An ex ante assessment of the farm-level impacts of further developing sugarcane biorefineries in the South African context.
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Date
2022
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Abstract
The gross sugar production in South Africa (SA) tends to exceed the quantity demanded
locally. Surplus sugar is sold in the global market at prices that are typically below the cost of
sugar production in SA. This amongst other factors has threatened the long-term sustainability
for sugarcane production and the industry is seeking for solutions. Expanding the product
portfolio is one method and the South African Sugarcane Value Chain Master Plan to 2030
(which was signed in 2020) could aid the process as it has a special focus on feasible and
attractive sugarcane-based biorefinery products opportunities, both locally and internationally.
A biorefinery scenario challenges the current cane payment system which does not explicitly
include payment for fibre, non-sucrose and other fermentable sugars in the event that these
become necessary feedstock for biorefineries. In addition, the total proceeds shared between
growers and millers are only for local and export sugar and molasses sales, after deduction of
the industry’s administration costs. This needs careful reconsideration once sugarcane biobased
biorefinery products form part of the product portfolio.
The main objective of this study was to conduct an ex ante analysis of the impact of sugarcane
biorefinery establishment on farm-level and mill biorefinery investment decisions. A literature
review including but not limited to a description of the division of proceeds and the cane
payment system in South Africa and other countries involved in sugarcane biorefining as well
as an outline of ex ante assessment studies in biorefining, was conducted. Literature findings
showed that, despite increased feasibility studies in biorefining, studies that link product price
interactions, demand and supply of sugarcane and its by-products in South Africa to the farm
and mill level impacts of further developing sugarcane biorefineries are lacking. Additionally,
the review demonstrates that there are strong economies of size in biorefinery investments and
the economic viability of a biorefinery depends on availability of sufficient reasonably priced
feedstock delivered to the mill, or providing incentives to growers to supply the biorefinery
with sufficient feedstock. Cane payment systems and division of proceeds scenarios were also
identified as influencing the biorefinery investment and grower decisions.
Although there are many biorefinery products that can be produced from sugarcane, a limited
sub-set of these were considered in this study to demonstrate the concept of further developing
sugarcane biorefineries in South Africa. The selection of biorefinery products was, in part,
informed by data availability. In particular, technoeconomic and feasibility studies carried out
in South Africa informed the choice of which biorefinery products to include in this study.
Lysine from syrup, bio-ethanol from clear juice and bio-methanol as well as electricity which
both could be produced from bagasse were the biorefinery products that were assessed in this
study.
A partial equilibrium analysis was conducted by compiling and merging three mathematical
linear programming representative farm models of a ‘typical’ sugarcane farm for the Eston
Cane Supply area, as well as a linear programming model of a representative mill with options
to invest in the production of various products (referred to as the biorefinery appended to the
mill (BAM) throughout the study). The three farm representative models were constructed with
the inclusion of a high fibre variety of cane, energy cane. Demand for molasses, sucrose and
sugarcane fibre by the biorefinery appended to the sugar mill was derived from the domestic
and export market demands for methanol, ethanol, lysine and co-generation of electricity.
The model was verified using the white-box validation method which involves establishing
whether model components accurately represent real world components through inspecting
output reports. It was then optimised using a scenario which maximises the total revenue for
the partnership of Eston cane growers and the miller for the purposes of division of proceeds.
Sensitivity analyses for the different biorefinery product pricing scenarios show that with the
current status quo in the SA sugar industry, there is no motivation for the growers to adopt
energy cane and the millers to produce any biorefinery products. Moreover, a pseudo-supply
curve for the Eston Central region show that without energy cane a price of R1 500 per ton of
bagasse over and above payment for sucrose and molasses increases the quantity of fibre
supplied by less than 5%. By contrast, in a scenario with energy cane, a price of an average of
R445 per ton of bagasse gives rise to a 60% increase in the quantity of fibre supplied. Other
notable observations as the fibre price increases include, planting more land under cane as
macadamia production declines and an evident shift in sugarcane cultivar selection. There is a
direct relationship between fibre supplied by the growers and bagasse produced in the mill in
this study.
Market prices for each of the biorefinery products had to be inflated for biorefinery production
to begin. At market prices of R12 000, R20 000, R40 000 per ton the mill produces 18 000,
45 000 and 65 000 tons of methanol, ethanol and lysine respectively. Other mill decisions that
were adjusted as bagasse prices altered are a switch to the use of a more efficient boiler at a
bagasse price of R140. This results in the availability of over 20 000 Megawatt hours (MWh)
of surplus electricity annually for sale to the national grid at a price of R344/ MWh (an average
price based on the highest and lowest indexed tariffs for bioenergy produced in the Renewable
Energy IPP Procurement Programme (REIPPPP)). The optimal solution indicates that the
greatest revenue is realised in a scenario that includes lysine, electricity, sugar and molasses
with all the sugar produced in all scenarios sold locally. Currently in SA, some sugar is exported
and the biorefinery product market prices are below R10 000 per ton except lysine which sells
at approximately R20 000 per ton. Cogeneration of electricity for sale to the national grid seems
to be the likely viable option as it does not involve huge investment costs and also makes use
of bagasse which has currently no other use in the mill except burning it for fuel.
Viability of a sugarcane biorefinery is dependent on a number of factors that include feedstock
supply and the right biorefinery product market prices which make biorefinery production
feasible. In this study, for the products considered, it is clear that diversification is possible
only when market prices are much higher than the prevailing prices. This suggests that
biorefinery establishment will require some sort of government protection for example
subsidies to ensure feasibility of production for the products used in this study. Maximisation
of total proceeds requires creation of the right price incentives so that the growers supply the
optimal quantities and cultivars of cane to the mill. This has implications for the pricing of
cane and the final division of proceeds from sugarcane production, milling and bio-refinery
operations. While it is possible to resuscitate the industry, establishing sugarcane biorefineries
requires systems thinking that calls for stakeholders to look at the whole supply chain in totality
as the decisions of one affect the other.
Description
Doctoral Degree. University of KwaZulu-Natal, Pietermaritzburg.