Industrial Affairs Manager
031 508 7200
If the cane price does not improve, farm closures and severe job losses are on the cards, as well as, lower capital and maintenance investment by millers as a direct result of the cut in proceeds.
While South Africa’s sugar crop has recovered from the effects of the 2014-2016 drought, plunging proceeds have put growers at serious risk of being forced out of business. As a result of the implementation of the Health Promotion Levy (HPL) by the government in 2018, and the large volumes of deep-sea imports flooding the country, domestic market sales have shrunk to levels last seen during the 1983/84 drought ravaged season. As a result, over one million tons of sugar had to be exported - the highest volume since 2005/06 - at prices well below the cost of production. The RV Price dropped by 14.6% against the 2017/18 season or marginally higher than the 2014/15 price at a time when production- linked costs have soared due to substantial labour cost increases and record high fuel prices. In effect, if the cane price does not improve, farm closures and severe job losses are on the cards, as well as, lower capital and maintenance investment by millers as a direct result of the cut in proceeds. If the millers don’t invest, the efficacy of the mills to extract sugar is compromised, resulting in a downward cycle in returns.
In a bid to tackle the impact of imports and to recapture market share, the sugar industry dropped the notional price of refined and brown sugar by 13.5%, from 22 March 2018. The Dollar-Based Reference Price (DBRP) import tariff was eventually increased by South Africa’s International Trade Administration Commission (ITAC) from $566 to $680 per ton sugar in August, but the increase remains way below the $856 a ton requested by the industry. Once the new tariff was announced, the industry increased the notional prices of sugar by 19.5%. This increase is still lower than the early 2017 prices and has meant growers and industry members have fallen short in recovering their production costs. Furthermore, Southern African Customs Union (SACU) duty-free imports from eSwatini increased in 2018/19 and potentially could continue depleting local sales, which could further devastate the South African sugar industry.
The Health Promotion Levy (HPL), which came into effect on 1 April 2018, has crippled South Africa’s sugar industry. Historically, HPL-products contributed more than 550 000 sugar tons sales per season in the local market. Estimations, carried out by independent researchers, on the impact of the levy ranged from 120 000 to about 250 000 tons in lost sales. But, the 2018/19 figures suggest the impact was more pronounced. Sales to fizzy drinks manufacturers in the 2018/19 season dropped to below 300 000 tons, totalling a net industry loss of revenue of over R1.25 billion. And the recently announced 5.2% increase in the levy from 1 April 2019, will undoubtedly deal another body blow to the sector.
An oversupply of sugar coming out of countries such as India, the European Union, Thailand, Pakistan and Russia has resulted in a low world price last seen in 2008. The low price is also resultant of an anti-sugar sentiment by consumers in developed countries.
Just six mills achieved a pol factor within the performance indicator range for this season.
If Brazil had not switched their mills to ethanol production the world surplus could well have soared to record levels driving the price even lower. The priced bottomed in September 2018 and while it gained some of lost ground the commodity has traded well below 2017/18 levels.
As growers supplied a larger and improved quality crop - after recovery from the drought - to the country’s 14 sugar mills, figures will reflect an improved performance by the factories. However, when compared with the historic and long-term averages mill performances were generally poor. Just six mills achieved a pol factor within the performance indicator range for this season.