* To add 12,000 hectares for sugar cultivation in 5 years
* Yet to benefit fully from price surge due to contracts
* Will seek preferential terms in west Africa
By Duncan Miriri
NAIROBI, March 25 (Reuters) - Swaziland's sugar production is likely to jump by a quarter in the next five years, thanks to more land being put under cultivation, an industry group said on Friday.
Mike Matsebula, chief executive of Swaziland Sugar Association, told Reuters at a conference on sugar in the Kenyan capital Nairobi the southern African producer of the sweetener will also raise production by about 11 percent this year.
"We are currently producing, in round numbers, 600,000 tonnes (per year). In five years, we will be producing an additional 150,000 tonnes at least," he said.
Sugar is the second biggest source of foreign exchange for the country, ranked third-largest sugar producer in Africa.
"More land is being brought under cane. There is at least two major irrigation projects, which are intended to provide water for more cane that is going to be cultivated," Matsebula said.
He put the new land to be planted with sugar at 12,000 hectares in the next five years and 1,000 this year, on top of the 44,000 hectares already under cultivation.
Although it has low lying lands with good soil and a warm climate ideal for sugar growing, a drought cut its production to 582,000 tonnes last year from just over 600,000 tonnes in 2009.
But that will also serve to spur the expected jump in production this year, Matsebula said. "We are starting from a lower base than it would have been the case otherwise," he said.
PREFERENTIAL ARRANGEMENTS
Swaziland exports half of its sugar output to east Africa and Europe, while the rest is consumed locally and in the Southern Africa Customs Union, under the Southern African Development Community, which is treated as a domestic market.
"We are investigating west Africa and we are doing so jointly as the SADC sugar industries because as an individual country we can't compete with the present supplier to west Africa because of distance and other logistical considerations," Matsebula said.
But to get to that market, SADC will seek preferential terms to compete with other suppliers, mainly Brazil, which enjoys low freight costs due to bulk-shipping, he added.
"For us to be able to really exploit the west African markets there has to be preferential arrangements given by west Africa," he said.
Although Swaziland is one of the more efficient producers in Africa at 14 cents per lb, the industry faces challenges from rising energy costs. Electricity is used to power irrigation pumps while coal is used to fire boilers.
It has also not benefited from the jump in the international price of sugar, which hit a 30-year high in February of 36.08 cents a lb but has since fallen back and was trading on Friday at around 27.30 cents.
"Because you have long term contracts, then you are not able to benefit from those spikes ... we have only benefited a little bit where we were able to move uncommitted sugar to the world market including east Africa," Matsebula said.
"It gives us good lessons going forward. We now have to revise our marketing strategy and make sure that we can anticipate such developments in future."
Of the three sugar mills in the country, two are owned by the Royal Swaziland Sugar Corporation, while the other one is jointly held by South Africa's Illovo Sugar and a local firm. (Editing by George Obulutsa and James Jukwey)