Dire consequences for economy in wake of EU sugar price cuts

They call it "the real Swazi gold" but sugar, the country's top export, has taken a financial hit this year, leaving thousands of workers retrenched, small-scale farmers embittered and confused, and the government warning of dire effects on the national budget. "The drop in revenue from sugar sales will affect our economy, and even our ability to carry out some infrastructure projects," Prime Minister Themba Dlamini warned after returning from a meeting with European Union (EU) officials. The EU has been a key purchaser of Swazi sugar, but will slash the price it pays by 36 percent beginning in 2007. The original plan to reduce the purchase price by 39 percent was revised after negotiations between the EU and its trading partners in African, Caribbean and Pacific (ACP) countries. "As a result of the price decrease, the Swaziland sugar industry will lose Emlangeni 24 million (US $3.8 million) per annum over the period 2006 to 2008. This loss will rise to E79 million ($12.5 million) in 2008/09, and rise further to E167 million ($26.4 million) per annum from 2009/10 onwards," said Dr Mike Matsebula, chief executive officer of the Swaziland Sugar Association. Sugar prices will feature in the sixth ministerial conference of the World Trade Organisation (WTO), the top decision-making body of the international trade talks mechanism which begins in Hong Kong on Tuesday. The meeting is expected to wrap up the so-called "Doha round" of WTO negotiations, which were kicked off in 2001 in Qatar's capital to address concerns of poor countries, the chief of which is farm trade. Swaziland's sugar exports during 2004/05 amounted to E758 million ($120 million). The Sugar Association expects E300 million ($47.5 million) of the E370 million ($58.6 million) loss anticipated due to lower sugar prices between 2007 and 2010 to be suffered by the country's top sugar firm, the Royal Swaziland Sugar Corporation (RSSC). At a press conference during the weekend at company headquarters in Simunye in the heart of Swaziland's sugar belt, which spans the hot, dry, eastern lowveld, RSSC managing director John du Plessis announced the retrenchment of about 500 workers, bringing the total number of workers who have lost jobs during 2005 to 1,100. "While enjoying relatively low unit cost in international terms, RSSC still cannot compete with industry leaders such as Brazil," he said, noting that more retrenchments were likely in future as the country grappled with the new reality of falling sugar prices. "[The Swaziland sugar industry] needs to focus on bringing its costs down, so that it can competitively sell its sugar into the reformed European Union market, Southern African Customs Union and the Common Market for Eastern and Southern Africa markets," du Plessis pointed out. To sweeten the pill, the EU has offered to increase duty-free market access to the EU as partial compensation for the reduced price it will pay for Swazi sugar, and the country will be able to access EU funding to restructure and diversify its sugar industry under a programme to be managed by the Sugar Association. Weather conditions have also been a factor in the fortunes of "Swazi gold" - the sugar belt runs through a region hard hit by drought in recent years. "Sugar production fell by 4.9 percent to register 597,568 mt during 2004/05 cropping season, compared to 628,191 mt recorded the previous season. Dry weather conditions at the beginning of the 2004/05 season impacted negatively on sugar output. Consequently, water-curtailing measures had to be enforced, as water in dams supplying irrigation to sugar cane fields dwindled," the Central Bank of Swaziland reported in its annual assessment of the national economy. Small sugar cane projects were struggling to remain viable after smallholder farmers living on communal Swazi Nation Land under chiefs were encouraged by government to forsake subsistence agriculture and pool their resources in cane-growing cooperatives. To emphasise the policy's importance during the heady time of lucrative sugar sales to the EU, guaranteed by treaty, the agriculture ministry changed its name to the ministry of agriculture and cooperatives. The smaller cooperatives now face the new pricing system bedeviling large sugar plantations.