South African sugar producer TSB intends to undertake a feasibility study for a new sugar production base in Mozambique this year.
The feasibility study is the result of the right granted by the Mozambican government to TSB and its local partners to develop a 37 500 ha sugar cane growing project and processing plant at Massingir dam.
If the project is approved by the investors, financial closure is expected to be completed by September 2014 and first sugar production is likely to start in 2017, says TSB, which notes that Rand Merchant Bank has been appointed as the financial adviser and lead debt arranger to the project.
TSB plans to start work, the growing of seed cane, on site in July after the investment application from the Mozambique Council of Ministers has been approved and the land permit has been secured.
“Water security for irrigation is an important aspect of the project and negotiations for abstraction directly from the dam are close to completion,” says TSB GM of corporate affairs Vusi Khoza.
He states that the new factory is intended to produce a combination of sugar and ethanol from molasses.
The plan is to develop the project in two phases over 8 to 15 years. Phase 1 is intended to produce 400 000 t/y of sugar from cane and 18-million litres of ethanol using molasses as a feedstock. Phase 2 will double the size of this operation and will be undertaken after a period of consolidation.
Khoza further notes that the Massingir pro- ject is part of TSB’s growth strategy and will secure its position as a leading regional low-cost producer of sugar and its by-products.
The Massingir project has a number of favourable natural resource advantages such as fertile free-draining red soils, a large secure water source from the Massingir dam, which is situated across the Oliphants river, and good sunshine hours, which will translate into high yields of sugar cane. The project is situated 300 km from Maputo with reasonable access to the capital’s port by both road and rail.
Khoza notes that Mozambique has duty access to the European Union market, which South Africa does not have, which is another reason why TSB is considering the Mozambique project.“It makes sense for us to sell in markets which we can easily access and derive the best value from.
“The land on which we farm sugar cane in Mpumalanga has been used to capacity and there is no more land available. At a stretch, we could maybe find another 5 000 ha and even then other crops, such as bananas or litchis, would have to be replaced,” he says, also highlighting the lack of water in Mpumalanga.
“The Crocodile river, which supplies water to towns such as Nelspruit and Malalane, is currently stretched in terms of supply. As a result, there is pressure from government to build two dams, one in Montrose and one in Mountainview, also in Mpumalanga.
“Much effort is being put into building those dams and only when they have been completed can one really pursue further agricultural activities in the province,” Khoza says, adding that the Massingir dam has a lot of unrealised potential.
Meanwhile, he notes that the South African sugar industry reached its peak last year, having produced 2.7-million tons of sugar.
“That number has shrunk considerably to 1.9-million t/y. The industry lost 800 000 tons of sugar, owing to climatic challenges, such as drought, resulting in reduced production,” he says, pointing out that land was also lost to property development, especially in KwaZulu-Natal, and its surrounding areas.
“There is a lot of property development going on in areas such as Durban and much of the land is currently not being used, owing to challenges such as land ownership. “The net effect of these factors has led to the shrinking of the local sugar industry,” he explains.
Khoza adds that if climate change had not played such a pivotal role, the industry would not have been hit so hard.
“The industry seems to be recovering slightly, with a yield of 2.2-million tons a year so far, but this does not mean that the industry will fully recover to the level of 2.7-million tons a year. “We hope that it will eventually reach a yield of 2.3-million tons a year,” he says.
Further, Khoza highlights that government is reinvesting in agricultural production by offering grants to sugar cane growers, which is helping the industry recover.
“Government is offering to rehabilitate infrastructure in the sugar cane fields and a lot of funding is provided for the industry in general. “Taking that into consideration, in another five years, we should see the industry getting back to a yield of between 2.4-million tons a year and 2.5-million tons a year,” he says.
Khoza adds that, in Africa, the sugar industry mostly exports to other African countries, but that domestic demand is higher than the export demand.
“Therefore, we do not have enough sugar to meet local demand,” he says.
Khoza states that South Africa imports 150 000 t/y of sugar, which is the equivalent of what one large sugar mill can produce.
“The challenge is that there are a few countries, such as Brazil and India, which produce a lot of sugar, so it makes sense for these countries to sell their excess product to the surrounding markets. The fact that it is easy to export to places such as Durban and Cape Town makes South Africa vulnerable,” he says.
Khoza adds that the future of the South African sugar industry relies on import protection.
“We have to continually produce sugar that is a competitive product on the international market so that other countries find it difficult to export sugar to South Africa. “We are in discussions with government about implementing import protection, which is a short-term measure. “In the long term, we have to be competitive and, currently, the industry is feeling the squeeze of imports. Sugar is an industry in distress,” he concludes.