Heightened Government support vital for survival of SA’s embattled sugar industry

Executive Director, South African Sugar Association, Trix Trikam

Sugar industry leaders are calling for an urgent meeting with government or the establishment of a commission of inquiry to ensure the future sustainability of the sector.

They say unless the state and key role players create an environment conducive for production and trade, the industry will collapse in the face of a flood of cheap imports, the implementation by government of the Health Promotions Levy and “outdated” legislation in the Sugar Act relating to the division of proceeds between growers and millers.

South Africa’s largest independent sugarcane farmer and miller Charl Senekal has called for a top level meeting between the sugar industry and government saying the sector has little chance of survival without increased support from Treasury.

South Africa’s largest independent sugar grower Charl Senekal.

Senekal, who spoke to Shukela magazine on the future of the industry, also called for a total ban on sugar imports while urging farmers and millers to sit down together to work out a plan for a fairer and more just division of takings from the sugar milling process and downstream products such as molasses and alcohols.

“I am saying we have to have a *CODESA-style meeting. We don’t leave the room until we have solutions, no matter how long it takes,” said Senekal.

“As a sugarcane farmer all I am asking for is political stability in the country firstly, and secondly, that I get a fair price for my sugarcane from the millers. We also cannot compete with sugar imports that are flooding into the country. There has to be a total ban on sugar imports particularly from the Southern African Development Community (SADC) countries. Unless government gives us support, the sugar industry is a dying industry,” Senekal said.

The mega-farmer said as the industry contributed more than R5 billion to the fiscus it was not a sector the government could afford to “let go”.

“There is also too much friction between the growers and the millers. We have to sit down and talk,” he said.

Graeme Stainbank, the Chairman of South African Canegrowers – a grower support body, said while a “CODESA” was one option of solving the industry’s issues, another could be a commission of inquiry. The industry has had a number of commissions in its 90-year history, the first being the Fahey Commission in 1926, which established the industry, and the latest being the Rorich Commission in 1984 which addressed transport issues.

Chairman of SA Canegrowers Graeme Stainbank

“Sugar industries around the world are complex and we are no exception,” said Stainbank. “We operate on a division of proceeds (DOP) revenue sharing arrangement with a fixed percentage of total revenue going to each party (currently growers receive approximately 64% of industry revenue at the notional price). While the intention of a DOP system is to align incentives of all members, it can have a negative incentive on growth, especially in times of low margin. The reason for this is that if any one side invests in growing revenue, they give away a percentage of that growth to the revenue partner, while if costs are saved, they pocket the entire saving. Naturally this is more relevant to the millers who ‘give away’ a larger portion of any growth (64%),” Stainbank said. 

Currently margins in the growing sector were negative and something had to change.

“Millers will, I’m sure,  argue their margins too are unsustainable, and therefore taking from one to give to another (a change in the DOP) is not a solution. One of the options is to ‘grow the pie’ so there is greater revenue, with the right incentives, to share. Growers and millers together have spent considerable time and energy in the last six years looking at options which would align incentives and enable growing of the pie. There is however a third party to the sugar industry equation and that is the government and they too need to agree and support any recommendations. The bottom line is that we have an extremely complex situation with differing, and opposing, forces at play. I personally believe that a commission of enquiry has a better chance of a successful outcome than a CODESA,” he said.

CEO of the South African Millers’ Association Deane Rossler also welcomed the call for a meeting in whatever form. 

CEO of the South African Sugar Millers’ Association Deane Rossler

Rossler agreed the industry was dependent on a more “realistic” import tariff and required access to regulated energy markets.

“That would place the industry on an even playing field with sugar industries around the world,” he said.

On the more equitable division of proceeds, Rossler said the sustainability of the sugar industries internationally were influenced by government support.

“The South African government’s policy is to support the sugar industry, but unfortunately, in the current world sugar market this support is insufficient to ensure the sustainability of the industry. Millers support any engagement which will constructively seek solutions to the challenges facing the industry,” Rossler said.

The R12 billion sugar industry is also under massive pressure following the introduction of the Health Promotions Levy (HPL) – a 20% tax on sugary drinks which came into effect this month – aimed at tackling obesity in the country.

On the levy, Executive Chairman of the South African Sugar Industry (SASA) Trix Trikam said it was approved on a false premise.

“SASA has never supported the implementation of the tax, on the basis that there is no evidence that targeting one food group will impact a nation’s obesity problem.”

Trikam said the sugar industry’s sustainability was now reliant on the government supporting mitigating actions to counteract the negative impacts of the levy.

“At this point, a National Economic Development and Labour Council (NEDLAC) process has been working to define mitigating actions, but none has been taken. If these do not materialise, we expect that a reduction in demand for local sugar without any further protection from world market imports will result in the industry reaching a breaking point from which it will be unlikely to recover,” he said.

Further the industry is on the road back from one of the worst droughts in living memory. In KwaZulu-Natal for example, rainfall failed in some cane growing areas for 17 consecutive months during the 2015/16 growing season.

South Africa imported over 600 000 tons of sugar between January and August in 2017.

According to the South African Revenue Service, 31% came across the border at Oshoek from Swaziland, 28% from Brazil, 19% from the United Arab Emirates and 11% from Guatamala – all shipped into the country via the Durban port.

Despite being one of the agricultural sectors lauded for its handling of the government-led land reform process since 1996, last year the industry came under heavy fire in parliament for allegedly failing to embrace transformation specifically in the management and support of its about 16 000 small scale and rural poor farmers, mainly in KwaZulu-Natal, since the democratisation of the country in 1994.

The result was the much publicised and politicised breakaway grower representive organisation, the South African Farmers’ Development Association (SAFDA), which was officially launched earlier this year amid growing division and animosity among some growers.

Siyabonga Madlala, who heads up the newly founded association, however, was buoyant, saying the formation of the new organisation, which had mainly black members, had the full attention of the government and thus afforded an opportunity to lobby for the industry’s protection.

Siyabonga Madlala, CEO of the South African Farmers’ Development Association (SAFDA)

“What we have now are hostile policy conditions and what we are fighting for is tariff protection and decisive intervention from the International Trade Administration Commission (ITAC) on a total ban on sugar imports. Because we have formed this organisation that represents small scale farmers who are mainly black and mainly in deep rural areas and struggling against poverty, we have a window of opportunity with the government, we have their attention, and we want to use it,” he said.

Madlala, who said he would welcome an indaba (meeting), agreed the sugar industry had experienced some of its “worst” times in its long history and unless there was what he termed a “regime change” in the payment system from the millers, particularly for cane supplied by small scale growers, there was no way for the sector to recover.

“The millers have a responsibility to fix the system. There is a disjuncture between the way commercial farmers are treated and communal farmers are treated. Yes, the sugar industry runs well, it is a well-oiled machine, but if farmers want to survive they have to do this deal with the millers; if you are a commercial farmer you get one deal, if you are a small scale grower you get another deal. The system is not fair. Growers have to own the whole value chain, there has to be a better demography of ownership of farms and of the mills. We are talking about grower-driven solutions,” he said.

South Africa’s sugar mills are owned and or managed mainly by Illovo (Africa) and Tongaat Hulett Sugar who own four mills each. The Transvaal Sugar Board or TSB Sugar owns three mills. The Gledhow Sugar Company, UCL Company and Umfolozi Sugar Mill all own one mill each with their ownership including grower shareholdings. Two of the mills owned by TSB Sugar are in Mpumalanga, while the rest are in KwaZulu-Natal.

* The first plenary session of the Convention for a Democratic South Africa (CODESA) began on December 21, 1991 at the World Trade Centre in Johannesburg. The convention laid the foundation for the transition of the country from the control of the apartheid-led government to a Constitutional Democracy in 1994.

RELATED ARTICLES: