Durban - Favourable weather conditions, the strengthened rand and the low world price of sugar have been the dominant factors affecting the R5 billion a year sugar industry in 2002.
Good spring rains and a dry spell during the critical growing months have improved cane quality and hopes of a record crop for the season to March. A production slump last year followed the record 2.7 million tons of sugar produced in the season to March 2000.
Increased volumes have pushed up the interim performance of listed companies. However, the improved exchange rate, coupled with the low world sugar price, has knocked foreign exchange returns, as 54 percent of the crop is exported.
Trix Trikam, the executive director of the SA Sugar Association, the service organisation for the industry, said sugar production for the season to March could be just below 2.7 million tons, compared with 2.4 million tons last year. Cane tonnage is forecast to increase to 22.9 million tons from 21.1 million tons.
Barry Stuart, the chairman of the SA Millers' Association, said "ideal milling conditions had boosted the mills' efficiencies".
However, good production and optimal milling conditions have been offset to some extent by the low world price of sugar, with the commodity trading as low as 5 US cents a pound during the year. This has recently risen to 7.6c but two years ago the price rose to 11c a pound because decreased production in Brazil, Australia and Europe resulted in less sugar being dumped on the world market.
A sugar analyst said forward pricing meant the crop for the 2002/03 season was "pretty much in the bag" at about 6c a pound, but that the faster-than-expected increase in the world price could spell good news for the industry in 2004.
Trikam said studies had shown that the world price of sugar could increase by 60 percent once the industry was liberalised.
South Africa is an active member of the Global Sugar Alliance, which has been lobbying European and US ministers to phase out their subsidies to sugar producers, which are keeping the world price artificially low.
The difference between the domestic and world price sparked the recent row with Coca-Cola, which has been demanding that the local price be slashed by 24 percent. While the 12 percent cumulative price increase this year is one of the lowest among agricultural commodities, and has remained below consumer price index levels for the past 10 years, the industry's image has been damaged by charges of unwarranted price hikes.
Liberalisation of the industry is on the agenda for the next round of World Trade Organisation negotiations due to begin in March.
Trikam said agreement was expected to be reached by 2005 but that implementation could take several more years.
Bruce Galloway, the chairman of the SA Canegrowers' Association, said growers were "frustrated" as research by the Landell Mills Consortium, a London-based organisation, had shown that South Africa was one of the lowest cost producers in the world.
"We are able to compete on a global basis, but can't because of subsidisation of the industry in developed countries. We have a highly efficient, competitive industry, which will have good opportunities for growth once liberalisation has been achieved," he said.
Trikam said the review of the Sugar Act, announced in January 2001, was making progress. Initially expected to be implemented in April 2003, this is now on track for April 2004. The main issue on the table is how to create more competition domestically within the framework of sugar industry principles.
Narend Singh, the KwaZulu-Natal minister of agriculture and environmental affairs, recently bemoaned the slow pace of land reform in the industry.
Galloway said growers and millers had sold 16 000ha to previously disadvantaged individuals since 1996. The plots, which average about 90ha each, have been financed through a partnership between Ithala Development Finance Corporation, KwaZulu-Natal's development agency, the Land Bank and milling companies.
"Between 8 000 and 10 000ha of land generally change hands annually, and Canegrowers encourages its members to sell to previously disadvantaged individuals."
Only about 1 000ha has been transferred from white farmers to other races this year, but Galloway said the industry was aiming to achieve the government's goal of a 30 percent land transfer by 2015.
Stuart, who also wears the hat of Illovo's operations director, said the company had to date disposed of 24 percent of its agricultural land to previously disadvantaged individuals.
Singh has also called for emerging growers to be given a stake in the milling firms. The suggestion has been treated with caution by millers.
Analysts' forecasts for company earnings for the current financial year range from modest for Tongaat-Hulett, the diversified Anglo subsidiary, to very good for Illovo, southern Africa's largest sugar producer, and record for Crookes Bros, the industrial food group.
Tongaat-Hulett hiked its earnings to a quarter of a billion rand for the year to December 2001 following the currency translation windfall, but the improved exchange rate is expected to work against it for financial 2002.
Peter Staude, the chief executive, said the group was on track to deliver strong growth in volumes, revenue and operating earnings but that headline earnings would be significantly influenced by the relative value of the rand through currency translation losses.
Illovo, southern Africa's largest sugar producer, posted a 52 percent rise in headline earnings for the year to March and a 43 percent increase in operating profit for the six months to September.
Don MacLeod, the managing director, forecast overall sugar production for the group to rise by 14 percent to 2.2 million tons from last year's record production, and cane production to 5.6 million tons, 680 000 tons up on last year.
Crookes Bros lifted attributable profit by 37 percent for the six months to September and expected to repeat or beat the performance for the full year.
Commenting on prospects for the 2003/2004 season, Stuart said a normal crop was expected but that, "to quote Naas Botha, this would be like predicting the Currie Cup winner in January".