More favourable economic conditions for sugar cane production and processing need to be fostered in South Africa to protect and grow a sector that contributes an average R12-billion to the economy and provides about 350 000 jobs in the country, say industry associations the South African Cane Growers’ Association (Canegrowers) and the South African Sugar Millers’ Association (Sasma).
Sasma CEO Deane Rossler highlights that the local industry currently faces several challenges, partly owing to the drought, but also driven by policy issues that are hampering its sustainability and global competitiveness.
While the South African sugar industry is the largest such industry in Africa, producing two-million tons of sugar a year in a normal season of rainfall, it is comparatively small when considering countries like Brazil, which produces about 35-million tons a year.
“However, according to independent international cost-competitiveness surveys, South Africa is a globally competitive producer of high-quality sugar, ranking in the top 15 of 120 most cost-competitive sugar-producing countries. This is an indicator that sugar cane farmers and millers in the country are efficient producers, although this competitiveness is at risk, owing to reduced cane supply.”
He further points out that industry has the capacity to increase average production to three-million tons of sugar each year; however, capacity is severely underused, owing to the adverse economics prevailing in the industry.
Rossler notes that the sugar industry is emerging from the worst, most protracted drought since the early 1990s, which has impacted on the last two seasons and will continue to hamper production in the 2017/18 season.
“The drought has put the industry under severe strain, with growers’ production in many areas being halved and two mills being forced to close, owing to a lack of water and cane supply,” adds Canegrowers economic research manager Richard Nicholson.
He highlights that the estimated effect of the drought has been a loss of R2-billion in gross revenue, with a knock-on effect of R6-billion lost to the economy – a devastating state of affairs for all growers, but especially small-scale growers who have struggled to absorb these shocks and have been forced to put some areas under sugar cane out of production.
Nicholson points out that all growers have been encouraged to implement best management practices, in line with the industry’s Sustainable Farming Practices, to conserve soils, which will enable them to handle drought conditions better in the long term. Growers in irrigated areas like Pongola, Komati and Malelane are also being advised on the implementation of irrigation best practices to conserve water.
“These management factors will all have positive results for the growers in the future and, at the end of the day, their bottom lines.”
However, as well as environmental difficulties, Rossler notes that the sugar industry faces existing and potentially new financial pressures, which will continue to constrain production as a result of their negative impact on the economics of growing cane and sugar milling.
He points out that a tariff formula, based on a dollar-based reference price, is meant to protect the domestic market price of sugar in South Africa, but that it has become ineffective in allowing the industry to recover its costs of production. In addition, the recent strengthening of the rand has resulted in a rapid acceleration of sugar imports into South Africa from Brazil and other countries, with the proposed implementation of a sugar sweetened beverage tax potentially exacerbating a decrease in the volume of sugar sold locally.
“This would result in additional sugar exports from South Africa that would have to be traded at international prices that are well below the costs of production. “Most sugar industries globally have access to regulated bioethanol and electricity markets – an opportunity that has not been afforded to the South African sugar industry, although engagements on these matters with government have been ongoing for several years.”
Rossler adds that industry has the potential to not only increase production levels with the proper governmental support but also to generate 800 MW of green electricity. This, however, would require an appropriate policy framework that will facilitate the industry’s participation in the energy market.
“The South African sugar industry is incredibly important for the rural areas of KwaZulu-Natal and Mpumalanga, and the country. The estimated value chain effect of the industry in these rural areas is R400-million each year, with significant multiplier effects into surrounding areas. It is an industry with so much potential, but significant support is needed from government to cultivate an economic environment that will enable its growth,” concludes Nicholson.