From left: ITAC Chief Commissioner Meluleki Nzimande, SAFDA Executive Chairman Siyabonga Madlala, political lobbyist Adheera Bodasing, SASA Chairperson Hans Hackmann and SASA National Market Executive Sifiso Mhlaba discussing tariff issues.

New tariff still insufficient
and will lead to shrinkage

Cedric Mboyisa

The South African Sugar Association (SASA) has presented its case to the Portfolio Committee on Trade and Industry as to why the new $680 reference price is inadequate to cushion the country’s sugar industry against imports from subsidised countries such as Brazil.

“The objective of providing sustainable support to the local industry has not been achieved. The new import duty will be ineffective in protecting the industry over the next three years – a shrinkage of the industry is most likely. There is an urgent need to review the basis on which protection from world sugar imports is afforded to the local industry,” SASA Chairperson, Hans Hackmann, told Members of Parliament (MPs).

Hackmann also called for the scrapping for the Real Effective Exchange Rate (REER) factor, especially in the next three years during which period the efficacy of the new tariff will be monitored and tested. The stated purpose of the REER is to “ensure that windfall profits or unnecessary additional protection to producers due to exchange rate fluctuations do not accrue to producers at the cost of food affordability”.

SASA had applied for an increase in the Dollar Based Reference Price (DBRP) from $566 to $856, which is the cost of production. But ITAC granted the industry a reference price of $680. “The sustainability of the sugar industry remains in the balance,” said Hackmann. In their response, MPs from the African National Congress (ANC) and the Democratic Alliance (DA) appreciated SASA’s presentation on the tariff, especially with regards to unpacking the technical aspect of the reference price in a simplified manner.

DA MP Dean Macpherson said the new tariff was a disaster for the industry. ANC MP Priscilla Mantashe said that she did not want to be or sound like the US President Donald Trump, but she called for the protection of the local industry against imports from subsidised countries. Committee Chairperson Joanmariae Fubbs did not mince her words, stating unambiguously that it was mainly Brazil, which is a member of BRICS, responsible for sugar dumping in South Africa. “I won’t shift from that comment. It is a reality,” she said emphatically.

Hackmann said the industry anticipated the following as the result of the $680 reference price:

Within 12 months:

  • Fourteen (14) sugar mills will continue running, but not at full production capacity;
  • Jobs opportunities will continue to decline;
  • Producers will earn negative margins and will be unprofitable. The inability to recover costs will result in further disinvestment;
  • Cane farmers will hold back on replanting, with increased cost pressures, resulting in declining yields. Some will consider alternate crops with better long-term prospects;
  • As the availability of cane reduces, millers will start to seriously assess options to shrink their businesses in the coming season. This will also reduce exposure to the low-priced world export market.

Within three years:

  • Even if one assumes a significant improvement in world sugar market prices, a weak exchange rate (protecting the local market from imports and inflating the Rand value of exports), and a highly efficient industry with costs increasing at only 5% per annum, a shrinking of the industry is inevitable;
  • The area under cane will reduce by around 40 000 ha;
  • Sugar production will reduce by an estimated 
  • 240 000 tons, as millers seek to remove their exposure to low world market prices, as they are unable to adequately recover costs in the local market due to inadequate protection;
  • Two mill closures will result in job losses that will include 9 500 direct jobs and 39 000 indirect jobs;
  • More than 5 000 small-scale black agriculturalists will no longer be sugarcane farmers. Given the limited opportunities for alternate crops in many of the deep rural areas, these farms are likely to lie fallow;
  • A significant number of commercial farmers, as well as their farm workers, will be out of business.

Hackmann said SASA would continue to engage ITAC and other relevant stakeholders regarding finding an appropriate solution.