afrol News / IRIN, 11 July - The fortunes of Vuvulane village in Swaziland's northeastern 'sugar belt' depend almost entirely on sugar, or 'Swazi gold', which once helped lift thousands out of a hand-to-mouth existence. That dependence now looks set to plunge them back into poverty.

For the last 35 years, Moses Mndzebele and his wife, Beauty, have supported themselves and a large extended family by growing sugar cane on the 3.5ha plot that surrounds their small mud-and-stick home. But falling world sugar prices and weak exchange rates, combined with rising production costs, are eroding their income.

This year's crop will probably bring them 35,000 Emalangeni (about US$5,000). After paying for cutting and haulage to the local mill, the family of 12 will be left with about $2,000 to get them through the year. Finding money for food and school fees is already a struggle, but more worrying is the news that decisions made in faraway Europe mean their hardships have just begun.

"I heard news that prices will be going down," said Moses, who suffers from diabetes and is losing his sight. "To me that means my destiny is death, because right now I can't afford medical expenses or food to feed my family."

Swaziland is one of 18 countries in Africa, the Carribean and the Pacific that have benefited from a 30-year-old agreement to supply a fixed quantity of sugar to the European Union (EU) at prices that match those received by European sugar producers - up to three and a half times higher than the world price.

While the preferential agreement disadvantaged many other developing countries producing sugar, in Swaziland it became the largest industry, accounting for 24 percent of gross domestic product (GDP) and creating 93,000 jobs.

After a World Trade Organisation ruling said the preferential agreements were unfair, the EU initially proposed cutting sugar prices by 42 percent over two years but, faced by a flood of protest, scaled this down to a 36 percent cut over three years, with a first reduction of 5 percent taking effect this month.

This still represents a severe blow to the 18 developing countries relying on the artificially inflated prices, and especially to the Swazi economy, already staggering under 40 percent unemployment and a devastating HIV epidemic.

According to the Swaziland Sugar Association (SSA), the cut translates into a loss of US$30 million a year in income - more than four times the annual amount of EU aid to the country.

Inflated EU prices have helped large-scale producers like the Royal Swaziland Sugar Corporation (RSSC), which controls two-thirds of the industry, to fund housing, education and health services, to the benefit of employees, their dependants and the surrounding community.

"We've had a very paternalistic role," said John du Plessis, the RSSC's assistant managing director. "Roads, telephones, electricity - the whole local infrastructure is dependent on the company."

The RSSC has retrenched 500 employees in the past year, and is now chipping away at social investments to counter falling profits. One of its clinics has closed, support to local schools has been cut and housing provision is likely to be reduced. Du Plessis believed it unlikely that the government would step in and take over some of these services, because lost tax revenue and reduced levies from sugar exports would reduce inflows to the national treasury.

By scaling down social benefits and investing in other areas of sugar production, like distilling alcohol, du Plessis predicted that large producers like the RSSC would survive the price cuts, but smaller, less established farmers who lacked the capital to switch to other crops would not fare as well.

During the years when sugar was viewed as a vehicle for development and poverty alleviation, small-scale farmers like the Mndzebeles were persuaded to abandon staple crops, such as maize, and join cane-growing cooperatives. These relied on guaranteed access to the EU market to repay high-interest loans for irrigation and equipment, but declining world sugar prices have already lengthened the repayment schedules of newer cooperatives by several years, while dwindling profits and rising input costs have pushed older ones to take out new loans just to maintain their fields.

The SSA reports that the average smallholder cane farmer spends 33 percent of income on interest, and additional price cuts were likely to push them further into debt and even bankruptcy.

"It's bad; we're struggling," said the Mndzebele's neighbour, Lilah Mabuza, 78. "Our electricity has been cut off and we can't pay for schooling or clothing; we can't even buy fertilisers and chemicals for the sugar cane and the crops are failing."

Sharon de Sousa of the SSA believes the sugar industry remains viable, despite its current woes. A slight rise in world prices this year and improved exchange rates have helped offset the EU price cuts. Europe has also promised 40 million Euros in aid during 2006 to countries affected by the reforms.

Moses Mndzebele is cautiously optimistic: "I don't believe that God created man so he can perish. God will provide something, and if he doesn't, it's our fate."

© afrol News / IRIN

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