As Shukela Plus delves into the innovation and diversification options available to South Africa’s sugar industry, Tongaat Hulett’s Managing Director: Sugar Operations, Simon Harvey responds to questions on the development of the Sugar Industry Masterplan, how it will contribute to the survival of the sector, albeit in a different and more innovative guise, and where the group sees itself placed in this new future.
1. How has Tongaat Hulett contributed to the development of the sugar industry Masterplan?
The Tongaat Hulett executive team was part of the industry think-tank that helped to craft the Master Plan. As part of its participation, the team attended the sugar industry meetings, consultations and workshops that were facilitated by Harald Harvey, special advisor to the Trade and Industry minister.
2. What are the key points in the Masterplan which you believe are now key for the future sustainability of the sector?
There are a number of important aspects that will help to stabilise the industry by creating new job opportunities and establishing appropriate platforms for a diversified sugarcane-based value chain.
The Master Plan contains seven commitments, all of which are critical for the sustainability of the sector. If they are to succeed, the commitments require the participation of all stakeholders, both upstream and downstream.
The commitments involve restoring the local market and offtake commitments; keeping sugar producer prices in line with inflation and providing price certainty to retailers; and providing appropriate trade protection as well as ensuring that jobs are protected and preserved during the industry transition and restructuring phase. Further commitments are ensuring that small-scale growers are supported and retained; ensuring ownership and participation in the sugarcane value chain of black farmers, women, young people and disabled is significantly advanced; and developing a restructuring plan that focuses on improving efficiencies and restoring profitability.
3. In your opinion how should the production of South Africa’s sugar crop be divided between refined sugar for domestic use, export, and then percentage diverse production spread across biofuels, energy, alcohols, plastics and other fibre-rich products?
The sugar industry’s primary focus remains the local market, which is a priority. In an ideal scenario the bulk of our production of sugar should be consumed locally or within the Southern African Customs Union. This includes the BLNE countries – namely Botswana, Lesotho, Namibia and Eswatini.
The current mix of local to export sugar is around 50/50, so half of all production is exported at a market price that is below the cost of production. Ideally excess export sugar could be used for the production of ethanol, while molasses, another by-product of cane, could be used to produce both potable alcohol and fuel grade ethanol.
In addition, the industry is more than capable of supplying a significant portion of the country’s electricity demands through co-generation using renewable fuels like bagasse, which is a by-product of sugarcane. Bioplastics and the like become a natural offshoot of ethanol production and will feed into the diversification plans once ethanol blending has been mandated and ethanol plants are built.
Considering the needs created by COVID-19 for hygiene products, there may also be opportunities for sugar producers, including Tongaat Hulett, to diversify into potable alcohol for use in hand sanitisers and other medicinal purposes on the continent. This could play a significant role in the African Continental Free Trade Agreement.
4. What investment would be required from the millers to make this scenario a reality?
There would be a need for significant investment in new technology for diversification, such as an alcohol distillery plant, and bioplastics and co-generation power facilities at higher scale than currently installed at mills, among other possible opportunities.
5. And, are you able to detail the new mill ownership/shareholder plan as mooted by Tongaat Hulett earlier this year and how do you see this exciting development adding to the diversification of production and products?
Tongaat Hulett has identified an opportunity to advance the participation of growers in the milling and refining sector. The company recently launched Millco, a transformational initiative that seeks to create one well structured, sustainable, diversified and competitive sugar business. Growers, both small scale and commercial, have been invited to participate in this venture. We have also invited private equity partners to participate, and conversations are under way.
Millco has been established to consider the long-term future of sugarcane. Opportunities within the green economy (bioplastics; biodegradable plastics and packaging and ethanol) are being investigated.
6. What stake then would Tongaat Hulett have in the future in the actual mills and the milling process?
At this stage, Tongaat Hulett aims to have between a 51% and 55% stake in Millco.
7. And how does that inform your participation in the sugar industry Masterplan?
The Master Plan is a social compact that commits all parties to a radically different future, and one of its seven action commitments is transformation. Millco was designed with this in mind and intended to be the first truly transformative deal in the sugar industry involving one of the big three millers. It offers a unique opportunity to be part of the full value chain rather than a carve-out of a small set of opportunities. This provides a platform for success and for growth.
The intent of the Master Plan is to create an enabling environment. Through Millco, Tongaat Hulett and its partners will explore opportunities for the development of a diverse range of downstream value streams from sugarcane.
The Master Plan has also emphasised the importance of the small-scale growers to the growth and sustainability of the sugar industry, and they are key in the Millco conversation.
8. What products, other than refined sugar, is Tongaat Hulett already producing?
Tongaat is currently producing animal feeds through its Voermol Feeds plant as well as artificial sweeteners through the Equisweet brand and related products, and liquid sugars as well as fructose at the Huletts Refinery in Rossburgh. In Zimbabwe we also produce ethanol at our Triangle operations, as well as cogenerate electricity in a number of our plants.
9. How do you see these products being upscaled to become more central to the refining process and the bottom line of the company?
This will depend on the uptake of artificial sweeteners as the health promotion levy takes root in the country. Animal feeds are not dependent on the shift in sugar supply and demand dynamics.
10. In short, how do you see the sugarcane processing sector adding to the country’s green economy?
There is significant opportunity for the sector to create employment opportunities and new income streams while also reducing the carbon footprint of the country through renewable energy (electricity), which may also assist with reducing load-shedding. The sector could help reduce fuel costs with a locally produced alcohol blend for addition into petroleum fuel as well as supporting with bio-degradable packaging and food supply products.
11. How do you see this in relation to mitigating job losses and perhaps even creating more jobs in a far cleaner and more investment-friendly industry?
It is clear that the green economy has the potential to stimulate growth and create employment. While this space is still being explored, the technologies are already available and what is required is a conducive regulatory environment as well as investment, but this will take time
12. What investment will be required to get South Africa’s sugar mills ready for this new era of production?
We are still exploring the investment required, as it is highly dependent on the scale and regulatory framework for product demand.
13. Over what period of time?
We estimate the time scale to be two to five years, depending on buy-in and project phasing.
14. What is the industry going to need from the government and even from its own coffers/resources to get to the ideal as reflected in the Masterplan?
Government is one of the important stakeholders within the Master Plan and has been highly supportive during the planning phase of the plan, particularly in its role in helping to drive the commitments. The main role of government will be to create an enabling policy environment as well as to provide leadership and guidance to ensure the achievement of Vision 2030. Government will also play an oversight role to ensure none of the competition laws is undermined during the implementation of the Master Plan, and that all parties drive the transformation agenda and ensure the creation of an inclusive economy
15. This is an exciting time in South Africa’s sugar industry, there is a feeling that the worst is behind us – and it has been and still is tough for sure – but how and where do you see growth, right-sizing and alignment with a more innovative and modern sugar sector?
Tongaat is currently implementing a comprehensive turnaround strategy, and good progress is being made. While the COVID-19 pandemic is unprecedented, Tongaat’s executive team is focused on finding sustainable solutions. We are clear that innovation is a key element of our future growth.
16. Do you see a situation where growers will be producing more fibre-rich cane varieties, with the fibre then being harvested on-farm and used to produce electricity that is then fed on to the national grid?
In our ongoing discussions with growers, it is clear they are keen to explore other revenue streams, but this will depend on the take-up of electricity generated from sugarcane. We believe that with the right policy environment, notably government support in the conversation around green electricity, growers should be open to opting for fibre-rich cane varieties
17. How viable would it be then for the grower to transport only the cane stalks to the mill for the refining process?
This is currently the case and the part of the case for change.
18. What about the future of gasification and anaerobic digestion technologies?
We believe this could be successfully done for factory effluent digestion processes, although not for sugar factories with the abundance of fibre for energy generation.
19. What changes will have to be made in the current sugar industry legislation to free up more production options for both growers and millers, and do you support these changes?
The latest legislation is awaiting gazetting but has unfortunately been delayed due to the onset of COVID-19. The changes effectively streamline decision-making in the industry and reduce costs. We support these changes and are engaging on additional changes where SASA evolves into a more effective decision-making body that reduces inefficiency in the industry. We believe a case can be made that South African sugar production is inefficient in how the industry is currently set up.
The changes that will come into effect will also recognise SAFDA as an official grower body. This is testament to the evolution of the sugar industry with regards to transformation. We are very supportive of transformation funds being directed at small-scale growers and ensuring that the focus areas reach grassroots level.
20. And finally, do you support the reduction of the size of the industry, and grower funding for the establishment of alternative crops such as cotton, macadamias, avocados and stevia for example?
It’s not clear to us that the reduction of the size of the industry will automatically yield the desired results as there are other factors affecting its sustainability.
We absolutely support the approach taken by the Master Plan that encourages growers to explore other crops e.g. macadamias. As outlined in the plan, the industry has been on a declining trend for some years now and any further decline will have long term effects on growers, particularly small-scale growers. As such, it is trying, through various partners, to create an inclusive rural economy that embraces the dynamics of the future – without excluding others or shrinking the size of the industry – provided all players are open to embrace innovation and diversify
21. And where do you see Tongaat Hulett placed in this new future?
Tongaat Hulett has implemented three transformational initiatives, namely Farmco, Millco and Propco, which highlight the company’s commitment to transformation and to the inclusive economy.
The company continues to explore business opportunities within the green economy. With the support of government and all other industry players, the company sees itself continuing to be the dominant player not only in the production of sugar but also in a number of other sectors.