity of the industry agreed cane pricing mechanism. Over the years the sugar industry has implemented a number of di� erent cane pricing mechanisms. The initial cane weight system was replaced by the sucrose content payment mechanism in 1926. Even though this system was in place for a substantial period it was deemed to be less than ideal, mainly due to the fact that the value of the cane could not be directly linked to the value of the sugar eventually attained from it. In 2000 the sucrose system was replaced by the recoverable value (RV) pricing system that also incorporates non-sucrose impurities and � bre into the pricing formula. Whether the RV payment system directly contributed to the decrease of cane production in South Africa is not clear. To this end, SA CANEGROWERS contracted the Bureau for Food and Agricultural Policy (BFAP) at the University of Pretoria to conduct a study on the key drivers that have in� uenced and led to the current state of the industry and to propose a business model to stimulate cane production by primary producers within the Sugar Industry Agreement and new Sugar Act environment. This document constitutes the phase one report, shedding light on the factors that have impacted on cane production in the South African sugar industry. Following the next brief section on methodology, light will be shed on how the area under cane and cane yield have changed over the last 25 years with a special focus on the last 12 years (2000/01 to 2011/12). The main factors impacting on cane production will then be presented and discussed.

Introduction

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THIS STUDY HAS two main objectives, namely to identify the factors that have contributed to current trends in sugarcane production over the last decade

(2000/01 to 2011/012) and to determine the extent to which these factors have in� uenced the decline. It was proposed that the objective could be met by answering two underlying questions:

1. How has the area under cane changed (in each mill area) and what are the determinants of this change?

2. For land that has remained in cane production, what has happened to actual yields relative to potential yields, and what are the determinants of such changes?

It was proposed that the two underlying questions could be answered by following a supply chain approach - analysing and consulting with stakeholders in the South African sugar sector at various levels/nodes in the chain. Following consultation with CANEGROWERS and perusal of their data base, it was decided that the study methodology would depart slightly from the formal supply-chain analysis that was initially proposed. Though the approach used still incorporates most of the supply chain methodology focus points, with the availability of detailed and comprehensive time series data for producers in all the mill regions, it was decided that the study would be done from a producer point of view. This makes sense as the cane producer is the node in the supply chain that connects the other role players and CANEGROWERS’ diverse time series data sets made primary data collection from other nodes unnecessary. In addition to industry production and yield data, the study made use of CANEGROWERS’ large-scale grower cost survey data. This data is obtained from large-scale growers who either utilize the CaneFarms Bookkeeping Service o� ered by CANEGROWERS by completing annual cost survey questionnaires, or who submit their annual � nancial

Methodology

statements. Rigorous quality control of the data based on 19 exclusion criteria ensures that the data is accurate and representative of the di� erent mill regions. In order to identify the issues that impacted on cane production, area under cane and cane yield, group discussions were held with large-scale growers in all the di� erent milling regions with the exception of UCL Company Limited in the Midlands. Most farmer discussion meetings were held 22-30 July 2013 (Umzimkulu on 22 August) and a total of 90 farmers attended the discussion meetings. The BFAP research group also met with SASRI and SMRI representatives and CANEGROWERS’ Chairman, and consulted at length and on various occasions with CANEGROWERS’ Director of Industrial A� airs and Manager of Economic Research. Through the di� erent meetings, discussions and consultations the focus fell on the economic, sustainability and socio-political factors that have impacted on sugarcane production over the last 25 years but especially over the last twelve years 2000/01 – 2011/12. The aim of the various discussions was to identify the main factors impacting on cane production, as viewed by producers and other role players, with the objective of testing and supporting these views at the hand of CANEGROWERS and BFAP data. This study did not speci� cally focus on small-scale growers’ production trends and the reasons behind any changes. A number of studies, including Bates Consulting (2005), Armitage et al., (2009), SOI (2008) and FIRCOP (2011) have studied the “substantial complexities” faced by small scale growers (as seen in CANEGROWERS, 2012). Though this study will shed light on how the small scale growers cane area has changed, it will not endeavour to study smallholder speci� c issues. It has been suggested by numerous large-scale growers that the issues that impact on cane area and cane yield for large scale growers also a� ect small scale growers, and in many cases in a more severe manner.

– 12 –


THE TOTAL NATIONAL tonnage of sugarcane harvested in the period 2000/01 to 2011/12 has decreased considerably and at a rather constant and alarming

rate of more than 500 000 tons per season (Figure 1). Of concern is especially the period since 2005 when the cane tonnage delivered deceased despite a considerable increase in the nominal Recoverable Value (RV) price paid for delivered sugarcane as well as a smaller but constant increase in the real RV price. By considering each milling region’s tonnage cane harvested (Figures 2 and 3), it is clear that not all the production regions have followed the declining production trend suggested by the aggregate industry harvest � gures. Figure 2 indicates production trends in regions where harvested and delivered cane tons have increased or remained relatively stable while Figure 3 depicts harvest trends in the mill regions where the tons cane harvested have decreased over the period 2000/01 - 2011/12. By comparing the increasing and decreasing cane production mill regions it is quite apparent that the milling

regions where cane production has decreased considerably are the coastal regions and regions where a large share of the mills’ cane is planted at a relatively low altitude. Increases and relative stability in cane production were attained in mainly the Northern Irrigated and the Midland areas. It has been suggested that one of the indirect objectives of the RV payment system was to decrease the tons of sugarcane delivered relative to the tons of sucrose recovered, and a decrease in cane tonnage would thus seem to be in line with expectations. However, Figure 4 shows that RV tons delivered for the Northern Irrigated and Midlands mills as well as the Coastal mills have decreased, by 8 463 tons per annum on average for the inland mills, and by nearly 55 000 RV tons less per season for the Coastal mills over the eleven year period. The total quantity of sugarcane produced, harvested and delivered to the mills depends on the size of the area of land under cane and the production of cane per unit of land, i.e. yield. The next two sections will highlight the changes in area under cane and cane yield.

Cane Production

Figure 1: Total SA tons cane harvested (not including SASRI research farms)Note: In this report tons refer to metric tons, i.e. tonnes

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Figure 3: Production trends in milling areas where production has decreased (tons cane)

Figure 4: Comparison of RV tons harvested for coastal versus inland and irrigation regions (RV tons)

Figure 2: Production trends in milling areas where production has increased or remained relatively stable (tons cane)

– 14 –


Figure 5: Area under cane for miller-cum-planters, large-scale growers and small-scale growers (hectares)

3.1 Area under caneAfter increasing by 5% from 1996/97 to 2001/02, the total area under sugarcane (not including SASRI research farm cane) decreased by 14.9% over the 10 years up to 2011/12 and increased (for the � rst time in a decade) by 1.2% for the 2012/13 season. The area decline from 2001/02 to 2005/06 was relatively minor but in the � ve seasons 2006/07 to 2011/12, the area under cane dropped by 12.4% or 52 163 ha.From Figure 5 it is clear that the South African sugarcane area has decreased considerably. This decline was generally not the result of large-scale growers shedding cane hectares. Between 1996/97 and 2011/12, large-scale growers increased their cane plantings by 16.9%. Though most of the growth in area under cane took place over the four seasons 1996/97 to 2000/01 (16.5%), it would seem as if aggregate large-scale growers land devoted to cane production remained relatively stable for the next 12 years. For miller-cum-planters (MCP) and small-scale growers the opposite is true. Between 1996/97 and 2012/13 MCP cane area decreased by 36 538 ha or 54.1% and small-scale growers area under cane decreased by 47 113 ha or 50.6%. However, considering the contrasting mill region speci� c trends of Figures 2 and 3, it is very likely that Figure 5’s aggregate national area under cane indications for millers (MCP) and large (LSG) and small-scale growers (SSG) hide substantial di� erences between the regions. For this reason, the area under cane for each mill area is considered and discussed according to grower type. The actual changes in area under cane will be presented without aiming to explain the factors that impacted

on the area changes. These factors will be discussed in sections 4 - 7 of this report along with the factors that impacted on yield. Figures 6 a-o present the area under cane for the di� erent mill areas in the di� erent production regions. A summary of the change in area under cane for each mill area between 1996/97 to 2012/13 is presented in Table 1. While MCP area under cane has decreased considerably, most of this land initially was, or still is planted to cane, just under new ownership. It is clear from a number of the mill area graphs (Malelane, Darnall, Eston and Sezela in particular) that milling company cane land has been transferred to large-scale growers or is leased to them. In addition, in many cases the milling companies have sold farms to government under the land restitution and redistribution programmes as well as to previously disadvantaged farmers and mill employees as freehold land. According to Madhanpall (2013), milling companies have sold an estimated 18 789 ha to 170 black farmers over the last number of years. These farmers and farms, based on their land area under cane, are classi� ed as large-scale growers and these cane hectares thus basically moved from the MCP category to the large-scale growers category. It is however clear from Table 1 that in Mpumalanga and the Midlands large-scale growers’ area under cane expanded considerably more than by the size of the land sold by the millers. On the North Coast however the opposite is true, with the MCP’s area under cane decreasing by more than 20 000 ha while the large-scale growers’ area only increased by 737 ha.

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f) Amatikulu g) Entumeni

c) Pongola d) Umfolozi

e) Felixton

Tugela

Zululand

a) Malelane b) Komatipoort

Mpumalanga

– 16 –


h) Darnall i) Maidstone

j) Gledhow k) Glendale

North Coast

l) Sezela m) Umzimkulu

South Coast

n) Noodsberg o) Eston

Midlands

Figure 6 a-o: Mill region speci� c area under cane according to grower type 1996/97 to 2012/13 (ha)

– 17 –


Small-scale grower area under cane has only increased in the Mpumalanga irrigation areas over the period 1996/97 to 2012/13 and especially Komatipoort has seen a relatively stable increase. The jump in small-scale growers’ area under cane for the Amatikulu and Gledhow mills in 2004/05 (see Mill graphs above) was the result of the closure of the Entumeni and Glendale mills following the 2003/04 season. If the area increases in Mpumalanga are excluded from calculation, small-scale growers area under cane declined by 51 914 hectares with 79% of this decline taking place in the Coastal production areas. Figure 7 shows that the decrease in small-scale grower area

Table 1: Change in area under cane according to grower types for the 16 year period 1996/97 to 2012/13

MCP change in area under cane

Small-scale growers change in

area under cane

Large-scale growers change in

area under cane

Total change in area under cane

Milling region change in area

under cane

Malelane -4698 1127 7757 4186 Mpumalanga16388Komatipoort 1761 3674 6767 12202

Pongola 0 -1496 2990 1494Zululand

-7131Umfolozi 0 -1981 889 -1092

Felixton -237 -2735 -4561 -7533

Amatikulu 0 -6370 1691 -4679 Tugela-16777Entumeni 0 -6169 -5929 -12098

Glendale -1288 -8540 -1340 -11168

North Coast-36265

Darnall -5394 280 -2295 -7409

Gledhow -6293 -458 10810 4059

Maidstone -7352 -7957 -6438 -21747

Eston -2068 -2628 13942 9246Midlands

9365Union Coop -72 -3111 3735 552

Noodsberg -2772 -1668 4007 -433

Sezela -8105 -5646 10220 -3531 South Coast-5219Umzimkulu -20 -3435 1767 -1688

Total -36538 -47113 44012 -39639 -39639

planted to cane is mirrored by the number of smallholders farmers involved in cane production. The number of smallholder cane farmers reached a maximum around 1996/97 and the number of registered cane growers decreased from an estimated 57 000 farmers to fewer than 30 000 in 2010/11. Farmers who actually delivered cane (which is probably a closer indication of productive small-scale growers) basically halved during the same period from around 30 000 to fewer than 14 000 farmers and from 2004/05 to 2009/10 small-scale farmers left the sugar industry at a rate of 2 000 growers per annum (CANEGROWERS, 2012).

Figure 7: Registered small-scale growers and number who delivered, 1972-2010Source (CANEGROWERS, 2012)Figure 7: Registered small-scale growers and number who delivered, 1972-2010

– 18 –


In total, large-scale growers’ area under cane increased by 44 012 hectares or 17.6% during the period 1996/97 to 2012/13. The irrigated cane area in Mpumalanga increased considerably with the Malelane area expanding by 7 757 ha and Komatipoort with 6 767 ha (87 and 70 percent respectively based on 1996/97 plantings). The area under cane in the Midlands also increased with Eston expanding by 13 942 ha and Union Coop and Noodsberg by 3 735 and 4 007 ha respectively. On the South Coast, Sezela plantings increased by 10 220 ha and Umzimkulu’s by 1 767 ha. The closing of Glendale (North Coast) and Entumeni (Tugela) mills following the 2003/04 season, resulted in more cane delivered (and area recorded) to Gledhow and Amatikulu respectively. Gledhow’s area under cane again increased considerably after 2008/09, but this is due to a number of Maidstone and Darnall farmers delivering to the ‘new’ Gledhow mill which was partly bought by growers (25.1% grower ownership). This ‘move’ by farmers subsequently resulted in a drop in area under cane for the Maidstone and Darnall mills. Felixton is the only mill region where large-scale growers’ area under cane decreased considerably and where the drop is not clearly linked to closure of a mill or a large number of farmers delivering cane to a di� erent mill. Felixton’s large-scale growers area under cane increased with MCP land sell o� in 1998 and the area remained relatively stable until 2006/07 after which it decreased by 9 894 ha in 5 years up to 2011/12. It is thought that some Felixton cane went to the Umfolozi, Amatikulu and Gledhow mills, but the increase in cane in these areas are too small to account for the substantial decline in Felixton. Large-scale growers in the Felixton area indicated that the diversion from Felixton is linked to the mill’s untoward ‘Brix minus pol’ factor. This issue will be discussed in more detail in Section 5.2. Though ‘moving’ of farmers between mills can complicate comparisons and the choice of comparing seasons in� uence � ndings, the large-scale growers’ area under cane trends for the di� erent milling regions are clear from Figure 8. Midlands

large-scale growers area under cane has increased remarkably and where this region’s contribution to total national cane area was more or less on par with that of the North Coast in 1996/97, the Midlands planted 26 140 hectares more than North Coast growers in 2012/13. South Coast (mainly Sezela) and Mpumalanga also expanded while the North Coast, Zululand and Tugela regions’ area under cane remained relatively stable or decreased slightly. It is however clear from Table 1 that the production area averages hide the change in cane area of individual mills. Similar to small-scale growers, the number of large-scale growers who delivered cane has decreased. Between 1996/97 and 2011/12 the number of large-scale growers dropped by 366 or 22%. However, with Darnall moving to the North Coast region from the Tugela region in 2003/04, a comparison of the number of large scale growers in 2001/02 and 2011/12 is somewhat misleading. Nevertheless, a comparison between 2003/04 and 2011/12 does reveal the trend . Over these eight years 362 large-scale growers stopped farming sugarcane. Of this total, 66% came from the North Coast (26%), Zululand (21%) and the Midlands (19%). It is hypothesised that a substantial amount of land on the North Coast and Zululand has been sold to government under the land restitution and redistribution programme, so a number of farmers sold to one owner (the State). It is also possible that � nancially stronger farmers are buying up cane farms to cope with decreasing margins and to expand production. By combining the area changes of MCP, small-scale growers and large-scale growers, it is possible to see the net e� ect for each mill area:• In Mpumalanga, the area under cane for all three types of

growers increased for Komatipoort, while Malelane showed an increase in area for both small-scale growers and large-scale growers.

• In Zululand, Pongola’s total area under cane increased due to large-scale growers’ area expansion and despite

Figure 8: Large-scale farmer area under cane according to production regions (ha)

– 19 –


Figure 9: Number of large-scale growers accrording to the di� erent production regions

a 1 496 hectare decrease in small-scale growers’ cane. In the Umfolozi mill region, small-scale growers cane area decreased by nearly 2 000 ha while large-scale growers area increased by 889 ha. In Felixton all three grower groups decreased cane plantings with a total of 7 533 hectares going out of cane production.

• In the Tugela production region the area under cane decreased signi� cantly. With the closing of the Entumeni mill following the 2003/04 season, most of the cane was registered under Amatikulu, but both small-scale growers’ and large-scale growers’ area decreased. In total small-scale growers cane area decreased by more than 12 500 ha and the large-scale growers by more than 4 200 ha with the total Tugela cane area decreasing by 16 777 ha.

• Though the closing of the Glendale mill following the 2003/04 season and the ‘moving’ of Darnall and Maidstone farmers to Gledhow complicate area inferences, it is clear that the North Coast area lost a large share of its cane land. In total large-scale growers cane area increased by 737 ha but MCP cane decreased by 20 327 ha and small-scale growers cane by 16 675 with North Coast mills losing more than 36 000 ha of cane.

• The total Midlands area under cane increased by 9 365 ha due to a 21 684 ha increase by large-scale growers and a 7 407 ha drop by small-scale growers and 4 912 by MCP. Eston large-scale growers’ cane area increased by 9 246 ha, partly enabled by a 2 068 ha sell-o� by MCP.

• In the South Coast production region, the total cane area decreased by 5 219 ha as a result of the small-scale growers area decreasing by 9 081 ha and the large-scale growers area increasing by 11 987 - largely due to a 10 220 ha increase of large-scale growers cane in Sezela, enabled by a 8 105 ha sell-o� of MCP cane land.

When grouping the production decreasing, stable and increasing mill regions together (as was done for Figures 2, 3 and 4), it is clear that MCP and small-scale growers area under cane decreases were more severe in the Coastal production regions where milling companies owned more land and where most of the small-scale growers are situated. In total, Coastal area under cane in Felixton, Amatikulu, Entumeni, Glendale, Darnall, Gledhow, Maidstone, Sezela and Umzimkulu decreased by 65 794 ha while inland and irrigation cane produced in Malelane, Komatipoort, Umfolozi, Pongola, Noodsberg, Eston and Union Coop increased by 26 155 ha from 1996/97 to 2012/13.

– 20 –


Figure 10: Total area under cane change for di� erent milling regions (ha)

Figure 11: Area change comparing coastal and inland cane production regions (ha)

The total area under cane decreased by 39 639 ha from 1996/97 to 2012/13 but more recently by 57 163 ha from 2000/01 to 2012/13. Given that the total cane production has decreased by nearly 28% or 6 675 619 tons from 23 876 164 tons of cane in 2000/01 to 17 200 545 in 2012/13 it would seem as if the cane production decline is not only linked to an area decrease but that a yield decrease also played a role, i.e. cane production have decreased considerably more than what the area decrease accounts for. If one assumes that a large share of large-scale growers’ cane area that has gone out of production, has been marginal land with relatively lower

yields and that low yielding small-scale growers cane area has decreased, an increase in average yield would not have been unexpected. However, as the production – area under cane disparity suggests cane yields did in fact decline.

3.2 Yield

In South Africa, and for most of the sugarcane production sector, the main limiting factor to yield is rain. Depending on the climatic conditions and length of cropping season, sugar cane in South Africa requires between 1100 and 1500 mm

– 21 –


– 21 –

Figure 12: Rainfall indications (June-May) for mill areas in main production regions (measured in mm)



Mpumalanga

Zululand

– 22 –


– 22 –

i) Felixton

Tugela

j) Amatikului) Felixton j) Amatikulu

g) Darnall h) Maidstone

North Coast

k) Gledhowk) Gledhow

j) Sezela k) Umzimkulu

South Coast


Tugela

j) Amatikulu

– 23 –

l) Noodsberg m) Eston

Figure 13 a-m: Cane yield in tons of cane per harvested area and RV tons per harvested area

Midlands

of rainfall for near-optimal yield. It is clear from the 1995/96 – 2011/12 rainfall indications for selected mill regions, here representing the di� erent production areas, that precipitation levels for 2003/04-2005/06 and again 2008/09-2010/11 were far from ideal (Figure 12). According to rainfall data obtained from an Umzimkulu farmer, nine out of the thirteen seasons 2000-2012 had rainfall lower than the long term average and in 6 seasons less than 700mm were recorded for the June-May period. Making use of CANEGROWERS’ production and area under cane data, mill region speci� c rainfall data and the SASRI Canesim model, and assuming best ratoon, fallowing and soil nutrition practises, Jones (2013) showed that during the 2000/01-2009/10 period actual cane yields decreased even though the simulation model indicates that the climatic yield potential has increased in some areas. Actual yield decreases were signi� cant and of a magnitude greater than can be explained by weather variations, especially in the North Coast, South Coast and Zululand production regions. Figures 13 a-m graphically present the yield trends in cane tons and RV tons per area harvested for the period 2000/01 to 2011/12. Despite the Canesim model suggesting that, based on climatic conditions and assumed best practises, cane yield would increase by 0.99% per annum on the South Coast, large-scale growers’ yield decreased by 1.24% per annum and small-scale growers’ yield by 0.39% per annum. Midlands yield was predicted to increase by 1.48% per year but decreased by 0.60% for large-scale growers and 0.30% for small-scale growers. North Coast farmers’ yield decreased the most with large-scale

growers’ production per hectare decreasing by 2.19% per year and small-scale growers cane yield by 2.62%. In Zululand less than ideal weather conditions resulted in a simulated lower yield of 0.89% per year, but small-scale growers’ yield decreased by 4.22% per year and large-scale growers yield by 1.73%. Overall, large-scale growers’ cane yield decreased by 1.07% per year and small-scale growers yield by 2.48%. These are average � gures and it can be expected that there are substantial variation within mill regions with some farmers’ yields decreasing considerably more or actually increasing, but it is quite apparent that yields decreased considerably more in Coastal regions. In the nine years 2001-2010 South Coast large-scale growers’ yield decreased by more than 11%; on the North Coast ’ yield dropped by nearly 20% and in Zululand by nearly 16%. Zululand small-scale growers yield decreased by nearly 38% for the same period while North Coast yield dropped by 23.6% for smallholders. An issue that might have played a role in the decreasing trend in aggregate large-scale growers yields is the fact that a substantial number of former MCP land has been sold to previously disadvantaged farmers and these now form part of the large-scale growers group. Some of these farms may not be managed optimally (for various reasons), resulting in lower cane yields with a negative impact on the average large-scale grower group yield. However, in a survey of approximately 80 large scale growers, Jones (2013) found that the most farmers (94%) believed that yields are decreasing on their own farms and this was also found by the BFAP team in farmer group discussions.

Table 2: Simulated and actual yield change per year for large-scale growers and small-scale growers for 2001 to 2010 (%)

Region Simulated yield change per year

Actual large-scale growers yield change per year

Actual small-scale growers yield change per year

South Coast 0.99 -1.24 -0.39

Midlands 1.48 -0.60 -0.30

North Coast -0.06 -2.19 -2.62

Zululand -0.84 -1.73 -4.22

Northern Irrigated -0.89 -0.17 -3.21

All regions 0.04 -1.07 -2.48

Source: Adapted from Jones (2013)

– 24 –

4 Factors a� ecting area and yieldThe main objective of the meetings with large-scale growers in July/Aug was to identify the issues that impacted on cane area and yield over the period 2000/01 to 2011/12. In order to elicit some pre-meeting deliberation and guide the discussions an informal questionnaire was circulated to farmers beforehand. Typical to the focus group discussion method of consultation, some of the feedback and issues indicated by farmers might be considered as subjective and anecdotal. Some of these issues however speak to the general state of production and mind of growers and deserve mention. The issues identi� ed by farmers are presented in the next section and the main issues are then discussed in detail and substantiated and analysed based on CANEGROWERS, BFAP and other credible data.

4.1 Large-scale grower indicated factors a� ecting cane area and yield

Most farmers indicated that pro� tability, which is a factor of yield, drives the change in area under cane, as area under cane depends on the grower’s replanting decision. Interestingly, though farmers in di� erent mill regions generally indicated the same issues, the factors that were indicated as most important, di� ered. This section will present farmers’ feedback on the factors a� ecting the area under cane and cane yield and includes some candid farmer insights on cane production and the sugar industry. The section concludes with a summary of the main factors to be comprehensively assessed in the subsequent sections of this report.

4.1.1 North Coast – Darnall, Gledhow and MaidstoneFactors impacting on cane area:• Cane produced in the Darnall and Maidstone areas has in

reality not decreased much – the observed decrease is due to a number of farmers now delivering to the partly grower owned Gledhow mill.

• Some cane land is now planted to macadamias, but generally coastal farmers have few crop alternatives.

• Though there are a couple of cane growers who have property development plans, most of the urban development in the region (encroaching on cane land) is driven by Tongaat Hulett.

• With decreasing margins, struggling farmers should be bought out by better performing farmers but even marginal land on the coast is very expensive due to development possibilities.

• Due to the land restitution and redistribution programme, productive government-bought land is removed from the market (decreasing supply), resulting in high prices for even marginal land.

Factors impacting on cane yield:• Farmers felt that new cane varieties are bred for RV and not

for cane tons per hectare.• RV focused varieties have less legs – can only be ratooned a

couple of years before yield drops.• Due to Eldana, coastal farmers are forced to cut immature

cane at 12 months instead of mature cane at 14 months.

Immature cane has more non-sucrose sugars and as a result coastal farmers are penalised under the RV payment system and receive a lower income for their cane. If they were able to get rid of Eldana, they can produce high RV 14 month cane and spend less on insecticides, resulting in higher pro� ts.

• Large-scale growers feel that the considerable drop in small-scale grower numbers and cane area is to a large degree due to the RV payment system. It is very di� cult for small-scale growers, who are dependent on pro� t driven contractors, to supply ’clean and fresh’ cane, and as a result small-scale growers receive less income for their cane.

• In the 70s about 30% of Darnall farmers burnt and 70% trashed their cane. Now, due to high labour cost, Eldana and the fact that they are penalised for � bre content, about 90% burn their cane before harvesting. The same is true for Gledhow and Maidstone farmers. Because they are no longer trashing, the organic material in the soil is minimal, causing nutrition and compacting problems. They know trashing has longer term bene� ts but cannot a� ord to trash due to high labour cost and the � bre content issue under the RV payment system.

• Due to increasing input costs, farmers are not able to invest in soil health, nutrition (fertiliser and lime) and seed cane.

• The North Coast has pockets of good soil, but consists mostly of marginal soils and steep hills. Marginal soil requires more inputs to attain a reasonable yield under the RV system. Under low rainfall conditions and high input prices the Coastal regions are the � rst to struggle.

• A number of farmers have ‘stopped farming’ due to land claims, i.e. stopped investing in the health of their soil and cane replanting, resulting in yield declines.

• They indicated that the SUSfarm (best practise) guidelines published by SASRI are a far cry from what they currently do and what they can a� ord to do.

• The Gledhow farmers are positive about their miller relationship as they have insight into the � nancials of the mill. Darnall and Maidstone farmers are not that happy but since the farmer exodus to Gledhow their mills seem more willing to negotiate.

4.1.2 South Coast – Sezela and UmzimkuluFactors impacting on cane area:• Sezela has about 70% of cane on the coast on a 12

month cycle while 30% of cane is inland on a 20 month cycle. Umzimkulu has about 30% cane on the coast and 70% inland (hinterland). Umzimkulu inland farmers are remarkably more positive about cane farming than coastal farmers.

• Expansion for both areas is mainly inland but is limited by other more pro� table crops such as macadamias, timber and bananas. The main expansion limitation is distance from the mill, i.e. transport cost.

• Coastal cane growers have limited options due to sloping lands.

• Urban development and the low profi tability level of cane production limits cane expansion on the coast.



– 25 –

• More cane area will go out of production on the coast as it is too expensive to plant and harvest on the steep slopes due to the labour component.

• Farming units are getting bigger (number of farmers fewer).

Factors impacting on cane yield:• Under the RV payment system farmers need to age their

cane in order to increase sucrose content and minimise non-sucrose sugars, but due to Eldana they are forced to harvest immature cane. They have tried a number of methods to control Eldana, but with little success and have to apply chemicals quite extensively. Eldana is a problem especially in the older cane � elds where there has been nothing but cane for a number of seasons.

• The SUSfarm guidelines recommend trashing at harvesting but the RV system penalises farmers for trashing via the � bre content penalty.

• They know they need to trash but cannot aff ord the labour and lower RV% - they need to � nd a solution. Trashing is no silver bullet, but it is a good start.

• They cannot fi nancially aff ord to adopt SUSfarm practises, but also know that they cannot a� ord not to. They feel that the mills should reward best management practises – they need mill support to implement SUSfarm practises to the longer term bene� t of farmers and mills.

• They feel that they should stop planting marginal lands to cane but cannot a� ord to produce less cane.

• They need to break the cycle of mono-cropping and leave more land fallow, but cannot a� ord to.

• They feel SASRI’s focus the last number of years was on producing sugar and not on producing cane.

• Newer cane varieties do well but do not last.• They recognise that the Bell loader has had a massive impact

on compacting cane � elds and ratoon root damage, resulting in yield loss. Some farmers are moving away from Bell loaders.

• Land claims play a big role in this area and infl uence how and if farmers implement SUSfarm recommendations as well as farmers’ replanting decisions. Most of the claims in the Sezela area have already been settled. In Umzimkulu about 50% of farms are under claim and this has de� nitely in� uenced farmers’ investment decisions.

• Farmers seem to know how to “fi x” their soils but it is a longer term project and they cannot a� ord to invest into something they will not have the bene� t of. At this stage the farmers with claims on their land can only plan 2 years in advance.

• Land claims are a very big issue and the negative sentiment has been worsened by the droughts of the last 10 years.

• These farmers feel that there is no trust in the industry. They are tired of � ghting with government, the mill, Eldana and droughts and this in� uences their reinvestment decisions.

• Farmers feel that they are not getting their fair share of molasses value.

• They indicate that SASRI has not been supplying the correct lime and gypsum recommendations and as a result they have big soil acidity problems. The recommendations have been revised but it will take time and money to � x the problem.

• Low rainfall has played a massive role the last 10 years. With a dry season, the yield is low and farmers cannot a� ord to invest in soil health. Next season is dry again, and then the grower has the problem of low rainfall and depleted and acidic soils.

• They are not positive about their relationship with the mills.

4.1.3 Zululand and Tugela – Umfolozi, Felixton and Amatikulu

For this region, Felixton and Amatikulu farmers generally had similar responses while Umfolozi farmer indications were di� erent.

UmfoloziFactors impacting on cane area:• The Umfolozi Flats had very little decline in area, only some

hilly farms were bought up by timber companies and converted to forestry.

Factors impacting on cane yield:• By replanting 10% they manage to keep yields high.• Growers own 75% of the mill and get 25% of the value of

molasses and are positive about their relationship with the mill• These farmers are also much more positive about cane

farming than South Coast, North Coast and Felixton and Amatikulu farmers.

Felixton and AmatikuluFactors impacting on cane area:• For these farmers the main issue is decreased profi tability

caused by the RV payment system.• One big grower’s deliveries at Felixton infl ates the mill’s

cane area � gures – they are actually doing considerably worse.

• Nearly 70% of all SA small-scale growers are in Felixton, Amatikulu and Umfolozi - the RV payment systems’ negative impact on small-scale growers has been massive.

• They feel the RV price has not kept up with the increase in input prices resulting in decreasing pro� tability.

• Felixton farmers have a major concern regarding their mill’s high Brix-pol factor resulting in them being penalised under the RV payment system for what they believe is a milling process problem. Farmers with delivery options have left the Felixton mill as the Brix-pol issue results in farmers’ cane being undervalued. The Brix-pol issue was not a problem for growers under the sucrose payment system.

Factors impacting on cane yield:• A number of issues including age of ratoon, Eldana, soil

health, labour cost and ‘lack of legs’ of the new varieties played a role, but they feel that all of these were caused and exacerbated by the RV payment system.

• They feel the RV payment system had a number of ‘unintended consequences’ that negatively impacted on their production systems.

• They cannot aff ord to implement SUSfarm best farming practices.


– 26 –

• They feel the RV payment system has induced a reduction in revenue and its compounding � nancial impact over 12 years has a� ected growers’ ability to implement best farming practices.

• Farmers have increased the quality of their cane but the mills are not producing more sugar from the high quality cane. The premise was that the size of the divisible pool would increase, but this has not happened.

• At the time of the farmer meetings in July / August, Felixton and Amatikulu farmers where very negative about their relationships with their mills, but by November 2013 there were indications that more amicable negotiations have been initiated.

4.1.4 Midlands – Noodsberg and EstonFactors impacting on cane area:• The area planted to cane has increased in the Midlands,

mainly at the cost of grazing pastures and timber and into areas where frost is a problem. Some new varieties are relatively frost resistant but some farmers are now taking out cane in areas where they feel cane should not have been planted anyway. Frost forces farmers to follow 12 month cane cycles (about 30% of Midlands farmers plant 12 month cane).

• Transport cost and distance to mill is the biggest limiting factor to cane area expansion.

• They have many crop alternatives but currently cane is doing well and they have diversi� ed farming income streams.

Factors impacting on cane yield:• Soil acidity has become a big problem as they have been

applying too little lime based on SASRI recommendations. They are addressing this and think yields will increase.

• The Bell loaders are effi cient and successful but cause compaction and ratoon root damage with a considerable e� ect on cane yield.

• They do not think the RV payment system has made much of a di� erence – they now only send their good cane to the mill.

• The majority of farmers apply SUSfarm practises and soil conservation is a thing of pride for them. However, for farmers paying bonds and due to the cost of inputs, it is not always possible to follow best practices (SUSfarm guidelines).

• Low rainfall last 10-12 years• Noodsberg farmers did not mention land claims but Eston

farmers are very concerned about this, and it has in� uenced their soil nutrition investments. They are reinvesting now, but it will take time to increase yields again.

• They are generally positive about their relationship with their mills.

4.1.5 Northern Irrigated –Malelane, Komatipoort and Pongola

Factors impacting on cane area:• This is a subtropical production area and there are

numerous other crops farmers can produce – pro� t margin

and input costs determines the crop.• Some cane was planted on marginal soils and was taken

out as it did not perform well enough.• Long term supply contracts keep them in cane even

though other crops appear to be more pro� table.• Very high land prices put a question mark over feasibility of

sugar.• High land prices limits expansion.• Land reform had huge impact on land values as land is

removed from the market.Factors impacting on cane yield:• Stable yields under irrigation but yield has to increase to

justify cane planting on very expensive land.• Eldana is a problem when cane is left on the fi eld for more

than 12 months.• Smut problems (fungal disease).• With decreasing margins some farmers cut back on fertiliser

and best practises.• Malelane farmers are concerned about land claims and

security of water supply.• They are concerned about the sustainability of their current

production practices.• They have very little interaction with SASRI – there do not

seem to be a SASRI o� cer in Malelane.• SASRI agronomic practices research is focussed on dryland

production and nothing for irrigation.• In-fi eld loading of cane impacts ratoon yields.• Pongola farmers feel they are losing under RV as they are

tied to ripening.• They have a reasonably good relationship with the millers.

4.1.6 Identi� cation of main factorsBased on large-scale growers’ feedback the main issues that a� ected the area under cane and cane yield either directly or through the change in pro� tability and investment sentiment can be identi� ed. These considerations are divided into economic factors, sustainability factors and socio-political factors. These factors are discussed in detail in the next sections.

– 27 –


Table 3: Sugar cane inputs – share of total input expenditure comparison for 1985/86 and 2011/12

Input 1985/1986 2011/2012 Change

Farm Sta� 29% 23% -

Chemicals 4% 4% 0

Fertiliser 13% 14% +

Fuels and Lubricants 7% 7% 0

Mechanical Maintenance 10% 8% -

Fixture Maintenance 2% 2% 0

Services 3% 6% +

Administration 2% 5% +

Insurance 3% 2% -

Licenses 0% 0% 0

Irrigation Costs 0% 0% 0

Sundry 2% 6% +

Cane Transport 14% 10% -

Rent & Leases 2% 4% +

Management Salaries / Fees 6% 4% -

Depreciation 3% 4% +

Figure 14: Real input expenditure trends per hectare for industry (R/ha)Figure 14: Real input expenditure trends per hectare for industry (R/ha)

While economic and socio-political factors can be separated and discussed individually, the sustainability factors are inherently connected and are discussed by means of an analysis of the main yield limiting agronomic factors and management thereof.

5 Economic factorsFarm-level economics in� uence a farmer’s ability and motivation to invest and reinvest in income generating production resources. Farm pro� tability per hectare is a factor of revenue, i.e. cane quantity produced multiplied by the industry negotiated price (which is based on the Recoverable Value (RV)) and the cost of producing a unit of cane. In this section, the pro� tability of cane farming will be analysed with a special focus on the last 10 to 15 years. By analysing historic input trends with reference to production cost in� ation, one can determine the impact of cost in� ation on pro� tability which again impacts the entrepreneur’s remuneration and re-investment ability and thus the sustainability of cane

production. The RV payment system and the associated impact on sharing of sugarcane proceeds and the size of the divisible proceeds pool are also discussed.

5.1 Input costsFrom Table 3, it is clear that labour, fertiliser, mechanisation (and associated expenses such as lubricants, fuel andmaintenance costs) and transport (� eld to mill) are the major cane production expenditures. Interestingly, the share of di� erent expenditures has not changed much over the 26 year period, though services (water and electricity) and administration (bookkeeping and audit, o� ce expenses, cane levies and security) have become considerable expenditures. Figure 14 illustrates the industry expenditure trends since 1985 in real terms and shows that input expenditure per hectare has been increasing quite steadily since around 2004/05 and 2005/06. Table 4 quantitatively describes the trends observable in Figure 14. Expenditure trends where rather � at or even negative

– 28 –


Table 4: Annual percentage expenditure change

Input Annual percentage change 1985/86-1999/00

Annual percentage change 2000/01-

2004/05

Annual percentage change 2005/06-2011/12

Farm Sta� -0.79 -1.87 4.48

Chemicals 0.84 -3.26 5.21

Fertiliser -1.51 -0.27 8.71

Fuels, lubricants and maintenance

-0.84 -4.14 3.96

Services 0.68 11.36 15.99

Administration 3.45 0.37 2.67

Cane Transport -1.14 -0.64 5.97

Management salary -2.43 -1.75 6.79

Figure 15: Comparison of standardised real total � xed and variable cost per hectare and per ton

from 1985 to 1999/2000 and also for 2000/01 to 2005/06 (with the exception of service and administration), but between 2005/06 and 2011/12 cane production expenditure jumped considerably. Expenditure is a function of both price and quantity and care should be taken when interpreting these industry recorded (CANEGROWERS cost survey) expenditure changes. For instance the decrease in farm sta� expenditure between 1985 and 2003/04 was due to a gradual decrease in farm labourer numbers, while the 4.48% annual increase between 2005/06 and 2011/12 was to a large extent due to an increase in the wage rate. Figure 15 illustrates how the increasing industry input costs trends are ampli� ed by a decrease in cane yield with the increase in � xed and variable cost per ton of cane produced increasing by 66% between 2000 and 2011 and only by 33%

per hectare. This does not bode well for pro� tability for farmers’ whose yields are decreasing. There is little di� erence between the total input expenditure per ton of cane produced for the three main production regions, Coastal (average of Felixton, Amatikulu, Maidstone, Gledow, Darnall, Sezela and Umzimkulu), Midlands (average of Noodsberg, Eston and Union Coop) and the Northern Irrigated (average of Malelane, Komatipoort and Pongola). However in standardised format (indexed with 2000 as base year) it is clear that input expenditure per ton of cane produced in the Coastal region, increased at a higher rate than that of the Midlands or Northern Irrigated region, thus implying that the coastal regions are becoming less competitive in terms of cost of production. Decreasing cane yields in the Coastal region is the main driving factor behindthis trend.

– 29 –


Figure 16: Real total cost index for Coastal, Midlands and Northern Irrigated regions

5.1.1 Farm sta� and labourFarm labour is the typical cane farmers’ largest production cost item, whileoptions for mechanisation are limited especially in the Coastal production regions due to steep slopes. According to the cost surveys, farm sta� expenditure consists of salaries, wages, rations and other labour cost, of which wages constitutes close to 90% for most seasons. Farm sta� expenditure per hectare remained relatively stable up to 2004/05 but then increased at a rate higher than the Consumer Price Index (CPI), coinciding with the introduction of the minimum wage for farm workers. Between 2004/05 and 2011/12 farm sta� expenditure per hectare for Midlands farmers increased by 22%, while for Coastal farmers it increased by 34%, and 62% for irrigation farmers. While it would appear as if the Northern irrigation farmers spend more on labour per hectare, the graph below clearly

illustrates the e� ect of decreasing yield in the Coastal production regions and the e� ect this has on per ton expenditures relative to those areas where yield has remained relatively stable or has increased. Coastal farmer farm sta� expenditure per ton of cane produced increased by 60% between 2004/05 and 2011/12, while Midlands farmers spent 23% more on sta� per ton of cane and Irrigation farmers 32%. The 2012 review of the Sector Wage Determination for agriculture by the Department of Labour resulted in the minimum wage increasing from R70/day to R105/day with a CPI+1.5% adjustment for years two and three. This 56% (year 1) cost increase in farm sta� expenditure will likely have a signi� cant detrimental e� ect on the cane industry and it will be interesting to see how or if farmers will be able to adjust their production systems.

Figure 17: Real farm sta� expenditure per hectare for the three main production regions (R/ha)

– 30 –

Figure 19: Real fertiliser expenditure per hectare (R/ha and 2000 index value)

Figure 18: Real farm sta� expenditure per ton of cane produced for the three main production regions (R/ton)

5.1.2 FertiliserAs indicated in Table 4, fertiliser expenditure increased considerably, predominately due to an above in� ation increase in fertiliser prices, especially over the period 2005/06 to 2011/12. International fertiliser prices increased dramatically in 2007 and 2008 due to a ‘perfect storm’ of global economic factors (GrainSA, 2011). The most important factors that drove international fertiliser prices were:• Higher demand for fertiliser due to an increase in the area

planted to grain crops and oil seeds, driven by higher commodity prices.

• Increased cost of nitrogen, phosphates and potassium due to the higher Brent crude oil price, which in� uenced transport and freight rates as well as the natural gas price which is the main feedstock of nitrogen fertiliser.

• The imposition of export taxes on nitrogen by China.

• Low phosphate supply levels in 2006 and 2007.• Low potassium supply levels in 2007, with only a few

companies controlling the stock. When considering the real fertiliser per hectare expenditure for the di� erent production regions it would appear as if the Mpumalanga farmers followed the price trend (real fertiliser index) better than the other regions’ farmers, i.e. the irrigation farmers did not decrease fertiliser application quantities as the price for fertiliser increased. When considering the fact that Coastal cane yields have decreased and the coastal fertiliser expenditure trend / ton cane harvested has remained relatively on par with that of Northern Irrigated and Midlands farmers, it would appear as if Coastal farmers have in fact adjusted their fertiliser expenditure downward. This can to some extent explain the decrease in cane yields on the coast.



– 31 –

Figure 20: Real fertiliser expenditure indexes for production regions (2000)

5.1.3 Fuel, lubricants and mechanisation maintenance and transport

Fuel for tractors and transportation is a large contributor to production cost in all agricultural activities and is largely driven by the international oil price and the inland price which is determined, inter alia. by the Rand / US dollar exchange rate. In January 2007 the Brent Crude Oil price was approximately US$ 54.53. Eighteen months later in July 2008, the price per barrel peaked at US$ 133.78 (an increase of 145%). The price dropped to around US$ 41.23 in December 2009 but again

increased to US$ 122 in April 2011 and settled around US$ 103 in May 2013. This trend can be observed in Figure 22 where fuels and lubricants and cane transport costs have increased signi� cantly from 2005 onwards. Figure 22 shows that in real terms, the cost of fuel and lubricants has increased from R480 per hectare in 2005/06 to R623 in 2011/12. Similarly, the cost of transport has increased from R714 per hectare in 2005/06 to R965 per hectare in 2011/12.

Figure 21: Real fertiliser expenditure per ton cane produced (R/ton)

– 32 –

Figure 22: Real fuel and lubrication, mechanical maintenance and real cane transport expenditure per hectare compared to the real fuel index (2000)

5.2 RV payment systemThe Recoverable Value (RV) cane payment system was introduced for the � rst time during the 2000/01 milling season, replacing the sucrose cane payment system that was used for more than 70 years. The implementation of the RV payment system was a result of an internal industry review, initiated in 1995, aimed at improving the competitiveness of the South African sugar industry. One of the potential competitiveness-improving factors identi� ed, was an improvement in the quality of cane delivered to the mills. The SASA Cane Quality Task Group appointed in1996, suggested that an alternative payment system would incentivise farmers to deliver higher quality cane. It was argued that the sucrose payment system incentivises the maximum quantity of sucrose delivered to the mill with little regard for the actual recoverable sugar content of the cane (Moor, undated) and that there was no incentive for individual farmers to improve their cane quality as the bene� ts for such improvement were shared amongst all growers via the industry’s proceeds sharing arrangement. With this in mind the Cane Quality Task Group recommended that the RV cane payment system replace the sucrose payment system. The RV cane payment formula incorporates the parameters of sugar cane quality, i.e. sucrose content, � bre and non-sucrose sugars in such a way that farmers are penalised for delivering high � bre and high non-sucrose sugar cane while they are compensated for the value of the molasses recovered. The main objective of the RV system was to source clean (low � bre) and fresh (low non-sucrose sugars as linked to the burn and harvest-to-crush period) cane in order for the mills to produce more sugar and grow the divisible proceeds pool to the bene� t of the sugar industry as a whole (including farmers). It was hypothesised at the time that implementation of the new payment system would result in a change in the division of proceeds – farmers who produced and delivered higher quality sugar cane and thus more RV tons would receive a

larger share of the pool of grower proceeds than farmers who delivered lower quality cane. It was however anticipated that growers would respond to the new payment system by adopting management practices that aimed to maximise sucrose production while minimising non-sucrose and � bre levels and that the size of the divisible pool, based on the quantity of sugar produced by the mills, would increase and thus also the value of the growers’ share. It was not an objective of this study to conduct an in-depth analysis and assessment of the applicability and equity of the RV payment system. The impact that the payment system has had on the pro� tability and sustainability of farmers is however a main consideration. This section will shed light on three aspects of the RV payment system. Firstly the impact it has had on the division of proceeds amongst farmers, will be assessed. Secondly, the impact that increased cane quality has had on sucrose and molasses production and thus the size of the divisible pool, will be considered. Finally the Brix minus pol issue will be discussed in brief.

5.2.1 RV payment system’s impact on allocation of proceeds to farmers

The RV price, as determined by the sugar industry, remained relatively stable (depressed) for the period 2000/01 to 2005/06 but increased by 54% in real terms between 2005/06 and 2011/12, largely following the international sugar price. Despite the increasing RV price and a lengthy period for farmers to adapt their production systems to the payment system, farmers’ RV percentages have only increased minimally over the 11 year period since introduction in 2000. The 1987/88 to 1999/00 RV% indications were obtained from CANEGROWERS and are based on historic sucrose and � bre data and other data based assumptions. Though Figure 24 supplies a good summary of the historic industry wide RV percentages, the mill region speci� c changes are not clear.


– 33 –


Figure 23: Nominal and real RV price per ton of cane (R/ton)

Figure 24: RV percentages for di� erent production regions 1987 to 2011

Despite the increasing RV price and a lengthy period for farmers to adapt their production systems to the payment system, farmers’ RV percentages have only increased minimally over the 11 year period since introduction in 2000. The 1987/88 to 1999/00 RV% indications were obtained from CANEGROWERS and are based on historic sucrose and � bre data and other data based assumptions. Though Figure 24 supplies a good summary of the historic industry wide RV percentages, the mill region speci� c changes are not clear. Figures 25 a-m illustrate the change in the RV% compared to the RV tons per hectare harvested for the di� erent production

regions for the twelve year period since the RV payment system was introduced. In Mpumalanga irrigation farmers were able to react to the quality incentive and were generally able to combine increased quality with increased production per hectare. Irrigation farmers in Pongola did not fare as well with the RV tons harvested per hectare decreasing despite an increase in the RV%. In the Umfolozi mill region both the RV% and the RV tons per hectare decreased. For Felixton the RV% increased slightly over the 12 year period while the RV tons harvested per hectare decreased slightly. In the Amatikulu region the RV% remained quite stable but the RV tons

– 34 –




Mpumalanga

Zululand

harvested per hectare decreased considerably. On the North Coast farmers’ average RV% trends were relatively stable with a slight increase, but here also RV tons harvested per hectare decreased signi� cantly. The same trend of a stable and / or

slightly increasing RV%, but with decreasing RV tons harvested per hectare, as linked to the decreasing yields tendency, is found on the South Coast as well as the Midlands production regions.

e) Felixtone) Felixton f) Amatikulu f) Amatikulu

Tugela

– 35 –


f) Amatikulu

Tugela

g) Darnall h) Maidstone

North Coast

i) Gledhow

j) Sezela k) Umzimkulu

South Coast

– 36 –

l) Noodsberg m) Eston

Midlands

Figure 25 a-m: RV% compared to the RV tons per hectare harvested for the di� erent production regions

Caution should be taken when interpreting these mill region averages as RV percentages di� er considerably between farmers within milling regions. What is also clear from Figures 25 a-m is that the Northern Irrigated and Midlands farmers have on average consistently produced higher RV percentage cane than farmers in the North Coast, South Coast and Zululand. The average RV% for Midlands farmers and Northern Irrigation farmers for the period 2000 to 2011 was 12.9 and 12.7 percent respectively, compared to 12.0% for the South Coast and Zululand and 11.6% for the North Coast.While it would seem as if farmers, on average, struggled to increase their RV percentages signi� cantly, Coastal farmers especially struggled to maintain production levels. Under the new RV payment system where farmers’ compensation is linked to the quality of their cane, it thus follows that the farmers in the higher RV% producing areas received a larger share of the divisible grower proceeds than the lower RV% and decreasing tons per hectare farmers on the coast. It is thus of interest to compare the returns to cane for farmers under the RV payment system to that of the previously used sucrose based payment system. By comparing actual RV tons and price and assumed (based on CANEGROWERS historic data) sucrose tons and price for the di� erent milling regions it is possible to calculate the bene� t or cost to farmers for the RV payment system compared to the sucrose payment system (see Table 5). All data for these calculations was obtained from CANEGROWERS. It is important to note that these calculations are based on the actual cane tons produced when farmers were producing with the RV payment system in mind. It is possible that if farmers were not farming for RV but for sucrose, their production practises might have been di� erent to optimise sucrose with disregard for � bre and non-sucrose sugars. It is also true that if farmers were not (more strictly) � nancially incentivised to produce higher quality cane, their sucrose levels would have been lower. It is thus not totally clear whether the comparison under- or over-

estimates the regional advantage or disadvantage of the RV payment system. Over the twelve year period 2000/01 to 2011/12, the total value of the change in the cane payment system, i.e. the aggregate sum of the yearly monetary value that was di� erentiallydistributed amongst growers due to the change from the sucrose payment system to the RV payment system, adds up to just over R148.27 million (R138.46 million in 2005 real terms). In other words, over the twelve year period, higher RV% cane producers’ share of the divisible pool increased with R148.27 million and lower RV% cane producers’ share decreased by the same amount. Table 5 indicates the average impact for the di� erent mill regions and, as was indicated previously, it is important to point out that there are ‘better’ farmers’ (better quality soil, conditions, management, etc) within the ‘losing’ regions that bene� tted from the RV system. However, the average picture, on which policy and decisions tend to be made, is quite clear. The lion’s share of the R148.27 million was received by Midlands farmers in Eston (28%), Noodsberg (25%) and Union Coop (13%) who produced higher quality cane and was lost by farmers in Felixton (36%), Maidstone (23%) and Sezela (12%) who produced lower quality cane. Under the RV payment system (compared to the sucrose payment system):• Felixton, Darnall and Maidstone milling regions were

worse-o� in every season, • Amatikulu farmers on average were better-off for 4 from 12

seasons, • Gledhow farmers were better-off in 3/12 seasons,• Interestingly, Umfolozi farmers were better-off for 10/12

seasons while Pongola irrigation farmers were only better-o� in 3/12,

• Malelane and Komatipoort farmers were better-off in 10/12 and 9/12 seasons respectively,

• Noodsberg and Eston farmers were better-off in every season while UCL were better o� in 11/12 seasons,



– 37 –

Mill

2000

/01

2001

/02

2002

/03

2003

/04

2004

/05

2005

/06

2006

/07

2007

/08

2008

/09

2009

/10

2010

/11

2011

/12

Tota

l for

12

yea

rs

Pong

ola

-0.0

50.

48-0

.96

-1.0

40.

29-0

.20

-0.2

2-1

.16

-0.7

2-1

.47

-1.4

80.

91-5

.62

Um

folo

zi0.

892.

170.

900.

821.

241.

501.

83-0

.88

-0.5

20.

420.

083.

3411

.77

Felix

ton

-2.4

3-4

.48

-5.6

0-4

.73

-1.6

6-3

.31

-6.0

0-6

.03

-5.5

7-4

.78

-4.6

7-3

.75

-53.

00

Entu

men

i0.

470.

470.

360.

54-

--

--

--

-1.

83

Amat

ikul

u0.

730.

13-0

.86

-1.9

8-0

.54

-0.7

3-1

.54

-1.6

40.

10-0

.18

-0.1

30.

18-6

.46

Dar

nall

-1.0

6-2

.16

-1.3

8-0

.76

-0.8

3-0

.72

-0.6

4-0

.12

-1.1

6-1

.21

-2.2

3-3

.40

-15.

65

Mai

dsto

ne-2

.32

-5.3

0-3

.61

-2.8

0-2

.54

-2.3

8-1

.55

-1.8

8-0

.97

-1.6

2-3

.45

-5.8

5-3

4.26

Gle

dhow

-1.3

7-1

.85

0.02

-0.4

8-0

.37

0.46

0.14

-1.2

3-1

.02

-2.2

4-2

.79

-4.2

5-1

4.99

Noo

dsbe

rg2.

015.

513.

714.

681.

272.

602.

063.

003.

883.

503.

950.

2936

.46

Esto

n2.

063.

642.

644.

432.

383.

662.

454.

554.

482.

835.

403.

1041

.63

Uni

on1.

192.

962.

542.

810.

652.

271.

551.

310.

541.

291.

97-0

.45

18.6

2

Seze

la-2

.51

-3.4

11.

170.

76-0

.10

1.67

-1.2

50.

41-2

.47

-2.4

9-3

.39

-6.6

7-1

8.28

Um

zim

kulu

-1.1

0-0

.95

0.50

1.55

0.25

-0.1

1-0

.19

1.26

0.47

1.26

1.26

-4.

20

Mal

elan

e1.

571.

240.

50-1

.06

0.57

-1.6

31.

800.

561.

632.

391.

257.

1415

.94

Kom

atip

oort

1.93

1.57

0.09

-2.7

5-0

.59

-3.0

81.

551.

861.

332.

294.

239.

4117

.82

Tabl

e 5:

RV

vs su

cros

e pa

ymen

t sys

tem

- im

pact

for e

ach

mill

are

a (in

mill

ion

Rand

s for

the

spec

i� c

seas

on)

– 38 –


• On the South Coast, Sezela farmers were better-off 4/12 seasons while Umzimkulu farmers were better o� in 7/11.

In order to make the switch from a sucrose payment system to the RV system, the sugar mills agreed to pay farmers a ‘compensation for farming for RV’ fee. This fee was negotiated by each mill with their farmers and is summarised in Table 6. While most mills negotiated a compensation rate per ton, Northern Irrigation region farmers agreed to a ripener subsidy, an input directly linked to ‘farming for RV’. The agreed rate per ton was to be adjusted each year by the year-on-year change in the RV price and paid to farmers in March based on the tonnage of cane delivered by each farmer. The � gures in Table 6 were not obtained from CANEGROWERS or farmers but were calculated using the formula described in a 2003 CANEGROWERS Division of Proceeds working group report (D.09/47) and the actual rates reported for 2000/01 and 2003/04 are also based on this document. Actual compensation rate data for the other seasons was not available. According to this document (D.09/47) the agreed compensation for irrigation farmers was 50% of ripeners for Pongola farmers, and 75% of ripeners for Komatipoort and Malelane farmers. Based on conversations with farmers and CANEGROWERS it was not clear whether all farmers received this agreed compensation or whether these compensation payments were actually made for the full study period 2000/01 to 2011/12. It

is suggested that farmers follow up with their mills if there is any doubt about this compensation payment or the value of any other subsequent compensation schemes as the 2000/01 agreed compensation rate and assumed compensation payment stream has a considerable direct � nancial impact (mainly for the farmers receiving a per ton compensation). Though these compensation payments were linked to potential increased production costs related to ‘farming for RV’, farmers in mill regions who bene� tted most from the new payment system received smaller payments from their mills than the farmers in regions where the RV system had a detrimental impact. Based on the ‘loss’ calculations and the compensation rates for Amatikulu, Felixton and Maidstone, it would appear as if the Sezela farmers’ negotiated rate was comparatively low. By applying the compensation rates to the per ton RV vs sucrose advantage / disadvantage comparisons it is possible to calculate a direct net � nancial impact of the new payment system, as re� ected in Figures 26 a-j. It is important to note that these graphs only illustrate the direct payment net e� ect and do not take possible changes in the production system (potential changes in input expenditure) due to ‘farming for RV’ into consideration. Graphs for the Irrigation region are not presented as the direct � nancial impact of a ripener subsidy is not clear and not all irrigation farmers make use of ripeners.

Table 6: RV compensation payments (R/ton of cane)

00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13

Umfolozi 0.650 0.740 0.905 0.916 0.908 0.868 0.930 1.139 1.139 1.346 1.529 1.722 2.020

Felixton 1.250 1.422 1.740 1.762 1.747 1.670 1.789 2.191 2.191 2.589 2.940 3.311 3.884

Amatikulu 1.100 1.252 1.532 1.550 1.537 1.469 1.574 1.928 1.928 2.278 2.587 2.914 3.418

Darnall 1.000 1.138 1.392 1.410 1.397 1.336 1.431 1.753 1.753 2.071 2.352 2.649 3.107

Maidstone 1.250 1.422 1.740 1.762 1.747 1.670 1.789 2.191 2.191 2.589 2.940 3.311 3.884

Gledhow 0.900 1.024 1.253 1.269 1.258 1.202 1.288 1.577 1.577 1.864 2.117 2.384 2.797

Sezela 0.450 0.512 0.627 0.634 0.629 0.601 0.644 0.789 0.789 0.932 1.058 1.192 1.398

Umzimkulu 0.400 0.455 0.557 0.564 0.559 0.534 0.572 0.701 0.701 0.828 0.941 1.059 1.243

Noodsberg 0.300 0.341 0.418 0.423 0.419 0.401 0.429 0.526 0.526 0.621 0.706 0.795 0.932

Eston 0.500 0.569 0.696 0.705 0.699 0.668 0.716 0.876 0.876 1.036 1.176 1.324 1.554

– 39 –


a) Umfolozi b) Felixton

d) Darnall e) Maidstone

c) Amatikulu

Zululand

North Coast

Tugela

– 40 –

f) Gledhow

North Coast

g) Sezela h) Umzimkulu

i) Noodsberg j) Eston

South Coast

Midlands

Figure 26 a-j: Net impact of the RV payment system compared to the sucrose payment system, after farming for RV compensation is taken into consideration



– 41 –

Figure 27: Real revenue per hectare for di� erent production regions (R/ha)

Under the RV payment system (compared to the sucrose pay-ment system) and with the additional compensation payment: • Umfolozi farmers were on average better-off , in direct pay-

ment terms, in all 12 seasons,• Felixton farmer were better-off in 4 from 12 seasons,• Amatikulu farmers were better-off 11 from 12 seasons,• Darnall farmers were better-off 9 from 12 seasons,• Maidstone farmers were better-off 5 from 12 seasons,• Gledhow farmers were better-off 7 from 12 seasons,• Sezela farmers were better-off 5 from 12 seasons,• Umzimkulu farmers were better-off 9 from 11 seasons,• Noodsberg and Eston were better-off in all 12 seasons. From the above it is clear that the ‘farming for RV’ compen-sation payments, had, if indeed these payment were made, a substantial impact on whether production regions were ad-vantaged or disadvantaged (based on direct payments) by the RV payment system. Excluding Entumeni and the Irrigation regions from the comparison, under the RV payment system there were 68 region speci� c ‘negative impact seasons’ and 64 ‘positive impact seasons’ over the twelve year period. If com-pensation payments were made as was agreed in 1999/2000, the number of negative seasons, based on direct payments, would have decreased to 33 seasons. For instance, where the RV vs sucrose payment system comparison in Table 5 showed that Darnall farmers on average were worse-o� every season

2000/01 to 2011/12, with the compensation payment includ-ed, they were better-o� under the RV payment system 9 out of the 12 seasons. For the mill regions where farmers were largely worse-o� under the RV payment system (Felixton, Maidstone and Sez-ela and to some degree Gledhow), losses were increasingly severe in the last four to � ve seasons and it would seem as if the income share that mainly Coastal farmers are losing to the higher quality cane producers, is increasing. The simplistic cal-culation in Table 7 sheds light on why coastal farmers seem to be ‘losing’ at an increasing rate. As Midlands (and other farmers – some also on the Coast) produce increasing volumes of high quality cane and Coastal farmers produce less (or just relatively less) cane which is generally of a lower quality, the divisible pool share for the farmers producing less and low quality cane decreases at a faster rate than what would have been the case under the sucrose payment system, with the causative factor being the di� erence in the RV%. Despite an increase in the real RV price and additional com-pensation payments, revenue per hectare (cane quantity x price) remained relatively constant (Figure 27) in the Midlands and Coastal areas due to generally lower yields. With more consistent yields under irrigation, Northern Irrigation farmers were able to make the best of higher cane prices and revenue per hectare increased by 66% between 2007/08 and 2011/12.

Table 7: Share of divisible pool comparison under RV and sucrose payment systems, for di� erent production scenarios

Farm region Tons delivered RV% RV tons Share under sucrose

Share under RV

% Di� erence

Situation 1

Midlands 1000 15 150 50% 56%

Coastal 1000 12 120 50% 44% -12.5

Situation 2

Midlands 1200 15 180 55% 60%

Coastal 1000 12 120 45% 40% -13.6

Situation 3

Midlands 1200 15 180 60% 65%

Coastal 800 12 96 40% 35% -15.0

– 42 –


5.2.2 RV’s impact on sugar productionA key premise of the motivation to move to the RV payment system was that the production of higher quality cane would result in an increase in sugar production by the mills. It was anticipated that production of higher quality cane by farmers would result in an increase in sugar revenue and a reduction in molasses proceeds with an overall increase in industry pro-ceeds and thus the size of the divisible pool (Moor, undated; Hackman 1999). It is however clear from Figures 28 a-e that sugar mills did not extract more sugar from the higher quality

cane. Figure 28a compares the total industry RV% and sugar extraction per RV ton. By � tting a polynomial trend line it is possible to observe the impact of regime changes (compared to a linear trend line where the average trend is indicated). While industry RV% has shown an increasing trend since the middle 1990s, the industry sugar extraction rate per ton of RV has decreased considerably since the introduction of the RV system in 2000 and especially after 2005. This same trend is observable to a greater or lesser degree in all the main produc-tion regions (Figures 28 b-f ).

a) Industry

b) Northern Irrigated

a) Industry

– 43 –


c) Zululand

d) North Coast

– 44 –


e) South Coast

f) Midlands

Figure 28 a-f: Comparison of RV% with sugar extraction per RV ton

– 45 –


Figure 29: Comparison of industry cane tons harvested and mills’ extraction ‘e� ciency’

The reason for this apparent declining mill e� ciency is not to-tally clear. Farmers and other industry role-players have sug-gested a number of possible reasons, including:• Ageing mills• Increasing investment in sugar activities and mills in the rest

of Africa by sugar companies, at the cost of local mills’ im-provement and maintenance budgets

• Experienced and key mill personnel being relocated to “rest of Africa” mills

• Insuffi cient cane supply for mills to run near capacity (low throughput)

• Declining profi tability of sugar milling in South Africa• Increased profi tability of molasses It is not clear whether mills’ declining sugar extraction is linked to a conscious business decision or if it is symptomat-ic or the causative factor of the general declining cane and sugar pro� tability trend. A comprehensive assessment of the reasons for this decline falls outside the scope of this study. It is however clear from Figure 29 that there is a strong link between harvested and milled cane tonnage (throughput) and the amount of sucrose ‘lost’ to molasses, bagasse, � lter

cake and undetermined losses. A number of mills (mainly on the Coast) have been running substantially below capacity as cane production levels have decreased and it appears as if this has impacted negatively on sucrose extraction. However in the Northern Irrigation and Midlands areas where production and mill throughput have been increasing or have remained relatively constant over the period 2001 to 2012, extraction ef-� ciency has also declined. Figure 30 illustrates the trends in sucrose losses depicted by the increasing sucrose percentages in especially molasses and bagasse and undetermined sucrose losses, albeit hiding con-siderable variation between mills. Though it can be expected that a certain percentage of sucrose cannot cost e� ectively be extracted from cane, it is the increasing sucrose loss per-centage that is of concern. A few mills, including Amatikulu, Darnall, Komatipoort and also Felixton (since 2008) have seen a decrease in the sucrose percentage in molasses but the re-maining mills have seen an increase. Union Coop’s molasses sucrose percentage has increased remarkably, albeit from a low level, and is still well below the industry average.

Figure 30: Industry sucrose loss percentage – sucrose content in � nal molasses, bagasse, � lter cake and undetermined losses

– 46 –

In addition to the increase in sucrose percentage in molas-ses, the sucrose content in bagasse and the undetermined losses have also increased to the detriment of both parties. Even though a decline in the extraction rate of one or two per-cent seems small, the impact this has had on sugar produced is substantial especially for cane producers. A lower sugar to RV tons ratio means amongst others that more sugar is ‘lost’ to the divisible pool (of which farmers get a larger share) and more higher value molasses (of which farmers receive only a relatively small share) is produced. The average sugar to RV tons extraction rate (Sugar%RV) for the 10 years 1996/97 to 2005/06 was 95.4% while the average for the six years 2006/07 to 2011/12 was 93.9%. If the 2000/01 industry extraction rate (96.81%), which is the highest in the twenty-� ve years since 1987, is used as the achievable benchmark, farmers have lost out on their share of proceeds from more than 565 000 tons of sugar (in total) over the eleven years 2001/02 to 2011/12.

5.2.3 Felixton’s Brix minus pol issueIn order to ensure that there are no sucrose losses across the extraction plant prior to the massing and analysis of mixed juice, a number of factors are monitored at each mill, includ-ing the weekly pol and Brix factors. The Brix minus pol factor has been an issue of concern for some time for the industry and when the RV payment system was introduced in 2001 and cane purity became a crucial factor in cane value calculation, the actual extent and impact of the issue became apparent. The Brix minus pol factor varies over seasons and between mills but the Felixton mill’s Brix-pol factor has been higher than the industry accepted norm for most seasons. Felixton farmers have indicated this untoward Brix-pol factor as a major

concern as they, the growers, are penalised (through a lower cane quality valuation) for what they perceive to be a miller problem. In April 2002 the Industry established a task team compris-ing of members of Cane Testing Service (CTS), CANEGROWERS and Tongaat-Hulett Sugar (THS) to investigate the matter. Dur-ing the 2002 and 2003 milling seasons a wide range of inves-tigations where undertaken and a � nal report was submitted. Though the researchers were able to identify and eliminate many factors, no de� nitive contributory factors could be iden-ti� ed to explain the untoward Brix minus pol factor di� erences at Felixton (Ravno, 2005). The study identi� ed two issues for further investigation, namely the method of bagasse analysis used in the SA sugar industry and the impact of speci� c Fe-lixton di� user operating conditions. A number of subsequent studies and reviews including amongst others Barker (2005), Barker and Davis (2009) and Barker and Davis (2010) have not been able to shed much more light on Felixton’s high brix-pol issue. The SMRI technical report - Consolidated Report on Ex-traction Audit of South African Factories by Davis and Barker (2010) concluded: “It appears that there are two issues at FX. There is a system-atic in� ation of both Brix and pol factors resulting from an un-known cause that a� ects both factors together (such as mass-ing, sampling or mass balance calculations), but which varies in extent from season to season. Secondly, there appears to be a consistent pol loss in the extraction plants leading to low pol factors that only become apparent once the systemic devia-tions are reduced. This highlights that the high Brix-pol factor di� erences are most likely due to a low pol factor and not a high Brix factor. This is con� rmed by large negative MJ – DAC



Figure 31: Industry pro� tability per hectare (R/ha)

– 47 –

purities for FX in most seasons………During the audit there was a large purity drop across the di� user(s) of between 16 and 17 units. FX also returns shredded cane that has spilled to the � oor back to the di� user on a weekly basis. This will also lower the pol factor.” Even though it impacts on cane quality assessment, pricing and as a result on farm turnover and pro� t, a technical investi-gation into mill e� ciencies falls outside the scope of this BFAP project. A considerable amount of work has been done on this issue by specialists over an extended period of time and still the issue has not been resolved. In the 2012/13 CANEGROW-ERS Board of Directors’ reported that it is conceded that “The cause of the problem at Felixton remains a mystery and the long-term implications remain a concern.” The 2009 “high Brix minus pol factor di� erence” and “low pol factor” compensation agreement between Felixton growers and THS seems like a step in the right direction in the absence of a technical solution. Under the sucrose payment system the Brix-pol factor was not an issue and its impact on cane pay-ment was not contemplated when the 2000 Sugar Industry Agreement was concluded (Melmoth Growers and others v THS, 2008). Though the compensation agreement is a posi-tive intervention, Felixton large-scale growers and small-scale growers cane area have decreased by more than 11 000 hec-tares since the introduction of the RV payment system. How much of this decrease can be attributed to the Brix-pol issue is not clear. Calculating the compounding � nancial e� ect of the un-toward Felixton Brix-pol factor on growers is by no means straight forward and would require a considerable amount of time, data, insight and miller cooperation. To the BFAP re-searchers it is not exactly clear how big a di� erence an accept-

able Brix-pol factor would have made on farmers’ bottom line, but from the next section on pro� tability it is clear that pro� t margins, especially on the Coast, have come under consider-able pressure.

5.3 Pro� tabilityBased on the preceding discussions on increasing production costs and a relatively de� ated revenue for most regions, it will come as little surprise that cane grower pro� tability has been decreasing. While a number of low rainfall seasons impacted dramatically on especially dryland yield and thus pro� tability, the correlation between the increased production expenditure and the decreasing real net income is apparent from Figure 31 below. Where real net income per hectare before deduction of a management salary, interest and tax was relatively consist-ently in the R2 000 to R3000 range in most of the 1980s and 90s, it dropped to below R2000/ha from the 2003/04 season and remained there for seven out of the nine seasons up to 2011/12. The average industry trends however hide considerable dif-ferences between the production regions. For Coastal farmers for the period 1985/86-1999/2000, the average earnings be-fore management salaries, interest and tax (EBSIT) was 24% of revenue, while earnings before interest and tax (EBIT) was 18% and net income was 13% of revenue. For the period 2000/01 to 2011/12 these � gures decreased to 16, 11 and 6 percent respectively. It is quite clear that it would have been very dif-� cult for Coastal farmers to earn a living and repay a bond after 2002/03. The 1985/86-1999/00 average net farm income (be-fore tax) per hectare, in 2000 real terms, was R1 255 and this decreased to R630 for 2000/01-2010/11 and R337 for 2003/04-2010/11.

– 48 –

The picture for the Midlands looks considerably better but it is clear that the same decreasing pro� tability trends persist. Up to 1999/2000, the average EBSIT was 28%, EBIT 25% and net income was on average 19% of revenue. For the period 2000/01-2011/12 pro� tability decreased to a 22% EBSIT, 17% EBIT and 14% net income. The 1985/86-1999/00 average net farm income (before tax) per hectare, in 2000 real terms, was R1 628 and this decreased to R1 330 for 2000/01-2010/11 and R1093 for 2003/04-2010/11.

For the Irrigated areas the picture is considerably di� erent with pro� tability increasing after dropping dramatically for the 2004/05 season and again in 2007/08 due to drought and ir-rigation restrictions. While Coastal and Midlands farmers’ prof-itability have decreased, the Northern Irrigated farmers’ pro� t-ability seems to be increasing. For small-scale growers the pro� tability picture is even worse than that of the large-scale Coastal growers. According to the FIRCOP project report (2011), more than 70% of small-

Figure 32: Coastal milling regions pro� tability per hectare (average for Amatikulu, Felixton, Darnall, Maidstone, Gledhow, Sezela and Umzimkulu)

Figure 33: Midlands pro� tability per hectare (average of Noodsberg, Eston and UCL)



– 49 –

Figure 34: Northern Irrigated regions pro� tability per hectare (CANEGROWERS’s’ calculations)

scale growers had an average yield of less than 30 tons per hectare and 68% of small-scale growers who delivered cane in 2008/09, delivered less than 50 tons. As a result the net return from cane farming was less than the minimum wage for most small-scale farmers - they would have been better o� selling their labour at the minimum rate, than farming themselves. Bates Consulting (2005) seen in CANEGROWERS (2012) noted that “If growers do not � nd themselves involved in a pro� table activity they will give up”. This is exactly what is happening. Though rainfall conditions were slightly better in other sea-sons compared to 2008/09, the limited pro� tability of cane farming (relative to minimum wage and welfare grants) for small-scale growers resulted in a dramatic drop in small-scale grower area under cane (47 113 ha or 50.6% between 1996/97 and 2012/13), while their numbers also dropped (by 14 015 farmers between 1996/97 and 2012/13). 5.4 Economic factors – conclusionThe pro� tability of cane farming has decreased considerably for dryland farmers since the early 2000s and especially for Coastal farmers. Midlands farmers’ net farm income percent-age for the period 2000/01 to 2011/12 has decreased by 26% while Coastal farmers’ percentage has dropped by 54%. Increasing input prices played a substantial role in the dwin-dling pro� tability. The real average industry expenditure per hectare of cane increased by 33%, driven mainly by increased fertiliser, labour and fuel prices. Though the RV price did not increase between 2002/03 and 2005/06, it did increase by more than 50% from 2005/06 to 2011/12. Farmers’ reaction to the price increase was however limited by amongst others drier than normal conditions. The 12 years 2000/01 to 2011/12 saw a number of low and very low rainfall seasons and few average to good seasons.

The RV payment system that was implemented for the � rst time for the 2000/01 season had an impact on farmer revenue by altering the proportions of the divisible pool, largely to the bene� t of Midlands and Northern Irrigation farmers and to the detriment of Coastal farmers. The direct net � nancial impact of the payment system, after ‘farming for RV compensation’ was taken into consideration, is however, in the context of increas-ing input costs, depressed RV price 2001/02-2005/06 and ad-verse weather conditions not as substantial as some farmers would argue. A key premise for the introduction of the RV payment sys-tem was that increased cane quality would lead to increased sugar income. Though farmers generally reacted to the RV% incentive and produced and or delivered higher quality cane, sugar mills did not produce more sugar from the higher qual-ity cane. Sugar extraction rates have decreased to the detri-ment of both millers and growers, but growers seem to have lost more as their share of molasses proceeds is smaller than that of sugar. The dire combination of increasing input costs and a number of seasons with low rainfall resulted in decreased in-vestment by farmers in the maintenance of their productive resources means. For cane farmers this mainly translates into lower application of fertiliser and other soil nutrition products, less replacement of old cane and less use of seed cane. A num-ber of farmers indicated that they just cannot a� ord to apply the much needed chemicals and, with consecutive dry sea-sons, the situation worsened even further and farmers were not able to return to best production practises. As indicated by Richards et al. (2005) “...it is hard to be green when you are in the red.’’ A number of Coastal large-scale growers however indicated that the unintended impacts of farming for RV, i.e. impacts on

– 50 –

the production system, might have had a larger impact on sustainability and longer term pro� tability of cane production than the direct � nancial losses su� ered by lower quality cane producers. This issue and the main agronomic factors that im-pacted on yield and farmers’ production systems will be ad-dressed next.

6 SustainabilityDuring interviews conducted with cane growers in the various milling areas, many causes for the decline in cane yield were raised. Interestingly, similar agronomic factors were raised in nearly all milling areas, whether Coastal, Midlands or Irrigated. These included the e� ect of increasing Eldana pressure, con-sequential shortening of ratoon cycles to 12 months, poor ratoon-ability of newer cane varieties, soil acidi� cation and nutrient depletion of soils, high incidence of Thrips and Nema-tode problems and increased weed pressure. These were also the factors identi� ed by the recent SASRI study (Jones, 2013), and are thought to have caused yields to decline system-atically over the past 10-15 years, putting the pro� tability of many farms under pressure as was shown above. This has led to changes in farming practices and reduced reinvestment in farms. Many farmers have indicated that at the moment (2013), they just cannot � nancially a� ord to apply good agronomic practices (liming acidic soils and trashing their � elds or apply-ing essential plant nutrients such as phosphates and trace ele-ments). As the investigation into the agronomic factors causing the decline in yield was progressing it became clear that despite all the negative agronomic factors in each milling area, there seemed to be a big di� erence in sustainability of the top 25% producers, who were still making a reasonable living, and the bottom 25% producers who were under pressure and going out of business. Upon closer investigation it was established that the top 25% were, to a large extent, still managing to fol-low sustainable farming practices, which led to better yields, better cane quality and better returns on investment. It was found that less herbicides and pesticides were used, bringing down their exposure to increasing chemical input costs. These producers also managed to take o� more ratoons before the cane had to be replanted, with resulting savings on establish-ment costs. Declining cane yield is a complex issue and needs to be approached from a cross-disciplinary perspective as no single factor addressed in isolation can give the desired outcome. A brief summary of the agronomic factors raised in the vari-ous milling areas will be presented to set the background for further detailed discussions on speci� c issues raised. The main contributing factors to the decline in sugarcane yield will be discussed separately and will then be drawn into a logically consistent management approach to address the decline in yields.

6.1 Main agronomic factors limiting sustainabilityThe SASRI study by Jones (2013) lists a number of mill region speci� c reasons for cane yield decline, in order of importance as indicated by the large-scale growers.

South Coast1. Soil acidity (both sub and top-soil)2. Decrease in organic matter (burning vs trashing)3. Decreased age of cane at harvest in response to Eldana4. Poorer weather

Midlands1. Compaction from increased mechanisation (Bell loader)2. Decreased fertiliser3. Decreases in soil organic matter (burning vs trashing)4. Limited investment while land under claim

North Coast1. Poorer weather 2. Decrease in soil organic matter content (burning vs trash-

ing)3. Decrease in area under cane that is trashed at harvest4. Decreased age of cane at harvest in response to Eldana5. Increase in sub-soil acidity

Zululand1. Poorer weather2. Decreased age of cane at harvest in response to Eldana3. Increased pest pressure4. Compaction from increased mechanisation5. Stool damage due to increase mechanisation6. Increase in sub-soil acidity7. Decrease in soil organic matter (burning vs trashing)

Irrigated North1. Compaction from increased mechanisation2. Stool damage from increase mechanisation3. Decreased fertiliser4. Decrease in soil organic matter (burning vs trashing)5. Poorer weed control6. Decline in irrigation e� ciency

These factors, raised in the various regions, correspond to the issues indicated during the farmer discussion meetings and seem to be interlinked - in many cases one issue leads to the next problem. This initiates a negative cycle which develops into an environment where sustainable production of cane is nearly impossible. In an attempt to address all factors in a sensible manner, a cross-disciplinary investigation needs to be undertaken. The upside of this tall order is that extensive research has already been done by SASRI on many of these factors and only needs to be integrated into a logical manage-ment approach.

6.2 Analysing each factor in the context of Sustainability

Wherever a farming system’s sustainability is under pressure, it is necessary to dissect each contributing factor and try to link its causes and e� ects with as many of the other contrib-uting factors as possible. In most cases it becomes evident that one aspect can trigger a whole chain of events which can have devastating e� ects on a farming enterprise. The question



– 51 –

is often raised why the yields in maize have increased substan-tially in the past decade, but that yields in the sugar industry have declined. The answer lies � rst and foremost in the fact that sugar is a perennial crop which is grown in a monoculture system, whereas maize is an annual crop where crop rotation (especially with legumes) is practiced. This makes a di� erence in soil fertility and tilth. The soil biology is also much more di-verse and balanced, which reduces the prevalence of root dis-eases and insect pressures. In short, it is easier to implement Best Management Practises in a maize system than in a sugar system. The following factors were identi� ed as contributing to the de-cline in yields under the current sugarcane production system.

6.2.1 The decline in organic carbon levels in the soilsThe increasing practise of burning instead of trashing has led to decreased organic material in the soil. Organic carbon or hu-mus is the foundation upon which soil fertility and tilth is built. During the break-down process of organic matter, a wide host of micro-organisms and macro fauna is stimulated, thereby creating a biologically well balanced soil. Such a biologically active soil reduces the prevalence of plant pathogenic organ-isms in that bene� cial microbes compete with pathogens for nutrients and root space. During the humi� cation process, the microbes secrete sticky “gum-like” mucilages (Wright and Upadhyaya, 1996; Co-mis, 2002), which bind the soil particles together. This gives the soil a crumb structure and improved tilth. This aerates the soil which in turn improves water in� ltration and lowers water run-o� (water from e.g. thunderstorms can be used more e� cient-ly). It also promotes vigorous root growth and reduces com-paction, which is a problem in modern sugarcane production. There is also a correlation between new root development and ratoon-ability i.e., the bigger the root system, the better the new ratoon. Humus can also hold 80-90% of its own weight in moisture (Whitehead et al., 2006). This dramatically improves a soil’s abil-ity to sustain a crop under drought conditions. When consid-ering that drought and the stress caused by water de� ciency has been one of the main reasons for declining yields in the rain-fed areas, it makes sense to invest in building humus and organic matter in soils. This also has an e� ect on the severity of Eldana infestation, as statistics have shown that in drought years, the Eldana infestation has been signi� cantly higher than in years of good rainfall. The biochemical structure of humus enables it to bu� er acidic or alkaline conditions in soils. In the light of acidi� ca-tion of the top- and sub soils being highlighted as one of the reasons for declining yields, it will de� nitely alleviate the ef-fect of acidic soils on the plant. Humus is a colloidal substance which greatly improves the soil’s ability to retain nutrients and prevent them from leaching. It improves the cation exchange capacity (CEC) of the soils - this is a big problem especially on the light sandy soils on the Coast. Organic carbon can release an estimated 75-80kg/ha of Ni-trogen for every 1% of carbon in the soil. This mineralizes over a 12 month period. If a soil’s carbon percentage is increased by 0.5% by trashing the cane instead of burning it, the farmer

can save 40kg of nitrogen at R10/kg of N per year. This is a sav-ing of R 400 per hectare per year on fertilizer. This needs to be monitored by analysing the carbon % as well as the inorganic nitrogen levels in the soil.Given the above bene� ts of humus and organic carbon on soil fertility and cane production in general, it makes sense to in-vest in humus building practises, i.e. trashing.

6.2.2 Increasing soil acidity on sugarcane � eldsSoil acidi� cation is a common problem in conventional mono-cropping systems and needs to be managed very carefully in order to avoid crop limiting soil conditions. The limiting factors of acidic soils are the following: toxic levels of aluminium and manganese cause a reduction in the cation exchange capac-ity of the soil and reduce the availability of phosphate, which creates a ’low energy’ plant which is susceptible to diseases. Another e� ect of soil acidity is limited accessibility of macro-nutrients such as calcium, magnesium and potassium (Bohn et al. 1985, p.153). These factors combined, result in restricted root develop-ment, which leads to poor water usage and nutrient uptake (Passioura 1992). A small root system also results in less organic carbon in the soil and poor ratoon-ability. If these factors and the combined e� ect they have on the yield of a sugarcane crop are taken into account, it should be clear that a proper liming program for all acidic soils is essential (Marschner 1995, pp.626-643, Trapnell and Malcolm 2004).

6.2.3 The depletion of certain essential plant nutrients

With dwindling pro� ts and socio-political issues such as land restitution claims and land reform generally, many farmers are applying only certain macro-nutrients that are regarded as ’es-sential’.. This has resulted in the ’mining’ of sugarcane � elds in the sense that more nutrients are being removed by the crops than are being replenished. Because many farmers were not conducting regular soil and leaf analyses, they did not realise the serious extent of the nutrient depletion that was occurring. Nutrients which showed the biggest de� ciencies were: cal-cium, phosphate and silica. Because farmers regarded the value of lime as purely its ability to address acid saturation or aluminium toxicity, the true value of the calcium in the lime as an essential mineral nutrient was ignored (Trapnell and Malcolm 2004). The true value of calcium lies in the fact that it is a big ion which has the ability, when in solution, to move in-between the colloidal plates in the soil and by doing this to � occulate the soil. This creates little air pockets which aerates the soil and improves soil tilth. Soils with good calcium levels possess better wa-ter in� ltration, are less prone to surface capping and tend to compact less when heavy machines move over it. Soils high in calcium are conducive to good root growth, which in return promotes e� cient nutrient uptake and better ratoon-ability. This improves the sustainability of a sugarcane � eld dramati-cally. Farmers who addressed the calcium requirements indi-cated that they were able to take o� between four and eight ratoons more than they were able to sustain on � elds where the calcium levels were de� cient. At a re-establishment cost

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of about R20 000/ha, the costs of supplementing the calcium levels in the soil are negligible. Addressing calcium de� cien-cies also signi� cantly reduced the prevalence of grass weeds in the cane � elds, which also resulted in big savings on chemical herbicides. Another important bene� t of calcium is its function as a cell wall binder, which means it strengthens the plant cell walls and by doing this increases the plant’s resistance to diseases (RSD and smut) and insects (like Eldana and Thrips.). It is also on this function of calcium where the importance of silica comes in. Silica in combination with calcium enhances the cell wall strength to such an extent that it was proven that the addition of silica resulted in a signi� cant reduction in Eldana damage (Kvendaras et al., 2006). This makes the supplementation of silica a must for all the Coastal areas that struggle with Eldana infestations. Sources of silica are calcium silicate (slag) and dia-tomatious earth. The third plant nutrient found to be de� cient in sugarcane is phosphate. The de� ciency in many cases seems to be more related to the poor movement of phosphates in soils as well as phosphates being locked and unavailable to plants due to soil acidity. In a system where the cane is burnt prior to harvesting, the soil is left barren. This leads to the topsoil drying out and also capping. In conditions like this, the roots of the cane seem to be absent in the top 50mm of the soil. Because of the poor movement of phosphates in the soil, the applied phosphate often doesn’t reach the roots. The moment a trash-blanket is left on the soil, the soil doesn’t dry out that much and the soil surface does not cap because of the organic carbon released by the trash. In such an environment, the roots grow vigor-ously in the topsoil and are able to take up the phosphate. The moment the phosphate levels in the plant go up, the plant’s “energy” levels (ATPases) increase and the plant is able to syn-thesise proteins which increases the plants resistance to dis-ease or insect attack. Some farmers mentioned that the use of “Langfos”, which is a soft rock phosphate, seemed to have a positive impact on their yields and on the RV%. This con� rms the points made above, as “Langfos” contains calcium and phosphate.

6.2.4 Compaction of soils due to heavy machineryThe susceptibility of sugarcane � elds to compaction is to a large extent dependant on the organic carbon and calcium content of the soils. Both these elements possess the capacity to aerate and bu� er the soils. In this case the use of a green manure such as sun hemp greatly improves the carbon con-tent in the soil and also adds to the tilth of the soil (Tillman, et al., 2004). The impact of compaction on the yield and longevity of the cane cannot however be ignored. As soils become more com-pacted, the root system deteriorates and becomes smaller and shallower. The smaller root system impairs the plant’s ability to e� ectively take up the essential nutrients required to synthe-size plant proteins. This causes yields to decline and crops to be more susceptible to insect and disease damage. The deteriorating root system leads to poor follow-up ra-toons, which have to be ploughed out and replanted after only

a few ratoons. With the high costs of re-establishing cane, this seriously a� ects the sustainability of the farming enterprise.

6.2.5 Increasing insect pressure – Eldana, Thrips and Nematodes

When studying all the research and data on crop quality and yield, it is clear that parasitic insects such as Eldana have had a major e� ect on the sustainability of sugarcane farmers in the rain fed warm Coastal areas. Due to the damage caused by Eldana saccharina – the African sugarcane borer, coastal farmers are forced to harvest immature low RV% cane after 12 months instead of mature high RV% cane at 14 months. Imma-ture cane has higher non-sucrose levels (glucose and fructose) as the plant has not had time to convert these into sucrose. Under the RV payment system the farmers are penalised for non-sucrose sugars. The yields have also declined because of the shortened growing season. Many growers indicated that since they started farming for RV and started to burn their cane, the Eldana infestation has increased. A few farmers, who were still trashing their cane � elds, indicated that they had less Eldana on the trashed � elds. This and research on Eldana indi-cates that “stressed” sugarcane is more susceptible to Eldana, than “healthy”, vigorously growing cane. In order to � nd a solu-tion to the problem, one needs to understand why a stressed plant attracts parasitic insects more than a healthy plant. The answer to this question was researched by Chaboussou (1985) who focussed on the digestive system of plant parasitic insects. He found that these insects could only digest plant cells full of free nitrogen, amino acids and reducing sugars and that insoluble, complete proteins were of no nutritional use to them. He established that the relationship between a plant and the parasites was primarily nutritional in nature. Predomi-nance of protein synthesis increased the plant’s resistance or “immunity” to disease and parasitic insect attacks. Predominance of protein breakdown (proteolysis) on the other hand increased a plant’s susceptibility to disease and par-asitic insects. Protein breakdown causes the plant to become insect bait. This happens when a plant is under water stress, the root system is restricted because of soil compaction or when high volumes of nitrogen are applied on a soil with low carbon or humus levels. Proteolysis takes place when the plant’s “energy levels” are low because of low phosphate and calcium levels and when microbes which assist the plant in converting nitrog-enous fertilizer into complex proteins are absent. The question now is how does one manage a plant to syn-thesise proteins instead of breaking them down? It is all about managing the stress factors of the plant as far as possible. The way to do this is to implement SUSfarms especially Best Man-agement Practices (BMPs). A rather simplistic answer to seemingly complicated and interlinked issues thus is: Start trashing and adding organic carbon to the soils. Apply lime where acidi� cation is a prob-lem and add calcium and silica as a standard amelioration to all soils. Ensure that phosphate levels are su� cient in the soil and in the plant by means of soil and leaf analysis. Combine all nitrogen fertilizer with a carbon source or use half-organic nitrogen.

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6.2.6 Farming for RVFor Midlands and Northern Irrigation farmers the main produc-tion system change, when farming for RV instead of sucrose was introduced, is the use of ripeners, while some producers also indicated that they topped lower and only delivered the good quality cane. Coastal farmers indicated that the main changes to their production system was that they stopped planting marginal land to cane and that they started to burn more instead of trashing in order to decrease the � bre con-tent in their cane deliveries. Burning is vital in the Midlands as a thick trash blanket prevents ratoon regrowth due to a low soil temperature so trashing was never widely adopted in the Midlands regions. As was discussed above, increasing the presence of organ-ic material in the soil (especially sandy coastal soils through trashing) is vital as organic carbon or humus is the foundation upon which soil fertility and tilth is built. The Jones (2013) study mentions that up to 70% of farmers on the South Coast used to trash, compared to approximately 10% in 2012. Farmers on the North Coast and in the Coastal Tugela and Zululand areas also indicated that most of them used to trash instead of burn and they indicated that they have probably underestimated the importance of trashing. Coastal farmers also indicated that burning led to increased use of herbicides as weed develop-ment is not suppressed as it was with the trash blanket. Due to limited historic data it is not possible to verify to what extent trashing has really decreased. However, Figure 35 shows that though it would appear that trashing has decreased, it has not decreased from a very high level (max 26% on the North Coast in 1997) and there actually seems to be an increasing trend for the South Coast. More historic data would serve to clarify whether a larger number of farmers used to trash, but based on current infor-

mation, it does not seem as if RV had a large impact on the practice. Most farmers also conceded that the increase in la-bour cost is a big driving factor for them to burn as trashing is considerably more labour intensive. In addition, burning is also a method of controlling in� eld Eldana populations on the Coast. The use of cool burns in the early morning when dew is still present (as recommended by SUSfarm guidelines), ensures that a greater quantity of burnt tops is left as mulch. Accord-ing to SUSfarm, when the burnt tops are left scattered (i.e. not windrowed) after harvest, they provide a mulch, which is about 50% as e� ective (in terms of soil and water conservation), as a full trash blanket. For the Coastal regions where increasing the level of organic material in the sandy soils is hindered by increasing labour cost, the cool burn approach might be a vi-able option. It is however not clear how many farmers have adopted this approach or what the farm-level impacts are / would be.

6.3 Sustainability factors – conclusionThe SASRI report by Jones (2013) to a large degree con� rmed in great detail the large-scale growers’ discussion feedback. This decline in yield is a complex issue and needs to be ap-proached from a cross-disciplinary perspective, as no single factor addressed in isolation explains the phenomenon. It is therefore somewhat disconcerting to note that there seems to be an ‘overload’ of single disciplinary, detailed research infor-mation in the hands of industry extension o� cers and techni-cal advisers. This has to some extent ‘paralysed’ these o� cials/technical advisors, as one recommendation, which is based on one research study, is contradicted by another. This has caused many farmers to choose to stick to their ‘old ways’ until a better approach can be proven.

Figure 35: Percentage area trashed

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This section on the declining cane yields should be regard-ed as a � rst step in a process of re-evaluating the system within which sugar is farmed in South Africa. The aim is to challenge many of the ‘traditional’ ways and to try and learn from case studies where di� erent methods of farming are successfully practised. Within all of this, it is important not to go overboard and throw all the established and tested practises out of the window. The South African sugar industry is blessed with ex-tensive data and research available on numerous aspects of sugarcane farming. The challenge now lies in harnessing it in order to develop a more sustainable way of sugar production. Bringing SASRI’s research focus more in line with the economic importance of certain issues, as was suggested in the 2013 SASRI Committee Meeting notes, seems to be a step in the right direction. For instance while Eldana and other stem bor-ers cause approximately 47% (R930 million) of the pest related crop loss (R1 968 million) in the industry, only 10% of SASRI’s budget is spent on stem borer focused research. The “Inte-grated Pest Management Manual for Eldana”, developed by a cross-disciplinary team (entomology, soil science, pathology, breeding and biotechnology specialists), and which promotes the principal of borer control through the combined use of re-sistant varieties, habitat management, appropriate crop nutri-tion and husbandry and the judicious use of agro-chemicals, also seems to be a laudable initiative in line with a more holis-tic production approach.

7 Socio-political factorsWhile economic factors impact on a farmer’s � nancial ability and motivation to invest in his income generating farming activities, and sustainability factors impact the health and lon-gevity of the production system, the socio-political factors dic-tate the milieu in which the farming decisions are made and activities take place. Socio-political factors including govern-ment’s land restitution and redistribution policies, urban de-velopment in cane production regions and the grower-miller relationship, in� uence farmers’ state of mind regarding invest-ment, management and general predisposition regarding the equilibrium in his industry and the equitable distribution of proceeds.

7.1 Land reform While 70 627 ha or 21% of commercial cane area has already been transferred to freehold black farmers, an additional 130 400 ha (38% of total cane area or 44% of large-scale growers’ cane area) is under unsettled Gazetted land restitution claims. This means that a substantial number of large-scale growers do not know how long their farms will still belong to them and this in� uences their production investments. Farmers in espe-cially Eston (Midlands), Sezela and Umzimkulu (South Coast) and Maidstone, Gledhow, Darnall (North Coast) indicated that they are concerned about land claims. Eston farmers indicated that a number of them initially stopped investing in soil health and ratoon replanting in the early 2000s due to the uncertainty brought about by land claims. Many however realised that disinvestment would de-crease the value of their land (when sold) and as a result they

have again started to follow the required fertiliser practices. They do feel that they still have some way to go in order to correct the damage done. In the coastal areas farmers have indicated that a number amongst them have “stopped farming” (stopped looking after the cane, and just taken o� what is available), while others in-dicated that they can only plan about two years ahead as they cannot a� ord to invest in something they will not be able to bene� t from. Others indicated that while they initially stopped investing, they started again but struggled due to the low RV price in 2001-2005, the substantial increase in input prices in 2005/06-2007/8, as well as low rainfall and the damage done to yields by the earlier disinvestment.

7.2 Grower – miller relationshipWhile the second phase of this study will likely spend more time on discussion of the grower-miller relationship, it has be-come quite clear from talking to farmers that the nature of the relationship with the miller plays an enormous role in farmer’s cane production sentiment. In mill regions where growers own a share of the mill, they were noticeably more positive about the future of cane and sugar production, despite the fact that they were not doing all that well � nancially. They indi-cated that by having insight into the � nances of the mill, they are able to rationalise cane prices and payments and no longer had the feeling that the miller is trying to take an iniquitous cut of the cane value. But growers are more satis� ed even in areas where there is more open discussion between farmers and millers, even in the presence of land claims. However, in other milling regions growers and millers seem to su� er from adverse relationships. These coincidentally (or maybe not so coincidentally) are also the mill regions where cane production has taken a turn for the worst over the last 10 years.

7.3 Urban DevelopmentThere has been limited development by cane farmers in the North Coast region, as most development has been driven by Tongaat Hulett’s property development arm. Tongaat Hulett has converted more than 2 000 hectares of mainly North Coast cane land into golf, lifestyle and commercial estates and prop-erties and while another 1 000 hectares will be developed in the near future, and a further 8 500 hectares has been iden-ti� ed for potential future projects. Other developments that have impacted on cane area in the North Coast area include the new King Shaka Airport (850 ha) and the planned Dube Trade Port facilities that will in total cover an estimated 2 000 hectares. Farmers indicated that the amount of land ’removed’ from the market through the land restitution and redistribution programme as well as actual urban development and the ex-pectations of future developments on the coast, have caused the price for even marginal cane land to increase. In an ideal market a better performing farmer should, under conditions of thin pro� t margins, be able to react and increase land holding, but due to the land price increases this is not possible.

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7.4 Socio-political factors – conclusionCoastal farmers indicated that farming under conditions where there are marginal pro� ts, low and variable rainfall, a constant � ght for every cent with the miller, increasing input costs, la-bour issues and uncertainty about ownership of your biggest asset (land), is emotionally draining. An Umzimkulu farmer in-dicated “We are no longer the custodians of the soil - we rape the soil to survive and cannot a� ord to put anything back”. While the land restitution and redistribution programme does not exactly create an ideal production environment, it is the delayed process that creates substantial uncertainty and impacts on growers’ longer term investment decisions. It can be expected that the planned re-opening of claim submis-sions, even before the previous phase has been completed, will exacerbate the situation even further. In the regions where growers have a good relationship with their miller, they seemed more positive about the future of cane production despite land claims and decreasing pro� t margins. They seemed excited about the possibilities of pro-ducing alternative products from cane with the mill as their partner. However in some of the struggling Coastal mill re-gions the adversarial relationship between millers and growers have made the rather dire cane farming situation even worse.

8 Summary and ConclusionThis report has endeavoured to shed light on the factors that have impacted on cane production in the South African sugar industry. Cane production has decreased since 2000/01, driven by both a decrease in area under cane and cane yield. A 51% or just over 47 000 hectare decline in small-scale grower area under cane was the main driver of area decrease, while most of the miller-cum-planter cane land ‘decline’ was bought by large-scale growers, many of whom are new freehold black farmers. Cane yields decreased more than what can be explained by weather variations, especially in the South Coast, North Coast and Zululand production regions. In the nine years 2001-2010 South Coast large-scale growers’ yield decreased by more than 11%, on the North Coast by nearly 20% and in Zululand by nearly 16%. Zululand small-scale growers’ yield decreased by nearly 38% for the same period while on the North Coast it dropped by 23.6%. The area and yield declines were explained in terms of eco-nomic, sustainability and socio-political factors as indicated from discussions with large-scale growers and as far as pos-sible supported by CANEGROWERS data. The pro� tability of cane farming has decreased signi� cantly for dryland farmers since the early 2000s and especially for Coastal farmers. Midlands farmers’ net farm income for the period 2000/01 to 2011/12 decreased by 26% while Coastal

farmers’ dropped by 54%. Increasing input prices played a sub-stantial role in the dwindling pro� tability with the real average industry expenditure per hectare of cane increasing by 33%, driven mainly by increased fertiliser, labour and fuel prices. Though the RV price did not increase 2002/03 to 2005/06, it did increase by more than 50% from 2005/06 to 2011/12 but grower reaction to the price increase was limited by drier than normal conditions for a number of seasons.The RV payment system that was implemented for the � rst time for the 2000/01 season had an impact on farmer revenue by al-tering the allocated proportions of the divisible pool, largely to the bene� t of Midlands and Northern Irrigation farmers who produce higher quality cane than their Coastal counterparts. The direct net � nancial impact of the payment system, after ‘farming for RV compensation’ was taken into consideration was showed to be an insubstantial driver of decreased pro� ta-bility when compared to increasing input costs, the depressed RV price in 2001/02-2005/06 and adverse weather conditions. These calculations were however done using aggregate mill region data and it is likely that the pool share (and revenue) of underperforming farmers (bottom 25%) and the majority of small-scale growers decreased substantially, while better performing farmers within ‘losing areas’ bene� tted from the RV system. A key premise for the introduction of the RV payment sys-tem was that increased cane quality would lead to increased sugar income. Farmers in most areas reacted to the cane qual-ity incentive (low quality penalty) and produced and delivered higher RV% cane. The mills however did not produce more sugar from the higher quality cane and sugar extraction e� -ciency has in fact decreased considerably, at a great cost for growers and millers, but especially for growers. While there is a clear link between cane tonnage harvested and delivered (throughput) and sucrose extraction rates, mill e� ciency in the Irrigation and Midlands areas, where production has increased or remained relatively stable, has also decreased. The uncertainty brought by land claims resulted in initial as well as longer term disinvestment in soil health and ratoon replacement, with the e� ect that farmers’ yield potential de-creased. Increasing input prices, combined with a depressed real RV price (2000-2005), less than ideal rainfall conditions and waning yields resulted in inability of farmers to implement Best Management Practises as contained in the SUSfarm guidelines and to rectify their ‘unhealthy’ production systems. Based on the � ndings of this study, phase two of this project presents viable options and makes recommendations on how the current seemingly dire production situation of especially Coastal cane growers can be improved and how cane farming could be stimulated to the bene� t of the total industry.

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PHASE 11Identifying Potential Business

Options for Future Development

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1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

2 Alternative business options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

2.1 The sugar industry outlook and the surplus removal scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

2.2 An alternative cane payment system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

2.3 Increasing revenue streams for growers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

2.3.1 Milling e� ciencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

2.3.2 Reducing surpluses through alternative uses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

2.4 Key drivers of a competitive production system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

2.4.1 Strategic partnership between SASRI and CANEGROWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

2.4.2 Trashing versus Burning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

2.4.3 Supporting small-holder farmers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

3 Summary and conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Tables

Table 1: Macro-economic baseline assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Table 2: Baseline for sugar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

Table 3: Key assumptions for global scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Figures

Figure 1: Historic price and trade space for sugar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Figure 2: Baseline price and trade space for sugar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Figure 3: Impact of scenarios on world sugar prices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Figure 4: Comparing maize and sugarcane trends since the deregulation of markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Figure 5: Impact of scenarios on world sugar prices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Figure 6: Quality of sugarcane delivered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Figure 7: Cane harvested versus sucrose losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Figure 8: Average mill utilization rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Figure 9: 64/36 cogeneration division - Income and margins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Figure 10: 30/70 cogeneration division - Income and margins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Figure 11: 64/36 ethanol & cogeneration division: income and margins. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Figure 12: 30/70 ethanol & cogeneration division: income and margins. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

Figure 13: Milling areas with declining production trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

Figure 14: Gross margin per hectare – Coastal Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

Figure 15: Gross margin per hectare – Midlands Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

Figure 16: Gross margin per hectare – Northern irrigation region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

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Table of contents



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The South African sugar industry � nds itself at a cross-roads. Coming from an era of a highly regulated indus-

try and producing large surpluses of sugar with favourable pro� t margins for producers and millers, the environment has changed with area and production shrinking and milling com-panies’ investment sentiments potentially shifting under sig-ni� cantly tighter pro� t margins with much lower throughput at a number of mills. Furthermore, the price discovery mecha-nism that is used to set the notional price for sugar has led to the elevation of local sugar prices to import parity levels, with the result that the local industry now faces increased competi-tion from imported sugar. The sugar industry stands in contrast with the rest of the South African agricultural sector where the abolition of the Control Boards in 1997/98 led to a drastic shift from a regu-lated environment to a free market and brought about major structural shifts that included the shaking out of ine� ciencies or marginal production areas. For example, one third of the to-tal area under maize production was lost since the deregula-tion of the maize pricing mechanism in 1987 and the eventual demise of the Maize Marketing Scheme. By contrast, the shift in the sugar industry has only partially occurred. The new Sug-ar Act will force a more deregulated environment onto stake-holders by means of decentralizing some of the negotiating functions while the single channel export scheme will remain intact and producers will � nd some support from local prices trading at import parity levels despite the production of a sur-plus of sugar in the local market. This report presents Phase II of the research project and is based on the key � ndings from Phase I. The objective of this report is not to present a comprehensive business plan but to present alternative business options and highlight the plausi-ble implications of these business options into the future by making use of a set of market and farm-level models. The main objective of these business options is to point out potential levers of change that can turn around the downward trend of the industry and bring it back to a sustainable level. The � rst phase of this project dealt with the largest share of the terms of reference, namely providing an overview of the sta-tus quo of the industry and then using this information to an-swer the speci� c questions raised by CANEGROWERS. This was completed by interrogating various databases and conduct-ing extensive surveys amongst all stakeholders in the industry. Although the following list of questions and observations does not provide an exhaustive summary of all the � ndings coming out of Phase I, these are the selected elements that need to be considered in any future strategy and business model that CANEGROWERS considers.

A) Was the RV payment system bene� cial for the SA sugar industry compared to the sucrose payment system?• A key premise for the introduction of the RV payment sys-

tem was that due to increased cane quality, the size of the divisible pool would increase. From the data that was ana-lysed, this does not seem to have been the case. While the

Introduction

quality of cane delivered by farmers improved, sucrose ex-traction per ton of cane or RV did not and the percentage of sucrose losses actually increased over time. The ine� cien-cies of the mills cannot be attributed to the RV payment system. It seems like there is a combination of factors that led to the ine� ciencies of some of the mills. The level of throughput, for example, has an inverse relationship with milling e� ciency and with the drop in cane production a number of mills are facing lower throughput. Overall, it seems that due to the � xed ratio agreement of the division of proceeds millers do not have the incentive to boost ef-� ciencies and share revenue with the growers but to rather focus on cost saving.

• Over the twelve year period 2000/01 to 2011/12, the total value of the change in the cane payment system, i.e. the aggregate sum of the yearly monetary value that was di� er-ently distributed amongst growers due to the change from the sucrose payment system to the RV payment system, adds up to just over R148.27 million (R138.46 mil in 2005 real terms). In other words, over the twelve year period, higher RV% cane producers’ share of the divisible pool in-creased with R148.27 million and lower RV% cane produc-ers’ share decreased by the same amount.

• Farmers in areas with a higher agriculture potential (mid-lands and irrigation) that deliver a higher quality cane ben-e� tted most from the shift to RV while the coastal farmers, who produce on more marginal soils and deliver a higher � bre cane, where disadvantaged by the RV system. This seems counter-productive in terms of the creation of a large and healthy sector. On the other hand, it seems as if the millers are making payments more in line with the qual-ity of cane that is delivered under the RV system. In other words, before RV was introduced, the coastal millers were paying too much for the cane delivered and the millers in the Midlands and irrigation areas were paying too little in relative terms.

• In assessing why the area of sugarcane has declined over the past decade, it became clear that the negative impact that the RV payment system has had on coastal farmers was outweighed by other factors. For example, whereas the impact of RV is estimated to be in the order of R148 mil-lion over twelve years as previously mentioned, Eldana and other stem borers cause approximately R930 million of the pest related crop losses of R1.9 billion per year (SASRI Com-mittee Meeting notes, 2013). The uncertainty of land reform that prevents growers from re-investing in new ratoons, ap-plying adequate fertilisers or following other best manage-ment practises, successive droughts and rising input costs, especially labour costs due to the minimum wage are all factors that also stymied cane production in the period 2000/01 to 2011/12.

• Therefore, RV can be regarded as an add-on reason that impacted on the pro� tability of coastal farmers, but it is certainly not the main driver of lower pro� ts. There are still growers on the coast that are realising healthy pro� t mar-

gins. Yet having said this, when the long-run average return on assets in farming is taken into consideration, a small im-pact of 1% or 2 % as may be the case with RV can be the last ‘drop in the bucket’ to induce a negative spiral. In many cases the negative or reduced pro� t margins implied that farmers were forced into unsustainable farming practises in order to survive in the short term.

• It was shown in the phase 1 assessment that the agreed ‘farming for RV compensation payments’ had a considerable mitigating impact on the direct negative e� ect of the RV sys-tem for Coastal farmers. Whether these compensation pay-ments actually took place in all seasons since the introduction of RV was not clear and it is recommended that growers in the various production areas follow up with their mills. • Given the assumption that the RV payment system will be the fall back payment system under the new Sugar Act, the application of the RV compensation payments has to be taken forward.

B) Grower - miller relationshipFrom the farmer discussion group meetings it was clear that growers who have shares in a mill are noticeably more posi-tive about the future of cane production. In a number of cases where farmers have shares in mills, there is a greater degree of transparency and less suspicion between farmers and mill-ers. It was clearly pointed out that the transparency by millers regarding the payment for cane and molasses plays a decisive role in the miller-grower relationship. Although vertical slic-ing under the new Sugar Act will provide the opportunity for milling groups and their growers to agree on unique proceeds sharing formulas that suit the competitive advantages and cost structures of the growers and the milling group, the verti-cal slice approach does not provide a silver bullet to improve the relationship between millers and growers. This relationship will prove to be vital for the long-run sustainability of the in-dustry. The new Sugar Act could potentially leave growers more exposed but structural changes are occurring in the industry where growers are moving from a vulnerable position, due to a big surplus of cane, to a position where mills with lower throughput will either have to shut down or start engaging actively with growers under more transparent terms in order to secure cane delivery.

C) Milling ine� ciencies cost farmers and millers millionsIne� ciencies (high sucrose percentage in molasses, bagasse, � lter cake and undetermined losses) seem to be correlated with the low throughput (decreased cane production) at mills and resulted in the loss of sugar tonnage in the divisible pool. This loss costs farmers and millers millions of Rands The Brix minus pol factor has been an issue of concern for some time for the industry and when the RV payment system was introduced in 2001 and cane purity became a crucial factor in cane value calculation, the actual extent and impact of the issue became apparent. Under Phase I, the report dedicates a section to analysing this factor. The Brix minus pol factor varies over seasons and between mills but what is striking is that the


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Felixton mill’s Brix-pol factor has been consistently higher than the industry accepted norm for most seasons. Felixton farmers have raised the Brix-pol factor as a major concern as they as growers are penalised (through a lower cane quality valuation) for what they perceive to be a miller problem. There have been a number of investigations into the reason for this but even the 2012/13 CANEGROWERS’ Board of Directors’ report concedes that “The cause of the problem at Felixton remains a mystery and the long-term implications remain a concern.”

D) Farmer – SASRI relationship not delivering the optimal resultsAlthough top-class research is undertaken by SASRI, questions are raised regarding the practical applicability of the research. Farmers want to see the on-farm production and economic impacts of SUSfarm recommendations. Although closer col-laboration between SASRI extension services and CANE-GROWERS is required to align strategies, the lack of imple-menting SUSfarm recommendations at farm-level is not only determined by the nature of the extension services. In many instances a negative spiral, induced by a combination of fac-tors that include the impact of the multi-year drought condi-tions and Eldana on the pro� tability of the farms on top of the uncertainty to undertake long-term investments due to land claims has simply made it una� ordable for farmers to adopt SUSfarm recommendations. A balanced strategy between the high-level research of SASRI and farm-level cane production research requirements of CANEGROWERS is required.

E) Struggling coastal farmers need assistance and incen-tives to correct their production systems.If cane production is to continue on the Coast at a sustainable level, farmers’ production systems need to be addressed as a matter of urgency and it is likely that a large number of these farmers are not able to � nancially a� ord implementing these best practises.

F) Small scale growers have been most a� ected by the narrowing pro� t margins. The area under sugarcane production by small scale growers has declined to less than 50 000 ha from its peak of almost 100 000ha in the mid-nineties. Since the surplus removal scheme is maintained by the Department of Trade and Industry and it provides a major support mechanism for the industry at large, the establishment and support of small scale growers not only remains a vital element for lobbying a favourable marker dispensation for the industry, but the sugar industry can and should make a meaningful contribution to the rural unem-ployed population by the creation of jobs.

2 Alternative business options

2.1 The sugar industry outlook and the single channel export schemeThe South African sugar industry has been operating under a single channel export scheme for many years. The key features of this regime are presented in Figure 1 where it is evident that the historic notional price of sugar has been trading around


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import parity levels but with signi� cantly less volatility than the parity prices, despite the fact that SA is a surplus producer of sugar. This price discovery mechanism provides signi� cant support to the millers and growers because sugar is sold in the local market at import parity levels. The single export channel can be maintained because sur-pluses that are produced in the local market are isolated and exported at a loss. This mechanism provides the scope for the industry to set the notional price for sugar, which is the reason why sugar prices have traded at or even above import parity in the past. This scheme can, however, only exist if an import duty is imposed on imported sugar. The sugar industry has recently successfully applied for a new reference price of $566/ton. The loss that is incurred on the export market is then deducted from the total revenue and divided amongst the growers and millers based on the formula set by the division of proceeds. Alternative uses for sugar such as ethanol can reduce the sur-pluses and therefore the losses that occur on the world mar-ket, but until these options materialize, it is in the industry’s best interest to maintain the single export channel in order to remove surpluses from the market. The question is however what the likely surpluses are in fu-

Figure 1: Historic price and trade space for sugar Source: FAPRI, February 2014Figure 1: Historic price and trade space for sugar

ture and even more fundamentally, what is the outlook for the industry as a whole. Taking a view on the potential outcome of future scenarios for the sugar industry is essential when fu-ture business options are considered. The methodology that BFAP has developed links scenario thinking techniques to a set of empirical models at global, national and farm level. The starting point for the empirical impact analyses is � rst to set a benchmark from where potential deviations can be measured. For the purpose of this study, this benchmark is the most ba-sic outlook that is simulated in the BFAP sector model and is referred to as a deterministic baseline projection. The trends that are generated in the baseline will be used to illustrate a number of business options. Baseline projections provide a 10-year outlook of commod-ity markets that are grounded in a series of assumptions about the general economy, agricultural policies, the weather, and technological change. The macro economic assumptions that are used to generate the baseline are presented in Table 1. The outlook for the international sugar and ethanol price was gen-erated by the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri in February 2014. Apart from the macro-economic assumptions, it is assumed

Table 1: Macro-economic baseline assumptions

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Crude Oil Persian Gulf: (USD/barrel)

101.0 95.5 100.9 105.4 109.8 114.3 117.7 121.0 124.4 127.8

SA Population (Millions) 51.2 51.4 51.7 51.9 52.1 52.3 52.6 52.8 53.0 53.3

Exchange Rate (R/USD) 10.65 10.29 10.75 10.98 11.54 11.88 12.23 12.58 12.94 13.31

World sugar price, NY no 11 (c/lbs)

16.50 16.62 17.24 16.99 17.18 17.19 17.20 17.29 17.16 16.89

Brazil anhydrous ethanol price($/gallon)

2.34 2.19 2.06 2.05 2.05 2.06 2.06 2.06 2.05 2.02

Source: BFAP & FAPRI, 2014


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that ’normal’ rainfall conditions will prevail over the outlook pe-riod. One can, therefore, anticipate that the deterministic out-look is far less volatile than what will actually be the case. Based on these macro-assumptions, a 10-year outlook is generated for the South African sugar industry. This 10-year outlook is presented in Table 2. Under the baseline, the total area under sugarcane is ex-pected to continue a declining trend over the baseline. In the outlying years, the area under cane settles around 350 000 ha. The cane farmers’ pro� t margins will remain under pres-sure with international sugar prices stagnant around USD 16c to 17c /lb and rising input costs. The baseline already incor-porates the higher reference price of $566/ton that provides some level of protection against imported sugar. The alterna-tive revenue streams like cogeneration and ethanol will only become a reality in three to four years from now and for the purpose of the baseline have not been taken into considera-tion. In the following sections alternative scenarios that in-clude ethanol and cogeneration will be illustrated. As can be expected, it will be the marginal hectares that fall out of production. The coastal areas have been worst hit by the prevalence of Eldana and consecutive droughts. Over the long run, coastal areas will also experience more pressure from the rising minimum wages, while mechanization is not an option in most of the coastal areas due to the steep slopes. As the area under production is declining the average yields will start to increase gradually as the relative shares of productive land and hectares under irrigation start to increase. Whereas the net revenue is expected to decline in real terms over the next four years as total costs increase at a faster rate than total rev-enue, the increase in yields will be su� cient that by 2019 net revenue in real terms will increase again and the area under sugarcane will stabilize around 350 000ha. Under the baseline

Table 2: Baseline for sugar

SUGAR BASELINE 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

thousand hectares

Area in sugarcane 373.9 371.8 366.5 361.2 356.5 353.9 352.3 350.6 350.0 350.2

t/ha

Yield 67.4 67.5 67.6 67.6 68.7 69.8 70.9 71.9 73.0 74.1

thousand tons

Cane Production 18 936 18 878 18 705 18 458 18 494 18 593 18 769 18 962 19 185 19 460

Sugar Production 2184.1 2177.4 2157.5 2129.0 2133.2 2144.5 2164.8 2187.1 2212.8 2244.6

Sugar dom. use 1968.8 1985.0 2002.9 2021.3 2039.5 2057.8 2076.2 2095.1 2114.6 2134.6

Sugar exports 694.7 791.4 768.3 743.5 678.3 646.6 653.1 678.9 704.2 747.6

R/ton

Sugar recoverable value 3581.3 3623.5 3729.4 3867.2 4092.4 4301.5 4481.6 4642.2 4803.0 4951.1

Sugarcane average price 421.1 425.9 438.2 454.0 470.0 484.1 494.9 513.4 532.0 549.1

Source: BFAP sector model, 2014

assumption of normal weather conditions, between 18 and 19 million tons of cane will be produced per annum over the baseline. In terms of consumption, per capita consumption in South Africa has increased by 32% over the past decade. With real per capita GDP increasing at a much slower rate over the next ten years, local consumption of sugar is expected to in-crease by approximately 13% over the baseline. RV prices are expected to increase from their current level of around R3500/ton to R4900/ton by 2023. This will boost sugarcane prices from R421/ton to R549/ton by 2023. More importantly, the model has been set to continue determining prices on a cost plus fair return basis and not to trade at import parity levels over the outlook period. Because import parity prices increased drastically over the past decade, this pricing mechanism has been absorbed in the market. However, as international prices have lost steam and declined, local prices were suddenly above the import parity prices and imports of sugar increased rapidly. This causes a dilemma for the indus-try as more imports lead to higher volumes that have to be exported (at a loss) due to the surplus removal scheme. Yet, the industry holds � rm that it will be able to maintain this pric-ing mechanism and the losses that are incurred on the export market are outweighed by the revenue gained on the local market. Going forward the industry will have to realise that this pricing mechanism will be exposed to more pressure from imports, especially in a scenario where the regional produc-tion of sugar increases. The announcement by ITAC to increase the reference price for imported sugar to $566/ton will provide some level of support for local prices not to decline below this level. The tari� protection is, however, not applicable to coun-tries like Swaziland that are exporting to South Africa under the South African Customs Union.


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As previously mentioned, it is evident that the surplus re-moval scheme has to remain in place in order for millers and growers to reap the bene� ts of import parity pricing in the lo-cal market. This in itself presents a major support mechanism for growers and millers. In fact according the latest OECD cal-

Figure 2: Baseline price and trade space for sugar Source: FAPRI, February 2014

Figure 3: Impact of scenarios on world sugar prices. Source: OECD, December 2013

culations, South Africa’s Producer Support Equivalent (PSE) for sugar comes in at 16.52%, which is signi� cantly higher than South Africa’s total agricultural PSE � gure of approximately 3% (Figure 3), which is more in line with countries like Brazil and Australia.


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Whereas for other industries the abolition of the Control Boards meant a shift to a free-market environment, the sugar industry managed to keep its surplus removal regime is place. Figure 4 compares the trend in the area under production for maize and sugarcane. Compared to the sharp drop in the area under maize production when the Maize Scheme was abol-ished, the area under sugarcane started to increase and it was only in 2008 when the area under sugarcane started declining. More than 1 million hectares of maize went out of production simply because production in these areas was not economi-cally sustainable and would probably never have been plant-ed in the absence of state intervention in the maize industry. Whereas maize yields increased by an annual average of 7% over the past decade to remain competitive in a free market environment, sugarcane yields have remained relatively stag-nant and in some areas declined. This fact drives the focus on yield improvements, which are critical for the survival of the industry. The following section deals more in detail with estab-lishing sustainable production systems.

Lastly, to conclude this section it is important to stress that the outlook for world sugar prices can di� er from what is pro-jected in the baseline and prices will not necessarily decline over the medium term before increasing again. The world sug-ar market is heavily distorted and government policy and in-terventions will have an in� uence on the global sugar market in future. In a report by Chatenay (2013) Brazilian government support is estimated at 7% of market sales. Since Brazilian ex-ports amount to nearly half of what is traded internationally, the government subsidies do weigh in on world prices. Sugar reforms in Europe will also have a major impact on future sugar prices. The fact that there is no real undistorted world market for sugar is a strong motivation for the local industry to receive some form of support, otherwise local production of sugar will be substituted by subsidised sugar imports from other parts of the world. Therefore, for the purpose of this study, apart from the baseline that was already presented, two alternative scenarios where simulated by FAPRI in the global modelling system to

Figure 4: Comparing maize and sugarcane trends since the deregulation of markets. Source: BFAP, February 2014


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Figure 5: Impact of scenarios on world sugar prices. Source: FAPRI, February 2014

present a high road and low road scenario given certain policy assumptions. Three of the main drivers that will determine the future out-come of global sugar markets are:• The economics of sugarcane production in Brazil, • The US biofuel policies and • The EU sugar policies.

Table 3: Key assumptions for global scenarios

Growth in BrazilianArea

U.S. Ethanol NetImports 2023

E.U. Net SugarImports 2023

hectares/year million gallons ‘000 tons

Outlook 140 -453 3 253

High price 100 1500

Low price 200 792

Source: FAPRI, February 2014

Any changes to these drivers will have a signi� cant impact on world markets. Therefore, the two scenarios that are pre-sented in this study impose relative shifts in these three drivers and are summarized in Table 3. The high road presents a scenario where the growth in hec-tares dedicated to sugarcane in Brazil is slower compared to the projections under the baseline together with a sharp rise

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in the imports of ethanol by the US as the mandatory blending levels are increased from the current blending level of 10 per cent to 15 per cent. The EU sugar policy remains unchanged. For the low road scenario, Brazilian hectares rise faster com-pared to the baseline and the EU backs out of sugar imports in a meaningful way. Based on the results generated in the alternative scenarios, it is apparent that whereas world prices are projected to trade around 17cents/lb under the baseline, prices could trade lower than 13cents /lb and higher than 20cents/lb.

2.2 An alternative cane payment systemUnder the new Sugar Act, it is envisaged that the principle of vertical slicing will be introduced, which provides the oppor-tunity for growers to share in the revenue of sales of products other than cane and molasses like bioethanol and cogenera-tion. This implies that the industry will be in need of a revenue sharing model that goes beyond the current division of pro-ceeds based on the sales of sugar and molasses only. Apart from catering for alternative sources of income in a new pay-ment system, one also has to ensure that a new cane payment system drives the correct incentives and rewards for e� cien-cies and investment in alternative sources of income, which currently seems not to be the case. Based on a review of international cane payment systems by Todd, Forber and Digges (2007) there are basically three types of payment and revenue sharing systems:• Fixed cane price system where growers receive a fi xed price

for cane and where this cane price is not necessarily directly linked to the value of the sugar produced.

• Fixed revenue share system where cane prices and miller margins are linked to sugar prices and shared by growers and millers based on a � xed agreed ratio.

• Variable revenue sharing where, beyond a benchmark level of cane quality and factory e� ciency, any incremental im-provement in cane quality is entirely to the bene� t of cane growers, while any improvement in sucrose recovery in the factory bene� ts only the miller.

The main weakness of the � xed cane price systems is that there is no link between the cane price and the sugar price.

Growers and millers do not share the price risk and the burden of price volatility rests with the miller. In some seasons a de-crease in sugar prices results in negative pro� t margins for mill-ers and in seasons when the sugar price increases after cane payments have been made, growers feel exploited. The main general critique of the � xed revenue share system is that the sharing of revenues on a � xed basis weakens the incentive to improved technical performance of both growers and millers. The grower receives the same price per ton of cane irrespec-tive of the quality of cane delivered, and thus has no incen-tive to improve quality. The miller has a reasonable incentive to improve extraction as the more sugar he produces from a given quantity of cane, the more money he makes. However, the miller will of course weigh investment in improved e� -ciency against the increased revenue and given a poor quality of cane the incentive to invest will be low. The disincentive is even more obvious for millers for whom investment in equip-ment to improve sucrose extraction e� ciency can be huge compared to the value of the small share of additional sugar produced. In the case of variable revenue sharing arrangements, the sharing will vary as the sugar price changes. While from a tech-nical and economic perspective these arrangements o� er sig-ni� cant advantages over � xed price and � xed revenue share systems, they are much more complex and costly to adminis-ter (Todd, et al., 2007). The South African Sugar Industry division of proceeds agreement and RV payment system is an example of the � xed revenue share system. Through the implementation of the RV payment system in 2000, the industry increased the incentive for growers to improve cane quality and, based on Figure 6, it is clear that farmers responded to this incentive and adjusted their production systems to produce higher quality cane on average. However, despite the higher quality of cane that was produced, the sucrose extraction rate achieved by the mills on average started to decrease from 2006 onwards. Since grow-ers are incurring additional costs by producing higher quality cane under longer production seasons, their incentives to pro-duce higher quality cane are critical. There are a number of factors that are impacting on the

Figure 6: Quality of sugarcane deliveredSource: BFAP calculations, February 2014Figure 6: Quality of sugarcane delivered

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level of extraction. The throughput at the mills is one critical driver. Even though cane quality has increased, cane produc-tion (especially on the coast) has decreased and as was shown in the Phase I report, there is a strong correlation between su-crose recovery and mill capacity, with sucrose extraction rates decreasing as mill throughput is declining and mills are forced to run at below optimal speeds. Section 2.3.1 covers milling e� ciencies in more detail. Looking ahead, a more important question is if the current payment system and division of proceeds provides the cor-rect incentives for the mills to strive for higher extraction rates. There is an incentive for millers to optimise extraction because the RV price a miller pays is calculated on the average industry extraction rate, and therefore if the mill is achieving less than this average, it will be paying for sugar it does not produce and vice versa if it has a better than average extraction. It is, how-ever, possible that a miller optimising its extraction is perhaps not optimising the industry situation. Another observation from farmer and industry discussions is that the drop in sucrose extraction rates has fuelled the belief by some growers that mills ‘hide’ sugar in molasses. This higher sucrose molasses is then sold at a higher price while the farmer only shares in the agreed industry molasses price. There are dif-ferent opinions regarding this suspicion, however, taking the economic realities and incentives for a mill into consideration, there should not be a bene� t for a mill to sell crystal sugar at a much reduced price within molasses unless the ‘premium’ of molasses with additional sugar is greater than the 36% share that the miller receives out of the revenue generated from sell-ing crystal sugars. Yet, even if there was a payment system that acknowledged the higher proportion of sugar in the molasses it would do so at the molasses sugar value which is a fraction of the value of crystal sugar. For example molasses at 43% total sugars and sold for R500/ton values the sugar in a ton of mo-lasses at R1 162/ton while the average value of sugar to a miller is probably in the region of R5 000 /ton. The � rst phase of this study was not able to unequivocally prove that mills or mill-ers intentionally ‘spike’ molasses to the detriment of growers. Having said this, it is important to note that a number of mill-ing companies have integrated vertically (e.g. Merebank distill-ery, Voermol, Molatek etc.) and now buy their own molasses to produce feed and in some cases ethanol. If the revenue in these markets is higher than selling crystal sugars, since 100% of the revenue in these income streams is for the millers ac-count and is not shared with the growers, then there might be grounds for the ‘spike’ suspicions. There is no molasses testing system in place, which comes back to the point made earlier of the importance of a transparent system where the quality of product, the actual price at which it was sold and the volumes that were sold are known to all stakeholders. To this end, an independent company could be appointed to undertake this function for the industry. However, the bottom line is still that improving milling ef-� ciency in a decreasing cane production situation is problem-atic. It might be possible for mills to increase throughput by decreasing the length of the milling campaign or by closing mills and redirecting cane to other mills. A shorter milling cam-paign might however result in increased pressure on harvest

management and transport logistics, and growers will have to be incentivised. Mill consolidation would also result in a considerable increase in transport costs for which growers will have to be compensated. Millers would therefore have to run � nancial scenarios to determine under which proceeds divi-sion ratio a push towards increased sugar recovery would be � nancially viable. Apart from the pricing and the value of molasses, the BFAP team is of the opinion that the real pricing of sugar by millers in the market seems to be a more important issue to address. Before 1994 the pricing of sugar was totally regulated, includ-ing prices for bulk sugar and all the retail packs and transport cost FOR Durban. The price at which the millers sold the sugar was the price re� ected in the division of proceeds pool. In 1994 the � rst round of deregulation resulted in only the bulk sugar price being subject to a maximum promulgated price, and millers could sell their pre-packs at di� erent prices in the retail market. This did not lead to signi� cant changes in pricing. Then in 2000, under pressure from the dti to become more ‘market orientated’, the notional price was introduced. Initially this concept worked well, until the millers started increasing the gap between the notional price and the actual price that sugar is sold for in the market place. This e� ectively changed the division of proceeds and has created a great deal of un-certainty and suspicion and it is recommended that a system is introduced to capture the actual pricing of sugar in order to determine the true market value of the revenue pool. Based on the cogeneration and ethanol scenario presented in the following section of this document, it is clear that these potential future activities would add a relatively small addi-tional income stream to the returns from sugar. Revenue from sugar will in all likelihood, for the near future, remain the main determinant of cane value and as such it is envisioned that the RV payment system will remain the ‘default’ payment system in the absence of an alternative mill-farmer cane pricing formula speci� cally agreed on within a slice. The RV formula is a measure of the sucrose content of both sugar and molasses and where a fair value of molasses can be negotiated or linked to actual market value the RV payment system creates the correct incentive by rewarding growers for high quality cane. Where an income stream from cogenera-tion becomes a reality the RV formula has to be adjusted with factors representing the value of � bre or for that matter any ‘future’ cane based product. Depending on how the sugar in-dustry or mills approach ethanol production opportunities, it is imagined that ethanol production would rather impact on the derived sugar price than on the cane valuing formula. Howev-er, for ‘future’ crops like cogeneration and ethanol, negotiations between growers and millers may need to consider the rela-tive value of investment to determine grower / miller shares.There are a number of factors to consider when determining the value of � bre. The millers are already using the bagasse produced from the cane crush to provide power for their fac-tories. It has been the millers’ obligation to dispose of the ba-gasse produced, and they have historically used low e� ciency boilers at a lower cost to utilize all of the bagasse. In the past the miller has been able to utilize any surplus bagasse created for whatever use. The industry negotiations for the new Sugar

Act have established that growers should be able to partici-pate in any new projects with their miller in future. Therefore, if there are future projects which require bagasse as a raw mate-rial, the costs of investing in more e� cient boilers and factory e� ciencies such as electri� cation of the front end of the mill to create the surplus bagasse, less any cost savings, will be a � rst charge to the new enterprise. A value of the bagasse can be established by calculating the returns of the project after tak-ing into account the costs of creating the surplus bagasse and the other costs of the project, including returns on the pro-ject capital at the hurdle rate required by the milling company. Value attributable to the raw material could then be shared. If the growers invest in the project they will receive their returns relative to their shareholding in the project. Apart from the value of bagasse, the value of � ber where farmers are trashing and not burning can also provide an ad-ditional source of income. The potential revenue from the � ber delivered in the trash is illustrated in section 2.3.2. The basic building block of cane payment is a transparent system that incentivises good quality cane and appropriate behaviour (optimising) of the grower and miller. There are improvements that can be made, but this can only really be achieved e� ectively at a mill/mill group level because the so-lutions for the various milling areas will di� er. The droughts, sugar price, imports and lack of funds to invest by certain mill-ers and growers have resulted in both parties being under sig-ni� cant pressure and in many cases cash strapped. Therefore it can’t be business as usual going forward. Developing a healthy relationship between growers and millers is essential. As al-ready mentioned, growers who have shares in mills are notice-ably more positive about the future and one key element that sticks out in these positive examples is that there is a greater measure of transparency.

To summarize:• The RV payment system can still provide the fall back pay-

ment system.• Based on the principle of vertical slicing, the specifi c ratio

that is applied to the division of proceeds of the revenue pool can be determined by the local negotiations between growers and millers. This represents a major shift away from an industry dispensation where millers did not have the incentive to maximize e� ciencies. It made more sense for millers to save R1 than increase revenue by R1 and only re-ceive 36% of the additional Rand.

• Growers and millers should share in the same revenue pool with the correct incentives on both ends to improve e� -ciencies.

• The payment system must accommodate alternative in-come streams and the value of the proceeds should be measured at accurate market prices with the correct vol-ume and quantity sold. An alternative option is to value sugar for bioethanol production as the sugar equivalent, but this might open the door for more mistrust as the cal-culation will be based on a derived formula for the ethanol proceeds. It is rather suggested that the sugar that enters the ethanol process is valued at the average sugar market


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price and then the revenues / losses gained out of the eth-anol production are shared amongst growers and millers based on the equity share.

• There has to be transparency in the actual pricing received and volumes sold of all products to eliminate unnecessary suspicion in the relationship. Apart from the current income of sugar and molasses, this also includes the potential value of � bre in future.

• In any new opportunities such as cogeneration and bioeth-anol production, millers and growers should have an equal opportunity for investment and revenue sharing. The for-mula should be structured in such way that the initial inves-tor receives the appropriate future revenue � ow. It should be a holistic approach where a range of options are consid-ered for investment and revenue sharing. It will have to be a value chain approach that moves away from just looking at farm-gate prices and even includes projects like generating value from the waste � ow from mills. A good example is the concept of setting up separate companies that the miller and growers can invest in to develop new initiatives such as cogeneration or bioethanol production.

• The challenge for the industry is to fi nance new options from a � nancial position that is in many instances cash strapped. Again, the ability of the industry to work together will be critical to the development of comprehensive busi-ness models that can be packaged for � nancing by invest-ment � rms or alternative options such as the IDC were small-scale growers can be incorporated in the business plan.

• Although CANEGROWERS will play an important role in the process of designing and negotiating the overall principles of a revenue sharing model for the vertical slice, getting involved in the speci� c negotiations between millers and growers will remain problematic since CANEGROWERS is a general grower body that cannot represent only one spe-ci� c grower group. Sound governance principles and trans-parent information are of essence in all of the negotiations.

In conclusion, Todd et al. (2007) summarized the problems surrounding the development of a payment system with the following statement: “It is not possible to devise a perfect pay-ment system, if for no other reason than industries evolve over time and payment systems often lag behind this develop-ment.”

2.3 Increasing revenue streams for growersThere are a number of business options for increasing the rev-enue of millers and farmers. Under the new Sugar Act, the divi-sion of proceeds will bring a complete change in the dynamics between growers and millers and the role of CANEGROWERS will change due to the decentralization of negotiations. For the industry the move from its current position to a more sustain-able position will imply a consolidation at both grower and miller level. It will further require signi� cant capital to re-invest in the industry and the options of generating additional capital are limited. It will take coordination by the industry at large to leverage any sustainable initiatives.


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2.3.1 Milling e� cienciesOne of the low hanging fruits in the industry is to increase the throughput of mills. This is a basic principle but given the his-torical grower-miller relationship the potential bene� ts of co-operation and joint initiatives has been underestimated and a lack of trust and communication has undermined e� orts. There are already the � rst examples where milling companies are leveraging stronger partnerships with growers to boost throughput and let the growers share in the revenue of add-

ed milling e� ciencies. An example of such an initiative is the Gledhow mill agreement, which has led to a level of grower/miller cooperation that many would seek to emulate. Milling e� ciencies need to improve and since this seems to correlate with the level of throughput, it is obvious that the level of throughput at the mills, especially on the Coast, needs to improve. Figure 5 illustrates the correlation between the percentage sucrose losses and the tons of cane harvested.

Figure 7: Cane harvested versus sucrose losses Source: BFAP, February 2014

Figure 8: Average mill utilization rates Source: SMRI data, BFAP calculations February 2014

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Figure 8 portrays the estimated relative average utilization rate over the period 2011 to 2013 for all mills. If this graph is illustrated over time, it is clear that the utilization rates have been falling. With a future scenario of more stabilized produc-tion levels at the Coast but no immediate drastic increases in production levels, closure of one or two mills on the Coast seems inevitable. Consolidation of mills at the Coast will boost throughput and therefore e� ciencies of the remaining mills but signi� cantly increase transport costs. These options and potential impacts will in� uence milling companies’ long-run investment strategy in the South African sugar industry com-pared to alternative and additional opportunities for invest-ments, including the general interest in expanding cane pro-duction in other African countries.

2.3.2 Reducing surpluses through alternative usesThis section links to section 2.1 where the surplus removal scheme is discussed. In principle, the best position for the in-dustry to be in over the long run is to reduce the losses in-curred by surpluses in the export market. Although the short term solution will involve the further consolidation of hectares under production in marginal areas, over the long-run addi-tional local demand for sugarcane can be generated beyond the use of sugar and molasses only. As already mentioned in the report, the introduction of the new Sugar Act will provide opportunity for growers and mill-ers to share in the same revenue pool created by additional income. The following sequence of � gures provide a typical

composition of average annual income per hectare over the long-run (2020-2022) where alternative sources of income can support the income of growers and millers. It is important to note that these are long-run projections (averages for 2020 – 2022) generated by SASRI’s Canesim and BFAP’s FINSIM mod-els. The darker blue bars on the left represent the gross margins under the alternative scenarios where combinations of alter-natives are simulated like cogeneration, bagasse and the pro-duction of ethanol. These alternative margins are compared to the bars on the lighter blue bars on the left that represent the gross margins generated under the baseline conditions with the current income streams within the pool. Whereas the results presented in Figure 9 are simulated under the current 64/36 division of proceeds ratio, Figure 10 presents the potential income for growers under an alternative division of proceeds where millers earn 70% and growers 30%. As previously mentioned, under the vertical slice, alternative ratios can be negotiated that will most likely depend on the nature of equity uptake in new initiatives. Figure 9 shows the annualised total income and gross mar-gin per hectare for each region, compared to the margins un-der baseline conditions. Only the Coastal farm was modelled with trashing practices. While all the regions modelled show an increase in gross margin, the Northern Irrigation region seems to bene� t most. This is obviously due to the high ton-nage (thus more � bre) yielded under irrigation. The income from electricity generation was divided up as per the normal division of proceeds ratio of 64/36.

Figure 9: 64/36 cogeneration division - Income and margins Source: BFAP FINSIM (2014) & Botha D. (2014)

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Figure 10: 30/70 cogeneration division - Income and margins Source: BFAP FINSIM (2014) & Botha D. (2014)

Figure 11: 64/36 ethanol & cogeneration division: income and marginsSource: BFAP FINSIM (2014) & Botha D. (2014)Figure 11: 64/36 ethanol & cogeneration division: income and margins

Once vertical slicing has been introduced, the contribution of electricity generation versus sugar to gross margin can change depending on the area. It could be possible for Coastal farm-ers to invest and also share in cogeneration, as the additional income would more than o� set the � bre penalties of the RV payment system. Employing the practice of trashing in combination with cogeneration could be pro� table in all regions, depending on the division of proceeds. If the larger portion of income from electricity generation is allocated to the mills, the additional costs of trashing will most likely not be su� ciently covered at farm-level and farmers delivering trash will need to be incen-tivised. Figure 10 presents the average income and gross mar-gins from 2020 to 2022 in each region, with a 30% grower, 70% miller division of proceeds from cogeneration. This division of proceeds could incentivise the millers to invest in increasing milling e� ciency and generating electricity, however growers will most likely not settle for this arrangement.

According to the results, if growers were to practice trash-ing while only receiving 30% of the revenue from cogenera-tion, the gross margin per hectare would end up being less than if they had carried on burning practices as usual. Thus it is imperative that a balance be struck between growers and millers so that everyone may bene� t from the new revenue stream. To summarize, under a 30/70 ratio that favours mill-ers, only the Northern Irrigation region will bene� t marginally from cogeneration with gross margins projected to be slightly higher than under baseline conditions. For a grower in mar-ginal coastal land that is already in a negative spiral, gross mar-gins are expected to decline from R5915/ha to R5421/ha and therefore, these growers will not bene� t from cogeneration. Figure 11 also assumes that all regions practice trashing at farm-level, while removing 70% of the trash for baling and co-generation. When introducing ethanol at the mandatory blending level of 2% and cogeneration with a 64/36 division of proceeds, the

model illustrates that Coastal and Northern farms will bene� t from the new revenue streams, yet Midlands farms actually end up with a smaller gross margin per hectare. Gross margins for the Coastal farms are still rather low at R8151/ha compared to R7 736/ha under the baseline. For the last scenario, the division of proceeds is switched for the ethanol and cogeneration simulation. The results are presented in Figure 12. Margins are signi� cantly lower, due to the fact that proceeds from ethanol production (substituting sugar) are weighted towards the miller. It is apparent from the results that the 30/70 ratio is not viable for growers. The scenarios presented in the section above illustrate how sensitive the potential income of alternative revenue streams is for the way the division of proceeds is determined. The bottom line is that the returns that millers achieve from the alternative revenue streams need to be large enough for the millers to invest in these projects. There are clearly no easy solutions, but options need to be considered and compared. If investments into greater e� ciencies and alternative revenue streams are not implemented within the foreseeable future, more margin-al land will be forced out of production. Throughput at mills


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will decline further and extraction rates will be compromised.

2.4 Key drivers of a competitive production systemPhase I has highlighted the dynamics in the production system of the various regions, with signi� cant di� erences in challeng-es faced by the Coastal, Midlands and Irrigation farmers. As al-ready mentioned, the pro� t margins in the Coastal areas have been under far more strain due to the prevalence of Eldana, the impact of several severe droughts in recent years and to some extent also the RV payment system. These exogenous drivers, together with the uncertainty of land reform, have in many instances triggered a downward spiral where growers have entered ‘exploitative’ farming systems. There is an urgent need to turn around unsustainable farming practises, yet at the same time a number of these farming units are in � nancial di� culties and do not have su� cient cash � ow to support a move towards more sustainable farming practices. In the sec-tion below, a number of topics are covered to highlight some of the options, and more importantly the potential impacts on the � nancial position of farmers.

Figure 12: 30/70 ethanol & cogeneration division: income and marginsSource: BFAP FINSIM (2014) & Botha D. (2014)


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Figure 13: Milling areas with declining production trends (tons)Source: SA CANEGROWERS data, BFAP calculations, November 2013

2.4.1 Strategic partnership between SASRI and CANE-GROWERSDue to Eldana, growers are forced to cut cane earlier, which has had a major impact on the volume and the quality of cane delivered in the coastal areas. Ironically, though some progress has been made in the development of cane with GM traits, SASRI has put the GM program on ice due to the major invest-ment required over a long period of time to develop a prod-uct that can be commercialized. While Eldana and other stem borers cause approximately 47% (R930 million) of the pest re-lated crop loss (R1 968 million) per annum, only 10% of SASRI’s budget is spent of stem borer focused research. A stronger strategic partnership between SASRI and CANE-GROWERS will boost the alignment of the vision and mission of the industry at large. Although top-class research is under-taken by SASRI, questions are raised regarding the practicality of the research. Farmers basically know what to do, but want to know how and when best / better practises will result in � nan-cial bene� ts. Bringing SASRI’s research focus more in line with the economic importance of certain issues, as was suggested in the 2013 SASRI Committee Meeting notes, seems to be a step in the right direction. The strategic partnership between CANEGROWERS and SASRI can take the following elements into consideration: • The critical function by SASRI is to ensure disease free cane

and the investment in GM cane and partnerships with com-panies or institutes that have made more progress with GM cane has to be re-considered.

• A stronger link between SASRI’s extension services and CANEGROWERS needs has to be established to align objec-tives and the transfer of technology by extension services. For example: integrating SUSFarm agronomic principles should be aligned with the economics of farming by CANE-GROWERS.

• An alternative model for the industry could be to external-ize the extension services from SASRI and bring it under the SA CANEGROWERS structure. This could provide the neces-sary incentive for the extension service to provide inputs on-farm that are economically driven in combination with sustainable farming practises.

• A more balanced strategy is required with harmonization between high-level research by SASRI and the farm-level requirements of CANEGROWERS. The focus should be on research with the economics of sustainable production sys-tems in mind.

2.4.2 Trashing versus BurningAs mentioned earlier in this report, farmers need to reinvest and revise their practices to become more sustainable and pro� table. The issue of trashing versus burning at farm-level has been exhaustively debated. The introduction of cogenera-tion income might persuade more farmers to adopt trashing (and removal of the trash). However the current industry struc-ture might not be as friendly to green harvesting of sugarcane. Trashing practices could lead to improved sugarcane quality, soil health and reduced fertiliser use. All these savings come at some cost, as labour and transport costs increase. Using the BFAP FINSIM model, it is possible to compare the impact of switching from burning to trashing. Figure 11 shows the modelled impact of Coastal farmers employing trashing practices instead of burning. Trashing practices signi� cantly improve the gross margin per hectare. While expenses do in-crease from R18 600/ha to R20 300/ha under sugarcane, the modelled increase in tons sugarcane harvested leads to an R850/ha improvement in gross margin.

Figure 14: Gross margin per hectare – Coastal Region Source: BFAP FINSIM, March 2014

Figure 15: Gross margin per hectare – Midlands Region Source: BFAP FINSIM, March 2014


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Figure 15 shows the burning versus trashing margins for an average farm in the Midlands region. Interestingly, the burning practice yields a better margin in the Midlands where trash-

ing can result in low soil temperatures that inhibits ratoon re-growth.


Figure 16: Gross margin per hectare – Northern irrigation region Source: BFAP FINSIM, March 2014

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Figure 16 shows the burning versus trashing results for the Northern Irrigated region. As with the Midlands region, the Northern region had a larger gross margin per hectare through burning, as opposed to trashing. This is most likely due to ir-rigation practices, as the bene� t of a trash blanket is nulli� ed. The results indicate that trashing is a viable, perhaps even necessary practice to adopt in the struggling Coastal region. The only problem is that the bene� ts of trashing are not im-mediately gained, and the additional costs of labour, transport and RV penalties make it an unattractive option for farmers in

bottom line is, however, that small scale growers are gener-ally more adversely a� ected than struggling large scale farm-ers and most of these operations � nd it di� cult to survive. A change in industry structure that negatively impacted on small scale growers was the abolition of the two pool scheme that operated from 1986 to 1994. Under the pool system grow-ers over a minimum size were given an A pool quota based on their historic production. The price paid for A Pool cane was higher, based on the local market revenue, while all produc-tion above the A Pool quota received the B Pool or export

the short term. The bene� ts of trashing over burning will only manifest over a couple of years. Building on the results of burning versus trashing, an ar-gument can be made for trashing for the purpose of cogen-eration. By adding trash and bagasse to a farm’s sources of revenue, coastal growers may actually be able to receive a ‘fair value‘ for their � bre, o� setting and preferably exceeding the penalties on the delivery of lower quality cane enforced through the RV payment system.

2.4.3 Supporting small-holder farmersGiven the critical central role by CANEGROWERS to maintain the surplus removal scheme and import tari� dispensation, � nding sustainable business models for the small scale grower community remains a priority in any business model. The only way to get more smallholders to produce cane is through in-creased pro� tability and like most other agricultural sectors, economies of scale play a role in the economic sustainability of small operations. The sugar industry still provides a major opportunity for a large number of unskilled workers. CANEGROWERS has initiated strong programmes to sup-port small scale growers and rich databases are available that provide a sound understanding of the complexities. The

based price. All small scale grower production was considered to be A Pool. This not only gave them a price advantage, but it made it worthwhile for millers to support and incentivise small growers delivering to their mill as this enhanced their share of the A Pool. The pool system had a number of positive at-tributes, but in the nineties the dti was opposed to any type of quota and the system was phased out as part of the deregula-tion in 1994. The introduction of the new Sugar Act can provide op-portunities to revive or introduce incentives that can support small scale growers to develop into commercially viable op-erations. This is an opportunity that can be driven collectively at industry level as well as by individual milling areas. There are a number of initiatives that the industry can leverage to boost the production of small scale farmers. For example, mill-ing companies can gain enterprise development points and through the Department of Rural Development and Land Re-form’s recap program, recapitalization can be undertaken at farm-level. In recent years there have been examples of coun-tries imposing some form of trade restrictions within the SACU region to boost local industry. For example, Namibia imposed a 2-to-1 export restriction where 2 animals have to remain in the country for each animal that is exported to South Africa.

The possibility can be explored with dti to replace at least some of the imported sugar from SACU countries with sugar produced by developing farmers? Through these types of ini-tiatives, the industry at large will bene� t and therefore support the initiative of reversing the small-scale grower trend.

3 Summary and ConclusionThis report has highlighted a number of options that CANE-GROWERS can consider for future planning. Apart from favour-able weather patterns that can alleviate much of the losses occurred during the drought and � ll up the mills to boost ef-� ciency, there are no ‘silver bullets’ that will result in a quick turnaround in pro� tability. The solutions o� ered are strategic of nature and the ultimate challenge will be to generate the additional revenue to manage the industry into a more sus-tainable position. The challenge is however to transform these options and business strategies on paper into tangible actions. Naturally the alternatives that are presented in this report should be interrogated and discussed at length to ensure that all elements are covered and they are practically executable. This can ideally be dealt with in a comprehensive scenario thinking exercise where the vision and the mission of CANE-GROWERS are carefully revised and the options considered. Moving such a large organization forward provides a chal-lenge in itself. It is striking to note the volume of research that has been undertaken and the information that is collected. In some instances SASA and CANEGROWERS per se, have been very proactive and managed to utilize information and re-search to the bene� t of all stakeholders in the industry. A tan-gible example of this is the fact that the industry has success-fully managed to convince government that the industry can only operate within a single channel marketing system where surpluses are removed and the local market trades at import parity levels and an import tari� is applied to protect the in-dustry against cheap and more competitive imports. However,


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the industry has to realise that it is not a given fact that govern-ment will automatically be inclined to the levels of support to the sugar industry in future. In some instances, however, the association has not been able to leverage the abundance of research and information to the bene� t of the industry. An example of this is the fact that the bene� ts of top end research that is undertaken by SASRI does not always seem to be implemented by growers or does not really address the most pressing needs of the growers, for example the push for the development of genetically modi-� ed cane that can support the farmers in combating Eldana. The fact that the industry will become more decentralised un-der the new Sugar Act where vertical slicing will shift a large amount of responsibility to the farmers to negotiate with the millers, means that the functions that do remain central are even more important to CANEGROWERS than in the past. It is important for all stakeholders in the industry to realise that this new status quo will not necessarily be at the same level that the industry used to operate under. Grower leader-ship has to position itself in the new environment where cane throughput becomes critical. The relationship between millers and growers will change signi� cantly under the new Sugar Act and vertical slicing will potentially provide a far healthier incentive structure with the opportunity of revenue sharing from the same pool. This will have de� nite implications for the role that CANEGROWERS as an organization can play. There should be no uncertainty about the complexity of the task that lies ahead for each role-player in the industry. Moving from its current position to a more sustainable position will imply a consolidation at both grower and miller level. It will further require signi� cant capital to re-invest in the industry and the options of generating additional capital are limited. It will take coordination by the industry at large to leverage any sustain-able initiatives.

References

Botha, D. (2014). Unpublished draft Masters Dissertation. Department Agricultural Economics, Extension and Rural Development, University of Pretoria.

Chatenay, P. (2013) ‘Government Support and the Brazilian Sugar Industry’, Report prepared for the

American Sugar Alliance, 17 April 2013. Available at: http://www.agri-ulse.com/uploaded/Chatenay_

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