Sugarcane fields being harvested near Siphofaneni, Swaziland. PHOTO: ALEXANDRA WEXLER/THE WALL STREET JOURNAL
Sugarcane fields being harvested near Siphofaneni, Swaziland. PHOTO: ALEXANDRA WEXLER/THE WALL STREET JOURNAL

SIPHOFANENI, Swaziland — When the European Union deregulates its sugar market at the end of September, some of the biggest losers will be in the lush hills of this tiny, landlocked nation.

More than 8,000 miles from Brussels, Swaziland’s sugar farmers for over a decade have benefited from the EU’s tight grip on domestic production of the sweetener. Caps on annual production in European countries helped keep prices artificially high and created a market for imports, especially from poor countries that are freed from tariffs. Currently, more than half of the EU’s raw sugar comes from Africa.

“It was so easy,” said Oswald Magwenzi, managing director of Ubombo Sugar, one of three sugar mills in Swaziland. “People used to always say in the sugar industry, sell 50% [regionally] and 50% to the EU and go fishing. It was lucrative.”

But with EU production limits set to fall away on September 30, governments and sugar associations expect farmers from France to Poland to boost production and cut their costs. That would largely crowd out producers such as Swaziland, one of the world’s few remaining absolute monarchies. The US Department of Agriculture forecasts that in the year after the caps are removed, EU sugar production will be 30% higher than it was in the 2015-16 season.




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About three-quarters the size of New Hampshire and with a population of just 1.3-million, Swaziland has been punching far above its weight in the African sugar market. It is the continent’s largest sugar exporter and depends on the sweetener for three-quarters of agricultural output and 35% of manufacturing output. The industry is also the largest employer in the private sector.

“The whole economy is dependent on sugar,” said Phil Mnisi, chief executive of the Swaziland Sugar Association, an organisation that oversees production, processing and marketing of sugar.

A nation with an average life expectancy of 59 years, an HIV infection rate of 29% among people ages 15 to 49 and an average annual income of $2,830, Swaziland can’t afford to let its sugar industry sour.

Compounding the threat to Swaziland’s sugar farmers is that the country has been struggling to assert itself outside the EU.

More than 100 countries, from Cuba to India to Russia, produce sugar from sugarcane and sugar beet. Many of them are able to undercut the prices demanded by Swazi farmers, who receive no subsidies from their government, in markets such as West Africa and the Middle East.

“The global sugar market has become a maze of policies so distorting that it’s hard to even refer to it as a market,” said Tom Giovanetti, president of the Institute for Policy Innovation, a public-policy research organization based in Dallas.

The EU says it is helping poor countries adapt to the new rules. Since 2006 it has given €1.2 billion to farmers in 18 countries to either refocus their sugar industries or diversify away from the sweetener.

Mauritius, for instance, decided to manufacture and export specialty sugar that it markets to health-conscious consumers in the US and elsewhere as raw, and therefore less-processed, than refined white sugar.

Swaziland received more than €112m of the EU funds and developed about 7,700ha of land under sugarcane, constructed 43km of roads in sugar-growing areas, and built two bridges and extra irrigation capacity.

The aim, according to the Swaziland Sugar Association, was to increase the amount of sugar it sold to regional markets such as Kenya, the Middle East and West Africa, as prices dropped in the EU ahead of the deregulation.

Ubombo, which is majority-owned by Illovo Sugar, Africa’s biggest sugar company and a subsidiary of Associated British Foods plc, once received €650 for each ton of sugar it sent to the EU. Recently, it got €420 a ton.

The diversification strategy has had some success. Since the EU officially announced its deregulation plans in 2013, the association has reduced its dependency on the EU, with the 28-country bloc now accounting for 20% of exports, from 50% a few years ago.

But the shift has squeezed profits — just as the country tries to recover from a drought that severely reduced output.

Swaziland’s sugar farmers, many of whom work just a few acres of land, are trying to adjust to the new environment.

Phumzile Ngcamphalala is the vice-president of a collective of 30 local farmers that switched from growing cotton to sugarcane in 2010. With the help of a grant from the EU, they installed a new irrigation system that allowed them to plant the less labour-intensive crop.

Now, Ngcamphalala and other members of the collective worry that the better lives they have made for themselves through sugar farming could be threatened. “We may want to grow other crops,” she says.

As production recovers following the drought, Swaziland could struggle to expand exports closer to home. Swazi sugar often loses out to imports from Brazil, the world’s number one sugar producer, in SA and other nearby countries.

EU sugar exports are forecast to surge by 47% in the year starting October 1, while imports are expected to plunge 35%, according to estimates from the US Department of Agriculture. Analysts say those exports could also find their way into the very markets that Swaziland is targeting for growth.

“African producers have hitherto been sheltered from these competitive pressures,” says Edwin Gaarder, commodities analyst at BMI Research.

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