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South African miller diversifies revenue base while supporting smallholder sugar cane development

In November 2013, Tongaat Hulett reported the companys highest level of sugar production in 10 years, with production this season projected at between 1,366 and 1,408 million [tonnes], up from 1,254 million tonnes last season. However, according to CEO Peter Staude, the financial benefits of increased sugar production are offset by the current revenue dynamics and the impact of imports, with the world sugar price at its lowest level in many years and regional and local market sales being impacted by increased imports.

Mr Staude has called on the South African government to adjust import tariffs to be more in line with the dynamics of todays world. World sugar prices have fallen by 49% since reaching a three decade high in 2011, as sugar production has been expanded in response to the high prices.

In the longer term, Tongaat Hulett aims to increase the sugar it processes in South Africa by improving yields and getting more hectares under cane through community and small-scale farmers, with support from the government. Under a cooperation agreement already concluded, an additional 8,000 ha of new cane land supplying Tongaat Huletts mills are expected to be planted in the current year.

In the 6 months to September 2013, Tongaat Hulett saw a record performance by its land conversion division (with former sugar estate lands being converted to other uses, largely real estate), more than doubling the profit generated from land conversion from R246 million to R512 million. According to press reports, over the next 25 years the company will probably sell about 13,000 hectares.

Also during November, the ISO raised its estimate for the sugar surplus in 201314 to 4.73 million tonnes. However, the ISO also highlighted the prospect of the first output deficit in five years next season, with lower prices curbing sugar production. Next season, Brazil will utilise more of its cane for ethanol production, reducing sugar output to a projected 39 million tonnes from 41.1 million tonnes. But given the level of sugar stocks, despite projections for increased sugar consumption, this return to a production deficit is not expected to lead to any significant rally in sugar prices.