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Send  Share  RSS  Twitter  18 Jul 2013

AGRICULTURE: Sugar Industry Faces Challenges

 





Recent Gauteng Business News

The sugar sector has called for the protection of the local industry from excessive imports, which it claims are negatively affecting crucial agricultural industries.

In recent years there has been a renewed interest in sugar cane production on communal land, with industry stakeholders expanding sugar cane production in these areas, says George Marais, industry analyst, Coface, the international credit insurer.

Similarly, the state, and in particular the Department of Rural Development and Land Reform (DRDLR), is allocating an increasing percentage of its financial resources to support communities residing on communal land such as the Ingonyama Trust Land in KwaZulu-Natal and state land in Mpumalanga.

As an industry, SA needs to develop sustainable strategies and models for small scale grower projects that are reflective of the rural development agenda. Simply stated, sugar cane projects in communal areas need to be packaged in a manner that these interventions are catalysts for the broader socio-economic development of the participating communities.

The projects need to encompass aspects dealing with food security, local infrastructure development and institutional support programmes.

Fifteen years since the land claims process was closed in 1998, the industry has bemoaned the lack of progress in the settling of outstanding gazetted claims. On the other hand, the state is steaming ahead with plans to reopen the land claims process in the next few weeks, fuelling fears across the industry that the system is likely to create further bottlenecks and stall the settlement programme even further.

This has forced the sugar sector to approach the Land Claims Commission to provide assistance in developing structures and annual plans with time frames to manage the settlement process and accelerate the transfer of land to communities.

An added problem is that the world sugar price is distorted by government subsidies and other international factors. Government has recognised this problem, but the process of revising the tariff on imported sugar is a long one, and entailsapplying to the International Trade Administration Commission of South Africa and providing motivations for increasing the import tariff on sugar.

Alternative uses

In August 2012, the South African government published regulations regarding the mandatory blending of bio-fuels with petrol and diesel. The regulations allow for two percent blending for bio-diesel production and set a permitted range of two percent up to ten percent for ethanol.

The regulations do not mention the specific feedstock that can be used for bio-fuels. A strategic framework for bio-fuel production in South Africa will now be developed by government. No implementation date for the mandatory blending was set by the published regulations and will be determined at a later stage by the Minister of Energy.

The production of electricity from biomass in South Africa was only allocated a small capacity of 12,5MW. This excluded the use of bagasse for electricity production. Discussions have taken place between the Department of Energy and the sugar industry about evaluating the potential for the sugar industry to make a meaningful contribution to South Africa’s renewable energy program. It is the sugar industry’s view that the benefits from bagasse-based electricity will have a positive impact on the South African sugar industry and the South African economy.

Pricing

The local sugar industry is a net exporter of sugar. In order to distribute export earnings equitably amongst growers and millers, SASA has implemented a Division of Proceeds. The Division of Proceeds is a formula that enables revenue that accrues to the sugar industry to be allocated to millers and growers under a partnership arrangement. The Sugar Act and the Sugar Industry Agreement provide regulatory support for the Division of Proceeds.

From South Africa’s Customs Union (SACU) sales, approximately 45 percent is sold to industrial customers, the balance being sold directly to consumers at retail level. Approximately 77 percent of sugar sold to customers is refined sugar and the balance is brown sugar.

The sugar industry in South Africa is facing the following challenges at present:

• The fall in the level of the current tariff protection against sugar imports, culminating in a surge in imports of sugar into SACU.

• A lack of preferential market access for South African sugar exports. South Africa is currently the only developing country excluded from preferential access to the markets of the European Union, Impacting on the relative competitiveness of the industry.

• South Africa’s share in the SACU sugar market is increasingly replaced by sugar imported from other SADC countries on duty-free quotas provided in the SADC Trade Protocol as well as Swaziland’s preferential access. This is impacting on total industry returns.

• The slow pace of the land claims process is injecting a great deal of uncertainty into investment decisions in both sugarcane and sugar production, leading to declining yields, capacity utilisation and investment in productive capacity.

• Increase in imports of value-added sugar/dairy containing products such as confectionery. In the case of sugar, sugar-based products are receiving extensive support and subsidies in all developed sugar-producing countries. Dumping of these products on the South African market is obstructing the establishment of downstream sugar-based products.

• The intention of the National Ports Authority to increase the rental on all industry leases at the Durban port, from a lower base to an exorbitantly high rental, will have a negative impact on the industry’s global competitiveness.


 
 
 
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