Workers harvest sugar cane at a plantation, in Rose Belle, 30 km (19 miles) southeast of the Mauritius capital, Port Louis, in this July 18 photo. - REUTERS

SAVANNAH, Mauritius (Reuters):

Boiler-suited builders scramble along girders as a heavy crane lifts equipment for new construc-tion at a sugar mill in Mauritius, even as the Indian Ocean island grapples with a sharp fall in sugar prices.

Mauritius - which sells more than 88 per cent of its annual sugar production to the continent - is coming to terms with European Union plans to slash prices for the sweetener by 36 per cent over four years.

Unlike other crops that have been tested on the island, cane is resilient to disease, drought and cyclones, so Mauritius is sticking to sugar and plans only to cut its potential output by 10 per cent.

The Savannah mill - close to the island's south coast - is one of four set to survive from a total of 16, as the country reorganises facilities to make the sugar industry more flexible and efficient.

Matter of life or death

The mill here, its machinery drenched in a musty aroma, is in the throes of a €68-million (US$90.6 million) upgrade to boost throughput and cut costs.

"It was a matter of life or death," Raymond Rivalland, from the Societe Usiniere du Sud (SUDS) that runs the mill, told Reuters. "It is the biggest ever (sugar) project in Mauritius."

The island's nearly €550-million economy will lose €782 million over 2006-2015 as the price cuts - which began in July with a 5.0 per cent drop - take full effect.

Mauritius, which produces roughly half a million tonnes of sugar a year, has 38 per cent of the European sugar quota from African, Caribbean and Pacific countries.

Outside Rivalland's office, a steady stream of old lorries and tractors tip cane onto a noisy network of metal belts, trolleys, shredders, and furnaces that eventually produce raw sugar, molasses, and electricity.

In a control room, Curtis Catacoopen, mechanical engineer, explains a new bank of computers with intricate diagrams detailing lubrication, power and storage.

"Every control parameter is logged," he said. "It is a revolution."

SUDS was formed in 2002 by merging assets from major millers. With the upgrade, the factory will eventually handle 10,000 tonnes of cane per day, up from the current 3,000, while production costs should drop 44 per cent by 2010.

"We filled every gap with cane," Rivalland said.

Cost cuts

Part of the cost cuts will come through mechanisation and job reduction - and some locals have expressed concern about future social stability.

"Mauritius must find another source of employment, or I'm afraid we will have social problems in the years ahead," one factory official told Reuters.

Rivalland said some €20 million of the mill's total €68 million upgrade budget are set aside for social costs, and the Government is diversifying the economy to produce jobs in other sectors.

Meanwhile, higher-margin refined sugar is set to replace the factory's traditional raw sugar exports to England, but prices shift and the future is uncertain.

The key is flexibility: the mill aims to produce raw sugar, special sugars, or ethanol depending on their prices, Rivalland said.

Mauritius is testing a mix of 10 per cent ethanol and 90 per cent petrol in cars - although Brazil, one of the leading consumers of ethanol for cars, uses 23 per cent ethanol, which may rise to 25 per cent.

"All the molasses produced in Mauritius are just enough for all cars on the island to have a 25 per cent mix," Rivalland said. Or the island could export ethanol to Europe, he added.

Capacity at the power plant next door is also being increased.

It will eventually supply 25 per cent of the island's electricity — burning sugar straw called 'bagasse' for the six-month harvest season and South African coal for the rest of the year.

"It's huge," said Rivalland.