Markets The group supplies sugar and downstream products to domestic, regional and world markets. Sales to the domestic markets in the countries in which the group operates contributed 69% to total revenue, whilst exports to 88 countries contributed the balance. A significant strength of the group was that 76% of sugar production by volume and 91% by value was sold into domestic or premium-priced export markets. Domestic markets Sugar The SACU market is of major significance for both the South African and Swaziland sugar industries. During the season, total sales into SACU amounted to 1.926 million tons, about 80% being refined sugar and the balance brown sugar. The South African sugar industry supplied 1.427 million tons, Swaziland 320 000 tons and Zimbabwe and other Southern African Development Community (SADC) sugar producing countries 51 000 tons. Duty-paid imports amounted to 132 000 tons of sugar. In South Africa, approximately 56% of Illovo’s total production was sold into the domestic SACU market. Illovo Sugar is Malawi’s sole sugar producer and in the 2008/09 season, domestic sales comprised approximately 67% of total sales. About 87% of Zambia’s sugar output is produced by Zambia Sugar with domestic sales comprising 61% of total sales. In Swaziland, Ubombo is one of three producers and its production constitutes about 33% of the country’s total output. Swaziland’s domestic sales in 2008/09, undertaken by the Swaziland Sugar Association into the SACU market, represented 51% of total sales. Tanzania has three sugar producers but is a net importer of sugar, with annual domestic demand being about 320 000 tons. During 2008/09, all sugar sales in Tanzania were to the domestic market where net returns were higher than those that could have been achieved from the export market. Sugar production in Mozambique, which has four sugar producers, currently amounts to about 250 000 tons, with Maragra’s share of industry production being 31%. Around 67% of Maragra’s total sugar sales in 2008/09 were sold domestically. Syrup and speciality sugars are produced in South Africa and Zambia for domestic consumption, whilst speciality sugars made in Malawi and Zambia are produced for preferential markets in the EU and in the case of Malawi also in the US. Downstream Whilst the group's range of downstream products is primarily aimed at export markets, the Merebank and Glendale distilleries remain important suppliers of ethyl alcohol to the South African liquor, pharmaceutical and industrial chemical industries. Relatively small volumes of furfural and its derivatives, including Agriguard, a furfural-based agricultural nematicide, as well as lactulose, are traditionally sold in the local South African market. Export markets Sugar Preferential markets
The group has significant access to high-priced preferential markets in the EU and the USA which are supplied by producers with export entitlements to those destinations. During the year, the group’s preferential exports from Malawi, Swaziland, Mozambique and Zambia amounted to approximately 211 000 tons. Malawi and Zambia together supplied around 6 000 tons of sugar into the SACU market in terms of the SADC Sugar Protocol. In Malawi, speciality sugars are produced for markets in the EU and the USA, whilst Zambia also currently produces speciality sugars for the EU market.
World markets
More than 100 countries produce sugar, 80% of which is made from sugar cane grown primarily in the tropical and sub-tropical zones of the southern hemisphere, and the balance from sugar beet which is grown mainly in the temperate zones of the northern hemisphere. Generally, the costs of producing sugar from sugar cane are lower than those in respect of processing sugar beets. Currently, 70% of the world's sugar is consumed in the countries of origin, whilst the balance is traded on world markets. Because of the residual nature of the world market, the free market price has historically been one of the most volatile of all commodity prices. The five largest exporters in 2008/09, Brazil, Thailand, Australia, SADC and Guatemala, are expected to supply approximately 85% of all world free market exports. South Africa is currently ranked as the 8th largest exporter to the world market. None of the other countries in which Illovo operates export sugar to the world market. The world sugar price, although continuing to be very volatile, adjusted upwards during the past year, from an average of US11.84 cents/lb in April 2008 to above US13.00 cents/lb in March 2009. The improvement in this price also resulted in a firming of sugar revenue realisations in the regional markets supplied by Illovo. The world price rose in the early part of the year as a result of a forecast deficit in production, but then weakened in line with other commodities. However, in recent months the price has increased strongly, driven by a significant production decline in India, the success of the EU sugar regime reform in reducing output in that region, and capital constraints within the sugar industry in Brazil. These factors have resulted in a material global deficit in production being anticipated, thereby creating a platform for higher sugar prices. As a major exporter to the world market in 2008/09, the South African Sugar Association (SASA) exported 822 000 tons of raw sugar on behalf of the producers. Exports achieved an average price of US12.77 cents/lb, compared to US10.48 cents/lb in 2007/08, and realised around R2 billion in export proceeds. Bulk sugar exports to the world market from Illovo’s South African operations were above those of last year, representing 44% of production. South Africa, Malawi, Zambia and Swaziland exported sugar during the year to a number of regional markets in Africa, where selling prices are related to the world market price. In all instances, premiums above the world price were achieved as a result of various competitive advantages. Demand was strong and prices benefited from higher average world market prices in 2008/09. Downstream
The group is a material player in most of the world markets in which it participates, and exports furfural, furfuryl alcohol, diacetyl, 2.3-pentanedione, ethyl alcohol and lactulose to 81 countries. In addition, BioMass Sugar, a liquid organic fertiliser derived from sugar cane is being sold to a growing number of international markets. During the year under review, downstream product sales contributed R638.6 million to group revenue.
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