This article was originally published on Bizcommunity. Click here to read the original article.

The South African sugar industry has come under increased pressure from import competition and the effects of the Health Promotion Levy (HPL) (the sugar tax) implemented in April 2018. Data from the United States Department of Agriculture (USDA), shows that from the 2015/16 season and the 2016/17 season, sugar imports increased by 58,3% to 744 000 tons from 470 000 tons in 2015/16.

Estimates from the South African Sugar Association (SASA) indicate that the revenue lost since the implementation of the sugar tax is approximately R1.3bn. The 5,2% increase in the sugar tax announced in February is expected to further exacerbate this problem.

While it is difficult to quantify the impact of imports and the sugar tax on employment, the South African Cane Growers’ Association estimates that the sugar tax is likely to lead to about 10 000 people losing their jobs in the primary level of the sugar value chain. This figure is conservative as it does not include the impact on job losses in the milling and beverage industries. It is worth noting that the sugar industry employs approximately 350 000 people.

Recent monthly trade data from the South African Revenue Services (SARS) indicates that sugar imports from India have increased substantially in recent months. The Indian government offers its sugar producers a US$150/ton rebate, or subsidy, on sugar exports. This unfair practice, or dumping as it is known, makes Indian sugar competitive in the global market, depressing global prices. This unfair practice has prompted Brazil (the world’s largest sugar producer) and Australia to bring a formal dispute complaint against India at the World Trade Organisation (WTO).

The adoption of the sugar tax is also affecting the profitability of the local industry and industry sources indicate that the implementation of the sugar tax in April 2018 has led to local food manufacturers using less sugar. Data from SASA indicates that domestic sales of sugar decreased by 83,5% to 293 397 tons in the 2018/19 season from 538 354 tons the previous season as beverage manufacturers opted for chemical sweeteners as a result of the sugar tax-induced rise in domestic sugar prices.

A closer look at South Africa’s export data shows that in the 2017/18 season, sugar exports increased by 54,5% to 1.2 million tons. As shown in Figure 1 below, the proportion of South Africa’s exports to domestic production increased from 13,6% in the 2016/17 season to 37,3% in the 2017/18 season.

Should the South African government not take further steps to protect the local market, the domestic market will come under renewed pressure from sugar imported from India. The industry has called for the tariff to be increased from R4 500/ton to approximately R7 000/ton.

The increasing imports and the sugar tax are the main downside risks for the profitability of the sector in the short- to medium-term. These risks can be mitigated by adequate protection through tariffs and investing in alternative uses of sugarcane such as ethanol production. The global sugar market is distorted by production and export subsidies which create an oversupply of sugar. In addition, almost all countries have tariff protection which protects their domestic sugar industries. – Bizcommunity