Crucial to restore lifeline for the sugar industry

18 Jun 2019

Crucial to restore lifeline of the sugar industry
Sunday Tribune, 14 June 2019
by Helmo Preuss

NEWLY elected SA Canegrowers Chairperson Rex Talmage is looking to the new ministers of the Department of Trade and Industry (dti) as well as Agriculture and Rural Development for a rescue plan for the sugar industry.
This is because demand for refined sugar in the Southern African Customs Union (Sacu) countries was at its lowest in 35 seasons due mainly to the introduction of the Health Promotion Levy (HPL) or sugar tax on soft drinks by the South African government last year.
Industry experts estimate that the HPL resulted in a decline in demand of more than 400 000 tons in Sacu in the 2018/19 season, which forced cane growers to export at least 600 000 tons at low prices to an over-supplied world market. The UN Food and Agricultural Organisation said in its May 2019 food outlook that the international sugar price would remain under pressure.

“World sugar production is forecast to drop in 2018/19 from last season’s record level, but to remain slightly above global consumption. Expectations of lower production have not eased the downward pressure on prices. World sugar trade is forecast to contract marginally on higher availabilities in importing countries,” it said. The quality of the South African crop during the 2018/19 season was the third highest in 19 seasons, but the area harvested eased to 247 385 hectares from 252 049 hectares. Despite intense lobbying with the dti and the International Trade Administration Commission in 2018 for an increase in the Dollar-based Reference Price (DBRP) import tariff from 6 to 6 per ton of sugar, the industry was granted a tariff of only 0 (R10 041) per ton, which proved ineffective in stemming the tide of cheap imported sugar into the country, especially from neighbouring Eswatini.

Eswatini is expected to produce about 743 000 tons of sugar in the 2019/20 season. Most of this will make its way on to the South African market free of any import tariff in line with the free trade agreements in the Sacu region. Eswatini does not impose an HPL on soft drinks as is the case in South Africa.
Due to the displacement caused by the HPL as well as poor export markets, the growers’ net share of industry dropped to R8.594 billion in the 2018/19 season from R9.142bn in the 2017/18 season. “Our aim is to develop a sustainable rescue plan and we are looking forward to working with the minister to ensure that there is a future for our sector based on sustainable diversification into renewable energy and other opportunities,” Talmage said. “We are proud of our 93-year record of promoting and protecting the interests of our members. But we have never faced a crisis quite like this. The time has come to ramp up our efforts to rescue the sugar industry. We dare not fail,” he said. More than 5 000 cane growers and their dependants are likely to be the collateral damage from the accounting scandal at sugar mill owner and property developer Tongaat Hulett, whose shares have been suspended on the Johannesburg Stock Exchange.

Tongaat Hulett said its balance sheet may have been overstated by as much as R4.5bn, which is equivalent to more than twice its recent pre-suspension market capitalisation of some R2bn, compared with R25bn less than five years ago when executives were being paid handsome performance bonuses based on fictional accounts. In the wake of a series of accounting scandals, the joke was that economists were good with numbers, but lacked the imagination of accountants. The problem, however, is that when a new set of bean counters come in to rectify the situation, then cost cutting, which almost invariably involves shedding labour, is the normal solution to the failure of auditors and financial service regulators to do their job. In his keynote speech at the Raging Bull Awards in January, Dr Iraj Abedian in a speech titled: “Restoring South Africa’s Capital Markets Damaged Reputation: The Role of the Asset Management Industry”, took the industry to task for having been a party to the looting and squandering of our national savings on a massive scale.

“The asset management industry relies heavily and critically on the quality and reliability of the audit and assurance services in the corporate sector. “As is by now self-evident, the audit and assurance profession has found itself in a quagmire of poor-quality service and even unethical conduct. “I have argued elsewhere that this is a global challenge for the audit profession, and not unique to South Africa,” he said. What he noted was that in all cases of audit failure, substantial amounts of the country’s national savings are destroyed. “It is immaterial whether such audit failures occur in the private, the public sector or in the state-owned entities sector,” he added. While employees and investors, ordinary people exposed through their pensions or as purchasers of retail products from the financial sector, have suffered great harm, those responsible for the scandals at Steinhoff, the Resilient group and Tongaat Hulett have so far escaped prosecution and a probable jail sentence.

Stanford Mazhindu, the spokesperson for the trade union Uasa, recently said the South African sugar industry must find a way to diversify its product offering to stay sustainable and competitive.
“Wage negotiations in the sector have now reached a deadlock as unions and employers cannot agree on an increase percentage. Some sugar companies are issuing section 189 notices as they cannot afford their wage bill anymore, let alone increase wages.
“At the same time, the beverage industry is moving away from sugar for health reasons due to customer expectations and to cut costs, as the sugar tax also impacts on the pricing of their products,” he said.