Global sugar prices have been exceptionally high during the past financial year due primarily to rising costs in Brazil which accounts for more than 50% of global sugar exports, the increasing impact of the production of ethanol from cane on the market and supply disruptions in major producing countries. Extreme climatic events have played a role, and appear to be increasing in intensity and frequency. Generally industry analysts are of the opinion that, while the market is likely to remain volatile, the outlook for world prices is more positive than it has been in the past decade.

The regional sugar markets in which the group operates (South Africa, Swaziland and Zambia) exhibit different characteristics due to dissimilar regulatory regimes and supply-demand parameters. In South Africa declining production in recent years has resulted in a higher proportion of production sold locally and hence firm prices. In Zambia and Swaziland, however, both of which sell a large proportion of their production to the EU, prices have been relatively weak due to Euro weakness.

In South Africa the Sugar Act which regulates the industry is currently under review and has been for many years. Detailed proposals on the table, which appear largely neutral in terms of the position of growers, are still not agreed by all millers. Opportunities to produce ethanol and in particular co-generate electricity from bagasse have the potential to substantially improve industry prospects, but the required regulations in respect of both have proved slow to materialise.

In Swaziland industry structures and marketing arrangements are also under review, and it is hoped that a revised structure will be implemented in the short term which will result in better prices for millers and growers alike.

Food security concerns worldwide continue to play a role in the general firming of agricultural markets, although significant volatility still exists. There is certainly unprecedented interest from investors in quality farmland in southern Africa. While this has resulted in increased competition for good projects, it has also created opportunities.

In South Africa the increasing demand on scarce land and water resources, land claims, land tenure and security issues continue to put pressure on agricultural production. It is noteworthy that the only cane farms owned by the group in South Africa are Renishaw, which is under evaluation for its property development potential, and Riversbend, which is under long-term lease to Tongaat Hulett Sugar, the rest having been sold to the government for land transformation purposes. The group’s only remaining exposure to land claims is on a 400 ha section of its Renishaw Estate.

Support for the government’s land transformation initiatives is a key element of group strategy in South Africa, primarily via skills development and participating in joint ventures with community recipients of land claims. In regard to the latter, the group already farms 2 300 ha of cane in such community joint ventures, and has made significant progress in establishing itself as the preferred partner for communities in the areas in which we operate.

Labour costs, productivity and availability remain major challenges in the South African environment, which together with dramatic increases in transport costs, have rendered large areas of dryland cane in KwaZulu-Natal only marginally profitable. This was exacerbated by the 2010 winter drought along the coast, which will no doubt lead to additional areas of cane being taken out of production and a further decrease in mill capacity utilisation.

Rand strength has negatively impacted farm returns in the past year, particularly in respect of the group’s deciduous fruit exports and grain crops, which are essentially priced at import parity. With significant weaknesses still inherent in the major economies of the developed world, little relief is expected in the medium term. It is comforting though, that at current Rand levels, the group can achieve a reasonable level of profitability under normal climatic conditions.

Generally the board is of the opinion that the global outlook for agriculture and food production is more positive than it has been for some decades, with the availability of land and water resources in sub-Saharan Africa making it one of the global focal points for new agricultural development.