Debate on South Africa sugar tariff continues
22 December 2013
Following the South African Sugar Association’s (SASA’s) request in October 2013 for “an import tariff increase of an effective 50 percent”, the South African food producers Tiger Brands and Premier Foods have expressed concerns about the price-increasing effects that a higher tariff would have on products such as bread, maize meal and snacks. The Association of Southern African Sugar Importers (ASASI) has claimed that “the increase in the import tariff would add R6 billion across consumers’ shopping bills and raise the cost of production for the food, beverage and confectionery industry.” Sales of sugar by SASA to industrial users account for 45% of the total volume of sugar sold.
SASA’s chairman has sought to assure industrial users that “the local sugar industry [is] likely to raise sugar prices below the consumer inflation rate levels,” which would be an extension of the “responsible pricing” followed by the South African sugar industry during the period of high prices 2 years ago.
The South African sugar producer Illovo commented that the dollar-based reference price used in relation to import tariffs “presented a distorted price… below the costs of local production” and that, in the absence of increased tariff protection, “this would result in [the company] cutting local sugar cane supply as [its South African sugar] business was no longer profitable”. However, this needs to be seen against the announcement in May 2013 of a 43% increase in headline earnings for the Illovo Group as a whole, following “record cane production from the Group’s own operations”. In the same month, Illovo’s South African rival, Tongaat Hulett, reported growth in revenue of 19% for the same period.
In the case of Tongaat Hulett, however, reports in November 2013 suggested that the company’s sugar division was performing below expectations (as a result of lower international sugar prices, particularly in the EU market, and rising sugar imports to South Africa), while the company’s property division had exceeded expectations. Profits from land conversion and development more than doubled, “with sales in the Cornubia and Umhlanga areas as well as a major sale of land near the airport, north of Durban”.
USDA has reported a projected 25% increase in South African sugar production for 2013/14, as a result of “improved climatic conditions”. Exports are projected to increase by 60% to 600,000 tonnes after depressed export levels in recent years, with South Africa fully delivering on its US quota. South Africa’s refined sugar exports are primarily to African countries, while its raw sugar exports are primarily destined for non-African destinations (Indonesia, Japan and USA).
South Africa’s sugar imports, meanwhile, are expected to remain constant in the light of SASA’s application for tariff increases.
South African sugar production, imports, exports consumption and ending stocks (tonnes)
| MY 2011/12 | MY 2012/13 | MY 2013/14 | |
| Production | 1,897,000 | 2,020,000 | 2,450,000 |
| Imports | 193,000 | 222,000 | 225,000 |
| Exports | 271,000 | 377,000 | 600,000 |
| Human consumption | 1,810,000 | 1,850,000 | 1,880,000 |
| Ending stocks | 162,000 | 172,000 | 362,000 |
Source: USDA, 18 October 2013 (see below)
Editorial comment
With world market prices hovering around 17 to 17.5 US cents/lb, a narrowing gap between EU spot-market and long-term contract prices, an expected 25% increase in South African sugar production and a significant price differential between South African and world market sugar prices, adjusting the sugar tariff to prevent further increases in imports is increasingly seen in South Africa as essential.
Managing the sugar trade regime in the face of price and currency volatility is a common challenge across many ACP countries (see Agritrade article ‘Dispute between Cameroon’s government and SOSUCAM over sugar imports’, forthcoming 2013), with the interests of both producers and consumer needing to be reconciled.
The situation, however, is more complicated in South Africa, given the extensive use of sugar in the manufacturing of food products. Many of these high-sugar-content products have been subject to tariff reductions in the context of the EU–South Africa Trade, Development and Cooperation Agreement (TDCA). As a consequence, any policy changes that increase the costs of sugar used in the manufacturing of food products would be likely to undermine the competitive position of domestic producers vis-à-vis competing imports.
The issue is further complicated by the differing positions of sugar cane farmers and sugar cane processing companies. Two major South African sugar companies, Illovo and Tongaat Hulett, have for the last 12 years been pursuing diversification strategies which have seen them moving out of sugar cane production in South Africa. Sugar production in neighbouring countries and property development on former sugar estate lands now represent important sources of corporate revenue. The current pressures from sugar imports would be likely to intensify this pre-existing trend.
