Local Consequences of international actions

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Local Consequences of international actions

• How changes to the EU Sugar Protocol impact on
  the rural poor in Swaziland

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IFAD (2001) Population in absolute poverty
billions

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The paradox of rural development

• UN Millenium Goal is to half world poverty by
  2015 but aid to the places where most of the
  absolute poor live is falling in real terms.
• Value of aid to agriculture in late 1990s was
  only 35 in real terms of the value in late
  1980s. (IFAD)

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Swaziland is a member of the African Caribbean
Pacific Group (ACP)

• 1975 Lome Agreement one of whose Protocols
  applies to Sugar. (18 of the 77 ACP countries are
  signatories of the Sugar Protocol)

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ACP Sugar Protocol Signatories

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Why is the ACP Sugar Protocol important?

• ACP sugar producers have a guaranteed quota to
  the EU.
• The EU pays the same price to ACP sugar cane
  producers as it does to its sugar beet producers.
• Since 1975 these prices have averaged between 2
  to 3 times higher than world market prices.

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The ACP has therefore functioned as a form of
development aid to rural areas
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Income transfers to ACP countries from Sugar
Protocol premium 1980-1990 Transfer as a of
GDP

• Mauritius 9.52
• Guyana 8.93
• Swaziland 6.97
• St. Kitts 6.38
• Zimbabwe 0.24
• Tanzania 0.06

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Who have been the main beneficiaries in Swaziland?

• Large estates
• Made up 97 per cent of production in 2000

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The importance of the Swaziland sugar industry to
the economy 2003

• 18 per cent of GNP
• 11 per cent of wage employment
• 16 per cent total export earnings
• 55 per cent of agricultural earnings

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Location of the sugar industry sugar mills
Sugar Mills Mhlume Simunye Big Bend
.Simunye
The sugar industry Is located in the Low veld
Requires irrigation Most irrigation on title
deed land 63,600 TDL 3,400 SNL
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Resource base for the rural population on Swazi
Nation Land

• Majority rely upon rain-fed farming
• Rainfall is seasonal and highly variable,
  especially in the low veld
• The low veld contains a large number of soils
  suitable for irrigation
• Average farm size on SNL from 1-1.7 hectares
  (halved since 1967)

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The need for rural development

• GDP per capita US1,300 per annum 2001 (Lower
  middle income country)
• But
• 80 per cent of rural population live close to
  absolute poverty
• 63 per cent rely on river water for drinking
• 30 per cent have no toilet of any type
• Infant mortality rate 91/1000/annum (Africa 80)
• Life expectancy 1996 57
• 2000 40

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The key resource to tackle rural poverty in the
lowveld

• Water

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The role of sugar in developing Swazi Nation Land

• Enables farmers without title deed to land to
  borrow to finance irrigated sugar projects
• Since 2001 the main area has been the Komati
  Downstream Development Project associated with
  the Maguga Dam on the Komati River

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KDDP Locality Map
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The Project
PDA 25 000 persons on 27 000 ha 6 000 ha of
irrigation costing E 350 Million
Mhlume Mill Extra 80 000 Tonne sucrose Expansion
costing E 300 Million
Maguga Dam 83 Million cu m of water E 400 Million
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Sugar Cycle
Quota is a Contract
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Assumption behind the project

• Access to ACP market at higher than world prices

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Proposed changes to the EU Sugar Regime

• Sugar was the only remaining sector where there
  had been no change for 30 years Frans Fischler
  July 2004
• Cut in sugar prices paid to EU beet producers by
  one-third
• Removal of the existing quota system
• To be implemented by 2008-09

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Project funding

• Farmers Associations borrow from commercial banks
• Typical borrowing Intamakuphila FA 130 members
  Borrowed US2.1 million
• Interest rate 17 per cent per annum
• 300 has

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Assumptions in business plan 2001

• Average yield 115 tons per hectare sugar cane
• Average sucrose price 1600 E per ton sucrose
• Average sucrose content 13.5 per cent

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Actual performance to date

• 90-100 tons per hectare
• 1200 E per ton
• 13 per cent sucrose
• Thus the finances are already unable to meet full
  loan repayments
• Many FAs are worse off because they are further
  than 26 kms from the mill (the economic distance
  to haul sugar cane on gravel roads)

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EU sugar price regime changes

• By 2007 EU sugar prices expected to drop by 37
  percent

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Consequences for farmers association members

• Unable to repay loans in time allocated.
  (Normally 7-8 years)
• Unless some land allocated for subsistence crops,
  widespread hunger and indebtedness because no
  income from sugar cane sales
• Financial stress undermines the social cohesion
  that is vital for the efficient running of a
  communally managed irrigation scheme.

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Project achievements

• Depends on the model being followed
• Model 1 Convert all rain-fed farming to sugar
  cane
• Model 2 Convert most rain-fed farming to sugar
  cane and allocate some irrigated land for food
  security
• Model 3 Allocate each homestead an irrigated
  home garden

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Outcomes

• Model 1 Significant reduction in food security,
  especially for the poorest
• Model 2 Provides some food security for those
  with least alternative incomes
• Model 3 Enables many to produce significant
  increases in irrigated crops in addition to sugar
  cane.

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Model 3 Home gardens

• Each FA member allocated 0.5 ha around the home
• The garden is irrigated
• The homestead is given potable water plus a flush
  toilet to a septic tank

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Further evidence of social benefits from
irrigation

• Increasing range of crops for subsistence and
  sale
• Experimentation with new crops

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Benefits to diet
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Diversification by FAs
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Consequences of diversification

• Undermines the contract between FA and bank as no
  opportunity to divert revenues before the farmer
  receives them
• Alternative crops require more effort in
  marketing than sugar cane
• FAs association sales undermine those from home
  gardens
• Any large-scale failure to repay loans undermines
  future irrigation projects in the Lower Usuthu
  and elsewhere in the Swaziland low veld.

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What should be the EUs response?

• Provide soft loans to FAs during their repayment
  period