Financial Mail - - FEATURE -

The de­ci­sion by SA’S In­ter­na­tional Trade Ad­min­is­tra­tion Com­mis­sion (Itac) to raise sugar im­port du­ties by 20% does not go far enough to pro­tect lo­cal pro­duc­ers from the surge in sugar im­ports over the past two years, says the SA Sugar As­so­ci­a­tion (Sasa).

Depart­ment of trade & in­dus­try (DTI) min­is­ter Rob Davies last week en­dorsed Itac’s rec­om­men­da­tion for a rise in sugar im­port du­ties from $566 to $680 a ton. Sasa ap­plied to Itac in Fe­bru­ary for it to be in­creased to $856 a ton.

Sasa says cheaper sugar im­ports dis­place the lo­cal prod­uct and have ac­cel­er­ated the in­dus­try’s de­cline. It says the cur­rent pro­tec­tion is less than the cost of pro­duc­ing sugar, mak­ing it im­pos­si­ble for lo­cal pro­duc­ers to com­pete with cheaper im­ports.

Im­port du­ties have to be in line with the cost of pro­duc­tion to be ef­fec­tive, it adds.

Ac­cord­ing to Sasa, SA has 20,161 reg­is­tered grow­ers who pro­duce about 20Mt of sugar cane each sea­son, which is pro­cessed into about 2.2Mt of raw sugar in 14 sugar mills. Sugar con­sump­tion in the South­ern African Cus­toms Union re­gion is 2.1Mt a year.

From Jan­uary to Novem­ber 2017, more than 508,000t of sugar were im­ported into SA, mainly from Brazil and the United Arab Emi­rates. This was more than 25% of SA’S to­tal sugar pro­duc­tion and cost the in­dus­try R2.3bn in lost rev­enue, Sasa says. In the months be­fore Septem­ber 2016, av­er­age sugar im­ports were less than 1,000t a month.

“How­ever, from Septem­ber 2016 through De­cem­ber 2016, that av­er­age in­creased to ap­prox­i­mately 25,000t a month.

“This sit­u­a­tion wors­ened from Jan­uary

2017 on­wards as the av­er­age spiked to more than 45,000t a month, reach­ing highs of

83,156t in Septem­ber 2017,” Sasa says in its ap­pli­ca­tion to Itac.

Sasa com­mer­cial di­rec­tor Ju­dith Wil­son says there was a sud­den surge in im­ports af­ter the gov­ern­ment er­ro­neously set and gazetted a zero tar­iff for sugar, which al­lowed im­porters to bring in and stock­pile sugar duty-free. She says the de­lay in the gazetting of a duty — which is the dif­fer­ence be­tween the 20-day mov­ing av­er­age of the world sugar price and the dol­lar-based duty ($680) — also trig­gered an in­crease in im­ports.

The as­so­ci­a­tion says lack of pro­tec­tion is threat­en­ing the lo­cal in­dus­try’s sus­tain­abil­ity and sur­vival. It says be­cause most of the im­ports are re­fined sugar, lo­cal re­fin­ers are op­er­at­ing far below ca­pac­ity.

“With­out ad­e­quate pro­tec­tion against im­ports, the in­cen­tive for in­vest­ments in re­fin­ing ca­pac­ity dis­si­pates,” it says.

Sugar pro­duc­tion con­trib­utes about R14bn to gross do­mes­tic prod­uct (of about

R4.6-tril­lion). The in­dus­try em­ploys

85,000 peo­ple di­rectly and 350,000 in­di­rectly through food pro­cess­ing and other sec­tors. Across the value chain about 1-mil­lion peo­ple de­pend on the in­dus­try, says Sasa.

The DTI says that though the ap­proved duty is below what the in­dus­try wished for, “the $680 a ton will pro­vide the im­me­di­ate re­lief ur­gently re­quired by the in­dus­try and suf­fi­cient trade pro­tec­tion against the surge of im­ports”.

But though the in­dus­try wel­comes an in­crease in “ef­fec­tive duty” it says “the level is crit­i­cal in pro­vid­ing medium- to longert­erm sta­bil­ity to the in­dus­try”. Sasa’s re­quest for a dol­lar-based ref­er­ence price of $856 was based on the in­dus­try’s costs of pro­duc­tion, says ex­ec­u­tive di­rec­tor Trix Trikam.

Sasa says Itac should not com­pare net sell­ing price with landed im­port cost be­cause the lo­cal in­dus­try has suf­fered se­vere price de­pres­sion in the past

Af­ter a spike in sugar im­ports and de­spite higher im­port tar­iffs, lo­cal pro­duc­ers ar­gue the cor­rect way to pro­tect the in­dus­try must be based on the cost of pro­duc­tion and not the sell­ing price three years. “Costs in­creased at a sig­nif­i­cantly faster pace than prices and the in­dus­try was not able to raise prices due to the threat of im­ports. In or­der to pro­tect the in­dus­try at the cor­rect level, the cost of pro­duc­tion, and not the sell­ing price, must be the bench­mark,” it says.

Lo­cal pro­duc­ers have not been able to re­cover their pro­duc­tion costs be­cause of re­luc­tance to hike prices in or­der to stem the tide of im­ports.

The DTI says a sugar value-chain task team — in­clud­ing rep­re­sen­ta­tives from the bev­er­age in­dus­try, re­tail­ers, Sasa, small-scale farm­ers and man­u­fac­tur­ers and the In­dus­trial De­vel­op­ment Corp — was formed in May 2018, “to iden­tify ways of sup­port­ing the in­dus­try while keep­ing prices paid by con­sumers af­ford­able”.

The task team had to find “rapid” so­lu­tions to the prob­lems fac­ing the sugar in­dus­try, with plans for the short, medium and long term.

In ad­di­tion to im­ports and the in­tro­duc­tion of a sugar tax, the in­dus­try is re­cov­er­ing from the ef­fects of the mul­ti­year drought, which hit ex­ports in the past two sea­sons. “In a nor­mal sea­son, the in­dus­try would typ­i­cally pro­duce 2.2Mt of sugar,” says Sasa.

“With ad­e­quate pro­tec­tion, it is likely that the in­dus­try would sell about 1.65Mt in the lo­cal mar­ket with 550,000t ex­ported. The most re­cent ex­port dif­fer­en­tial is ap­prox­i­mately R4,500.”

Azwim­pheleli Lan­galanga, a se­nior as­so­ciate at Tutwa Con­sult­ing, says the sugar in­dus­try should use the re­prieve of the im­port du­ties to im­prove its com­pet­i­tive­ness.

“But im­port du­ties can­not be a per­ma­nent so­lu­tion. The in­dus­try must use the time to ad­dress lo­gis­tics, trans­port and labour costs,”

he says.

With­out ad­e­quate pro­tec­tion against im­ports, the in­cen­tive for in­vest­ments in re­fin­ing ca­pac­ity dis­si­pates What it means: The SA Sugar As­so­ci­a­tion says the in­dus­try will strug­gle to sur­vive with­out pro­tec­tion against im­ports


Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.