D -       SWOT Analysis of the Sugar Industry

 

From the general description of the sugar industry provided above, the following key strengths, weaknesses, opportunities and threats may be identified.

The major strengths of the sugar industry in Swaziland lie in its high competitiveness, due to efficient cane production and technically efficient sugar production plants. This is further enhanced by premium markets to which the Swazi sugar is sold. So far, the exposure to the low-paying world market has been minimal, although it is poised to grow due to a reduction in the quota access to preferential markets and increased production of sugar. The industry has further benefited from the regional integration initiatives, particularly within SACU, which has provided a higher price due to protection. Furthermore, the industry is regarded as a sensitive sector, and is therefore not subject to the normal trade liberalisation programmes that other products are subjected to. It is therefore possible to retain preferences, and protection, on sugar for sometime to come. The industry has benefited from an efficient marketing system, which has been centralised within the Swaziland Sugar Association. It has been possible, through the SSA, to improve marketing efficiency and coordinate other external marketing initiatives. The strategic multifaceted role of the sugar industry in the economy of Swaziland has allowed it to receive particular attention and assistance from the Government. This has been the reason that smallholder cane growing has received particular policy attention.

The sugar industry has, against these strengths, several weaknesses which threaten its future viability. These relate to the increasing costs of producing cane and sugar, compounded by a weakening efficiency of production for smallholders (particularly the new entrants). The high cost (and inefficiency) of transportation is a critical factor affecting the cost-reduction of the industry. These are beyond the control and influence of the industry. So is the cost of utilities, which are high but cannot be influenced from the industry. Energy, for example, is key to industry performance, whilst its cost and efficiency is not competitive.

Several opportunities lie within the industry, and its related sub-sectors. The possibility of obtaining additional market access into the EU market presents one area of opportunity for the further sustainability and growth of the industry. The increasing world prices also provide cushion against the falling prices in preferential markets. Other opportunities to increase supply to other preferential markets exist, due to reduction in supply from the EU and Brazil, and a divergence of supply by the LDCs from some markets into the EU. The productivity and efficiency challenges facing the sugar industry in cane growing and sugar production are not permanent. They can be responded to. There is thus opportunity to improve on productivity and efficiency, and thus competitiveness. The process towards liberalisation of control and introduction of competition in the local energy market presents an opportunity for the local sugar industry to produce electricity to be sold onto the national grid. The increasing oil prices, coupled with necessary policy reforms in the region, can help diversification efforts into bio-fuels, and ethanol production.

The biggest threat facing the sector relates to a fall in the price obtainable for Swazi sugar in export markets, including the SACU market. The low return to smallholder sugar farming has acted as a disincentive to improve productivity. This threatens to worsen the smallholder indebtedness. Furthermore, the strengthening of the local currency reduces the export earnings and the value of foreign preferential markets. The process of trade liberalisation and preference erosion presents another dimension to the threats facing the future of the industry. However, if the necessary reforms are embarked on, the industry can still profitably sell sugar at more liberalised world markets.

 

Strengths	Weaknesses
High productivity in cane growing Technical efficiency in sugar production Access to preferential markets Support from the Government Good marketing infrastructure Limited exposure to the world market	Inefficient infrastructure and high transport costs Increasing costs of sugar production Increasing inefficiency of smallholder farmers in growing sugar Deficiencies and inefficiency of public utilities, with their related high costs
Opportunities Expanded access into the EU and regional preferential markets Diversification into other sugar-based products Supply of sugar markets previously supplied by Brazil and LDCs Temporary nature of problems facing smallholders Nurturing regional demand	Threats Preference erosion EU-RSA TDCA Expiry of COMESA derogation Failure of smallholders to run farms efficiently Low returns to smallholders, and reduced viability of irrigation projects Price pressures on SACU market