UKRAINE WAR: SUGAR INDUSTRY TO BEAR BRUNT

MBABANE - With every new day of the Russia attacks against Ukraine, the implications for the global food and agricultural sector become more profound.

The war in Ukraine reportedly has many ramifications across the food chain. Its consequences include the disruption of business operations and trade flows, higher commodity and energy prices and a deteriorating economic outlook. The impact is trickling down to many food and several agro-based economies including Sub-Saharan Africa and Eswatini in particular.
Eswatini’s two agro-sectors that would be hardest-hit are the maize and sugar industries as farmers will most likely be confronted with high and unaffordable input costs. These will be caused by the production and trade disruptions resulting from the ongoing war.

Arrowfeeds has already announced an increase in feed products with effect from today. Input costs for arable farmers are also increasing as sanctions against Belarus and Russia have a big impact on the fertiliser supply chains. Russia is the global powerhouse in fertiliser production and exportation.

Developments

With these developments, it is obvious that the local sugar industry will be bruised to a certain degree, more especially the cane growing sub-sector. Eswatini Cane Growers Association’s Chief Executive Officer Dr Sipho Nkambule, has conceded that the Russia’s invasion of Ukraine will indeed have some abysmal negative effects on cane producers and the sugar industry as a whole. Dr Nkambule has observed that Eswatini cane growers entered 2022 on the back of a wave of higher commodity prices due to trade disruptions brought about by the COVID-19 pandemic and this trend has not yet abated. According to the CEO, latest estimates show that fertiliser constitutes about 11 per cent of sugarcane production per hectare, adding that “this price contribution is definitely going up given the current developments.”

“Russia is the largest fertiliser exporter and third largest exporter of petroleum. The invasion and accompanying sanctions will definitely disrupt supplies, resulting in further price escalations,” said Dr Nkambule. Adding salt to the wound is the fact that prices for nitrogen fertilisers (LAN and Urea) have increased by about 32 per cent since the invasion. Regarding this, Dr Nkambule highlighted that due to the extensive usage of fertiliser in cane growing, the acute price escalation would eat into the growers margins and threatens sustainability.
“Another risk is that some farmers may start skimping on the application of fertiliser, thus unwittingly sabotaging their yields,” he stated.

Costs

According to Dr Nkambule, other input costs that will batter the cane growers yields emanating from the war in Ukraine include the spike in petroleum products. Russia is considered as the third largest producer of crude oil after the USA and Saudi Arabia and the disruptions in production have resulted in a price surge. About two weeks ago, the price notched E1 500 (US$100) per barrel. Since the invasion, the prices have tested the E2 100 (US$140) per barrel mark. In Eswatini the price of diesel was, last week, escalated from E17 to 18.60/litre, representing about 9.0 per cent increase and more increases are likely on the way.
“For sugarcane growing, the cost of petroleum is reflected in harvesting and haulage costs, which historically constitute about 36 per cent of the total cost per hectare,” Dr Nkambule highlighted.
Questioned if the cane growers were allowed to adjust the sucrose price as influenced by the increase in production costs, Dr Nkambule explained that they were always on the receiving end as they did not determine the price. “Farmers are price-takers as far as sucrose or sugar is concerned.

Markets

They receive an average of the prices achieved by Eswatini Sugar Association (ESA) in the different markets. In short, farmers and the local sugar industry at large have limited control over the price of their product. Their main intervention is to maximise production per area and input unit costs,” he said. Diagnostically, this Russia-Ukraine war will directly affect the 483 sugar cane growers, and of this, 93 per cent (450) are smallholder growers.

According to Dr Nkambule, smallholder growers would be the hardest-hit because their margins are already marginal, and their operating systems are inflexible. In simple terms, the effects of the ongoing war between Russia and Ukraine will destabilise the sugar cane growing sector that is the main livelihood of the majority of the agricultural community within Eswatini. Approximately 16 per cent of the total workforce is directly or indirectly employed in the sugar cane industry, which illustrates its crucial social and economic presence in the well-being of Eswatini.

Meanwhile, Eswatini Sugar Association Chief Executive (CEO), Dr Phil Mnisi said the overall industry’s revenue would also be affected by Russia’s invasion of Ukraine because of the volatility of the Rand/Lilangeni against the global currencies (US Dollar, British Pound, Euro and Japanese Yen). Dr Mnisi conceded Eswatini sugar sales are always suffering when the local currency is unstable, mainly because the kingdom is the net importer.

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