The increase of import duties of sugar will provide immediate relief required by the industry and protection against the surge of imports, said the Department of Trade and Industry (dti).
Briefing Parliament’s Portfolio committee on Trade and Industry on the sugar industry tariffs on Thursday, Chief Director for agro-processing at the dti, Ncumisa Mcata-Mhlauli said the recently endorsed International Trade and Administration Commission (ITAC) recommendation by Minister Rob Davies to adjust the sugar and increase import duty of US$680/ton will provide relief.
Mcata-Mhlauli said the tariffs form part of a set of measures considered by government in collaboration with industry in order to improve the sustainability of the industry and future prospects.
“In the long-term the industry will have to diversify and expand into new industries. At the moment, the industry is currently protected by dollar based reference price which according to the South African Sugar Association is not responsive enough to protect the local industry,” said Mcata-Mhlauli.
Last month, Trade and Industry (dti) Minister Rob Davies agreed to the raising of import duties to US$680/ton.
This follows an application launched by the South African Sugar Association (SASA) to ITAC in February 2018 for an increase of the dollar based duty from US$566/ton to US$856/ton and an intensive investigation by ITAC.
At the time the dti said while the level is not at the maximum bound rate as initially requested by the industry in the application, the US$680/ton will provide the immediate relief urgently required by the industry and sufficient trade protection against the surge of imports.
The tariff forms part of a set of measures considered by government, in collaboration with the industry in order to improve the sustainability of the industry and future growth prospects.
The industry is also a major employer in sugar-growing provinces like KwaZulu-Natal and Mpumalanga.
ITAC, in its determination of an appropriate level of protection, considered, among others, the domestic cost of production. Fertiliser and chemicals, electricity, transport and labour are among the major cost drivers.
As per ITAC regulations, Davies is empowered legally to only support or not to support the recommendations submitted by ITAC.
On Thursday, SASA Vice Chairman Hans Hackmann said the industry continued to find themselves on the wrong side of the scale even with the current sugar tariff.
“We have done some work on the outcome of the $680 tariff and we concluded that it is not sufficient to sustain our industry at this current level and within the next twelve months we probably can sustain the operation of the fourteen sugar mills only, I think our producers will earn negative margins and will be unprofitable,” said Hackmann.
Hackmann added that in next three years, even if one assumes a significant improvement in world sugar market prices, a weak exchange rate (protecting the local market from imports and inflating the rand value of exports), and a highly efficient industry with costs increasing at only 5% per annum, a shrinking of the industry is inevitable.
Meanwhile, the SASA will engage with ITAC and other relevant stakeholders to look at the long term sustainability of the industry.
Sugar production contributes about R14 billion to Gross Domestic Product (GDP) and the industry employs 85 000 people directly, and a further 350 000 indirectly through food processing and other sectors.
The sugar industry, through the SASA, has outlined and advanced the industry-specific challenges that motivated its application to increase the dollar-based reference price to mitigate some of the challenges.