The news is still very hard to digest. The European Union (EU) has decided to apply a 36% price cut on the sugar it produces and what it imports from the African Caribbean and Pacific (ACP) group of countries. Mauritius, which has the lion’s share in the ACP quota, is among the hardest hit.

The price cuts will be implemented phase-wise: 5% in 2006-07, 5% in 2007-08, 15.6% in 2008-09 and 36% in 2009-10. The preferential price of the Sugar Protocol that Mauritius has been enjoying since the mid-70s is seriously eroded. Unless the country speeds up the pace of the ongoing reform in the sugar sector and quickly redefines the boundaries of the industry, cane cultivation and sugar production will become part of history in a few years’ time – with extremely painful consequences for our socio-economic fabric.

The verdict of the European council of Agriculture ministers on the matter means that lobbying efforts cannot buy time anymore. Sugar diplomacy should now rather focus on seeking the best possible compensation package from Europe in the context of the price cuts.

Handouts from EU will be extremely helpful in a number of ways. First, sugar producers are expecting some kind of support to make up for the shortfall in earnings during the early years of the reform. But, more importantly, money will be needed to fund the restructuring and reorienting of the sugar industry.

Some Rs 23,5 billion will be needed to restructure and reshape the sugar sector during the next 10 years as per the current reform roadmap. Given the fall in earnings, the industry will not be in a position to generate these resources on its own. Financial support from Europe will be forthcoming.

Government is keen to promote a cane industry as opposed to a sugar industry. This implies prioritising the industrial and commercial development of sugar by-products, namely ethanol production on a much wider scale. Furthermore, energy production from bagasse will be given a renewed emphasis.

<I>A big challenge to the government is to get the small planters on board. The latter are the most vulnerable segment of the sector and need much closer attention to remain competitive.</I>

The minister of Agro-Industry, Arvin Boolell, told l’express that the EU might be interested in considering bankable projects in those areas. Mauritius will have to work out a new strategy for the industry if it wishes to get the EU financial endorsement for its new sugar initiatives.

But, besides the change in the contours of the industry, the sugar activity will have to become more cost-efficient. The industry has already seen a first wave of voluntary retirement as part of a massive labour costs reduction plan. A further contraction in the labour force is inevitable though no formal plan to that effect is on the table at this point in time.

A big challenge to the government is to get the small planters on board. The latter are the most vulnerable segment of the sector and need much closer attention to remain competitive. A 36% price drop will definitely put most of them out of business if nothing is done to help them reduce field operation costs whilst expanding output. They should also participate in energy projets and in the other activities considered for further development.

This substantial price drop is bound to have far-reaching effects on the whole economy. First, a huge drop in foreign exchange earnings will impact adversely on international reserves. Secondly, reduced export receipts of this magnitude will have a lasting effect on national output and, subsequently, on the level of economic growth.

The industry still has two years to adjust to the new market conditions. There will be huge transition costs involved. But a lot will depend on our success in finding remunerative markets for the new sugar by-products.