Government phasing out protectionist strategy for sugar industry

16 Sep 2019

Business Day, 04 September 2019
by Bekezela Phakathi

Sugar producers have previously warned that the sector is on the verge of collapse, and suggested that tariffs needed to be increased. The government is unlikely to back further tariff hikes in the sugar industry, saying the protectionist strategy needs to be phased out in favour of one based on competitiveness.
Department of trade and industry officials told MPs on Wednesday that an export orientation had been adopted as a pillar to support industry competitiveness. That would include targeting the African continental market via the African Continental Free Trade Agreement (AfCFTA). The local sugar industry generates an income of about R14bn a year and is responsible for at least 350,000 jobs. SA sugar producers have previously warned that the sector was on the verge of collapse, and suggested that tariffs needed to be increased. Local sugar industry players have also called on the government to tighten restrictions to prohibit sugar entering SA from neighbouring countries that are not subject to any duties.

The local industry is facing several headwinds, including a drop in sales volumes, the sugar tax, falling prices and stiff competition from cheap imports, mainly from Brazil. In 2018, the International Trade Administration Commission (Itac) — the organisation tasked with customs tariff investigations, trade remedies, and import and export control — agreed to raise the dollar-based reference price (DBRP), which is an import tariff levied on products that come into SA, from 6 to 0. Local sugar producers had requested that the tariff be increased to 6 per ton. The DBRP is up for review in August 2021. Providing MPs with an update on matters relating to the sugar industry, the officials highlighted the shrinking share of Southern African Customs Union (Sacu) local market, which dropped from 1.6-million to 1.2-million tonnes — the lowest since 1983.

Furthermore, the area under cane cultivation has shrunk from 430,000ha in 2000 to the current 360,000ha, a loss of 2% per annum, as farmers cut back on investing or switch to more profitable crops. The department also said the imposition of a surcharge on imports from Eswatini (formerly Swaziland) will not be adopted to preserve regional ties enshrined in the SA Development Community (Sadc) and Sacu agreements. The local industry has previously complained about the “deluge of sugar dumped” on the SA market from Eswatini.
In July, trade and industry minister Ebrahim Patel said the government’s underlying philosophy was that protectionism on its own was not a sufficient means to ensure a long-term future for any industry.