Government leadership key to turnaround plan

Despite South Africa’s sugar-producing industry continuing to stagger under a tsunami of adverse market conditions, the managing director of Illovo Sugar, Mamongae Mahlare, believes there are glimmers of hope, which could see the start of a turnaround within 18 months.

As South Africans put the recent national and provincial elections behind them, there is a belief the sector will start seeing faster-paced policy development and support from the government, whose intervention is now critical to the success and survival of sugarcane production – and therefore the health of rural districts and supporting industries – in the country.

Mamongae Mahlare, who was appointed managing director of Illovo Sugar South Africa just a year ago, said while it was “pretty clear” the industry was in distress and in a difficult transition period as a number of headwinds had hit simultaneously since 2016, she believed the sector would start to get a clearer picture of the government’s intent to develop a rescue plan now that the elections were over.

“I am really comfortable that we have been engaging with the right people, who can help us to precipitate even higher levels of engagement with senior leaders within the next 18 months. What could be a complication is if there are big changes at the Department of Trade and Industry (DTI), the Departments of Energy and Economic Development as well as Treasury. The DTI representatives with whom we have worked are deeply embedded in understanding the dynamics of our industry. The speed at which we will be able to make the decisions and changes necessary for the industry’s survival will depend on the level of change within the government departments after the elections,” she said.

The real impact of the newly implemented Health Promotion Levy on sugary drinks, according to Mahlare, was only just becoming evident.

“We are seeing that 200 000 tons of sugar usually sold on to the domestic market annually have been displaced as a direct result of the levy. This figure could increase to about 400 000 tons when all suppliers have fully reformulated their products: this is almost a death blow as it wipes out 20% of the historic domestic demand. That, coupled with the 400 000 tons that were displaced by the flood of cheap imports in the third quarter last year, has meant 600 000 tons were exported at a R5 000-a-ton loss. It has now become clear that the HPL is no small thing. And what makes it highly complicated is that it is bringing on a progressive reduction in demand volumes from month to month. That makes it very difficult for us as an industry to do any projections,” she said.

Agreements –crucial to the survival of the industry – reached at the National Economic Development and Labour Council (Nedlac) to mitigate the impact of the levy had also never materialised.

Further pressure has come from South Africa’s landlocked neighbour, Eswatini (formerly Swaziland), which is expected to produce about 743 000 tons of sugar this season without the once preferential access it enjoyed into the European markets.

“When Eswatini lost its preferential access to the EU – as any business would – it started looking around for profitable markets and lo and behold, it’s South Africa. Eswatini doesn’t have an import tariff into the country, or transport issues, and the price per ton it gets here is the highest, compared with surplus export market prices, which are significantly lower than the prices in South Africa. This has brought a new tension into the market as our neighbouring industry displaces the domestic sugar through pricing tactics, resulting in South Africa’s industry having to export those displaced sales at a loss on the global markets,” she said.

Globally, the commodity surplus was expected to maintain probably for another three years, with prices remaining at $0.13c a pound or below.

“So, what this will do by design is start a contraction of supply as all the massive sugar-producing countries like Brazil, Indonesia, India, China and Europe, having bled as deeply as they are bleeding now, will rationalise their production. That should benefit the Southern African Development Country (SADC) suppliers.”

However, Mahlare was confident the new government would act decisively, which made her cautiously optimistic that there was a future for the industry.

But, she added, the sugar industry must also focus on getting its own house in order.

“For example, there is still a lack of trust between stakeholders, and we have got a lot to do to get across that line as an industry.”

Asked how she would like sugar production to look in the country by 2025, Mahlare said ideally 50% of the revenue should come from non-sugar downstream production, primarily bio-ethanol and co-generation.

This, she believed, would result in growers increasing employment numbers and boosting their overall contribution in both KwaZulu-Natal and Mpumalanga, where sugarcane was once a major player in the health of these provincial economies.

“I would also like to see smallscale growers becoming more viable and that we have transformed the industry, resulting in viable black growers participating in the value chain. Also, the evidence of a thriving economy can be measured against the emergence of new players, in this case black-owned enterprises, servicing the grower and the agricultural and milling eco-systems. Fundamentally the trigger for the success of everything else in the industry is the diversification of the revenue stream. That will then allow everything else to fall into place,” she said.

However, while the South African government remains coy on factoring in electricity from sugarcane biomass by favouring mainly coal, sun and wind power, Mahlare believes there are quick wins that could give the industry a much-needed fillip in the short term.

“We are not inventing anything new here. The learnings from elsewhere can be transported quite readily to us. The mills are already producing their own electricity, with a surplus, which could be fed on to the grid immediately. All we need is a viable tariff equivalent to the domestic sugar market sale price. This is something we could do right now.”

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