Domestic Markets

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• Sugar

  
  

  Illovo enjoys a meaningful share of the domestic sugar markets in the countries in which it operates and domestic market sales contributed 63% of total revenue.

  
  

  During the season, the SACU sugar market was essentially flat year-on-year at just under two million tons. The major suppliers into this market are the South African and Swaziland sugar industries. Minimal imports from Southern African Development Community (SADC) sugar producing countries were sold into SACU this season. Duty-paid imports declined from last year’s levels and amounted to 105 000 tons. The rationalisation of Illovo’s South African operations has resulted in a more streamlined focused business and domestic sugar sales were ahead of expectations. In South Africa, 65% of total production was sold into the SACU market. Illovo is Malawi’s sole sugar producer and in the 2009/10 season, domestic sales comprised approximately 66% of total sales. Zambia Sugar experienced strong demand in its domestic market with sales increasing by 10% during the year. In Swaziland, Ubombo accounted for about 35% of industry sales. Swaziland’s domestic sales in 2009/10, undertaken by the Swaziland Sugar Association into the SACU market, represented approximately 54% of total sales. In Tanzania, Kilombero’s total production was sold into the domestic market which benefited from improved returns due to higher regional prices. Industry sugar production in Mozambique was higher than in the previous season and Maragra’s share of industry production was 32%, with around 67% of its total sales being sold into the domestic market.

  
  

  Syrup is produced in South Africa and Zambia with both products being brand leaders in their 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 US.

• Downstream

  
  Whilst the group’s range of downstream products is primarily aimed at export markets, the Merebank and Glendale distilleries remain important suppliers of ethyl alcohol to the South African beverage, pharmaceutical and industrial chemical industries. Relatively small volumes of furfural and its derivatives, including Crop Guard, a furfural-based agricultural nematicide under the Agriguard range of products, as well as lactulose, are sold in the local South African market.

Export Markets

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• Sugar

  
  

  Preferential markets

  
  

  The new preferential market access arrangements into the EU, albeit with a concomitant reduction in the minimum reference price, provided the market certainty required for Illovo to invest in significant additional sugar production capacity with a view to exporting a large portion of this additional tonnage into the EU. In Malawi, speciality sugars are produced for markets in the EU and the US, whilst Zambia also currently produces speciality sugars for the EU market. During the year, the group’s preferential exports from Malawi, Swaziland, Mozambique and Zambia amounted to approximately 277 000 tons.
   
  Regional markets

  
  

  The higher average world market price and the tight supply conditions as a result of lower production in Zimbabwe 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.

  
  

  More than 100 countries produce sugar around the world either from sugar beet or sugar cane. Approximately 79% 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, 71% of the world’s sugar is consumed in the countries of origin, whilst the balance is traded on world markets. Because of the residual nature of the world market, the world market price has historically been one of the most volatile of all commodity prices.

  
  

  The five largest exporters in 2009/10, Brazil, Thailand, Australia, EU and SADC, are expected to supply approximately 93% of all world free market exports. South Africa is currently ranked as the 8th largest exporter to the world market. None of the other countries in which Illovo operates exports sugar to the world market.

  
  

  The world sugar price lived up to its reputation as being one of the most volatile commodities, trading to record highs of US30 cents/lb early in the first quarter 2010, before correcting to levels below US15 cents/lb towards the end of April 2010. An improving supply position out of Brazil and India, coupled with the EU’s decision to export an additional 500 000 tons of out-of-quota exports onto the world market, has resulted in market sentiment turning around very quickly to a more bearish outlook.

  
  

  

  
  The SASA export allocation for bulk sugar was around 766 000 tons, which represents 35% of total industry production for the 2009/10 season. SASA achieved an average price of US16.53 cents/lb compared to US12.77 cents/lb in the previous season, and realised approximately R2.3 billion in export proceeds.

• Downstream

  
  The group is a material player in most of the world markets in which it participates, and exports, furfural, furfuryl alcohol, diacetyl, 2.3-pentanedione, ethyl alcohol and lactulose to 85 countries. In addition, BioMass Sugar, a liquid organic fertilizer derived from sugar cane is being sold to a growing number of international markets. The stronger rand impacted negatively on downstream export revenues, which during the year under review, contributed R595 million to group revenue.