Features International Sugar Journal

The futility of China’s interactions across the global sugar sector

Many years ago, I asked a British diplomat at an embassy reception in Swaziland who was the best colonizer – British, French or the Dutch. He, of course, didn’t reply. Indeed, what yardstick can you use to assess the relative plunder with some benefits? The British gave institutions, the French imposed their culture and the Dutch boosted economic infrastructure. While the following may appear to be non-sequitur, China’s foray1 into the various sugar industries across the globe exposes its relative ambitions whether borne of opportunism, exploiting its economic might where it can and or investing for geopolitical reasons. But the impact and outcome of its interactions does not entirely betray an informed strategy nor being alert to local sensitivities.

Two examples of investment disasters by Chinese companies are those in Jamaica and Cambodia. The Pan Caribbean Sugar Company bought three sugar factories in Jamaica (Frome, Monymusk and Bernard Lodge) in 2011 and subsequently invested over US$200 million. But the combination of the drop in global sugar price by 40% (in 2016) and lack of diversification impacted lack of profitability, forcing the company to close its operations. But these masks deeper structural problems. The agro firm Rui Feng (Cambodia) International Company built a new 500,000 tonnes capacity sugar plant in Cambodia costing US$360 million and taking two years to build. But the mill which opened in April 2016, halted production just 50 days into operation after exhausting its stockpile of sugarcane.

In December 2014, in Madagascar, there was a deadly riot at the Chinese-run sugar plant in Morondava which claimed four lives. The factory workers recited a litany of grievances that had poisoned labour relations: miserly pay of about US$37 a month, special privileges for a select few, humiliation and pressure for those lower down the chain. China’s vast investment in countries across Africa has led to social unease in some countries, with the visitors sometimes accused of exploiting workers. Commenting on the dispute in the Foreign Policy Association blog, Gary Sands of Wikistrat said “Chinese investment has long been welcome as long as it adheres to the regulatory framework, creates jobs, helps build infrastructure and bring money to the local economy. But the incident in Madagascar points to the need for Chinese companies to manage their labour conditions carefully and treat their local workers fairly”. It will be of interest to note whether the China CAMC Engineering Co. Ltd (CAMCE), a Chinese construction firm, awarded recently the US$95 million contract to complete the Tana Beles-I sugar plant by the Ethiopian Sugar Development Corporation (ESDC), will take heed of the observation made by Sands.

Recent press reports from El Salvador noted an outcry from the union Asociación Azucarera de El Salvador expressing its total displeasure at the government’s decision to switch diplomatic allegiance from Taiwan to China. This effectively means that the tariff-free exports to Taiwan of 80,000 tonnes of sugar will not be exempt from tariffs when selling to China. This has a clear consequence on the viability of the local sugar industry. Even though the government officials have privately agreed to maintain the free trade agreement with Taiwan, it is highly unlikely that China will allow this. With the benefits that come with the recognition of mainland China, defection by other sugar exporting states is a reality.

The Chinese agribusiness giant COFCO was met with significant resistance locally before it succeeded in buying the Tully Sugar Mill for US$145 million in 2011. Arguably, the central draw for the purchase was access to and transferring the intellectual capital to the cane sugar sector in China. But there is no discernible evidence that this has taken place. This is not too surprising as the industry is beset with structural problems – farmers managing small parcels of land, largely on hilly terrain where mechanizing agricultural operations continues to be a challenge.

Endnote

1 It is assumed here that Chinese companies get significant support from the Chinese government, whether direct or indirect, to venture into various opportunities.