Tongaat pins hope on economic recovery

HARARE - Tongaat Hulett (Tongaat) is pinning hopes on Zimbabwe’s economic recovery to boost its operations in the impoverished southern African country.

The group’s chief executive Peter Staude said improved economic activities in the country will result in increased sugar consumption.

“Growth is expected in consumption per capita, off a low base, particularly in Mozambique and partly in Zimbabwe, supported by distribution, industrialisation and marketing initiatives,” he said.

This comes as the company’s production and sales volumes in the first half of 2016 were relatively consistent with the prior year, notwithstanding a later start to the current season and a higher proportion of production expected in the second half of the current year.

Staude noted that the first half of the current year has also seen a higher level of out-grower cane payments compared to the first half of last year.

“In addition, the division of proceeds in favour of the growers is out of line with the region, not taking cognisance of the full capital employed in the milling operations and is not sustainable,” he added.

The South Africa-headquartered sugar producer, with operations in Botswana, Namibia Mozambique, Swaziland and Zimbabwe, is expecting to benefit substantially from improved local sugar market revenues with the improved import protection measures and better export revenues. Actions to reduce costs continue.

Staude said total sugar production in 2016/17 would continue to be impacted by the effects of the drought in KwaZulu-Natal and irrigation having been reduced as a mitigation measure against poor rainfall and low dam levels in Zimbabwe, Mozambique and Swaziland.

“The estimate for sugar production in total for 2016/17 is between 1 000 000 and 1 100 000 tonnes, compared to 1 023 000 tonnes last year,” he said, adding that the weather forecast for the coming summer in the key growing and catchment areas was for average to above average rainfall.

The Tongaat boss noted that given ongoing average to above average rainfall and a recovery of key dam levels, total sugar production is expected to recover over two years, to between some 1 200 000 and 1 300 000 tonnes in 2017/18 and to between some 1 500 000 and 1 600 000 tonnes in 2018/19.

“Tongaat Hulett’s marginal cost of additional sugar production is typically $110 per tonne from own cane and $340 per tonne from third party cane. Realisations, ex-mill, based on current regional and EU market dynamics are above $420 per tonne,” Staude said.

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