Diversification and Protection- the Keys to Survival and Future Growth of the Sugar Industry

There are more than 120 sugar-producing countries, and all of them have some kind of intervention, subsidy or other protection in place. These include export subsidies, import tariffs and support for local ethanol industries. South Africa is among the world’s most efficient sugar producers – cost competiveness surveys rank it 15th out of the 120 countries – but because of subsidised production in the major producing countries, the world price remains below the cost of production in South Africa. This means that cheap imports threaten to devastate the local industry, while any surplus exported is sold below the South African market price, or at a loss because of the low world price for sugar. Imports are taking a rapidly increasing share of the local market – sugar imports from countries like Brazil shot up from 2% of local sales in 2015 to 28% in 2016/17. In addition, the subsidised imports suppress local prices, so the industry is unable to recover rising input costs.

Protection and diversification are the keys to the sugar industry’s recovery and future growth. From a peak of 2.5 million tonnes in 2005, sugar production has dropped to 1.6 million tonnes in 2016/17. Over the past two decades, 58,000 hectares have gone out of production and the number of growers has declined from 35,000 to 24,000. These are mainly independent sugarcane growers who were a key component of the rural economy. The decline is accelerating. Since 2013, nearly 15 000 jobs have been lost and, without government intervention, an estimated 20 000 more will go over the next five to seven years.

Effective tariff protection would allow the industry to recover and continue supplying the local market, while diversification would allow it to thrive and grow. Without protections, and without incentives for investment to diversify into new markets, a substantial and strategic industry on which nearly 1 million people depend could face extinction.

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