Identifier
Created
Classification
Origin
06SUVA287
2006-07-17 17:43:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Suva
Cable title:  

Fiji's Sugar Industry: An Uncertain Future

Tags:  ECON EAGR ENRG SENV EUN FJ IN 
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RR RUEHPB
DE RUEHSV #0287/01 1981743
ZNR UUUUU ZZH
R 171743Z JUL 06
FM AMEMBASSY SUVA
TO RUEHC/SECSTATE WASHDC 3201
INFO RUEHBY/AMEMBASSY CANBERRA 1254
RUEHML/AMEMBASSY MANILA 0181
RUEHPB/AMEMBASSY PORT MORESBY 0867
RUEHWL/AMEMBASSY WELLINGTON 1045
RUEHNE/AMEMBASSY NEW DELHI 0082
RUEHBS/USEU BRUSSELS
UNCLAS SECTION 01 OF 03 SUVA 000287 

SIPDIS

SENSITIVE

SIPDIS

Manila for ADB Mission

E.O. 12958: N/A
TAGS: ECON EAGR ENRG SENV EUN FJ IN
SUBJECT: Fiji's Sugar Industry: An Uncertain Future

Ref: 05 Suva 388

This message is sensitive but unclassified. Please handle
accordingly.

Summary
-----------

UNCLAS SECTION 01 OF 03 SUVA 000287

SIPDIS

SENSITIVE

SIPDIS

Manila for ADB Mission

E.O. 12958: N/A
TAGS: ECON EAGR ENRG SENV EUN FJ IN
SUBJECT: Fiji's Sugar Industry: An Uncertain Future

Ref: 05 Suva 388

This message is sensitive but unclassified. Please handle
accordingly.

Summary
--------------


1. (SBU) For decades, sugar has been the backbone of Fiji's
economy. Nearly a quarter of the population depends on the sugar
industry. The EU decision to drastically cut sugar subsidies over
the next four years, however, casts a giant shadow over the
industry's future. A variety of fixes have been proposed, including
upgrading equipment to increase mill efficiency, consolidating
small-scale farm holdings to facilitate mechanization, expanding
cogeneration to power the mills and generate surplus power, and
exploring the production of ethanol. So far, the government has
focused primarily on mill upgrades, financed by a controversial and
expensive loan from India. Detailed exploration of alternative uses
for sugar and sugar by-products continues to lag. End Summary.

The Landscape of Sugar
--------------


2. (U) About 20,000 small landholders grow sugar in Fiji, and
sugar is a source of direct employment for 51,000 persons here,
according to the Fiji Reserve Bank. In a speech at the Lautoka
Sugar Mill June 27, Prime Minister Qarase declared that 200,000
persons, nearly one-quarter of Fiji's population, depend on sugar
for survival. "One can only imagine the economic and social ills
that will arise if the industry collapses," he said.
Unfortunately, the sugar industry in Fiji, already in substantial
decline, faces even more difficult times in the years ahead. The
main market for Fiji sugar is the EU. However, EU sugar subsidies
are scheduled to drop by 36% from 2005 levels by 2010, and will be
phased out further in later years, leading to an EU price below
Fiji's current sugar production costs. Because EU subsidy cuts are
modest in the first two years of the program (about 5% cumulatively)
and accelerate in the 2008/9 and 2009/10 growing seasons, Fiji
effectively has about two years to implement major efficiency
improvements and/or restructuring. The EU will give Fiji FJ$8.8
million (about USD 5.1 million) this year to help Fiji's

restructuring efforts. More funds will be granted in subsequent
years. The government of Fiji has not yet announced how the funds
will be used, but the EU aims to focus on making cane production
more efficient. The ADB reportedly is preparing plans to assist
workers displaced from sugar find new livelihoods.

Fiji's Sugar Farmers See
the Writing on the Wall
--------------


3. (SBU) Most sugar in Fiji is produced by small family farms of
3-4 hectares. Most growers are Indo-Fijians who lease farmland from
indigenous Fijian communal landowners. Farmers use traditional
techniques; only a few own tractors. Traditionally, farmers
planted and harvested sugar cane one year and used the ratoon (a new
plant that grows from parts of the previous plant) one or two years
further before replanting. They also let a portion of the land lay
idle for a year so that the soils could replenish themselves.
Officials at the Fiji Sugar Corporation (FSC) told Emboff that this
traditional way of farming served Fiji well for many years. They
complain, however, that because of land-lease issues (many long-term
leases have expired in recent years) and lack of confidence in the
long-term future of the sugar industry, farmers are not re-investing
in the land. Today, they said, farmers typically farm ratoon for as
many as 9 or more years to avoid the high costs of replanting, and
don't let fields go fallow to recuperate. This results in cane
harvests of poor quality and low volume - far too low for Fiji's
four sugar mills to run efficiently.


4. (SBU) Several employees at the Lautoka Sugar Mill (the largest
in Fiji) told Emboff that many farmers are also choosing to leave
the land long before their leases expire because of opportunities in
the expanding tourism industry adjacent to the sugar belt.
According to sugar mill employees, up to thirty percent of farms may
have been abandoned. The exodus of farmers is accelerating the
industry's decline, they said.

One Proposed Solution - Make the
Company the Landowner
--------------


SUVA 00000287 002 OF 003



5. (SBU) FSC officials told Emboff the only way to solve the
supply problem and to overcome the exodus of small sugarcane farmers
is for the company to lease small farms and combine them into
larger, mechanized farming operations. FSC officials claimed that
this will make the system much more efficient. When pressed about
how the land will be managed and who will provide the farming
expertise, however, FSC officials did not elaborate.

Will Refurbishing the Mills
Make a Difference?
--------------


6. (SBU) Charlie Walker, the new Chairman of FSC, told us
government plans to refurbish Fiji's sugar mills will go a long way
toward making Fiji's sugar industry globally competitive once again.
A FJ$86 million (USD 49 m.) loan from India's Exim Bank will be
used to retrofit three of the four mills. The fourth and smallest
mill will be retrofitted with old equipment from the other three.
This process will begin in December 2006, after the crushing season,
said Walker, with completion expected by June 2007. Walker noted,
however, that the refurbished mills would only be efficient if FSC's
efforts to increase sugarcane supply and quality are successful.


7. (SBU) Not everyone agrees that the loan from India will be of
much help. All of the new equipment will be sourced from India
under the deal, and one former FSC official worried that
consultant's fees and added charges make the loan very expensive.
A more open bidding process, he said, would have brought Fiji a much
better deal - almost any Exim bank in the world would have come
through with a better offer than Fiji received from India. The
former official also argued that the small fourth mill will never to
be efficient and should be shut down. Several of the engineers
Emboff spoke to in Lautoka shared these views. They also questioned
whether the scheduled refurbishment of mills would be completed
before the 2007 crushing season.

Transportation Is Another Challenge
--------------


8. (SBU) Transportation of cane to the mills is another difficult
problem. FSC officials told Emboff they consider transportation the
most inefficient part of the production process. The tracks for the
small-gauge farm trains that carry the cane from the fields to the
mills are over 70 years old and are not well maintained. Delays
cause tons of sugarcane to reach the mills much later than planned,
resulting in a lower quality sugar product. Rather than spend the
FJ$22 million needed to fix the trains, FSC would like to reorganize
the system to use trucks only. FSC believes this will speed up the
transport time and increase the efficiency of cane transport.
However, this will increase the burden on farmers because they will
have to pay for fuel and maintenance of the vehicles. (Currently,
the Fiji Electricity Authority (FEA) pays for the energy costs of
the train system.)

Alternative Strategies - Cogeneration
--------------


9. (SBU) FSC Chairman Walker and other officials we talked to said
expanded electricity cogeneration will be a big part of the
restructuring. Currently, Lautoka is the only mill capable of
cogeneration. The mill burns the crushed and dried sugarcane leaves
and stalks left after the cane juice extraction to create steam.
Large on-site turbines generate energy from the steam to power the
mill. During the crushing season, the mill can power most of its
own operations and still sell six megawatts of power to the FEA, the
national electrical utility. In the off-season, the mill must buy
energy from FEA. FSC anticipates that when the mill is upgraded, it
will be able to operate its turbines year-round and double the
mill's surplus energy output. Year-round cogeneration requires four
million tons of sugarcane to be crushed, one million more than
Lautoka's current level.

Biofuels - Much Talk, Little Action
--------------


10. (SBU) Officials we talked to also pointed to the potential
benefits of sugar-based ethanol production for Fiji, including
providing a lucrative market for sugar farmers, lowering fuel import
costs, and decreasing net greenhouse gas emissions. However, little
concrete action has taken place to date. FSC and experts from
India's Sugar Technology Mission (STM) plan to conduct a feasibility
study of biofuels, but this has been delayed until after the mill
upgrades. Rumors have circulated saying that ethanol production

SUVA 00000287 003 OF 003


will begin at the inefficient fourth mill, but no concrete plans
have been made.


11. ( SBU) A Biofuels Development Unit was recently formed in
the Prime Minister's Office (the PM is concurrently the Minister for
Sugar and Investment). A plan for the development of a biofuels
industry completed by a government-private sector committee calls
for the creation of a Fiji Biofuels Corporation (FBC) capable of
exporting ethanol by 2008. According to officials we talked to, no
concrete steps have been taken to make FBC a reality.


12. (SBU) The biofuels initiative was criticized by several
stakeholders we spoke to. A high-ranking official in the Ministry
for Energy and Natural Resources told Emboff that the Prime Minister
has not held any meetings on the subject and has consequently not
made many critical decisions, such as the acreage of sugarcane to
plant, the amount of testing and research required, standards to
enforce, and regulations to put in place. The official mentioned
that many organizations are frustrated and have proceeded on their
own, despite the lack of direction. The FEA has begun testing
generators, the Land Transport Authority (LTA) is testing ethanol in
engines, and the Department of Energy is working to develop biofuel
regulations.

Comment
--------------


13. (SBU) The leadership of Fiji insists that it is determined to
make the sugar industry viable again. Politically, that may make
short-term sense: over 200,000 people depend on the industry.
However, as EU subsidies are reduced and farmers find opportunities
elsewhere, the government appears to be spending millions in an
attempt to fix an industry that will very likely never be able to
compete on the global sugar market. The only hope may be to serve
Fiji's domestic energy market, and the viability of that route
depends greatly on long-term costs of petroleum and other fuels.


14. (U) This message was completed by Embassy Suva's summer
intern.

Mann



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