Sugar Industry

How to offset the job killing effect of sugar tax

FairPlay movement member Chris Ward argues that, by following the lead of sugar producing countries, such as Brazil, which is now a major bioethanol producer and exporter, South Africa will be able to not only save but also grow its sugar-cane industry

While sugar cane is a versatile crop with all the elements to render the industry a growth sector if it has the backing of bold and progressive government policies, the sugar industry in South Africa is in crisis. Instead of growing, it is doomed to contract because of government’s policy paralysis and inability and unwillingness to support sugar industry diversification.

Governments in sugar-growing countries have seized the economic opportunities of sugar cane to create jobs and develop export markets. Countries such as Indonesia, Guatemala, Ethiopia, Angola and Brazil have developed ethanol from sugar cane which they are exporting to the world. On the other hand, South African policymakers hide behind weak excuses for their lack of commitment to the major industrial development potential that can benefit primarily job-starved rural communities.

The sugar industry is one of the largest employers in the agriculture sector, with over one-million South Africans dependent on it for their household income. It has the potential to be the country’s greatest source of employment growth through diversification into areas such as biofuels.

Some argue that bioethanol from sugar cane is not viable until the global price of oil dips below $100/bl. But consider this: firstly, every country with a sugar-cane ethanol industry began by introducing domestic mandatory fuel blending, usually ranging from 5% to 10%. The expectation is that ethanol will diversify the fuels market and augment, rather than replace, oil-based fuel supply. Ten per cent fuel blends are the norm in nearly 60 countries.

Secondly, when Brazil embarked on its path to become the world’s largest exporter of bioethanol from sugar cane, it cost three times as much to produce a litre of ethanol than it cost to import a litre of oil. But Brazil took the longer-term view and supported ethanol production by introducing mandatory fuel blending.

Some argue that ethanol production would threaten food security by diverting crops from food to fuel. However, in South Africa, this is a particularly weak argument, given that our government has gone so far as to impose a sugar tax to discourage sugar consumption.

To be fair, the food security argument may apply to some ethanol feedstock sources, such as cereal grains, including maize, which happens to be the primary source of bioethanol produced in the US. But the food-security-versus-biofuels argument has been scrutinised by food-security experts around the world, who have confirmed that it does not apply to biofuels derived from sugar cane.

A comprehensive analysis of the food security impacts of ethanol from sugar cane by experts at Wageningen University, in the Netherlands, is enlightening. The researchers conclude that there is a far lesser impact when ethanol is produced from sugar cane, compared with other feedstocks.

In fact, the sugar-cane-producing regions in Brazil have been shown to stimulate, rather than compete with, food production by two means. Firstly, the additional income generated by sugar-cane-related agroindustrial activities tends to ‘capitalise’ agriculture, which, in turn, improves the conditions for producing other crops. Secondly, because sugar cane is highly productive, a smaller piece of land can yield significant volumes of sugar cane, compared with other feedstocks.

Further, sugar cane molasses can be used to produce ethanol, with zero impact on food security.

By comparison, maize is less efficient and less environment produces twice the greenhouse-gas emissions. But what is most important for South Africa is that bioethanol from sugar cane can contribute to sustainable development and poverty reduction through a range of environmental, social and economic factors, as shown by the Wageningen University study.

Then there is the rural development that is enabled when sugar cane cultivation is rolled out for bioethanol production.

There is also the creation of new export opportunities, as well as the potential to attract investment through the carbon finance market and an improved trade balance when oil imports are reduced. Bioethanol production from sugar cane also tackles climate change through reduced emissions of greenhouse gases, and there is also the enhanced energy security at national and local levels. Further, there is the improved social wellbeing that comes with better energy services, especially among the poorest members of society.

While the South African government emphasises its commitment to job creation and growing the economy, we are awaiting policy leadership that supports the diversification of the sugar industry so that the country can achieve all these benefits and more. Instead, through the sugar tax, government has driven another nail in the coffin of this vibrant agricultural industry.

By following the lead of many other countries, most of which are far less developed than South Africa, our elected leaders can not only save but also grow the strategic economic asset that is the South African sugar industry. It would be criminal to waste the opportunity.

By: Chris Ward
Ward, a Canada-based associate of Baird’s CMC, is active in the FairPlay movement, an international advocacy initiative that promotes the rule of law in trade through advocacy not only in South Africa but also globally, wherever jobs are lost and sensitive industries at risk as a result of dumped imports