A.               DIVERSIFICATION WITHIN AND OUTSIDE SUGAR INDUSTRY

1.     Value-added Products based on Cane

 

Fibre is the main non-sucrose component of the sugar cane plant, its value consisting mostly in its usefulness as fuel. Using high-pressure boilers and obtaining an efficient utilisation of process steam, it is possible to recover sufficient mechanical energy per tonne of fibre to allow part of it to be sold as electrical power to the public grid. The operating conditions at Swaziland’s mills, characterised by a practically continuous operation throughout a seven-month crop, make them predestined for the sale of this by-product. As substantial investment will have to precede such operation, some basic parameters must be in place, before mills are able to make any commitments on the sale of this by-product.

 

Measures

• Promote competition in the energy sector and allow the commercial sale of electric power to the national power grid
• Identify best practices to develop electric power co-generation within sugar-industry-based initiatives
• Investigate alternative energy sources and the efficiency of their usage
• Where cane is used to generate electricity, the country must develop appropriate policies that allow cane growers to benefit from proceeds of sale of bagasse-based electric power

2.     Value-added Products Based on Sugar

                       

Ethanol is the principal sugar-based cane product other than sugar. In the world market, fermentation ethanol sells for its sugar equivalent at the Brazilian price, given that Brazil is in a position to arbitrage between products, whenever it sees a price advantage. Thus, any producer, able to sell sugar at the present average Swaziland price, would lose money if he were to sell ethanol instead of sugar. Nevertheless, Swaziland should keep abreast of new developments in the field.  

 

Measure

• To allow Swaziland to take full advantage of any opportunity for arbitrage, a system of continuous monitoring and research will be put in place.

3.     Growing and Marketing of Crops other than Sugar Cane

 

The scope for agricultural diversification in Swaziland needs to be seen in the light of:

 

a)                  the market opportunities available;

b)                  the logistical challenge of getting goods to market, of a standard and at a price, acceptable to the consumer;

c)                  the possibilities for low cost competitive production. 

 

Priority will need to be accorded to addressing the issue of markets and logistical constraints for the competitive supply of these markets. Any attempts to support production diversification away from sugar without careful consideration of market and logistical components of the equation, risks jeopardising the sustainability of diversification efforts.

 

In looking at diversification, the critical issue to be addressed is that of the market to be served.  The local (Swazi) market is relatively small and while opportunities exist for some farming groups to diversify into other products for local consumption, large scale production for the local market across a range of products would risk a price collapse. 

 

Serving the much larger regional (South African) market would appear to offer opportunities, but this will be dependent on price trends in this market and the ability to preserve and package products to a standard acceptable to the wider SACU market.  The question of standards is complicated by the efforts of the South African authorities in some sectors to establish national standards equivalent to those required in major overseas markets (most notably the EU). In addition to the quality issues, domestic policies may mitigate against the supply of those markets and products from outside.

 

The issue of food safety standards, both with regard to compliance and ensuring verification of compliance is a central issue in any efforts to diversify agricultural production, based on serving the EU market. Sugar, which has been produced on a high quality for a long time, does not suffer the same problems.

 

The question of standards, broadly conceived, will be a central issue for any efforts at diversification targeting wider regional or international markets. Swazi producers must be able to place products on the South African market or wider international market, of a standard and at a price acceptable to consumers in these markets. If this cannot be achieved, diversification becomes highly problematical.

 

This will require substantial investment in national standards control authorities and at the enterprise level in ensuring compliance with the standards set.  This is an issue of growing importance in terms of trade with the EU, particularly as tariff protection is dismantled.

 

The mobilisation of private sector financing for enterprise level investments may however prove difficult, for with trade liberalisation, de-regulation, market reform and a growing emphasis on food safety, there is considerable uncertainty as to the likely market returns on new forms of agricultural and food product production in a country such as Swaziland.  In this context instruments may need to be set in place to provide a counter-weight to these uncertainties and a positive incentive to such investments.

 

This situation is compounded by Swaziland’s land-locked status, escalating liquid fuel costs and the relative under-development of freight forwarding facilities in the country.  This can lead to high transportation costs in getting products to markets, with no guarantees of reliability of supply. 

 

Targeted measures of support to address these constraints will be required if diversification is to be supported in Swaziland.

 

In this context a first priority is a targeted programme for the strengthening of public sector capacities for food safety control and compliance.  This would provide a supportive framework for the mobilisation of private sector investment, since it would serve to ensure acceptance of Swazi produced products for placement on regional and international markets.

 

This should involve:

 

a)                  the financing of an initial base line and scoping study on local food safety control and compliance capacity;

b)                  establish a programme for following up on recommendations to strengthen food safety control and compliance.

 

While the specific measures of support required to promote diversification will be varied and multifaceted a number of general instruments can be established to support this process. 

 

The first priority in this regard would be to provide facilities and incentives to (sugar) farmers to diversify into other areas of agricultural production or other economic activity linked to rural development (including measures designed to lower the costs of transportation in rural areas).

 

In addition, there will probably be a need for assistance to enterprises in identifying viable market/product combinations for agricultural diversification in sugar farming areas and a scheme to enhance the quality control, packaging and marketing capabilities of smallholder farmers associations.

 

The establishment of these general diversification support initiatives, leave actual production decisions to the private sector operators and are designed to reduce risks and facilitate and promote innovation. Additonal information on alternative crops is presented in Annex III-03.

 

The need to strengthen agricultural research station is addressed in the next sections and so is the aspect of food safety standards and their control. 

  

Measures

 

·          Establish concessional loan facility for farmers changing to other crops or to agricultural services

·          Support cost-sharing grant schemes to assist enterprises in identifying viable activities besides sugar

·         Establish a scheme to enhance the capabilities of smallholder associations for quality control, packaging, and marketing

·         Create model to allow local lenders to participate in financing of diversifiers