Ailing sugar industry needs policy sweetener against bitter dumping pill

Impending tax places focus on agricultural commodity’s enormous potential outside its use in food and drink

The impending introduction of a tax on sugary beverages on April 1 has focused attention on the effect it will have on the sugar industry and highlighted the fact that sugar cane as an agricultural commodity has enormous potential outside its use in food and drink. The industry’s potential to contribute to the economy and job creation is significant.

The sugar industry is vital, strategic and labour intensive. It is a major contributor to the national economy and a major employer. Through diversification it has the potential to vastly expand its agricultural footprint, significantly increase its economic impact and create thousands of new jobs.

But instead of expanding and reaching its full potential, the industry is shrinking and is at great risk primarily because of two factors:

● The global oversupply of sugar from the more than 100 sugar-producing countries; and

● The slow uptake of national policies that would enable the sugar industry to diversify, creating new markets for sugar cane byproducts.

The South African industry is as competitive and cost-effective as any of its global competitors. Sugar is not only essential to the domestic food processing industry and the 200,000 jobs within that sector, it is also a strategic industry, an important supplier to other industries and essential for food security.

SA and its Southern African Development Community (SADC) neighbours have the land, climate, skills, human resources and scientific expertise to be the world leader in diversification.

With the right policies and support the sugar industry could produce biofuels such as ethanol; plastics and polymers from sugar cane biorefining; electricity from the gas that is produced as a byproduct of sugar milling; and countless other opportunities in the chemical and pharmaceutical sectors.

Sugar cane feedstock is used to produce a variety of chemicals, such as a range of carboxylic acids and alcohols, as well as fine chemicals with value in the food, chemical, biomaterial and pharmaceutical industries. Sugar byproducts provide essential materials for the liquor, pharmaceutical and cosmetics and personal-care products industries, and in the production of solvents, spirits and thinners.

Sugar is already one of southern Africa’s main agricultural crops. In SA its contribution to annual GDP is estimated at R14bn. The industry provides significant employment, mostly in job-starved rural areas, and affects the economies of rural towns. It employs 80,000 South Africans directly and indirectly contributes towards work for 350,000 more people. It is estimated that more than 1-million South Africans depend on the industry for their families’ livelihood.

More than 29,000 growers supply SA’s sugar mills. Although much is yet to be done in the area of social transformation and there is a long journey ahead in this regard, the sugar industry has made more progress than any other agricultural sector.

The potential for growing the sugar industry is not speculative. Already diversification is taking place in countries globally. A total 25% of fuel used by vehicles in Brazil is derived from ethanol created from sugar cane that is blended with petrol. In fact, more than half of the sugar cane grown in Brazil is consumed by ethanol production. The US, Canada, EU countries and, in Africa, Zimbabwe, Malawi and Angola have ethanol fuel-blending mandates.

Sugar cane as a source of ethanol has a major advantage over other plant-based biofuels because it has no negative effect on food security.

In SA, Woolworths and Coca-Cola are using imported polymer packaging produced from Brazilian sugar cane. Major South African sugar producers are generating electricity from the gases produced during the milling process to power their own mills, but surplus electricity is already powering rural homes.

Studies by major universities and research institutes confirm that diversification into biofuels and other areas is economically viable in SA, and as many as 125,000 jobs could be created through ethanol production alone.

SA has all the attributes necessary to facilitate the growth and expansion of a world-class sugar and biorefining industry. This should be part of an industrial strategy to enhance manufacturing capacity and create jobs by processing natural resources.

Two things are needed to ensure the industry’s future within the region:

● Support and protection against the global oversupply of sugar being dumped in SA and its SADC neighbours; and

● A national policy framework that supports and incentivises diversification, expansion and job creation.

Regarding protection from the global oversupply of cane sugar, it is essential that the local industry is afforded effective protection against subsidised imports that are sold below the cost of production. From a peak of 2.5-million tonnes in 2005, sugar production dropped to 1.6-million tonnes in 2016-17. Over the past two decades 58,000ha of sugar plantations have gone out of production and the number of South African growers has declined from 35,000 to 24,000. These casualties are mainly independent sugar cane growers who are a key component of the rural economy.

The decline is accelerating. Since 2013 nearly 15,000 jobs have been lost, and without government intervention about 20,000 more will go over the next five to seven years. Effective tariff protection would allow the industry to recover and continue supplying the local market.

Tariff protection and other trade policy steps should take account of an industrial strategy based on job protection and job creation.

Regarding the policy framework to support diversification, SA has had draft regulations for mandatory fuel blending with ethanol since 2015, but unlike dozens of other countries that enforce an ethanol-blending mandate SA has failed to implement and enforce those regulations.

The country would benefit enormously from the production of biofuels from sugar cane. Not only would it create those 125,000 much-needed new jobs, but it would also ensure SA’s energy independence and enable the country to meet its commitments under the Paris Climate Change Accord. Co-generation of electricity from sugar cane production would also provide electricity to many rural areas that lack access to the national power grid.

Sugar-growing countries globally and throughout southern Africa are realising that the crop is potentially their most important and strategic economic resource. But many countries, including SA, are missing so many of the opportunities for employment and economic growth that the sugar industry presents.

Without protection, and without incentives and investment to diversify into new areas, a substantial industry on which 1-million people depend could face extinction. As South African Cane Growers Association chairman Graeme Stainbank noted: “We must adapt and diversify — we have to get to a point where co-generation of energy from sugar mills becomes viable, and of course the production of biofuels as a byproduct of the milling process must be fast-tracked to ensure the survival of the industry.”

More than the survival of an industry, the potential injection of hope, job opportunities and growth in rural SA that a revitalised, diversified sugar policy represents is a sweet vision that is sorely needed.