• 2018/19 season, has an anticipated modest uptick of 2.4% to 430,000 tonnes growing to 463,0000 tons by end of 2021/22.
• $60mn Mansa sugar production expected to ramp domestic production in Q4:18.
Lusaka Securities Exchange – LuSE listed Zambia Sugar is forecast to see limited growth on the export market, BMI Research said. The researcher believes that Zamsugar, the country’s main exporter, will see only moderate growth in sugar sales over the next five years for two reasons. Firstly, Zambia is projected to be the third largest sugar producer among its neighbouring countries, with Zimbabwe and Mozambique first and second respectively. This means Zambia Sugar will face recurring competition from Zimbabwe and Mozambique to achieve growth on the regional market, which could be facilitated by a relatively stronger depreciation in the kwacha. Secondly, BMI believes Zamsugar will not be able to export significant quantities of sugar to the EU following the removal of production quotas for EU member states in 2017. Local production will grow noticeably and a period of subdued prices will erode Zamsugar’ s competitiveness in Europe. Although the company will have to compete for market share on the export market, it will remain a dominant player on the local market. This is because the additional cost of adding vitamin A to sugar in order to sell on the Zambian market will deter potential new entrants.
The researcher further forecasts that African sugar producers will struggle as a consequence of the European Union quota lapse.
Shrinking surpluses and increasing deficits in sugar for most Sub-Saharan (SSA) countries over a three-year horizon, in line with the historical trend. Production is expected to remain stagnant due to:
- Thinning of EU markets for African exports following lapsing of EU production quotas in September 2017. (Several African producers are uncompetitive with European producers of beet sugar).
- Domestic sales cover not adequate, as potential demand is currently masked by elevated local prices.
The expiration of the production quota in September 2017 reduced overall demand for African sugar. The expiration of the production quota in September 2017 means that EU producers will displace several African producers in the EU market, particularly those unable to compete with the average production cost of USD735 reported by the European sugar beet growers’ association. Evidence suggests that producers in Mozambique, Kenya, Tanzania and Zambia are unable to compete at this level. Cheaper producers like Malawi and Zimbabwe are landlocked and face significant regulatory and logistical hurdles when bringing their sugar to market.
Domestic consumption will be unable to pick up the slack. Most African producers will be able to divert some of their production to the domestic market, as governments have put measures in place to protect domestic producers from import competition (see table below). This will not, however, compensate for the loss of the EU market, as regional consumers are unwilling to increase consumption volumes at the elevated prices that prevail at the moment.
Sugar producers in Africa will prove unable or unwilling to decrease production costs in order to compete in international markets, due to a lack of public investment. Production costs in Africa are unlikely to decrease, as this would require considerable investment in infrastructure and improvements to local business environments. Governments do not have the resources available or the political will to do either. Kenya, for example, has not complied with COMESA requirements to modernise the domestic sugar industry in exchange for its import safeguards: mills are still state-owned and infrastructure is in a parlous state.
EU reform and lower international prices will also inhibit private investment. The loss of the EU market and relatively unattractive international prices – which have hovered in the USc13/lb-USc18/lb range – will also deter private investors. In Mozambique, for example, a planned new sugar mill at Massingir (the Massingir Agro-Industrial Project) was cancelled in February when the international investor pulled out, citing escalating costs and insufficient financial contributions from the local partner.
