SA's sugar industry is in talks with the government over a potential subsidy that could see it convert more than a third of its annual output into biofuel, according to a group representing companies in the sector.
Currently 800,000t of the industry's annual output of 2.1-million tons is being exported at a loss, according to the South African Sugar Association (Sasa).
The discussions follow the signing of a sugar master plan by the government, farmers, industrial users and retailers in the R16bn industry.
The plan seeks to ease a crisis caused by a flood of cheap imports, much of them from Eswatini, and a tax on sugar-sweetened drinks that lowered demand from beverage makers.
The plan includes offtake agreements with industrial users and retailers that helped boost local demand 14% in the year that ended in March, but diversifying uses for the crop could improve the industry's sustainability, said Trix Trikam, executive director of the sugar association.
"Biofuels is one of the revenue streams that the industry can venture into, provided there is an enabling policy environment and an attractive subsidy mechanism," he said.
Fuel levy
Companies that could benefit from a biofuels programme include Tongaat Hulett, the local unit of Associated British Foods and RCL Foods.
The National Treasury didn't immediately respond to e-mailed questions.
The biofuels regulatory framework that was gazetted by the department of mineral resources & energy in February last year approved sugar cane as a feedstock for biofuels, Trikam said.
The Treasury said in its 2013 budget review that the programme could be subsidised by a fuel-levy increase of 3.5c-4c/l on all petrol and diesel products. The biofuel would be blended with motor fuels.
The failure to move forward with that programme has stalled previous attempts to kick-start a biofuel industry in the country.
Potential developers were told they couldn't use maize because of food security concerns. Sorghum can be used, but the absence of a subsidy has seen plans for at least six proposed plants scrapped.
Jobs
A programme to produce 460-million litres of biofuels a year could create 13,000 jobs, generate R1.8bn in tax and result in R1.3bn in balance-of-payments savings through a reduction in fuel imports, according to the regulatory framework, which cited an Industrial Development Corporation economic impact study.
A 2018 Sasa study found that one brownfields distillery that could produce 125,000l of bioethanol a year would need a subsidy of 9c/l at the domestic sugar price, said Sam Maphumulo, the association's sustainability officer. It would cost R1.7bn to add distilling capacity to an existing mill, she said.
The South African sugar cane sector employs about 85,000 people. It has been in decline for the past two decades with annual sugar production dropping almost 25%.
The tax on sugary beverages has led to the closure of two mills and almost 10,000 job losses, according to Trikam.
Bloomberg
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.