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Sugar seeks new outlets in changing times
Sugar seeks new outlets in changing times

Sugar seeks new outlets in changing times

FMCG SUPPLIER NEWS

Business Day - Nov 1st 2011, 08:22

The industry needs to diversify into power generation, ethanol production to survive, writes Neels Blom 

The South African sugar industry has warned that unless the government’s policies change to allow sugar production to diversify into energy production, the industry is likely to contract, with consequences for the economy, including the migration of capital and capacity to other countries on the continent.

The sugar industry needs agreements from the government providing for up to 1,6GWh of electricity co-generated from the combustion of cane fibre (bagasse), a renewable resource, to be allowed into the national power grid . It also needs the government to support infrastructure development for ethanol production and impose a mandatory 2% ethanol blend for petrol to create an ethanol market.

"The sugar industry can no longer survive on sugar production only," says South African Sugar Association (Sasa) executive director Trix Trikham. "It needs to diversify into large-scale power generation and ethanol production."

The sugar industry produces 20-million tons of cane each year, the biomass of which is equivalent to 1,75-million tons of coal with a power-generation potential of 1,6GWh.

JSE-listed Illovo Sugar, Africa’s biggest sugar company, is looking outside SA for opportunities to diversify where there is clarity on government policy and conducive market conditions, group MD Graham Clark says.

The group is expanding in Africa, notably in Zambia, Malawi and Tanzania, in response to government-proposed fuel-blending requirements. It had already diversified into power co-generation in Swaziland, where it produced enough electricity for its farms and factory at Ubombo and exported a surplus to the Swaziland national grid.

"In the three months from June to August 2011, Ubombo exported 16,6GWh to Swaziland Electricity Company and by 2015 will have increased its annual exports to the national grid to 55GWh," Mr Clark says.

Mr Trikham says a co- generation agreement would generate investment of between R15bn and R20bn over the next three to six years, 80% of which would be sourced domestically. With a mandatory petrol-ethanol blend in place, sugar-industry spending in agriculture, new electricity generation and fuel- ethanol plants would rise to between R20bn and R30bn.

Mr Trikham also says about 320 000 jobs are linked to the development of such a renewable energy resource, and that the industry is in a p osition to initiate the development immediately.

According to Sasa data, SA ’s sugar industry directly supports about 137000 jobs, and indirectly another 110000 jobs, accounting for about 11% of all agricultural jobs in the country, or 1,3% of total national employment, amounting to 0,3% of SA’s wage bill. It also directly contributes 0,7% of gross domestic product , 0,9% of exports by value, 0,5% of income tax and 3,6% of fixed enterprise capital.

These figures make the expected job creation more substantial and more cost effective than that generated in the petroleum sector as well as in the solar-energy-based renewable electricity options, Mr Trikham says.

The sugar industry supplies all the steam and electricity required for the milling of sugar cane to sugar from bagasse. That capacity could be increased 3,5 times with investment in electricity generation and mill efficiency, he says. Mr Trikham says the industry has requested inclusion into the Department of Energy’s Integrated Resource Plan of an annual capacity increment of 150MWh generated from sugar cane biomass from 2013. This would result in about 1GWh by 2020 . But so far the sugar industry has been excluded.

However, energy department spokeswoman Thandiwe Maimane denies this , saying the sugar industry has never been excluded from its programmes and the industry is formally included as part of medium-term risk-mitigation planning.

Moreover, the department has engaged Sasa on both bio- ethanol and bagasse-based electricity generation. "These engagements will serve as input into the development of small- scale projects procurement documentation," she says.

However, Sasa says that in the department ’s draft regulations, published last month, the proposed policy would limit licensing for ethanol production to greenfields developments, which means that the industry’s existing brownfields contribution would be severely limited.

This was because greenfields cane production opportunities are limited and prevent the sugar industry from redirecting its existing export capacity to ethanol production.

Ms Maimane says the department cannot comment on this since the period for public comment on the draft regulations closes on the 18th of next month and input from other stakeholders needs to be considered. She denies that the draft regulations are discriminatory.

However, the National Biofuels Strategy says that "only agricultural products grown in the previous homelands by historically disadvantaged farmers will qualify for support". 

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