Illovo continues to benefit from strong market shares in each of the domestic sugar markets in which it operates and, in the year under review, domestic market sales represented 65% of total sugar sales volumes.

The SACU sugar market showed modest growth of 2% compared to the previous year registering sales of marginally under two million tons. The major suppliers into this market are the South African and Swaziland sugar industries. No imports from SADC sugar producing countries were sold into SACU this season. Higher world sugar market prices resulted in duty-paid imports decreasing to 85 000 tons compared to around 100 000 tons the previous season. The prolonged drought conditions in KwaZulu-Natal had a negative impact on Illovo’s South African production which presented challenges in keeping the market supplied. Notwithstanding these difficulties, domestic sugar sales were ahead of expectations. In South Africa, 83% of total production was sold into the SACU market. Illovo is Malawi’s sole sugar producer and in the 2010/11 season, domestic sales comprised approximately 62% of total sales. Zambia Sugar experienced strong demand in its domestic market with sales increasing by 10% during the year. In Swaziland, Ubombo Sugar accounted for about 34% of industry sales. Swaziland’s domestic sales in 2010/11, undertaken by the Swaziland Sugar Association into the SACU market, represented approximately 51% of total sales. In Tanzania, almost all of Kilombero’s total production was sold into the domestic market which benefited from improved returns due to higher regional prices. Whilst Maragra’s local sales were affected by reduced production, industry sugar sales in Mozambique reflected annual growth of 3.4%, with most of the growth coming in the raw sugar consumer and refined sugar industrial markets.

Syrup is produced in South Africa and Zambia with the product being a brand leader in each of the respective domestic markets. Speciality sugars made in South Africa are for domestic consumption, whilst in Malawi and Zambia they are produced for preferential markets in the EU and in the case of Malawi, also in the USA.

Preferential markets

The EU sugar market underwent a major transformation towards the end of the year with prices reaching record highs in response to a sugar shortage arising from a lower beet harvest and less sugar imports than anticipated. In an attempt to alleviate the shortage, the EU Commission dropped the €98 per ton duty on imports, re-allocated 500 000 tons of out-of-quota sugar into the domestic market and opened a duty-free sugar import quota (TRQ) allocation of 300 000 tons in April. This was 55 times over-subscribed resulting in importers receiving less than 6 000 tons per application. EU prices may ease from the record highs seen in recent months, but are expected to settle at a level much higher than a year ago.

During the year, the group’s preferential exports to the EU and the USA from Malawi, Swaziland, Mozambique and Zambia amounted to approximately 292 000 tons.

Regional markets

The higher average world market sugar price and the tight supply conditions had a positive impact on regional market prices. Illovo was able to take advantage of this opportunity by selling into the regional markets in Southern Africa.

World market

More than 100 countries produce sugar around the world either from sugar beet or sugar cane. Approximately 81% of total production is made from sugar cane grown primarily in the tropical and sub-tropical zones of the southern hemisphere, and the balance from sugar beet which is grown mainly in the temperate zones of the northern hemisphere. Generally, the costs of producing sugar from sugar cane are lower than those in respect of processing sugar beets. Currently, 72% of the world’s sugar is consumed in the countries of origin, whilst the balance is traded on world markets.

The world market sugar price lived up to its reputation as being one of the most volatile commodities, trading to record highs of US32 cents/lb early in the first quarter of 2011, before correcting to levels of around US23 cents/lb towards the end of May 2011. An improving supply position out of Thailand and India, combined with an expectation of a reasonable Brazilian crop has resulted in market sentiment turning around very quickly to a more bearish outlook.

The SASA export allocation of 326 000 tons for bulk sugar was significantly down on the previous year due to the drought, representing 17% of total industry production for the 2010/11 season. SASA achieved an average price of US17.70 cents/lb compared to US16.53 cents/lb in the previous season, and realised approximately R1.1 billion in export proceeds.