Sugar tax threatens sugar industry survival

31st March 2017 By: Robyn Wilkinson - Features Reporter

The South African Treasury’s proposal to introduce a tax on sugar-sweetened beverages (SSBs) later this year threatens the sustainability and survival of a sugar industry already under strain, says South African Sugar Association (Sasa) executive director Trix Trikam.

As a result, Sasa has made submissions to the National Treasury and Parliament to reconsider the tax, and presented to the National Assembly’s Standing Committee on Finance and the Portfolio Committee on Health, who have urged the National Treasury to seek further consultation.

Trikam stresses that the imposition of the tax would have far-reaching ramifications for the local sugar industry, compounding the challenges of drought and inadequate import tariffs, and most certainly resulting in significant job losses throughout the sugar value chain – a “travesty” in a country struggling with an unemployment rate of more than 25%.

He notes that the sugar industry supplies about 620 000 t/y of sugar to the beverage sectors that will be affected by the tax. The 20% tax proposed in the National Treasury’s policy paper, will yield a reduction in domestic sugar sales of 170 000 t/y.

“These tons will be displaced onto the global market at a loss, which will affect the growing and milling sectors negatively. Small-scale growers who lack economies of scale and are unable to diversify will be hardest hit, as they currently operate with the tightest margins.”

Trikam highlights that the South African sugar industry is a significant contributor to the national fiscus and provides job opportunities in rural areas that are in dire need of socioeconomic development.

“The economic impact of the industry has proven over decades to be so significant that entire towns and regional centres, such as Tongaat, in KwaZulu-Natal, and Malelane, in Mpumalanga, have been established based on the business of growing sugar cane and supplying sugar.”

The growing and milling activities of the sugar industry creates about 85 000 direct jobs, while indirect employment generated by the industry is estimated at 350 000 jobs.

Sasa estimates that at least one-million people depend on the activities required to supply the market with sugar, with the direct impact of the sugar industry accounting for about 0.6% of the national gross domestic product – a figure that is considerably raised when induced and indirect impacts are included. The local economic multiplier for the sugar industry is, moreover, estimated at 3.2, which compares favourably with most other industries in the country.

“There may be the impression that, should there be a reduction in sugar sold in the local market, the South African industry has alternative markets to which the sugar can be displaced. This is far from the case. Should local market share be lost, the industry will be forced to sell more sugar on the low-priced world export market, where sugar as a commodity trades well below the cost of production,” warns Trikam.

He adds that only quota- or duty-free access to particular international markets has the potential to yield somewhat better pricing. However, while South Africa has been granted 150 000 t of quota access to the European Union (EU), deregulation of the market in October this year and the expected impacts of Britain’s exit (Brexit) from the EU have rendered this previously preferential access significantly less valuable.

“Replacing revenue from local sugar sales lost with revenue from sales on the export market is not sustainable and must result in a reduction in growing and sugar production capacity. We must protect the viability of the local market.”

Sasa further maintains that the National Treasury’s argument that the introduction of tax on SSBs will result in reduced obesity levels is unsupported by scientific evidence and not even claimed by the World Health Organisation or any other credible scientific authority, says Trikam.

Sasa chairperson Rolf Lütge further points out that in a number of developed countries, such as the US, the UK and Australia, per capita sugar consumption has been declining while obesity prevalence has been rising. “It is, therefore, clear that singling out an individual ingredient in a particular food product is unlikely to be a solution to a complex phenomenon that requires a multidisciplinary approach involving the promotion of healthy lifestyles, including healthy eating plans and patterns.”

Sasa says it will continue to engage with government through the National Treasury and the Department of Health regarding a SSB tax, having made several recommendations in its submissions.

These include deferring the implementation of the tax until a full assessment of the causes of obesity and related noncommunicable diseases (NCDs) in the South African context has been undertaken. Consideration of alternative measures that will ensure that the objective of reducing obesity and NCDs does not result in increased unemployment has been recommended.

In addition, the association has also suggested that a socioeconomic-impact study be conducted to determine the extent of the negative impact of the tax on the affected industries.

“Sasa remains optimistic that the current consultative process will culminate in an inclusive decision that will cater for the concerns and interests of all parties,” concludes Lütge.