SOUTH AFRICA: Illovo says sugar tax hitting industry hard
Published: 07/12/2018, 6:20:47 PM
The sugar industry's annual sales have declined by 27% as a result of the Health Promotion Levy (HPL) - commonly called the sugar tax - and imported sugar, according to South Africa's Business Report.
According to Chris Fitzgerald, Illovo South Africa's spokesperson, Illovo had forecast a decrease in its sales to the beverage sector by at least 30%.
Fitzgerald said the firm's reduced sugar sales to the sector were for two reasons:
"The first is that the HPL has incentivised manufacturers of sugar-sweetened beverages to reformulate their products to below the 4g sugar/100ml threshold to avoid the very expensive levy.
"The cost of the levy amounts to ZAR21000 (US$1,579) per ton of sugar against the actual price of R8200/ton. For example, one well-known brand has recently reduced its sugar content to 3.1g/100ml from 13g/100ml," said Fitzgerald.
He said the second impact of sugar tax was that beverage manufacturers were at the same time reducing the size of their portions in a bid to encourage portion control, resulting in the sales of the same amount of bottles but fewer litres.
Illovo said the sugar tax, coupled with the significant amount of low world-priced sugar imports entering South Africa, was having a significantly negative impact on the domestic sugar industry, reducing the local industry's sales year-on-year by 27%.
"Sugar previously sold on to the domestic market is now having to be exported at a significant loss as world market sugar prices are currently well below the cost of production of most, if not all sugar industries in the world.
"The loss is shared across the entire supply chain, putting at serious risk the continued viability of the industry."
Fitzgerald said on average the local industry produced just below around 2 million tonnes of sugar annually, compared to 2.5 million tonnes 10 years ago.
The sugar producer said that if the imports continued unabated against the backdrop of a recent two-year drought, farmers who have the ability to cultivate alternative crops would switch to other crops, while those that cannot will simply go out of business.
This would spell a tragedy for South Africa as these farmers provide much-needed employment opportunities in deep rural areas.
Illovo said the local sugar industry needed an import tariff that recognised that the world market in sugar was distorted by the surplus production of subsidised global sugar producing industries.
Fitzgerald said a recent independent report highlighted that the US sugar industry enjoyed subsidies estimated at 66% of the farm gate price, while in Brazil, the world's largest sugar producer, sugar is subsidised 27% of the farm gate price through a number of support instruments, including its fuel ethanol programme.
"The South African sugar industry, which supports more than a million people through its activities, therefore needs protection from having to compete with the treasuries of other sugar-producing countries.
"If imports continue, South Africa will continue to export jobs and when South Africa stops growing sugar cane, it would put at risk many of its citizens relying on the sector for their livelihoods."
Following last month's marches in Pretoria (where the industry advocated for an increase in the dollar-based reference price), it continued to engage with the government through the sugar value-chain task team on issues impacting sector viability.
In the Integrated Annual Report that Tongaat Hulett released last week, it said that import protection in South Africa remained the lowest in the region, with import duties calculated using a dollar-based reference price of US$566 per ton.
In Mozambique the price using the same tool reference price was US$806 per ton, while in Zimbabwe protection to the local market was through a restricted import permit system and an import duty of US$100 per ton plus 10% of the imported value.