/ 26 May 2014

Sugar producers brace for wage strike

Mauritius is converting precious farmland into housing estates and shopping malls.
Mauritius is converting precious farmland into housing estates and shopping malls.

About 5 500 sugar workers in South Africa plan to strike tomorrow demanding an 11% increase in pay, a 40-hour working week and a monthly housing subsidy of R800.

Employers including Illovo Sugar and Tongaat Hulett, Africa’s two biggest producers, have offered raises of 8.5% meaning the two sides are “relatively close,” Tongaat chief executive Peter Staude said in an interview. Inflation was 6.1% in April, according to the statistics agency.

South Africa is already beset by its longest and most costly mining strike, which began four months ago when platinum workers downed tools at Anglo American Platinum, Impala Platinum Holdings and Lonmin, the world’s biggest producers of the metal. The strike is hampering economic growth, Gill Marcus, governor of South Africa’s central bank, said last week.

Tongaat will mitigate the effect of the strike by running its mills longer at the end of the year if needed, Staude said.

“The mills actually shut down in November normally,” he said. “You always have the possibility later in the year to run a little bit longer. We are constrained by cane rather than milling capacity so that also helps.”

The rand weakened 0.3% against the dollar to 10.3257, the first decline in four days.

Illovo’s net income increased 6.5% to R916-million rand in the year through March as production climbed, while Tongaat’s earnings rose 7% to R1.16-billion after a boost from land sales in Kwa-Zulu Natal province, the companies said in separate statements on Monday.

Bottom end
Sugar prices fell 42% over three years through 2013 after growers from Brazil to Australia raised output, leading to a global surplus. That made the sweetener cheaper to import to South Africa and harmed local producers. Illovo has sought to mitigate the impact by diversifying its business into alcohol- based products while Tongaat is selling land near Durban for residential development.

“Sugar is a cyclical commodity and we are currently at the bottom end of the cycle,” Mount Edgecombe, South Africa-based Illovo said. “We expect this cycle to turn in the short to medium term and thus benefit from the huge growth in Africa.”

South Africa raised the dollar-based reference price of sugar last month, meaning importers will have to pay tariffs on shipments for the first time in four years.

“Better import protection should lead to lower exports being necessary,” Tongaat said.– Bloomberg