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An ex ante assessment of the farm-level impacts of further developing sugarcane biorefineries in the South African context.

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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.


Doctoral Degree. University of KwaZulu-Natal, Pietermaritzburg.