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Tongaat Hulett is in the favourable position of being able to capitalise on the changing global sugar fundamentals, using the business’s SADC based sugar operations and its preferential market access. The company’s leading sugar brands and existing distribution networks will enable Tongaat Hulett to benefit from the growing per capita consumption of sugar in the SADC region.
The business continues to focus on increasing the supply of sugarcane to its operations in Mozambique, South Africa and Zimbabwe as it progresses its strategic objective of producing more than 2 million tons of raw sugar per annum using its existing milling capacity. The acquisition of the Mozambique operations followed the end of two civil wars, and in 2009/10 the company completed a R1,5 billion investment through the expansion of its Xinavane operation. Cane supply to the South African operations had previously, been adversely affected by the less favourable global sugar revenue dynamics that existed. In addition, inadequate investments in root replanting, over an extended period of time, and the severe drought in the 2010/11 season had substantially impacted on the supply of cane to the South African mills. In Zimbabwe, Tongaat Hulett acquired its shareholding in the 320 000 ton per annum, Hippo Valley Estate, in December 2006. The turbulent macro-economic fundamentals in the country up to the end of 2009 had a significant impact on both private farmer and company operations. Tongaat Hulett has made substantial investments in the refurbishment of its Zimbabwean milling and agricultural operations.
Against the background of a more favourable revenue expectation, and the question as to where the world will source more sugar, Tongaat Hulett’s strategy is to expedite an increase in sugarcane supplies in order to increase its existing sugar production of 1,15 million tons in the 2011/12 year, to some 1,73 million tons sugar by the 2014/15 year, and subsequently grow its sugar production to its installed milling capacity of more than 2 million tons sugar per annum. With the high fixed cost element of milling costs and the fact that some 78 percent of farming costs are linked to the number of hectares planted, this growth in sugar production will lead to a substantial reduction in the unit cost of production. Numerous cane supply initiatives that include the development of indigenous sugarcane farmers are underway in all the sugar operations.
Tongaat Hulett’s South African sugar milling, refining and agricultural operations are located on the north coast of KwaZulu-Natal. The sugar mills at Maidstone, Darnall, Amatikulu and Felixton have an installed capacity to produce more than 1 million tons of raw sugar and a central refinery in Durban produces in excess of 600 000 tons of refined sugar per annum. The South African sugar product range offers a total sweetener solution including a range of high intensity sweeteners. The company’s Huletts® brand has consistently been acknowledged as the leading sugar brand.
The company’s animal feeds operation, Voermol Feeds, is located at the Maidstone mill and the business manufactures and markets a range of energy and supplementary feeds to the livestock farming community through its Voermol® brand. Through cost effective production and marketing of high quality products over the past 50 years, combined with the development of long-term relationships with farmers, agricultural companies and suppliers, Voermol Feeds has become the market leader in the molasses based animal feed industry in South Africa.
The Mozambique sugar operations consist of the expanded sugar mills and estates surrounding Xinavane and Mafambisse. As at 31 March 2013, 22 072 hectares of Tongaat Hulett miller cum planter was farmed under sugarcane with 5 752 hectares under private grower and community-based schemes. Sugar production capacity at the Xinavane mill has increased to more than 230 000 tons in a 32 week crushing season. Together with the existing 92 000 tons of sugar production capacity at the Mafambisse mill, the Mozambique operations have the installed milling capacity to produce in excess of 330 000 tons sugar per annum. The sugar estates are irrigated and are located in areas with ideal growing conditions, resulting in high cane and sucrose yields. These favourable agricultural conditions, combined with the sugar mills’ close proximity to the ports, the technology availability and support from South Africa, ensure that the Mozambique operations are well positioned for strong growth in the future.
The sugar operations in Zimbabwe consist of Triangle and a 50,3 percent stake in Hippo Valley Estates, representing a combined installed sugar milling capacity of more than 640 000 tons. As at 31 March 2013, the Zimbabwe operations comprised 44 519 hectares of sugarcane land with a potential to produce in excess of 3,0 million tons of sugarcane. Private farmers were initially allocated 15 880 hectares of land through the SusCo project which is ongoing. Based on Tongaat Hulett’s view of its existing mills, a further 600 farmers on 12 700 hectares could supply an additional 1,4 million tons of cane per annum. The Triangle and Hippo Valley Estate sugar mills have a combined annual milling capacity of about 4,8 million tons of cane. The total refined sugar installed capacity is 140 000 tons and the Triangle Estates ethanol plant has an installed capacity of 40 million litres over a 48 week production season. The lowveld in Zimbabwe, with excellent topography, climate and established water storage and conveyance infrastructures for irrigation, is recognised as a globally competitive sugar producer. While the macro-economic environment in Zimbabwe has settled significantly, the political environment remains turbulent as many political factions continue to compete for ascendency, which may impact operations.
In Botswana, Tongaat Hulett has a 60 000 tons per annum packing and distribution operation and markets the leading Blue Crystal® sugar brand.
The need to create jobs and the challenge in electricity supply in South Africa, together with the carbon mitigation drive, is expected to continue to keep attention focused on the development of renewable energy. The development of renewable electricity continues to gain impetus from the looming power crises which South Africa faces over the next decade if it wishes to grow the economy significantly and generate the potential for job creation on the scale Government is targeting.
In the medium to long term, ethanol is perhaps the largest expansion opportunity which the sugar industry in SADC has and offers Governments of the region an excellent opportunity to create jobs and improve the lives of rural communities. If SADC were to follow the Brazilian model over the next 20 years, with 60 percent of petrol being derived from ethanol and all growth in demand captured by ethanol, it would require the construction of about 120 mills that have the capacity to produce 320 000 tons sugar per annum, create 1,8 million new direct jobs, and at least as many indirect jobs. The associated power generation would be equal to Medupi and Kusile combined, which equates to approximately 9 500 MW. For South Africa, it would provide between 13 and 25 percent of the required carbon footprint reduction needed to meet the target which the country committed to during COP 15 (Copenhagen, 2009). Unlike electricity generation, which can be started from a South African perspective, large scale ethanol production requires a regional ethanol regime. Some 70 percent of the market for ethanol lies in South Africa, with the bulk of the production potential lying within other SADC countries such as Mozambique, Zimbabwe, Zambia and Angola. The ideal starting point would be for the South African sugar industry to develop the necessary framework that would facilitate the industry converting its existing sugar exports on the World Sugar Market to ethanol. Tongaat Hulett is continuing to work with the South African Government to support the development of the South African framework and subsequently a wider SADC approach.
Tongaat Hulett’s land footprint in the region provides the business with an opportunity to interact and partner with Governments and rural communities in the development of successful rural communities. To date, these partnerships have seen the company working with Governments and communities in Mozambique, South Africa and Zimbabwe in developing farming models with sugarcane as the primary crop and staple foods like maize and vegetables as secondary crops. The models include the provision of procurement support for key raw material inputs. As the company continues to work with its stakeholders in this area, further opportunities including the use of technology and improving the level of financial acumen of small-scale private farmers will be explored.
Tongaat Hulett’s operational land footprint within the SADC region amounts to approximately 570 000 hectares. This footprint consists of some 281 000 hectares of land managed by Tongaat Hulett. Some 122 000 hectares of private grower land supplies cane to the four South African sugar mills, 15 880 hectares have been allocated to private farmers who supply the two Zimbabwe mills and 2 127 hectares to the two Mozambique mills. Approximately 150 000 hectares of private land under maize supply the four starch operations.
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