No word on ‘perilous state of sugar sector’
President Ramaphosa criticised for saying ‘sweet nothing’ in state of the nation address about embattled sector
President Cyril Ramaphosa has been criticised for failing to deal with the “perilous” state of the SA sugar industry in his state of the nation address.
President Cyril Ramaphosa has been criticised for not addressing the “perilous” state of the South African sugar industry, which producers say is on the verge of collapse.
The crisis is due to headwinds that include falling sales and prices and stiff competition from cheap imports mainly Brazilian. The local sugar industry generates income of about R14bn a year and is responsible for at least 350,000 jobs.
Graeme Stainbank, chair of the South African Cane Growers’ Association, warned on Monday that without government support thousands of jobs in the sector were at risk
“In his state of the nation address, President Cyril Ramaphosa was very clear on the need to develop agriculture for the benefit of all. However, inexplicably, he said sweet nothing about the perilous state of the sugar sector,” he said.
Stainbank said rural communities, where there were few jobs, would be hit hard by the possible jobs bloodbath in the sector. “These job losses will inevitably lead to mass urbanisation. Sugar-cane growers, emerging farmers, farm workers and surrounding communities could soon disappear if the government fails to take urgent action,” he said. The sector faced several problems including plunging prices, drought, and lack of government support.
Despite the severity of the drought, little, if any, help was given to cane growers, he said. Sugar-cane farmers were plunged into another crisis when about 500,000 tons of imported sugar landed in SA in 2018. Cane growers and other industry members incurred huge losses.
“If the cane price does not improve soon, more retrenchments, farm closures and severe job losses are in store for the industry,” Stainbank said. The industry tried in 2018 to lobby the government for tariff protection against dumping of cheap imports, mainly from Brazil. After drawn-out submissions and lobbying, the International Trade Administration Commission finally agreed to raise the dollar-based reference price (DBRP), an import tariff levied on products coming to SA.
“The DBRP was eventually increased from $566 to $680, but it’s not the $856 per tonne level that the industry had applied for. The result is that cane growers and other industry members are unable to recover their full cost of production. In addition to the inability to recover production costs, cane growers had to come to terms with a drop in sale volumes, by and large as a result of a diminishing demand in the industrial market,” Stainbank said.
After the health promotion levy (sugar tax) came into effect in 2018, soft-drink manufacturers started reducing bottle sizes and sugar content of products. These measures led to a drop in demand for sugar, driving revenue down. Stainbank called for the government assistance such as tightening restrictions to prohibit sugar entering SA from neighbouring countries that were not subject to duties. The government should also invest in industry-led innovations, such as ethanol production and cane-based packaging to support the industry’s search for alternative markets for sugar.
The department of agriculture, forestry and fisheries was yet to respond to request for comment on Monday.
DA MP Dean Macpherson said on Monday he wrote to Joan Fubbs, chair of parliament’s trade and industry portfolio committee, requesting an urgent meeting to discuss the immediate danger facing the sector.
“What we see happening is what the industry is terming a ‘perfect storm’, which left unchecked will wreck an industry that contributes R14bn and employs 350,000 people across the spectrum. As a country, we simply cannot afford this. It is up to the committee to urgently intervene in this matter and find solutions before it is too late,” said Macpherson.
World sugar prices are forecast to rise this year with the market swinging into deficit in the 2019/20 season, a Reuters survey of 10 analysts and traders showed on Monday.
Raw sugar prices are expected to end the year at US14.60c per pound, up 15% from Friday’s close, according to the median forecast of responses. The world sugar balance is seen switching to a deficit of 1.9-million tons in 2019/20 from a surplus of 2.55million tons in 2018/19.
The shift would be partly driven by a forecast fall in India’s production to 29.5-million tons in 2019/20 from 32-million tons in 2018/19, according to the poll.
Respondents said potential exports from India, where stocks have been climbing, may limit the scope for a rise in prices, while the relative profitability of sugar and ethanol production in Brazil would also have a major influence.
Depressed sugar prices have led Brazilian companies to increase their capacity to produce ethanol, with many mills able to switch between using cane to produce sugar or biofuel ethanol, depending on which is more profitable.
The size of any deficit will also help determine the extent of any rebound, with weather likely to play a key role.
“If it is predicted that 2019/20 will see a sizable global deficit over 5-million tons then prices could rally significantly. If the deficit is seen to be closer to flat or even a small surplus then any price rise will be very minimal,” one respondent said.
14.6 the level in US cents that analysts and traders predict raw sugar will rise to by the end of the year