A sharp increase in international sugar prices has sparked worries about a surge in local pricing, but experts say South Africa should be in the clear.
However, this doesn’t take away the sting from other local troubles—like taxes—that have kept producers under severe strain over the past few years.
International sugar prices have risen sharply over the past two weeks due to drought conditions in Brazil, the world’s largest sugar supplier, which accounts for 70% of export trade.
Sifiso Mhlaba, Economist and Market Trade Policy Director at the South African Sugar Association (SASA), explained to Newzroom Afrika that local sugar prices should remain stable despite this.
“We have certainly been watching and observing with concern the situation and development in Brazil, but I must indicate South Africa is a surplus sugar producer,” Mhlaba said.
“For the current season, we’ve had only about 20,000 tonnes of imports and 14,000 in terms of that is coming from Brazil.”
“However, the total demand in South Africa is approximately 1.6 million, and a significant portion of that is being supplied by the South African producers.”
As a result, he said that while SASA anticipates the Brazilian situation will impact international prices, local sugar prices are not expected to increase.
“We are supplying more than 98% as South African producers, so we should be quite covered.”
However, while the local industry may be able to avoid headwinds from the Brazilian droughts, it is facing a much more pressing challenge from the Health Promotions Levy (HPL), popularly known as the “sugar tax”.
The levy, which became effective in 2018, taxed sugary beverages and was introduced to support the Department of Health’s deliverables to decrease diabetes, obesity, and other related diseases in South Africa.
Prior to the introduction of the tax, the industry was selling around 1.55 million tonnes of sugar, but since then, the consumption of sugary drinks has decreased by 30%.
As a result, sugar sales have significantly reduced, and nearly 10,000 jobs have been lost in the industry in one year.
This comes on top of the 25% decline in production that South Africa’s sugar industry has experienced for the past 15 years.
The Sugarcane Master Plan
In November 2020, the Sugarcane Value Chain Master Plan was formally signed to combat serious challenges such as imports, insufficient tariffs, the sugar tax, and declining revenue.
Phase 1 of the plan, which ran until March of 2023, was about restructuring and setting foundations for diversification.
Its key objectives included stabilising the industry, protecting jobs, empowering small-scale growers, mitigating capacity reductions, and advancing transformation.
To achieve these goals, a R1 billion Sugar Industry Transformation fund was allocated to support farmers over five years, with R1.24 billion spent on transformation initiatives so far.
Mhlaba explained to SABC that during phase one of the master plan, sugar sales stabilised in the past three years from 1.25 million tonnes back to pre-sugar tax levels of 1.5 million tonnes.
While significant improvements have been made with the Master Plan, the industry remains vulnerable and changes to the sugar tax rate or scope could unwind progress made and put growers at risk.
As a result, the South African sugar industry is seeking a six-year halt on the sugar tax from the Minister of Finance to help stabilise the industry.
Mhlaba said this halt is meant to support the industry’s objectives of diversification, transformation, global competitiveness, and sustainability.
“It would be difficult then to be focusing on the future if your current existence is under threat.”
The plan, which has now moved on to phase two, recognises sugar as a critical product but encourages the industry to transition from solely producing sugar to a sugarcane-based value chain industry.
This shift aims to explore other products that can be made from sugarcane, ensuring a more sustainable future.
To achieve this, the industry is investigating new product opportunities, including sustainable aviation fuel, polylactic acid (a biodegradable plastic alternative), and bioethanol (a renewable energy source).
The Master Plan provides a collaborative platform with government partners, such as the DTIC and IDC, and other stakeholders to identify viable products and develop policy support.
By diversifying, the South African sugar industry can remain competitive in the global market, create new economic opportunities, and reduce dependence on a single product.
Ultimately, sugarcane is an energy crop, and the industry aims to maximise its potential by producing multiple products from the entire cane, rather than just sugar.
This approach will ensure the industry’s long-term sustainability and unlock new possibilities for growth and development, Mhlaba explained.
