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The sugar mills situated on the north coast of KwaZulu-Natal continued to experience a shortage of cane supply. Grower viability in the predominantly rain-fed coastal region, uncertainty around land tenure created by the delayed restitution process and drier weather conditions discouraged grower reinvestment. The reduced reinvestment is particularly evident in delayed replant programmes combined with reductions in key inputs, such as fertiliser, and has contributed to declining cane yields and cane supply that have been exacerbated by the introduction of grower ownership in two competitor north coast mills which are competing for the limited cane supply. In 2009 the area under cane decreased by 10 454 hectares to 130 594 hectares and this coupled with the reduction in yields limited sugar production in 2009 to 564 000 tons (2008: 644 000 tons).
Sugar cane production per hectare of cane has declined by 30 percent from average levels of 64 tons per hectare achieved in 2000 because of the factors outlined above. In order to increase the utilisation of the existing capacity at its South African cane milling operations, various land management and cane supply initiatives to increase the area of land under cane and improve yields have been identified for implementation.
The dominant features of achieving greater yields per hectare lie in encouraging growers to reinvest in replanting and improving farming practices. Interventions designed to encourage and enable growers to replant and apply the correct farming practices are currently underway with the aim of returning yields to the levels previously achieved in a good rainfall year. These processes are supported by the expansion of Tongaat Hulett's cane extension services and the establishment of cane on third party land that is fallow or being utilised for alternate crops. Initiatives to increase cane supply by acquiring land that is currently not supplying the mills continue to be pursued. These initiatives also support property development and enhance the value of Tongaat Hulett's existing land holdings. During the planting season from September 2009 to January 2010, new areas under cane totalling 4 513 hectares were established through a combination of expanded or new small scale grower, commercial grower and Tongaat Hulett leased land estates. Further expansions of the area under cane amounting to 8 084 hectares are planned for the 2010/11 planting period. In addition to these new areas under cane the company has been successful in achieving a net increase in the supply of cane from third parties of 2 013 hectares during the current season and has seen a reduction in the area under cane amounting to 200 hectares in the area surrounding the airport. The combination of these initiatives should result in the cane harvested supplying the South African mills expanding from 111 005 hectares in 2009 to a targeted 123 715 hectares in 2012.
As part of the overall land management process, Tongaat Hulett is assisting in the land claims processes within its cane catchment area in a positive and constructive manner that is designed to ensure cane supply to its mills is sustained. The post settlement model entails working with the claimant communities in order to assist them with business management and the development of successful farming practices, both during the transitional period prior to the settling of the claim and once the claimant community has taken ownership of the land.
Tongaat Hulett's sugar technology leadership was confirmed during the year with milling performance continuing to exceed industry benchmarks measured in terms of crystal sugar recovery. Further improvements in efficiencies and capacity utilisation at the refinery resulted in refined sugar production increasing to 611 000 tons in 2009 (2008: 549 000 tons). These improvements resulted in cash operating costs for the refinery of US$38 to US$45 per ton. Refining margins improved during the period as the refined white sugar premium increased. The international refining margin has typically traded in a range of US$70 to US$80 per ton.
Tongaat Hulett continues to optimise the value of the Huletts® brand as the leading sugar brand in South Africa. The brand remains the cornerstone of Tongaat Hulett's market positioning and offers a total sweetener solution including a range of high intensity sweeteners and liquid fructose.
The two small sugar crops in 2008 and 2009, have resulted in lower export sales from South Africa. These sales were achieved at an effective world sugar price of 15,4 US cents per pound (2008: 12,1 US cents per pound) and an average exchange rate of R8,20/US$ (2008: R8,05/US$).
Having pioneered the production of bagasse and molasses-based animal feeds under the Voermol® brand, this operation continues to be a leader with its range of energy and supplementary feeds, amongst others, as the cornerstone of its offerings to the livestock farming community. This operation is integral to the strategy of optimising value from molasses and bagasse from the sugar mills and showed an increased contribution to earnings.
Tongaat Hulett's sugar operations in Mozambique consist of the Xinavane and Mafambisse sugar mills and surrounding estates. The 2009/10 year was a significant milestone in the development of these operations with cane growing activities being undertaken on significantly expanded sugar cane estates and a corresponding increase in milling capacity to crush the increased harvests in the years ahead.
During 2009/10 the cultivated area of sugar cane, for delivery to the Xinavane and Mafambisse mills, almost doubled to 24 638 hectares (2008: 12 877 hectares) and comprised 21 410 hectares of company-owned estates and 3 498 hectares farmed by private growers. This represents 90 percent of the area required in order to meet the newly installed milling capacity with the balance of 2 738 hectares being planted in 2010. The annual cane harvest, including that of private growers, is expected to rise to over 2,6 million tons.
The expansion of the Xinavane sugar mill was completed in 2009/10 increasing its sugar production capacity to in excess of 208 000 tons in a 32 week crushing season. Together with the existing 92 000 tons of capacity at the Mafambisse sugar mill, the Mozambique operations have the installed milling capacity to produce in excess of 300 000 tons per annum.
Sugar production in 2009 in Mozambique increased to 134 000 tons from 108 000 tons in 2008. The start-up problems that limited sugar production at the expanded and modernised Xinavane mill have been resolved, including replacing the diffuser chain and modifying the cane and bagasse conveyer systems. The delayed start-up resulted in a large portion of the crop on the expanded cane growing estates being carried over, for harvesting at the start of the 2010/11 season. Production of sugar at Xinavane in the last season was 89 000 tons (2008: 63 000 tons). Mafambisse's sugar production of 45 000 tons (2008: 45 000 tons) was adversely affected by a number of factors, including the harvesting of young cane in the newly established cane areas and irrigation bottlenecks.
Following the expansion and project activities of the past period, the current focus of attention in Mozambique is on improving operational excellence. Plans are in place to improve cane yields and sugar recoveries and reduce the inefficiencies in the cane loading and transportation process in order to increase sugar production over the next two seasons from the 134 000 tons produced in 2009/10 to the installed milling capacity of over 300 000 tons per annum.
The Mozambique operation's raw sugar export volumes to the EU totalled 49 000 tons (2008: 39 000 tons) and sales to the domestic market increased to 85 000 tons (2008: 69 000 tons). Sales to the EU were constrained by improved local demand in Mozambique and Zimbabwe and by better returns from sales to other markets such as the United States (US) where prices reflected the dramatic increases seen in the international market. Tongaat Hulett continues to see strong demand for its sugar from premium buyers in the EU.
The Tambankulu sugar cane estate in Swaziland has consistently achieved excellent sucrose yields due to the good soils and growing conditions in the region. The estate of is situated in the north east of Swaziland and comprises of 3 767 hectares of fully irrigated cane estates. The company delivers its cane to the nearby Simunye and Mhlume sugar mills. The estate harvested 432 577 tons of sugar cane in 2009 (2008: 458 592 tons) equivalent to 54 000 tons of raw sugar (2008: 56 000 tons).
Tongaat Hulett's sugar operations in Zimbabwe comprise the wholly owned Triangle Sugar operation and its 50,3 percent holding in Hippo Valley Estates.
The Zimbabwe operations farm 29 000 hectares with a demonstrated potential to produce in excess of 3,4 million tons of sugar cane annually. Private growers have been allocated a further 15 800 hectares all of which were previously under cane and which have the demonstrated potential to produce in excess of 1,5 million tons of cane annually.
The Triangle and Hippo Valley Estates sugar mills have a combined installed milling capacity to crush in excess of 4,8 million tons of cane annually and produce over 600 000 tons of sugar. Refining capacity is 150 000 tons per annum.
Sugar production in Zimbabwe in 2009 amounted to 259 000 tons (2008: 298 000 tons). The situation that prevailed in Zimbabwe in 2008 had a negative impact on the 2009 harvest and sugar production levels.
Since February 2009, sales to the domestic market have been conducted in US dollars at prices in line with regional prices and amounted to 188 000 tons as demand in the domestic economy continued to improve. A further 146 000 tons of sugar production was exported to the EU.
The fermentation and distillation capacity to produce either alcohol or fuel grade ethanol is rated at 27 million litres per annum and was re-commissioned during January 2010. Clarity on the Zimbabwean blending policy is still required to facilitate sales of fuel grade ethanol in the local market. In 2010/11 the plant is expected to produce 23,4 million litres of potable and industrial grade ethanol with 75 percent being exported to South Africa and the balance sold domestically and regionally.
The pace of integration of Triangle with Hippo Valley Estates and the realisation of rationalisation and synergistic benefits in order to improve cost competitiveness has increased as the business environment normalises. Initiatives include the alignment of policies, sugar marketing and branding, rationalisation of strategic stockholdings, integration of medical schemes and the sharing of skills and resources through joint management services. Procurement has a key role to play in re-establishing the Zimbabwe operations as a low cost producer by international standards and is an area that is receiving particular emphasis as the economy adjusts from a hyper-inflationary Zimbabwe dollar environment to a more predictable US dollar denominated economy.
The improved macroeconomic conditions that have prevailed in Zimbabwe since the beginning of 2009 are facilitating the escalation of actions and programmes focused on restoring cane and sugar production to 4,8 million and 600 000 tons, respectively.
These plans include upgrading the two sugar mills in order to restore reliability and sugar recoveries, cane yield improvement programmes on the company farmed and private grower estates and plans to restore cane production over the next three to four years on 11 100 hectares of private grower land.
Integral to the plans to restore private grower cane production is the continued access to the EU's Adaption Funding made available to qualifying ACP countries following the reform of the EU's sugar regime and the resultant decrease in the value of the EU as a preferentially priced market. In the case of Zimbabwe, €45 million has been allocated, most of which will be channelled through the Canelands Trust that has been set up by the company, with oversight provided by the EU and the government of Zimbabwe.
The first two tranches of €2,7 million and €6,5 million have been made available with the first tranche being used to establish the administrative capability of the project. The focus of the second tranche is the re-establishment in 2010/11 of 1 200 hectares of private grower land in the Chipwa and Mpapa regions.
A third tranche of €13 million that will fund the re-establishment of 7 000 hectares has been provided for by the EU and is conditional upon progress being made on Zimbabwe's land audit, as provided for in the Global Political Agreement signed in 2008. The focus of attention in any land audit will be on land administration, land tenure, compensation and dispute resolution.
The improved macroeconomic environment and the fact that realisations for sugar sold on the domestic market in US dollars are at levels in line with regional prices has improved the viability of cane farming in Zimbabwe to the levels commensurate with those expected from high yielding irrigated cane land.
Triangle and Hippo Valley are escalating the provision of extension services and support programmes to all qualifying private growers including extensive technical training and the sourcing of key inputs. The combined effects of the rehabilitation activities outlined above are expected to result in a 20 percent increase in cane crushed and a 27 percent increase in sugar production to in excess of 330 000 tons in 2010/11.
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