VZCZCXRO9543
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHTO #0958/01 2801805
ZNR UUUUU ZZH
R 061805Z OCT 08
FM AMEMBASSY MAPUTO
TO RUEHC/SECSTATE WASHDC 9424
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHLO/AMEMBASSY LONDON 0249
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 MAPUTO 000958 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAGR ETRD ENRG ECON EPET SENV
SUBJECT: SWEET DREAMS: MOZAMBIQUE'S SUGAR INDUSTRY GROWS 
 
¶1.  (SBU)  SUMMARY: The Mozambican sugar industry is a 
significant employer and is expected to double production 
over the next three years, targeting duty-free access to the 
EU via the Everything but Arms (EBA) initiative.  Ethanol 
production is under consideration, and may provide a 
complementary product to refineries and growers alike, as a 
means of hedging against future drops in worldwide sugar 
prices.  The domestic sugar market is protected by high 
tariffs and will remain so until 2012, at which point 
Mozambique's sugar industry will face steep competition from 
neighboring South Africa, Swaziland, and Zimbabwe.  The Port 
of Maputo Port continues to benefit from increased South 
African and Zimbabwean sugar exports via the Maputo Corridor. 
 END SUMMARY. 
 
---------------------------- 
OVERVIEW OF MOZAMBIQUE SUGAR 
---------------------------- 
 
¶2.  (U)  Mozambique's sugar production continues to expand to 
meet export requirements, principally for the EU.  Mozambique 
competes with neighboring producers South Africa, Swaziland, 
and Zimbabwe; producing an excellent grade of raw sugar 
through a 9 month growing season of April to December. 
Large-scale sugar production began again in 1999 following 
the cessation of the civil war in 1992.  Currently the 
industry is controlled by a single-desk seller, Acucar 
Nacional, the national sugar board which controls the 
purchasing and export of the product and manages domestic 
supply ensuring that all surpluses are exported, while 
closely controlling the domestic sugar price. 
 
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INDUSTRY SUPPORTING RURAL EMPLOYMENT AND SMALL GROWERS 
--------------------------------------------- --------- 
 
¶3.  (U)  There are three main multi-national companies 
involved in the Mozambican industry, and only four raw 
sugar-producing refineries in Mozambique (Maragra, Xinavane, 
Sena, and Mafambisse).  The sugar industry is a significant 
rural employer, with a current work force of roughly 27,000. 
The industry is also actively supporting small cane growers 
who on average hold acreage of about 1/4 hectare and do not 
have access to traditional financing.  As such, Mozambique's 
mills are providing financial support, fertilizer, and access 
to machinery, as well as providing expertise in crop 
planning.  Supporting small growers has added spin-offs for 
local communities, with increases in small grower food 
production which contributes to rural development. 
 
------------------------------------------ 
SUGAR PRODUCTION GROWING TO MEET EU DEMAND 
------------------------------------------ 
 
¶4.  (SBU)  Last year, Mozambique produced 240,260 tons of raw 
sugar, and expects to produce nearly 270,000 tons in 2008. 
Fifty percent ($65 to 70 million dollars worth) is exported, 
mostly to the EU.  No Mozambican sugar was exported to the 
United States in 2007 due to pricing and transportation 
costs, which make Mozambican sugar uncompetitive in U.S. 
markets.  The country does currently export to East Africa, 
Pakistan, and Indonesia; however, thanks to the 
liberalization of the EU markets, Acucar Director General 
Robert Dean told Econoff on October 2 that he believes the EU 
will become the sole market for Mozambican sugar exports in 
the near future. 
 
¶5.  (U)  Because of tariff liberalization in the EU, the 
sugar industry expects to double production to 500,000 tons 
over the next three years, creating 3,000 new jobs. 
Mozambican sugar will begin entering the EU duty free in 
January 2009 via the "Everything but Arms" (EBA) Initiative, 
which allows duty free imports into the EU from Least 
Developed Countries.  Despite recent drops in the price of 
sugar on the EU market and rising transportation costs, the 
EBA allows Mozambican sugar to be competitive, thanks to the 
elimination of duties.  As a result of the EBA, the industry 
has carried out some $610 million in improvements, expanding 
both processing capacity and arable land under cane 
cultivation. 
 
--------------------------------------------- ------ 
INDUSTRY PUSHES FOR ETHANOL, SUPPORTS SMALL GROWERS 
--------------------------------------------- ------ 
 
¶6.  (SBU)  Backed by the GRM, which is interested both in 
employment generation and greater energy independence, Dean 
told Econoff that the sugar industry is planning to begin 
biofuel production, specifically in cane-based ethanol. 
 
MAPUTO 00000958  002 OF 002 
 
 
While profitability concerns still exist, ethanol production 
(which could take place in existing sugar refineries) could 
prove to be a useful hedge against future drops in the price 
of sugar on world markets.  Currently there is no port-based 
infrastructure to handle potential ethanol exports, but GRM 
plans appear to be focused on using ethanol primarily in 
domestic markets. 
 
--------------------------------------------- ----- 
MOZAMBIQUE'S TARIFF REGIME AND SADC LIBERALIZATION 
--------------------------------------------- ----- 
 
¶7.  (U)  While the industry is increasingly more efficient, 
variable import taxes protect the Mozambican sugar industry 
from import-led competition--protection which will continue 
until 2012, despite SADC tariff liberalizations.  Currently, 
if greater competition were introduced into the market, it is 
estimated  that half of the refineries would close.  After 
2012, Mozambique expects competition from South African, 
Swazi, and potentially Zimbabwean sugar in the domestic 
market.  Without additional protection from more 
efficiently-priced SADC competitors, or significant increases 
in competitiveness, Mozambican sugar could face a bleak 
post-2012 future. 
 
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MAPUTO PORT BENEFITING FROM S. AFRICAN AND SWAZI SUGAR 
--------------------------------------------- --------- 
 
¶8.  (SBU)  Roughly 135,000 tons of Mozambican sugar flows 
through the Port of Maputo per year, exported in bulk.  The 
port, and the Maputo Corridor which leads to the border with 
South Africa has also become a convenient export point for 
South African and Swazi refined sugar, accounting for 80,000 
and 85,000 tons respectively of (non-bulk) bagged sugar from 
Maputo in 2008.  The Port's bagged sugar operations employ in 
excess of 90 people in a new $3 million warehouse with a 
capacity of 27,000 tons.  While theft at the Port used to be 
a major problem, increased security under the management of 
DP World means that average annual theft has dropped to only 
1.4 tons per year.  As SADC sugar production continues to 
take advantage of new access to the EU market, Maputo Port 
will likely continue to benefit from the transit of southern 
Africa sugar exports. 
 
--------------------------------------------- ----- 
COMMENT: SHORT TERM EXPORT-DRIVEN SUCCESS POSSIBLE 
--------------------------------------------- ----- 
 
¶9.  (SBU)  Mozambique's sugar industry expects continued 
export-led growth thanks to the EU's EBA initiative in the 
short term.  If Mozambique does not introduce greater 
efficiencies and increase its competitiveness however, it 
will likely see significant losses of domestic market share 
from SADC competitors after 2012, negatively effecting rural 
employment.  Maputo Port however, should continue to profit 
from South African and Swazi sugar exports as the EU and 
other large markets liberalize tariff and non-tariff 
barriers.  The viability of sugar-based ethanol production in 
Mozambique, a country with vast expanses of unused arable 
land, is theoretically possible; however, profitability is 
still in question.  If large scale cane-based ethanol 
production becomes feasible, it may be a key to success for 
Mozambican sugar, rural employment, and the country's goal of 
energy independence. 
Amani