The South African government’s decision to increase the Dollar-Based Reference Price (DBRP) of sugar by only half what the industry appealed for, may have dire consequences for the SA sugar industry, reports Sugaronline.
“Government has missed a golden opportunity to put the local sugar industry on a growth path that would stimulate investment and expansion and create thousands of new jobs in an industry under severe threat because of dumped imports,” says Francois Baird, founder of the FairPlay movement, which fights for jobs and against predatory trade practices. “Instead of acting to reverse the decade-long decline, the SA government has left the industry facing a very uncertain future by tabling a half-hearted increase.”
The DBRP is a threshold for calculating the tariffs to be applied on imports. Tariffs are gazetted from time to time so that the cost of imported sugar is the same as the DBRP (the local cost of production), and the local industry then competes on a level playing field.
The DBRP has been at US$566 a ton for the past 14 years, which is woefully inadequate to ward off ever-rising levels of dumped imports, and landing South Africa’s sugar producers in a crisis from which they may not recover. The South African Sugar Association (SASA) had applied for an increase to US$856/t, which it believed would protect the industry and put it on a growth path after years of decline. The SA government responded by approving a recommendation from the International Trade Administration Commission (ITAC) for an increase to US$680/tonne – less than half of the US$290/tonne the industry had requested.
According to Baird the increased protection through a higher DBRP is welcome, but is far below what was needed and will not deliver the relief that was hoped for. “The rise of US$114 per tonne is simply not sufficient to safeguard the thousands of jobs that are at risk from surging imports, particularly among small-scale black growers who are the most vulnerable,” he explained. “Perhaps worst of all, it will not spark the expansion and job creation so desperately needed in South Africa, as we watch our unemployment rate, already one of the highest in the world at 27%, creep ever higher.”
He said that this followed a chaotic period last year when, instead of adjusting the tariff upward, the government erroneously set it at zero. This caused imports to surge and before the error was corrected the big purchasers, spotting the gap, stockpiled massive volumes of sugar.
“By applying for an increase in the DBRP, as the base from which tariff increases are triggered, SASA presented the government with a golden opportunity to boost a shrinking industry and create new jobs,” argued Baird. “The difference between what was applied for and what was granted may prove crucial for the future of a strategic industry which contributes ZAR14 billion (US$938.6 million) a year to the GDP and employs 85,000 people directly. It also ensures work for another 350,000 people in related fields such as food processing.”
In its application SASA stated that the industry is in “a state of rapid decline” and has reached a tipping point. It said farmers were buckling under a surge of imports and entire towns were vulnerable to collapse. In 2017 imports rose to 500,000 tonnes, displacing 30% of local production and the equivalent to the output of three of South Africa’s 14 sugar mills. “The persistent flood of duty-paid imports will, if not urgently stopped, destroy the industry”, it argued.
Baird notes that this, in anybody’s language, is crisis talk. “Coming from a responsible industry body, it indicates the desperate situation facing producers, farmers, millers and workers, and the need for urgent government action.
“While the increase of US$114/tonne will bring some relief, it is still below the cost of production, and as SASA has pointed out, local producers will still be unable to compete with cheap dumped imports. The crisis continues and thousands of jobs remain at risk,” he said.
A much rosier outlook would have realised, according to Baird, had the government granted the full increase that was recommended by the experts. As outlined in SASA’s application, a DBRP of US$856/tonne would spark long-term industry expansion. It would potentially result in more than 110,000 new jobs, increasing the area under cane and raising annual cane production from 17 million tonnes to 22 million tonnes.
The resultant rise in economic activity would raise sugar’s total proceeds by 50%, from ZAR14 billion to ZAR21 billion. There would be significant support for black cane growers, including land transfers that could double from the current 76,538 hectares to around 165,000 hectares.