Ramaphosa must act to save sugar industry from imminent collapse
11 February 2019
In his state of the nation address, President Ramaphosa was very clear on the need to develop agriculture for the benefit of all. However, inexplicably, he said sweet nothing about the perilous state of the sugar sector.
Here is a wake-up call for President Ramaphosa and his Cabinet: The South African sugar sector is in an unprecedented state of crisis. This R14 billion industry is at risk of collapse, along with the 350 000 jobs it provides and the one million people it supports.
What’s more, these jobs are mostly in rural areas where little other employment opportunities exist and these job losses will inevitably lead to mass urbanisation.
Sugar cane growers, emerging farmers, farmworkers and surrounding communities could soon disappear if the government fails to take urgent action.
The problems are manifold:
1. Unsteady rainfalls
Climate change has led to unpredictable weather conditions. The sugar regions of KwaZulu-Natal, for example, are recovering from a three-year drought that wreaked havoc for cane growers, who lost over R2bn in just one season.
Despite the severity of the drought, very little, if any, help was extended to cane growers – neither during the prolonged drought nor during the recovery period.
2. Plunging prices
Sugar cane farmers were plunged into another crisis when approximately 500 000 tonnes of imported sugar imports landed on our shores in 2018. South African sugar – which is some of the highest quality in the world – was summarily dumped onto the world market.
As a result, cane growers and other industry members incurred immense losses, and many are now on the brink of going out of businesses. If the cane price does not improve soon, more retrenchments, farm closures and severe job losses are in store for the industry.
3. Little cushioning against imports
In 2018, the industry for months desperately tried to lobby the government to provide tariff protection against the dumping of cheap imports – mainly from Brazil. After drawn-out submissions and lobbying, the International Trade Administration Commission (ITAC) finally agreed to raise the dollar-based reference price (DBRP) – which is an import tariff levied on products that come into South Africa.
The DBRP was eventually increased from $566 to $680, but it’s not the $856 per ton level that the industry had applied for. The result is that cane growers and other industry members are unable to recover their full cost of production.
4. Demand drop
In addition to the inability to recover production costs, cane growers had to come to terms with a drop in sale volumes, by and large as a result of a diminishing demand in the industrial market.
After the health promotion levy (also known as ‘Sugar Tax’) came into effect in 2018, soft drink manufacturers started reducing bottle sizes as well as the sugar content of products. All these measures have led to a drop in the demand for sugar, which in turn drives revenue down.
These challenges are coming together in a perfect storm. If we don’t do something, they will kill the sugar industry – a sector that contributes close to R14bn to the South African economy. It is puzzling that government is willing – at least partly – to protect the industry from imports through the DBRP. Yet it has no qualms implementing a tax so damaging that it could ultimately sound the death knell for the sugar industry.
The South African Cane Growers’ Association calls on the government to take three immediate steps to help the industry out of the crisis:
- Grant the industry the tariff protection it asked for to level the playing field and shield it from cheap imports from countries that are heavily subsidised.
- Tighten restrictions to prohibit sugar entering South Africa from neighbouring countries that are not subject to any duties.
- Invest in industry-led innovations, such as ethanol production and cane-based packaging to support the industry’s efforts to find alternative markets for sugar. These new innovations will create thousands of new jobs.
- Be more responsive to fluctuations in world sugar prices, protecting the local industry from price shocks and thereby securing the future of the industry.
This is a call to action. If President Ramaphosa is serious about creating 275 000 jobs a year and the agricultural sector as a revenue creator, he needs to take urgent steps to save the sugar industry -- for the benefit of all.
Issued by Graeme Steinbank, Chairman of SA Canegrowers Association, 11 February 2019