Farmers defend raw sugar price increase

Small-scale sugarcane farmers, who supply 45 percent of raw sugar in Zimbabwe, have defended the new price of the commodity after Gold Star suspended production at its refinery in Harare this week citing high prices and unfavourable trading terms.

Raw sugar prices went up 16,8 percent last week to US$631 per tonne from US$540 as suppliers sought to cushion themselves from the rising production costs.

A pricing committee, composed of the farmers and millers sets the price for raw sugar.

The farmers currently chair the committee.

Gold Star, which is owned by starafrica corporation, closed its refinery on Monday following the price increase, "which makes it difficult for the company to produce and sell refined sugar at competitive price." The company also cited "onerous trading terms which have constrained raw sugar supplies to the refinery."

Under a milling agreement between farmers and Tongaat Hulett, which owns milling plants at Triangle Limited and Hippo Valley, farmers are paid after their raw sugar is supplied to consumers. Gold Star consumes about 15 percent of raw sugar from the farmers.

The other 85 percent is sold as sun-sweet sugar, commonly known as brown sugar.

The Association of Sugarcane Farmers said the new price was meant to maintain viability.

It said the new price was way below US$920 per tonne, the average cost of producing a tonne of raw sugar, and will help improve the margins when blended into the price of brown sugar. The price of brown sugar is about US$ 1 000 per tonne.

Most small-scale farmers produce an average of 15 hectares, which makes it difficult to absorb the costs, unlike Tongaat which operates at a much larger scale.

"We, the out-growers of sugarcane, supply 45 percent of the raw sugar that is sold in the country through ZSS (Zimbabwe Sugar Sales)," said the association. "We wish to advise the nation that the cost of production of one tonne of raw sugar to the farmer is US$920. This computation can be verified with Tongaat. The price of raw sugar to starafrica corporation is US$631. At this price, farmers are selling raw sugar at way below cost. Sugarcane farmers are not receiving any subsidies.

"The import parity price of raw sugar from Zambia for example is US$632. The current raw sugar price therefore compares well with the import price parity," it added.

On the unfavourable prices, the association said starafrica was currently enjoying trading terms of 21 days and an unsecured credit facility of US$3 million.

"starafrica therefore (is) encouraged to approach financiers such as banks to secure credit facilities should they find the current terms onerous. Farmers do not have the capacity nor the will to finance working capital requirements for starafrica.

In a joint statement, the ZSS, which administers brown sugar sales and Gold Star said discussions were ongoing to resolve the raw sugar pricing and trading terms.

"The partners are committed to resolving these issues within the shortest possible time and resume refining for the benefit of the industry and sugar consumers," said the statement.

Total industry sugar sales into the domestic market for the nine months ended December 31, 2020 declined 3 percent to 259 000 tonnes from 266 000 tons the same period in 2021 due to deliberate measures taken by the industry during the first quarter of the financial year to minimize speculative trade and illegal exports to neighbouring countries on account of then existing currency and pricing distortions. The measures were successful, as sugar has since been readily available on the formal market, including during the peak demand festive season.