Malawi upbeat on sugar exports

By Thom Khanje

Lilongwe, Malawi August 17, 2009 -- Illovo Sugar Malawi Limited says although Malawi does not export its sugar into the open overseas markets, the company would enjoy from the current souring of sugar prices on the international markets through its exports to Zimbabwe , Burundi and Rwanda .

Illovo Sugar Malawi spokesperson Ireen Phalula said in an interview on Wednesday the company’s sugar exports to Europe are based on fixed prices but was optimistic that the country would reap from regional exports under Comesa which are based on market prices driven by supply and demand.

“We may not be on the larger world market but we hope to get some benefits from our exports to Burundi , Rwanda and Zimbabwe ,” said Phalula.

International sugar prices have this week soured to their highest rate since 1981 following an increase in demand as a result of demand for the product in Brazil and expected fall in production in India .

The BBC reported on Tuesday that raw sugar futures have 3 percent, with the average price hovering above 22 US cents per pound this week, the highest for 28 years.

"The main problem is a deficit in sugar supplies," BBC quotes Nick Penney, a trader with Sucden Financial, a firm that focuses on sugar trading.

Growing demand in Brazil for sugar to be turned into ethanol, coupled with a sharp fall in Indian production, have both prompted worries, he explained.

Sugar production in India for 2008-09 fell 45% year-on-year, according to a report by Sucden and quoted by the BBC.

And a "drastic fall" is expected for the coming Indian crop, it said.

India had less rain in the monsoon season and it was also uneven, damaging a number of agricultural crops.

There are concerns that the pending sugar crop, which will be ready around November, will be inadequate.

"This [sugar market] train is running express," said Alex Oliveira, senior sugar analyst for Newedge USA in New York .

"It's feeding on itself."

Malawi exports an average of 50,000 tons of sugar to Europe and another 50,000 tons to the regional markets out of a total of 300,000 of sugar it produces in the country annually.Illovo produces 300,000 tons of sugar every year of which 200,000 tons is sold to local industrial and consumer markets while the rest is for export to EU , USA , Southern and Eastern parts of Africa and other world markets.Malawi is expected to start quota free preferential sugar exports to Europe under the Everything But Arms – EBA deal with the European Union in October this year.

Illovo Sugar, the country’s sole sugar producer, trades with Europe companies under a quota system under three schemes namely: ACP/EU Sugar Protocol, Complementary Quota and later under the Everything-But-Arms (EBA).

Although the country has an option of remaining under the EBA for its future trade with Europe, the Malawi government is currently negotiating for a new Economic Partnership Agreement – EPA with the Europe which, if accepted by Malawi, could also open up to the country to goods made in Europe on duty free entry.