In the Sugar Industry, the Past Matters

Sugar is a capital-intensive industry in which technology evolves slowly and major industrial assets are sole-purpose. Given these characteristics, the viscosity of investment in the industry is high – financial commitment is necessarily for the long run – and depreciated assets continue to serve well beyond their accounting amortization periods.

Although field and factory productivity has much improved over the past century, the processes and technologies used to extract sugar from sugarcane or beet themselves have changed little. A mill uses a lot of energy to move the feedstock, to wash it, to crush or cut it, wet it, dry it, evaporate and clean the juice, and to clean, dry and store the sugar crystals. The basic bits of equipment involved – the trucks, the boilers, the conveyor belts, the pipes, the pumps, the pans, the turbines and the centrifugal machines are similar to those which would have been used a century ago.

If productivity has risen over time, it is through a long list of incremental advances often imported from other industries. High-pressure boilers come to mind; these have not only brought increased energy efficiency but also opened up the opportunity for mills to produce surplus electricity which can be sold unto the grid. In addition, as transport costs have declined, mill size has increased to seize factory economies of scale.

The staying power of sugar industry assets is nicely illustrated by the Oldisleben sugar factory, which located in the Saxony-Anhalt region of Germany. That factory was built in 1873 and last processed sugar beet in 1989, the year the Iron Curtain fell. The story goes that its machines were already so old in 1945 that the Soviet authorities decided against hauling them east as war-booty. I remember a steam engine of 1886. Another major piece of equipment was dated 1879. All were in perfect working order, as attested by the 1989 campaign. Once built, sugar factories do not age quickly.

At Oldisleben, the last remaining industrial stack made with bricks is visible from quite a distance and, as you get closer, an amazing factory emerges in which sugar was extracted from beets for over 100 years. Finally closed in 1990, the plant was considered a museum piece in the final decades of operations, and was officially designated a heritage property in 1989.

Historic building materials dating back to 1872, such as shell-bearing limestone, cast iron pillars, huge steam turbines and impressive boilers, just to name a few, remain largely intact and invite visitors to see for themselves how a sugar factory operated in the 19th and 20th centuries. Südzucker AG, the largest European sugar producer, owns this historic site. The company is conscious of its responsibility and takes pains to maintain this unique engineering monument. Visiting today, one gets the impression that the next beet campaign will be able to start right on schedule. 

An investment in the sugar industry is a long term investment.