South Africa's sugar industry is battling headwinds that threaten the livelihoods of thousands of people and businesses in KwaZulu-Natal, forcing the sector to seek new opportunities to offset the expected decline in its traditional product.
The South African Sugar Association (SASA), made up of cane growers and millers, tough predicts tough trading in the next five to 10 years, with the decline in sugar volumes, employment and the closure of mills as a result of the sugar tax and increased competition from big sugar exporters such as Brazil, Thailand and India.
At a press briefing in Durban on Monday, Sandy Jackson, head of agri-socio economics at the Bureau for Food and Agricultural Policy (BFAP), painted a dire picture of the industry if more tax is imposed on soft drinks, saying in the short term the industry could lose 6,000 jobs.
She said the loss of thousands of jobs within two years “is hard to mitigate against without intervention and support”.
There are talks of possible changes to the sugar tax, known as the health-promotion levy (HPL), which was introduced in 2018.
Sifiso Mhlaba, SASA's national market and international affairs executive, said clear policy direction on the tax is needed and preferably there should be no change.
He said the industry is willing to invest in alternative products and required policy support.
In a report by BFAP, after losing 14.6% of hectares under cane between 2005 and 2015, the South African sugar cane area had been relatively stable at about 350,000ha to 360,000ha until 2018, but has since lost 10,900ha.
Based on economic indicators and projections, and consequent local market conditions, it is expected the country's cane area will decline by a further 26,400ha in the next 10 years.
The report says this reduction in cane planting will be driven largely by tariff-free imports from Eswatini; reduced local consumption partly due to the sugar tax; stagnant and decreasing yields (due to climate change and disinvestment in soil health); and increasing production costs, specifically labour, fertiliser, transport and electricity.
If the sugar tax is increased, SASA projects a decline of 160,000 tonnes of refined sugar, equivalent to the refined output of one of the four refineries now operating and equating to raw sugar production, allocated for refining, of two of the 12 mills in KwaZulu-Natal.
A reduction in demand of this magnitude will place significant risk on the ongoing operation of multiple mills and refineries.
— Bureau for Food and Agricultural Policy
The reduction will also decrease industry turnover by more than R600m a year as the equivalent volume of raw sugar will have to be exported at lower world sugar market prices, thereby reducing industry profitability for millers and growers. Industry revenue is R18bn.
“A reduction in demand of this magnitude will place significant risk on the ongoing operation of multiple mills and refineries,” the report said.
Moreover, exports result in a lower sugar cane producer price and, ultimately, a decrease in cane profitability, hence a reduction in cane area, crushed cane and jobs.
The sugar tax is 2,21c per gram of sugar content that exceeds four grams per 100ml. It was expected to have been increased to 2,31c cents/g last year, but this was postponed due to the moratorium negotiated under the sugar cane master plan and government indicating a need for broader consultation, said SASA. Since the tax was introduced, the industry lost 9,000 jobs, said the association. The aim of the tax was to reduce obesity and other diet-related diseases.
The moratorium ends this year and proposals include increasing and expanding the levy (including an inflation-linked adjustment), lowering the threshold to 2g per 100ml and an expansion of the tax to other food products.
Worsening pressure is the state of one of country's oldest sugar producers, Tongaat Hulett, which is in business rescue.
SASA’s executive director Trix Trikam said Tongaat owns three mills and a refinery that crush about 5-million tonnes of cane, which makes about 450,000 tonnes of sugar, and these refineries refine half of the SA Customs Union's sugar requirement, “so it's huge”, said Trikam.
“Can you image if they are not there? First, that's 5-million tonnes of cane that has nowhere it can be crushed because all the other mills are at full capacity. That's why they need to survive because if they can't crush. It means all those growers are kaput. What are they going to do and where will they take the cane? Most small growers deliver to Tongaat because they are in the same region,” he said.
The consortium of sugar cane growers who also supply Tongaat have expressed interest in buying the company.
This week SASA pleaded with finance minister Enoch Gondongwana not to increase the tax, saying it wanted time to research potential new businesses for the industry, such as sustainable aviation fuel, bioplastics and food additives to diversify amid an expected decline in sugar demand from local beverage makers.
Trikam said the industry needs three to five years to pursue product diversification.
“We are asking the government to hang on to HPL, give us time to hopefully come up with new products. A decision not to change the sugar tax will help the industry.”
Geran Ranganthan, SASA’s exports and logistics executive at Durban harbour's sugar terminal, said there are export opportunities in Europe and the US for ethanol and aviation fuel, and the facility would be able to supply the products.
* Mochiko visited sugar operations in KwaZulu-Natal as a guest of the South African Sugar Association
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