The low duty has led to the inundation of sugar imports, a situation which is displacing the local market due to the cheap nature of imported sugar from subsidised countries. It is estimated that for the 2017/2018 season 600 000 tons of sugar imports will enter South Africa. This estimate is based on the current monthly import volumes.
What does this inadequate tariff imbroglio mean for the industry? In an interview with the South African Sugar Journal (SASJ) , Sifiso Mhlaba (SM) , National Market Executive at the South African Sugar Association, shed light on the matter as he painted a picture of an industry in distress and in need of a decisive intervention.
SASJ: What is a sugar import tariff?
SM: A tariff is broadly defined as a tax or duty payable on products being imported or exported. An import tariff therefore is tax payable on goods being imported into the country. It is a key intervention to protect domestic markets from international markets or to raise government revenue. As the world sugar market is residual and highly distorted, almost all sugar producing countries have some form of protection mechanism.
There are various systems to implement tariffs. South Africa employs a Dollar Based Reference Price (DBRP) implemented through a variable tariff formula. The DBRP sets the level of protection in dollar terms and the variable tariff formula then calculates the duty payable in rand terms.
The DBRP is currently set at $566 (initially approved in April 2014, and again maintained in July 2017). A duty on the other hand is what is gazetted and is what importers pay. The duty is effectively the difference between the 20 day moving average of the world sugar price and the Reference price ($566). The current duty is R2131. A table below shows how this duty was calculated based on the reference of $566 and other relevant elements of the formula.
The duty therefore changes in response to changes in the world price to the changes in the world price, i.e. low world price triggers a high duty and the reverse is true. The key element for offer protection remains the DBRP. Variations in the duty gazetted does not mean increased protection.
SASJ: When was it first introduced in South Africa?
SM: The variable tariff formula was introduced in September 2000 by then then Board on Tariffs and Trade (now ITAC). It was deemed to be more suited for commodities operating volatile markets unlike the normal ad valorem tariffs.
SASJ: Has it ever been adequately sufficient in the past?
SM: Above is a comparison between the DBRPs SASA applied for versus what was approved. SASA is of the view that the $566 was not adequate to protect local producers based on a cost of production. The depreciation of the rand was the only saving grace.
SASJ: How is the current insufficient tariff affecting the industry?
SM: South African sugar producers have lost significant market share. As at September,
year to date sales were more than 250 000 or almost 30% below the previous season. This share has been taken deep-sea imports.
On a full season basis, it is estimated that sales will more than 350 000 below the previous season as imports continue to eat into the market. The impact of the loss in sales has resulted increased exports, which is not profitable.
SASJ: Which countries are mainly responsible for sugar imports?
SM: Brazil has always been the biggest threat. In the current season, Brazil, Guatemala, AUE and Thailand have accounted for more than 90% of the deep-sea imports.
SASJ: Please provide statistics pertaining to imports for the last four seasons.
SASJ: What would be the appropriate level of the tariff?
SM: During the ITAC review in 2016, the industry submitted that a DBRP level of $812 would be appropriate. This was based on figures from the 2015/2016 season. SASA is busy with a compilation of a new tariff application using 2016/2017 figures with the intention to submit before end of the year. The appropriate level will be determined after the analysis is completed, taking into the latest information and exchange rate movements.
SASJ: What needs to be done to remedy the inadequate duty?
SM: As the duty is a function of the DBRP – it is the $566 that needs to be urgently reviewed. SASA has engaged with government to streamlined the process of gazetting triggers; however, if the DBRP remains at $566, the sustainibility of the industry will remain under immense pressure.
SASJ: How urgent is this tariff issue?
SM: The increase in the DBRP is extremely urgent. SASA is currently compiling an application to ITAC with the intention to submit before the end of the year.
SASJ: How helpful and supportive is government in terms of trying to resolve the tariff issue?
SM: Following the outcome of the ITAC review process, the industry has engaged with multiple government departments to highlight the dire challenges. Generally, government has been willing to listen to the industry and indicated willingness to find ways to assist.