Sugar tar­iff hike sat­is­fies no one

The in­crease is less than lo­cal pro­duc­ers wanted, while com­pa­nies say it en­trenches in­ef­fi­cien­cies

Mail & Guardian - - Business - Lyn­ley Don­nelly

Tar­iff pro­tec­tions on sugar were in­creased last week but not every­one is thrilled by the de­ci­sion, par­tic­u­larly in­dus­trial pur­chasers. The In­ter­na­tional Trade Ad­min­is­tra­tion Com­mis­sion (Itac) in­creased the dol­lar-based ref­er­ence price to $680 af­ter the South African Sugar As­so­ci­a­tion (Sasa) had ap­plied for an in­crease, pre­cip­i­tated by a rapid in­crease in im­ports.

The ref­er­ence price is a key de­ter­mi­nant in how im­port tar­iffs for sugar are cal­cu­lated and the rate at which im­port du­ties are set. Sasa had re­quested an in­crease to $856 a tonne.

The in­crease was granted de­spite ob­jec­tions from ma­jor in­dus­trial con­sumers such as Coca-Cola Bev­er­ages South Africa (CCBSA), Tiger Brands and sugar im­porters.

They ar­gued among other things that in­creases pro­tect an in­ef­fi­cient in­dus­try, which needs to im­prove pro­duc­tiv­ity.

They also warned that, as has hap­pened in the past, an in­creased tar­iff could re­sult in higher lo­cal sugar prices to the detri­ment of down- stream cus­tomers. But Sasa de­nied these claims.

CCBSA raised con­cerns that price in­creases did not trans­late into in­creased ef­fi­ciency in the lo­cal in­dus­try, which was ex­ac­er­bated by pro­longed un­der­in­vest­ment.

“The in­crease to the dol­lar-based ref­er­ence price is go­ing to be a short-term so­lu­tion,” said Tshidi Ramo­gase, CCBSA’s direc­tor for pub­lic af­fairs and com­mu­ni­ca­tions.

There were sig­nif­i­cant long-term is­sues fac­ing lo­cal sugar pro­duc­ers that needed to be ad­dressed, in­clud­ing en­sur­ing that small-scale black farm­ers re­ceived ap­pro­pri­ate lev­els of sup­port and fund­ing.

The CCBSA, in its sub­mis­sion to Itac, ar­gued that an in­crease would “pro­tect an in­ef­fi­cient in­dus­try from much-needed pro­duc­tiv­ity en­hance­ments and rationalisation at the ex­pense of down­stream clients and con­sumers”.

It also said that, af­ter the last hike in the ref­er­ence price in 2014, do­mes­tic prices were pushed up to a level com­pa­ra­ble with im­port par­ity.

The level of tar­iffs di­rectly af­fected do­mes­tic sugar prices and “had sig­nif­i­cant un­due ad­verse pric­ing ef­fects down­stream”.

Any in­creases in do­mes­tic sugar prices would come on top of the re­cently in­tro­duced health pro­mo­tion levy on sugar-sweet­ened bev­er­ages, Ramo­gase said.

In the event of a do­mes­tic price in­crease, the CCBSA would have to con­sider care­fully whether to pass it on to con­sumers or whether it could ab­sorb it.

But some of the ma­jor sugar pro­duc­ers such as Tongaat Hulett are al­ready warn­ing cus­tomers that prices are ex­pected to rise by 19.5% as a re­sult of the no­tional price in­crease.

A spokesper­son for the com­pany said it was in dis­cus­sions with its en­tire cus­tomer base about pric­ing be­cause of the in­crease in the no­tional price.

Al­though sugar millers ne­go­ti­ate prices with their cus­tomers di­rectly, Sasa pe­ri­od­i­cally sets a “no­tional price” for white and brown sugar.

This price, ac­cord­ing to Sasa, is used to cal­cu­late what is known as the re­cov­er­able value price that millers pay sugar-cane grow­ers.

Other fac­tors in­form­ing this in­clude the ex­change rate and in­dus­try costs and it is leg­is­lated to en­sure a fair price to all grow­ers for the cane de­liv­ered.

Tiger Brands said that, al­though it recog­nised the im­por­tance of the sugar in­dus­try to South Africa, the in­dus­try “lags global peers from a yield and ef­fi­ciency per­spec­tive”. It added that duty in­creases “will con­trib­ute to food in­fla­tion across the board”, and the re­cently gazetted duty was ex­pected to add R180mil­lion of cost in­fla­tion a year to the Tiger Brands busi­ness.

The pro­posed in­creases also had im­pli­ca­tions for lo­cally pro­duced food prod­ucts, which could af­fect ex­ports.

In ad­di­tion, im­ported fin­ished goods, many of which were not sub­ject to im­port du­ties, ben­e­fited from a world sugar price that was half the South African price and was likely to see an in­flux of im­ports to re­tail­ers, ac­cord­ing to Tiger Brands.

The As­so­ci­a­tion of Sugar Im­porters also ob­jected to the pro­posed in­creases. Its chair­per­son, Chris En­gel­brecht, told Itac that, given the dis­tor­tions in global mar­kets, tar­iff sup­port for the lo­cal in­dus­try was nec­es­sary, pro­vided that any in­ef­fi­cien­cies and struc­tural flaws were not en­trenched.

He also warned of the likely ef­fects the ref­er­ence price in­crease would have on lo­cal prices, push­ing them to im­port par­ity, with no ben­e­fit to down­stream users. The 19% in­creases meant the in­dus­try was us­ing this as an op­por­tu­nity to in­crease the lo­cal price, he said.

Sasa said it could only com­ment in de­tail on Itac’s de­ci­sion af­ter it had stud­ied the re­port closely and had com­pleted its in­ter­ac­tions with Itac.

But in its re­sponse to the sub­mis­sions op­pos­ing its ap­pli­ca­tion, Sasa de­nied the as­ser­tions.

Re­gard­ing the claim that the lo­cal in­dus­try had failed to in­vest, it cited among other things the R1.4-bil­lion one ma­jor milling group has been com­mit­ted to in the past five years, in­clud­ing in en­ergy sav­ings, pack­ing plant up­grades and main­te­nance.

It also de­nied that the in­dus­try was tak­ing ex­ces­sive profits or that price in­creases would harm con­sumers.

The in­dus­try had taken a cu­mu­la­tive price re­duc­tion of 20% in the past year and sugar prices had dropped fur­ther be­low lo­cal pro­duc­tion costs, which was un­sus­tain­able.

It pointed to a Sasa-spon­sored study done in 2013 that showed the ef­fect sugar price in­creases had a min­i­mal ef­fect on over­all food in­fla­tion.

It also ar­gued that, when the no­tional price was re­duced in July 2017 and March 2018, the price of a 330ml bev­er­age ac­tu­ally in­creased.

Al­though the in­tro­duc­tion of the health pro­mo­tion levy might have con­trib­uted to this, Sasa said “soft­drink man­u­fac­tur­ers seem to have cap­tured the value from the sug­arprice re­duc­tion and not passed on these to the con­sumers”.

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