VZCZCXRO1282
RR RUEHPB
DE RUEHSV #0287/01 1981743
ZNR UUUUU ZZH
R 171743Z JUL 06
FM AMEMBASSY SUVA
TO RUEHC/SECSTATE WASHDC 3201
INFO RUEHBY/AMEMBASSY CANBERRA 1254
RUEHML/AMEMBASSY MANILA 0181
RUEHPB/AMEMBASSY PORT MORESBY 0867
RUEHWL/AMEMBASSY WELLINGTON 1045
RUEHNE/AMEMBASSY NEW DELHI 0082
RUEHBS/USEU BRUSSELS

UNCLAS SECTION 01 OF 03 SUVA 000287 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
Manila for ADB Mission 
 
E.O. 12958:  N/A 
TAGS: ECON EAGR ENRG SENV EUN FJ IN
SUBJECT:  Fiji's Sugar Industry: An Uncertain Future 
 
Ref:  05 Suva 388 
 
This message is sensitive but unclassified.  Please handle 
accordingly. 
 
Summary 
----------- 
 
¶1.  (SBU)   For decades, sugar has been the backbone of Fiji's 
economy.  Nearly a quarter of the population depends on the sugar 
industry.   The EU decision to drastically cut sugar subsidies over 
the next four years, however, casts a giant shadow over the 
industry's future.  A variety of fixes have been proposed, including 
upgrading equipment to increase mill efficiency, consolidating 
small-scale farm holdings to facilitate mechanization, expanding 
cogeneration to power the mills and generate surplus power, and 
exploring the production of ethanol.   So far, the government has 
focused primarily on mill upgrades, financed by a controversial and 
expensive loan from India.  Detailed exploration of alternative uses 
for sugar and sugar by-products continues to lag.    End Summary. 
 
The Landscape of Sugar 
----------------------------- 
 
¶2.  (U)  About 20,000 small landholders grow sugar in Fiji, and 
sugar is a source of direct employment for 51,000 persons here, 
according to the Fiji Reserve Bank.  In a speech at the Lautoka 
Sugar Mill June 27, Prime Minister Qarase declared that 200,000 
persons, nearly one-quarter of Fiji's population, depend on sugar 
for survival.  "One can only imagine the economic and social ills 
that will arise if the industry collapses," he said. 
Unfortunately, the sugar industry in Fiji, already in substantial 
decline, faces even more difficult times in the years ahead.  The 
main market for Fiji sugar is the EU.   However, EU sugar subsidies 
are scheduled to drop by 36% from 2005 levels by 2010, and will be 
phased out further in later years, leading to an EU price below 
Fiji's current sugar production costs.  Because EU subsidy cuts are 
modest in the first two years of the program (about 5% cumulatively) 
and accelerate in the 2008/9 and 2009/10 growing seasons, Fiji 
effectively has about two years to implement major efficiency 
improvements and/or restructuring.  The EU will give Fiji FJ$8.8 
million (about USD 5.1 million) this year to help Fiji's 
restructuring efforts.  More funds will be granted in subsequent 
years.  The government of Fiji has not yet announced how the funds 
will be used, but the EU aims to focus on making cane production 
more efficient.  The ADB reportedly is preparing plans to assist 
workers displaced from sugar find new livelihoods. 
 
Fiji's Sugar Farmers See 
the Writing on the Wall 
------------------------------ 
 
¶3.  (SBU)  Most sugar in Fiji is produced by small family farms of 
3-4 hectares.  Most growers are Indo-Fijians who lease farmland from 
indigenous Fijian communal landowners.  Farmers use traditional 
techniques; only a few own tractors.   Traditionally, farmers 
planted and harvested sugar cane one year and used the ratoon (a new 
plant that grows from parts of the previous plant) one or two years 
further before replanting.  They also let a portion of the land lay 
idle for a year so that the soils could replenish themselves. 
Officials at the Fiji Sugar Corporation (FSC)  told Emboff that this 
traditional way of farming served Fiji well for many years.  They 
complain, however, that because of land-lease issues (many long-term 
leases have expired in recent years) and lack of confidence in the 
long-term future of the sugar industry, farmers are not re-investing 
in the land.  Today, they said, farmers typically farm ratoon for as 
many as 9 or more years to avoid the high costs of replanting, and 
don't let fields go fallow to recuperate.  This results in cane 
harvests of poor quality and low volume - far too low for Fiji's 
four sugar mills to run efficiently. 
 
¶4.  (SBU)  Several employees at the Lautoka Sugar Mill (the largest 
in Fiji) told Emboff that many farmers are also choosing to leave 
the land long before their leases expire because of opportunities in 
the expanding tourism industry adjacent to the sugar belt. 
According to sugar mill employees, up to thirty percent of farms may 
have been abandoned.  The exodus of farmers is accelerating the 
industry's decline, they said. 
 
One Proposed Solution - Make the 
Company the Landowner 
------------------------------------------ 
 
 
SUVA 00000287  002 OF 003 
 
 
¶5.   (SBU)  FSC officials told Emboff the only way to solve the 
supply problem and to overcome the exodus of small sugarcane farmers 
is for the company to lease small farms and combine them into 
larger, mechanized farming operations.  FSC officials claimed that 
this will make the system much more efficient.  When pressed about 
how the land will be managed and who will provide the farming 
expertise, however, FSC officials did not elaborate. 
 
Will Refurbishing the Mills 
Make a Difference? 
--------------------------------- 
 
¶6.  (SBU)  Charlie Walker, the new Chairman of FSC, told us 
government plans to refurbish Fiji's sugar mills will go a long way 
toward making Fiji's sugar industry globally competitive once again. 
  A FJ$86 million (USD 49 m.) loan from India's Exim Bank will be 
used to retrofit three of the four mills.  The fourth and smallest 
mill will be retrofitted with old equipment from the other three. 
This process will begin in December 2006, after the crushing season, 
said Walker, with completion expected by June 2007.   Walker noted, 
however, that the refurbished mills would only be efficient if FSC's 
efforts to increase sugarcane supply and quality are successful. 
 
¶7.  (SBU)   Not everyone agrees that the loan from India will be of 
much help.  All of the new equipment will be sourced from India 
under the deal, and one former FSC official worried that 
consultant's fees and added charges make the loan very expensive. 
A more open bidding process, he said, would have brought Fiji a much 
better deal - almost any Exim bank in the world would have come 
through with a better offer than Fiji received from India.   The 
former official also argued that the small fourth mill will never to 
be efficient and should be shut down.  Several of the engineers 
Emboff spoke to in Lautoka shared these views.  They also questioned 
whether the scheduled refurbishment of mills would be completed 
before the 2007 crushing season. 
 
Transportation Is Another Challenge 
-------------------------------------------- 
 
¶8.   (SBU)  Transportation of cane to the mills is another difficult 
problem.  FSC officials told Emboff they consider transportation the 
most inefficient part of the production process.  The tracks for the 
small-gauge farm trains that carry the cane from the fields to the 
mills are over 70 years old and are not well maintained.  Delays 
cause tons of sugarcane to reach the mills much later than planned, 
resulting in a lower quality sugar product.  Rather than spend the 
FJ$22 million needed to fix the trains, FSC would like to reorganize 
the system to use trucks only.  FSC believes this will speed up the 
transport time and increase the efficiency of cane transport. 
However, this will increase the burden on farmers because they will 
have to pay for fuel and maintenance of the vehicles.  (Currently, 
the Fiji Electricity Authority (FEA) pays for the energy costs of 
the train system.) 
 
Alternative Strategies - Cogeneration 
--------------------------------------------- 
 
¶9.  (SBU)  FSC Chairman Walker and other officials we talked to said 
expanded electricity cogeneration will be a big part of the 
restructuring.   Currently, Lautoka is the only mill capable of 
cogeneration.  The mill burns the crushed and dried sugarcane leaves 
and stalks left after the cane juice extraction to create steam. 
Large on-site turbines generate energy from the steam to power the 
mill.  During the crushing season, the mill can power most of its 
own operations and still sell six megawatts of power to the FEA, the 
national electrical utility.  In the off-season, the mill must buy 
energy from FEA.  FSC anticipates that when the mill is upgraded, it 
will be able to operate its turbines year-round and double the 
mill's surplus energy output.  Year-round cogeneration requires four 
million tons of sugarcane to be crushed, one million more than 
Lautoka's current level. 
 
Biofuels - Much Talk, Little Action 
------------------------------------------- 
 
¶10.  (SBU)  Officials we talked to also pointed to the potential 
benefits of sugar-based ethanol production for Fiji, including 
providing a lucrative market for sugar farmers, lowering fuel import 
costs, and decreasing net greenhouse gas emissions.  However, little 
concrete action has taken place to date.  FSC and experts from 
India's Sugar Technology Mission (STM) plan to conduct a feasibility 
study of biofuels, but this has been delayed until after the mill 
upgrades.  Rumors have circulated saying that ethanol production 
 
SUVA 00000287  003 OF 003 
 
 
will begin at the inefficient fourth mill, but no concrete plans 
have been made. 
 
¶11.   ( SBU)   A Biofuels Development Unit was recently formed in 
the Prime Minister's Office (the PM is concurrently the Minister for 
Sugar and Investment).   A plan for the development of a biofuels 
industry completed by a government-private sector committee calls 
for the creation of a Fiji Biofuels Corporation (FBC) capable of 
exporting ethanol by 2008.   According to officials we talked to, no 
concrete steps have been taken to make FBC a reality. 
 
¶12.  (SBU)  The biofuels initiative was criticized by several 
stakeholders we spoke to.  A high-ranking official in the Ministry 
for Energy and Natural Resources told Emboff that the Prime Minister 
has not held any meetings on the subject and has consequently not 
made many critical decisions, such as the acreage of sugarcane to 
plant, the amount of testing and research required, standards to 
enforce, and regulations to put in place.  The official mentioned 
that many organizations are frustrated and have proceeded on their 
own, despite the lack of direction.  The FEA has begun testing 
generators, the Land Transport Authority (LTA) is testing ethanol in 
engines, and the Department of Energy is working to develop biofuel 
regulations. 
 
Comment 
------------ 
 
¶13.   (SBU)  The leadership of Fiji insists that it is determined to 
make the sugar industry viable again.   Politically, that may make 
short-term sense: over 200,000 people depend on the industry. 
However, as EU subsidies are reduced and farmers find opportunities 
elsewhere, the government appears to be spending millions in an 
attempt to fix an industry that will very likely never be able to 
compete on the global sugar market.  The only hope may be to serve 
Fiji's domestic energy market, and the viability of that route 
depends greatly on long-term costs of petroleum and other fuels. 
 
¶14.  (U)  This message was completed by Embassy Suva's summer 
intern. 
 
Mann 
 
 
 
1