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The South African sugar industry could take years to recover from the effects of the 2015-16 drought.
The South African sugar industry could take years to recover from the effects of the 2015-16 drought.

Sugar industry could take years to recover from 2015-16 drought

ECONOMIC NEWS

By Reitumetse Pitso - Aug 7th 2017, 09:54

The South African sugar industry could take years to recover from the effects of the 2015-16 drought which has led to the industry failing to meet export orders. 

SA is a major sugar producer, with the industry contributing 0.6% towards the country’s GDP. The sector is responsible for 85,000 direct and 350,000 indirect job opportunities with export earnings of R2.5bn a year.

Sugar cane is grown and processed mostly in KwaZulu-Natal, Mpumalanga and the Eastern Cape.

This week, the South African Sugar Association (Sasa), which represents the industry’s producers said the drought resulted in a 53% decrease in production in some areas, along with the unprecedented closure of two mills, while other mills had a shorter than normal milling season.

Sasa executive director Trix Trikam said while the production of sugar was sufficient to supply local demand, export supply had to be curtailed. "We did not export during the drought."

In a presentation to Parliament in May, Sasa vice-chairman Suresh Naidoo said besides the worst drought in history, the industry was "under siege" due to high input costs, a low-priced world market and the proposed tax on sweetened drinks, as well as the long-running issue of inadequate tariff protection.

Since 2013, the industry has been clamouring for increased tariffs to protect it from imports which affected its financial stability and competitive position. SA uses the dollar-based reference price tariff system as a protection mechanism when the world price drops below a pre-determined reference price.

Sasa had applied for an increase in the dollar-based reference price of sugar from $358 to $764.64 a tonne. In its calculation of the required tariff, the International Trade Administration Commission (Itac) found the appropriate tariff level to be $566 a tonne, arguing that a price above that would overprotect the industry and fuel inflation.

Itac also said the level requested by Sasa would disadvantage industrial manufacturers using sugar as an intermediary input, which made up more than 60% of the industry’s downstream clientele.

The Department of Agriculture Fisheries and Forestry said that between 2004 and 2013, raw sugar cane imports into SA came primarily from the US, followed by low import volumes from Africa, Europe, and Asia. SA mostly exports to the Southern African Development Community region.

Trikam said with the massive influx of imports from the world market, without sufficient tariff protection, the industry "runs the very real threat of having imports displace local production" which would have catastrophic effects on the industry and jobs.

Meanwhile, a report by BMI Research forecasts shrinking surpluses and increasing deficits in sugar for most sub-Saharan countries over the next three years. This comes as exports to the EU are at risk of being displaced when the region’s production quotas lapse in September this year.

The report said Mozambique, Swaziland and Zimbabwe could be the most affected, while SA will only be able to export 75% of its 150,000 tonne quota to the EU in the 2017-18 period, and would focus on supplying the domestic and regional markets in future.

© BusinessLIVE MMXVII 

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