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Local Consequences of international actions. How changes to the EU Sugar Protocol impact on the rural poor in Swaziland. IFAD (2001) Population in absolute poverty: billions. The paradox of rural development.

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Local consequences of international actions l.jpg

Local Consequences of international actions

How changes to the EU Sugar Protocol impact on the rural poor in Swaziland



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The paradox of rural development

  • UN Millenium Goal is to half world poverty by 2015 but aid to the places where most of the absolute poor live is falling in real terms.

  • Value of aid to agriculture in late 1990s was only 35% in real terms of the value in late 1980s. (IFAD)


Swaziland is a member of the african caribbean pacific group acp l.jpg
Swaziland is a member of the African Caribbean Pacific Group (ACP)

  • 1975: Lome Agreement one of whose Protocols applies to Sugar. (18 of the 77 ACP countries are signatories of the Sugar Protocol)



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Why is the ACP Sugar Protocol important? (ACP)

  • ACP sugar producers have a guaranteed quota to the EU.

  • The EU pays the same price to ACP sugar cane producers as it does to its sugar beet producers.

  • Since 1975 these prices have averaged between 2 to 3 times higher than world market prices.



Income transfers to acp countries from sugar protocol premium 1980 1990 transfer as a of gdp l.jpg
Income transfers to ACP countries from Sugar Protocol premium: 1980-1990: Transfer as a % of GDP

  • Mauritius: 9.52

  • Guyana: 8.93

  • Swaziland: 6.97

  • St. Kitts: 6.38

  • Zimbabwe: 0.24

  • Tanzania: 0.06


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Who have been the main beneficiaries in Swaziland? premium: 1980-1990: Transfer as a % of GDP

  • Large estates

    Made up 97 per cent of production in 2000


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The importance of the Swaziland sugar industry to the economy: 2003

  • 18 per cent of GNP

  • 11 per cent of wage employment

  • 16 per cent total export earnings

  • 55 per cent of agricultural earnings


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Location of the sugar industry sugar mills economy: 2003

Sugar Mills

Mhlume

Simunye

Big Bend

.Simunye

The sugar industry

Is located in the

Low veld:

Requires irrigation

Most irrigation on

title deed land:

63,600 TDL

3,400 SNL


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Resource base for the rural population on Swazi Nation Land economy: 2003

  • Majority rely upon rain-fed farming

  • Rainfall is seasonal and highly variable, especially in the low veld

  • The low veld contains a large number of soils suitable for irrigation

  • Average farm size on SNL from 1-1.7 hectares (halved since 1967)


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The need for rural development economy: 2003

  • GDP per capita US$1,300 per annum: 2001 (Lower middle income country)

  • But:

  • 80 per cent of rural population live close to absolute poverty

  • 63 per cent rely on river water for drinking

  • 30 per cent have no toilet of any type

  • Infant mortality rate 91/1000/annum (Africa 80)

  • Life expectancy 1996: 57

  • 2000: 40



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The role of sugar in developing Swazi Nation Land economy: 2003

  • Enables farmers without title deed to land to borrow to finance irrigated sugar projects

  • Since 2001 the main area has been the Komati Downstream Development Project associated with the Maguga Dam on the Komati River


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KDDP Locality Map economy: 2003

Drikopies

Dam

PDA

Pigg’s Peak

Tshaneni

Maguga

Dam

Mhlume

Nkomazi


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The Project economy: 2003

PDA

25 000 persons on 27 000 ha

6 000 ha of irrigation costing

E 350 Million

Mhlume Mill

Extra 80 000 Tonne sucrose

Expansion costing E 300 Million

Maguga Dam

83 Million cu m of water

E 400 Million


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Sugar Cycle economy: 2003

Quota is a Contract


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Assumption behind the project economy: 2003

  • Access to ACP market at higher than world prices


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Proposed changes to the EU Sugar Regime economy: 2003

  • “Sugar was the only remaining sector where there had been no change for 30 years” Frans Fischler July 2004

  • Cut in sugar prices paid to EU beet producers by one-third

  • Removal of the existing quota system

  • To be implemented by 2008-09


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Project funding economy: 2003

  • Farmers Associations borrow from commercial banks

  • Typical borrowing: Intamakuphila FA: 130 members: Borrowed US$2.1 million

  • Interest rate 17 per cent per annum

  • 300 ha’s


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Assumptions in business plan: 2001 economy: 2003

  • Average yield 115 tons per hectare sugar cane

  • Average sucrose price 1600 E per ton sucrose

  • Average sucrose content 13.5 per cent


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Actual performance to date economy: 2003

  • 90-100 tons per hectare

  • 1200 E per ton

  • 13 per cent sucrose

  • Thus the finances are already unable to meet full loan repayments

  • Many FA’s are worse off because they are further than 26 kms from the mill (the economic distance to haul sugar cane on gravel roads)


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EU sugar price regime changes economy: 2003

  • By 2007 EU sugar prices expected to drop by 37 percent


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Consequences for farmers association members economy: 2003

  • Unable to repay loans in time allocated. (Normally 7-8 years)

  • Unless some land allocated for subsistence crops, widespread hunger and indebtedness because no income from sugar cane sales

  • Financial stress undermines the social cohesion that is vital for the efficient running of a communally managed irrigation scheme.


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Project achievements economy: 2003

  • Depends on the model being followed

    Model 1: Convert all rain-fed farming to sugar cane

    Model 2: Convert most rain-fed farming to sugar cane and allocate some irrigated land for food security

    Model 3: Allocate each homestead an irrigated home garden


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Outcomes economy: 2003

Model 1: Significant reduction in food security, especially for the poorest

Model 2: Provides some food security for those with least alternative incomes

Model 3: Enables many to produce significant increases in irrigated crops in addition to sugar cane.


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Model 3: Home gardens economy: 2003

  • Each FA member allocated 0.5 ha around the home

  • The garden is irrigated

  • The homestead is given potable water plus a flush toilet to a septic tank


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Further evidence of social benefits from irrigation economy: 2003

  • Increasing range of crops for subsistence and sale

  • Experimentation with new crops


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Benefits to diet economy: 2003



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Consequences of diversification economy: 2003

  • Undermines the contract between FA and bank as no opportunity to divert revenues before the farmer receives them

  • Alternative crops require more effort in marketing than sugar cane

  • FA’s association sales undermine those from home gardens

  • Any large-scale failure to repay loans undermines future irrigation projects in the Lower Usuthu and elsewhere in the Swaziland low veld.


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What should be the EU’s response? economy: 2003

  • Provide soft loans to FA’s during their repayment period