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Transformation of SA’s sugar industry needs structural reform too

Transformation of SA’s sugar industry needs structural reform too

BY: businesslive.co.za 08 Feb 2019 Filed in: Sugar Industry News

A shift in mindset is needed by both the government and business if South Africa’s sugar industry is to continue to grow while truly transforming.

Our local sugar industry faces a myriad of challenges, many of which are out of its control. Drought conditions as a result of climate change, a lower world market sugar price, and the flooding of more sugar imports into our local market has resulted in a disappointing performance over the past few years.

This has — in the main — adversely affected black sugarcane farmers, with the small-scale and land-reform black farmer being the most impacted.

Other factors, such as the introduction of the Health Promotion Levy which spurred local beverage manufacturers to accelerate the rates of reformulation to reduce sugar content in sugar-sweetened beverages to mitigate the impact of the tax on their businesses. Through the reformulations, local demand for sugar has consequently declined with an adverse impact on associated businesses.

Because of its importance as an employment creator in our country’s economically suppressed deep rural areas, the International Trade Administration Commission (Itac) recommended an increase in the dollar-based reference price (DBRP) of sugar. While this is a welcome move to assist in protecting the local industry against dumping by global sugar producers, it does not resolve structural weaknesses within the industry, nor should it distract us from the real task at hand of meaningful transformation.

The concentrated structure of SA’s sugar industry remains a concern. There are 14 sugar mills in the country, with ownership concentrated in six milling companies. By comparison, there are more than 19,000 black, small-scale sugarcane farmers in the country. Yet though these farmers represent about 90% of total sugarcane growers, they contribute just 10% to the country’s total sugarcane production volumes. 

A model of inclusion, which focuses on increasing black participation along the value chain as well as at senior levels of the major sugar companies, is needed. 

It is also imperative that the government recognises the importance of growing and diversifying the sector overall. It can use policies such as the department of energy’s Integrated Resource Plan (IRP) as tools to open the market for sugar producers in the space of renewable energy.

The time is ripe for government to put into action its plans to diversify the industry into ethanol, co-generation and bio-based products. Not only does innovation open new paths for growth, but opportunities for black, sugarcane growers across the value chain.

This, is needed for the long-term sustainability of the industry.

President Cyril Ramaphosa’s promise of a concerted industry-wide engagement factoring in the socio-economic goals of improving employment, fostering growth and reducing inequality is an important consideration as the industry moves forward.  The end goal should be a model of transformation that not only accelerates but multiplies market opportunities for black farmers along the value chain and leads to thriving rural communities and economies. 

  • Madlala is the executive chair of the SA Farmers Development Association.

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