Sugar Industry

New tax, sugar imports pose major threat to industry

THE sugar industry’s annual sales have declined by 27 % as a result of the Health Promotion Levy (HPL), commonly called the sugar tax, and imported sugar

According to Chris Fitz gerald, Illovo South Africa’s spokesperson, Illovo forecast a decrease in its sales to the beverage sector byat 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 3.15/100ml from 13g/100ml,” said Fitzgerald. 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 the local industry’s sales year-on year 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 well below 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.” Fitzgerald said that on average, the local industry produced just below 2 million tons of sugar annually, compared to 2.5 million tons 10 years ago.

The sugar producer said that if the imports continued unabated against the backdrop of a recent two-year drought, farmers who had the ability to cultivate alternative crops would switch to other crops, while those who could not would simply go out of business.

This spells a tragedy for South Africa, as these farmers provide much-needed employment opportunities in deep rural areas.

Illovo said the local sugar industry needed an import tariff that recognised that the world market in sugar was distorted by the surplus production of subsidised global sugar producing industries.

Fitzgerald 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 the farm gate 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, similar to the world’s most successful sugar industries, it is imperative to implement medium- and long-term interventions which make the industry sustainable beyond the benefit of just increasing the import duty.”

In its integrated annual report, which Tongaat Hulett released last week, it said import protection in South Africa remained the lowest in the region, with import duties calculated using a reference price of $566/ton.

In Mozambique the price using the same tool reference price was $806/ton, while in Zimbabwe, protection to the local market was through a restricted import permit system and an import duty of $100/ton plus 10%of the imported value. “In South Africa over several months, upward revisions to the import duty were not implemented timeously, followed by a period when zero duty was erroneously applied.

As a result, some 520 000 tons of imported sugar entered South Africa and eroded local sales volumes by a third,” the report said.