Sugar Industry

Calls to protect SA sugar industry from tax, import threats

THE sugar industry’s annual sales have declined by 27%, as a result of the Health Promotion Levy (HPL), known as the sugar tax, and imported sugar. According to Chris Fitzgerald, Illovo South Africa’s spokesperson, Illovo forecast a decrease in its sales to the beverage sector by at least 30% .

Fitzgerald said there were two reasons for the firm’s reduced sugar sales to the sector: “The first is that the HPL has incentivised manufacturers of sugar-sweetened beverages to reformulate their products to below the 4g sugar/100ml threshold in order to avoid the very expensive levy. The cost of the levy amounts to R21000 per ton of sugar against the actual price of R8 200/ton. For example, one well-known brand has recently reduced its sugar content to 3.1g/100ml from 13g/100ml1l,” Fitzgerald added.

He said the second impact of the sugar tax was that beverage manufacturers were at the same time reducing the size of their portions in a bid to encourage portion control, resulting in the sales of the same amount of bottles, but fewer litres. Illovo said the sugar tax, coupled with the significant amount of (low) world-priced sugar imports entering South Africa, was having a significant negative impact on the domestic sugar industry reducing local sales year-onyear by nearly a third.

“Sugar previously sold onto the domestic market is now having to be exported at a significant loss, as world market sugar prices are currently wellbelow the cost of production of most, if not all, sugar industries in the world.

“The loss is shared across the entire supply chain, putting the continued viability of the industry at serious risk.”

Import protections are lowest in region

Fitzgerald said that, on average, the local industry produced just below two million tons of sugar annually compared to 2.5 million tons 10 years ago. If the imports continued unabated against the backdrop of a recent two year drought, farmers would switch to other crops or go out of business. This spelled a tragedy for South Africa, as these farmers provided much needed employment opportunities in deep rural areas.

Fitzgerald said the local sugar industry needed an import tariff that recognised that the world’s sugar market was distorted by the surplus production of subsidised global sugar industries. He said a recent independent report highlighted that the US sugar industry enjoyed industry subsidies estimated at 66% of the farm gate price, while the world’s largest sugar producer, Brazil, subsidised 27% of this price through a number of support instruments, including its fuel ethanol programme.

“The South African sugar industry, which supports more than a million people through its activities, therefore needs protection from having to compete with the treasuries of other sugar producing countries.

“If imports continue, South Africa will continue to export jobs and when South Africa stops growing sugarcane, it would put at risk many of its citizens relying on the sector for their livelihoods.

“Following last month’s marches in Pretoria, where the industry advocated for an increase in the (dollar-based) reference price, it continued to engage with the government through the sugar value-chain task team on issues impacting sector viability, he said.

“We also recognise that it is imperative to implement medium- and long-term interventions which make the industry sustainable beyond the benefit of just increasing the import duty.”

Tongaat Hulett’s integrated annual report, released last week, said import protection in South Africa remained the lowest in the region.