Tensions between beverage companies and sugar producers have escalated, threatening to undermine progress on South Africa’s sugar master plan, as their lobby groups have asked regulators to implement conflicting adjustments to sugar import tariffs.
Business Times has learnt that the Beverage Association of South Africa (BevSA) last month applied to the International Trade Administration Commission (Itac) for a reduction in the tariff on imported sugar— from $680 (about R11,650) a tonne to $400.
In November last year, the South African Sugar Association (Sasa) applied to Itac to have the tariff raised to $905 a tonne. Both organisations are signatories to the sugarcane value chain master plan, which seeks to help the industry survive the effects of dumping, regulation and harsh weather conditions.
Sources told Business Times that BevSA’s application is driven by its need for cheaper sugar to produce beverages, including soft drinks. By contrast, Sasa is seeking a tariff hike to shield the local sugarcane industry from the dumping of low-priced sugar from markets such as Brazil and India — a practice the industry says is causing regional losses of up to R2bn a year.
Thomas Funke, CEO of the South African Canegrowers Association, told Business Times that BevSA’s application would damage the local industry and put an estimated 300,000 jobs at risk in regions such as KwaZulu-Natal and Mpumalanga.
“The short-term destruction of the local sugar industry because of temporary global price distortions serves absolutely no-one — not producers, not workers, and not even BevSA’s members," he said. “The current low world sugar price is an artificial moment driven by heavy subsidisation and dumping from major exporting countries.”
If BevSA succeeded in weakening or eliminating the tariff, they might enjoy a brief period of cheaper sugar imports, but at the cost of undermining a domestic industry that provided a stable supply, jobs and local value chains, Funke said.
“Once global prices rebound — as they always do — BevSA and its members would find themselves exposed with higher import costs, no local fallback capacity, and far greater vulnerability to external shocks. Weakening domestic production for short-term gain is not a strategy; it’s a long-term risk to beverage manufacturers themselves. Protecting local capacity is ultimately in everyone’s interest, including theirs.”
The sugar industry has long decried certain policies — including the health promotion levy (HPL), also known as the sugar tax, which cost the industry an estimated R1.2bn in revenue.
Approached for comment, Mpho Thothela, executive director of BevSA, said they would not comment on the tariff applications as discussions between parties under the master plan were at a sensitive stage. “So we are not able to comment. Both parties are in a meeting on the sugar master plan regarding the applications,” he said.
Thothela said talks would continue. These were expected to result — at the end of this month — in the signing of phase two of the master plan, he added.
We have not initiated any investigation on a tariff. There is a separation between receiving applications and initiating them ... I will not get into the details ... but we have received them.
— Ayabonga Cawe, Itac commissioner
Itac commissioner Ayabonga Cawe confirmed that both Sasa and BevSA had made applications to the commission, but said no investigation has been started on either of the applications. “We have not initiated any investigation on a tariff. There is a separation between receiving applications and initiating them ... I will not get into the details ... but we have received them,” he said.
Cawe said all parties involved in the master plan were aware of the challenges faced by the industry. At a recent meeting on the master plan, deputy trade, industry & competition minister Zuko Godlimpi was asked to help bring the parties closer. He said tensions during the discussions were a sign the master plan was working.
“If it wasn’t working, one party would say, ‘Haai, you can’t bring this thing here’ ... And as the state, it would only be correct for us to say … let’s come together.”
Godlimpi said he had urged BevSA and Sasa to withdraw their respective applications, adding that they had given a verbal commitment they would do so. “I said to them in the last meeting that they must withdraw those [applications] ... They agreed to withdraw them,” he said.
As for whether they had done so, “that’s what I need to follow up on”, he added.
Funke denied there were any recorded commitments by either of the parties to withdraw their respective applications but said the sugar industry remained committed to the master plan.
“It’s simply not true that anyone has committed to withdrawing their Itac application. Local sugar producers submitted an application to Itac in November [last year] to review the dollar-based reference price. The local sugar industry is also not threatening to walk away from the sugarcane value chain master plan,” he said.
Funke said Itac had a responsibility to do what is right for South Africa and local jobs and “not to submit to the commercial agenda of a very large multinational beverage manufacturer”, one that was asking for “a mechanism to improve its own profit margins at the cost of South African jobs”.
The industry had experienced an unprecedented 400% surge in tariff-carrying sugar imports this season, he said. “And there is a direct correlation between these sugar imports and the decreasing level of sales of local sugar at retailers and to commercial food and beverage producers. The drop in sales equates to R684m and counting in losses for the industry.”
Industry challenges were putting rural jobs in KwaZulu-Natal and Mpumalanga at severe and immediate risk, he added.
Leon Marais, GDP Global Development associate director and independent trade compliance adviser, said the rate of duty on sugar into the Southern African Customs Union (Sacu) was very high — and based on a specific rate of duty that was not approved by the World Trade Organisation (WTO).
“For transparency purposes, all rates by the WTO are bound by ad valorem rates as a percentage of the customs value of the goods … In addition, there is also a health promotion levy, [or] sugar tax, on sugary beverages that is collected by Sars," he said. “The entire sugar industry and the formula for calculating it should be reviewed, as it is not aligned with the WTO rules and hurts consumers. Itac should review this urgently.”
Marais said there was no place for protection of industries under the WTO regime, and that Brazil and India — the world’s largest sugar producers — could likely produce sugar at lower prices than Sacu. “However, if there are suspicions of unfair trade practices, investigations may be launched into dumping,” he added.
The government needed to provide a platform for investment in the industry, one in which all role players could participate, Marais said. If Itac reviewed the formula for calculating sugar duties, no party would leave the master plan.
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