puts industry at risk

Cedric Mboyisa

The South African Sugar Association (SASA) has appealed to Treasury to reconsider its intention to impose tax on sugar sweetened beverages (SSBs) which would have a crippling effect on the industry.

In its 17-page submission to Treasury, the association details the adverse ramifications of implementing the tax, which was first announced by Finance Minister Pravin Gordhan in his budget speech in the National Assembly (Parliament) earlier this year. The proposed tax will have a negative impact on the sugar industry and far-reaching consequences on the livelihood of those dependent on it.

Impact on industry’s future sustainability

In addition, upstream and downstream industries will be impacted, with adverse consequences right through the value chain in terms of ability to sustain business and employment. Suppliers of agricultural and manufacturing inputs, contractors, transport, warehousing, packaging, wholesale and retail, to name but some, would be impacted. This is particularly significant where historically disadvantaged business owners will be put at risk. 

Currently, the sugar industry creates a total of 85 000 direct jobs. Indirect employment created by the industry is projected at 350 000 jobs, which excludes induced employment. It is estimated that at least one million people are dependent on the activities required to supply the market with sugar.

Impact on rural and regional economies

The association also points out that the sugar industry is a significant contributor to the deep rural and regional economies of two provinces and has a significant national impact contributing 0.6% of the national Gross Domestic Product. The industry has played, and can continue to play an important role in contributing to the achievement of the National Development Plan given its contribution to employment, skills development and economic development in general.

Left to Right: SASA panel comprising Siduduzo Myeza, Suresh Naidoo, Rolf Lütge, Judith Wilson and Portia Mpofu addressing the media in Durban on mooted tax.

The volume of sugar supplied by the industry to the SSBs sector is approximately 620 000 tons per annum, and is the largest single sector for the industry in terms of sales. With regard to production, more than 100 000 hectares of cane are necessary to meet supply to the SSBs manufacturers. So what would the introduction of this tax mean for the industry? According to scientific reviews as quoted by the policy paper use a price elasticity of -1.2, implying that a 23% increase in SSBs price (including VAT) will lead to a drop of 27.6% of sugar in SSBs.

This equates to a loss of local market sales of 170 000 tons of sugar, approximately 10% of total current sales. The impact of this loss of sales has serious consequences for the future sustainability of an industry already burdened by significant external pressures. In particular, such an impact would be disproportionately felt by small scale farmers, in turn seriously affecting the government’s objective of building a thriving rural economy.

Reducing obesity

The industry also deals extensively with the argument that such tax would help reduce obesity in the country. This argument is advanced by Treasury as the main reason for introducing tax on SSBs. But the association, through its chairman Rolf Lütge, avers that such argument does not hold water as there is no available scientific evidence to support it. “It is worth noting that in a number of developed economies such as the USA, UK and Australia, per capita sugar consumption has been declining while obesity prevalence has been rising. 

"Clearly, factors other than sugar consumption have a material and overriding impact on obesity trends." 

The sugar industry supports the government’s objective of reducing obesity and Non-Communicable Diseases (NCDs) in South Africa. However, it is of the view that insufficient consideration has been given to the full impact of the imposition of this tax.

SASA’s submission to government

The sugar industry emphasise that it will continue to engage with government through Treasury and Department of Health regarding this matter of critical importance. In its submission to Treasury, SASA made the following recommendations:

  • To defer the implementation of the tax until a full assessment of the causes of obesity and NCDs in the South African context has been undertaken 
  • To conduct a socio-economic impact study to determine the extent of the negative impact on the affected industries
  • To consider measures to ensure the objective of reducing obesity and NCDs does not result in increased unemployment
  • A longer period granted to the industry to adjust to the proposed tax.