Imported sugar continues to be a big threat to the local sugar industry - food group RCL Foods has warned of a significant decline in annual profitability in its sugar business unit because of it, while other organisations estimate the total loss to the industry at a tag of around R2 billion a year.
RCL says high volumes of deep-sea imports entered South Africa in the 12 months to end-June, enabled by an absence of effective tariff protection, which resulted in lower local-market sales.
“Total industry local market volumes were down 10.3% and as a result, a greater proportion of sugar volumes were being sold into the lower-priced export market (total industry export market volumes up 48.3%),” the company said.
Another problem was exports. International raw sugar prices fell by 22.6% on average over the year, which, together with a stronger average Rand/dollar exchange rate, resulted in lowered realised Rand export prices for the current year.
“Due to the ineffective tariff, the sugar Industry did not take any sales price increases in the local market during the current year, despite incurring inflationary input cost increases.”
RCL said that the gap between local and export sales prices was in the region of R7,000/ton, or 51.9% lower than the local sales price on average during the year, highlighting the significant impact that an increase in export sales has on profitability for the Sugar business.
RCL says an effective tariff is crucial for the sustainability of the sugar industry and currently the matter remains unresolved with the International Trade Administration Commission (ITAC).
The South African Farmers Development Association (SAFDA) said that in the last season there was no increase in the notional sugar price because they were too exposed; hence, if they increased the notional price, the industry was going to lose more sales and then they would be forced to export more sugar.
“For sugarcane growers, the impact of rising sugar imports is both direct and measurable. Increased volume of sugar imports reduces domestic offtake of locally produced sugar, weakening demand for locally produced sugar.”
SAFDA added that this, in turn, lowers the revenue flowing into the industry’s shared revenue pool, placing strain across the entire value chain.
“As local sugar sales decline, surplus sugar is pushed into export markets, where prices are significantly lower. The latest status figures show that exports are often made at a loss of around R8,300 per ton, substantially eroding growers’ incomes and limiting their ability to absorb rising production costs.”
SAFDA said that farmers view an upward adjustment of the Dollar-Based Reference Price (DBRP) as both necessary and urgent in response to the growing challenges of low-priced sugar imports.
“Without a timely increase, persistently high import volumes will continue to erode sugarcane growers’ incomes, limit their ability to reinvest in their farms, and heighten the risk of long-term decline in the industry.”
SAFDA added that small-scale farmers are particularly vulnerable.
“Operating with limited financial reserves, they are less able to withstand market volatility and external shocks such as extreme weather. In recent years, flooding and infrastructure damage have compounded their challenges, raised production risks, and increased recovery costs. As a result, many are unable to absorb sustained losses or endure prolonged depressed prices.”
SAFDA concluded that for these farmers, an increase in the DBRP could mean the difference between continuing production and exiting the industry altogether.
Dr Thomas Funke, CEO at SA Canegrowers, who spoke to The National at the South African Sugar Technologists' Association (SASTA) Congress in Durban, said that imported sugar has led to a terrible situation for the local industry.
“Imports are flooding in; the world price has increased a little bit, which is giving us a little more competition, but imported sugar is still coming in, and every ton that comes we have to export a ton at a loss,” he said.
Funke added that the local industry is losing R7,500 a ton that is imported. “We are looking at R2bn in revenue that has been lost this season. I agree with RCL’s trading statement; profits are down, margins are down, and sales are down.”
The South African Sugar Technologists' Association President, Dr Muhammad Kadwa, said: “We require sufficient support from the government through a higher tariff system, and that process is being driven by the South African Sugar Association.”
Kadwa added that the industry also faces challenges with South Africa's Health Promotion Levy (HPL), which was introduced in 2018.
“It resulted in the sugar industry dropping from 14 to 12 sugar mills, and over 15,000 jobs were lost because of that. The concern is that there are no long-term fixed guidelines from what the government is going to do from a policy perspective, whether they will increase the levy or extend the levy to other products beyond beverages and soft drinks or change the rate it is set at. R1 billion is being lost in revenue every year due to South Africa's Health Promotion Levy (HPL).”
yogashen.pillay@nationalmg.co.za
THE NATIONAL
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