The sugar industry has had a trying year with farmers and millers bearing the brunt of cheap sugar imports
In this question and answer interview, Derek van Niekerk, director of sugar at RCL FOODS’ Sugar & Milling division gives an overview of the season and outlines the way ahead for the sector
What have been the biggest challenges faced by the milling industry this year?
Market conditions were challenging in 2018. Pleasing increases in production (volumes up 35.8%) and improved efficiencies were more than offset by low international prices, a relatively strong currency, and a significant volume of dumped imports. The abnormally high level of imports was initially triggered by a period without appropriate import tariff protection, though even after being rectified, the new tariff remains insufficient to stem imports. The imports are mainly due to surplus global stocks, as well as the effective subsidisation of sugar industries in competing world markets which enables dumping at reduced prices in South Africa.
World sugar surpluses are expected to continue for the foreseeable future, with significant potential overhang of stock from India, Europe and Brazil. Although the South African government has responded to industry concerns in the local sugar market by implementing a revised Dollar Based Reference Price, a component of the existing tariff, the positive impact of the tariff will only become evident once the excessive import stocks that have built up prior to the increased tariff being implemented have been sold through the market and the supply-demand balance restored in the local market.
The unmitigated dumping of excess sugar from foreign markets is destabilising the industry and threatening employment. The oversupply tends to come out of subsidised industries in these foreign markets, which makes it difficult to compete despite the efficient cost of local production. Finding alternative markets for local products is challenging, given that most markets protect their local industries against imports. Measures to safeguard these industries against unfair trade practices have been at the forefront of engagements between government and industry.
These events have a broader impact on society, besides the loss of employment and local industries. Nine years ago, in partnership with government, RCL put in place a very progressive land distribution programme with small-scale sugar growers as the beneficiaries. These small-scale growers have been successfully farming for us ever since. Sadly, declines in the sugar price this year of more than 20%, straight after a significant drought, imply that large areas of agriculture are currently not sustainable and our small-scale growers are key constituents of this group. These projects directly support between 2 000 and 3 000 family units in rural areas and they are vulnerable and under serious financial pressure.
The lack of clarity on land expropriation and equitable compensation, and consequently the effects thereof on the agricultural sector and RCL, adds to the complexity of our operating environment.
Will the sugar tax have any effect on the sustainability of the sugar industry going forward?
The Health Promotion Levy – previously known as a tax on sugary beverages – came into effect in April 2018. It provides for a levy of R0,02 per gram of sugar in excess of 4 grams per 100 millilitres of sugary beverages. The market volatility created by the high sugar imports has obscured any impact from the levy. New sugary drink formulations and reduced size offerings may have a bearing on demand over the longer term, but the direct impact of the levy remains unclear to date. We anticipate that it will reduce demand for sugar by approximately 190 000 tons per annum. Furthermore, the political and economic environment in South Africa remains uncertain and demand for foodstuffs sugar is expected to remain constrained.
What impact will carbon taxes have on the sugar industry?
At this stage it remains unclear how carbon taxes will affect the sugar milling industry. There are uncertainties regarding the reporting requirements and associated calculation of carbon emissions. The sugar industry continues to engage with the relevant government officials to ensure carbon taxes are implemented sensibly. RCL remains committed to manage and reduce carbon emissions where possible with or without carbon taxes.
What is RCL FOODS Sugar & Milling doing to reduce its environmental footprint?
Loss of biodiversity, depletion and pollution of fresh water sources, degradation of soils and a rise in greenhouse gases, are contributing significantly to climate change and undermining food security. As a business we have a responsibility to reduce the environmental impact of our operations while meeting the growing needs of our population. This includes identifying and implementing energy efficient projects that reduce coal and energy usage.
We have achieved a 25% rate of energy self-sufficiency through the co-generation of energy at our sugar plants. Electricity is being generated from the burning of bagasse as a renewable resource. This has allowed us to reduce usage of non-renewable coal burning in the boilers.
We are also focusing on becoming water smart by seeking new ways to reuse, reduce or create alternative water sources in our operations. To improve resilience during times of drought and water shortage, we are implementing a significant irrigation replacement programme, which aims to reduce our water usage by as much as 30%. This includes the replacement of inefficient dragline systems (65% efficiency) with mostly subsurface drip (95% efficiency). The area left to replace is approximately 19% which should be replaced over the next three to four years.
Additional focus has been placed on repairing water leaks and reusing process water in the operations. Precision farming techniques are being used to monitor soil moisture and consequently ensure effective irrigation. Part of the process is a high level of irrigation scheduling, and a maintenance programme which ensures that each field’s irrigation system is evaluated to perform according to design specifications at the start of a new cycle. Mechanical harvesting is also contributing to save water. The leaves left behind on the fields reduce the water use by 18%.
A new recycling centre is focusing on finding ways to minimise packaging waste and improve overall recycling volumes around the mill complexes.
What will be RCL FOODS Sugar & Milling’s focus areas for the next year?
Driving sustainability will be key and we have created a dedicated sustainability team to drive our sustainability agenda, focusing largely on energy and water.
Alternative uses of sugarcane, such as in the co-generation of energy or the production of value-added products like ethanol or bio-degradable plastics, are constantly being evaluated. However, these require an enabling regulatory environment to be economically viable.
We continue to participate in the fight against dumping, driving constructive engagement with government in a bid to find acceptable solutions to save the local sugar industry. The increased engagement and understanding among industry players and government, and the dialogue around the appropriate level of protection necessary to create a level playing field, are encouraging steps towards resolution of these issues.
Higher sugar yields and commensurate improved performance of the factories bode well for a profit recovery, should sugar prices and sales mix normalise. Adequate water supplies will also ensure that the recovery in sugar production is sustained into the next season.