Any changes to the current Health Promotion Levy (HPL) that are aimed at further reducing the local demand and consumption of refined white sugar would have significant adverse consequences for the milling sector, the growers and the rural economy, according to the Potential Impact of an increase in the current level of the Health Promotion Levy Report.
The study by the Bureau for Food and Agricultural Policy (BFAP) that was commissioned by the South African Sugar Association (Sasa) was released during a media tour organised by Sasa this week.
Presenting the report, BFAP’s head of Agri-Socio Economics, Sandy Jackson, said the report revealed that when beverage companies replaced sugar as a sweetener in sugar-sweetened beverages (SSB) and consumers buy less SSBs due to the higher HPL, the local demand for sugar decreased, and if there was no alternative local market for raw or refined sugar, more sugar had to be exported into a world market where prices were below the local price level and often below the local production cost.
Additional exports resulted in a lower realised sugar cane producer price and a decrease in cane profitability and hence a reduction in cane area, crushed cane and cane sector employment.
“Under the Baseline, it is expected that the SA cane area will decline (driven by various macro and micro-economic factors explained previously) by 26 400 hectares over the next 10 years. With a 125 000 tonne reduction in demand for local refined sugar in 2023/24 and an additional 35 000 tonnes in 2024/25, the cane area is projected to decrease by an additional 27 400 hectares.
“The industry stands to lose an estimated 53 800 hectares over the next 10 years, with the bulk of hectares going out of cane production between 2023 and 2025, followed by a slight recovery and then a gradual decline, in line with the Baseline,” Jackson said.
It was estimated that if the reach and extent of the HPL was increased, refined sugar sales would decline by a total of 160 000 tons over a two-year period as reformulation continued.
A decline of this magnitude was equivalent to the refined output of one refinery of the four that are currently operational and equates to the raw sugar production, allocated for refining, of two of the 12 local sugar mills. A reduction in demand of this magnitude was said to place significant risk on the ongoing operation of multiple mills and refineries.
“The loss in demand affects both the operational efficiency and the financial sustainability of operations. A reduction of 160 000 tonnes (11% of the local refined sugar market) will decrease the industry turnover by more than R600 million per annum as the equivalent volume of raw sugar will have to be exported at lower world sugar market prices, thereby reducing industry profitability for the millers and the growers.”
In the short term, it was estimated that if the government increased the HPL, 6 000 jobs could be lost in the sector and 3 000 small-scale growers would be hurt.
Sasa CEO Trix Trikam said their plea to the government was that it should not implement any changes to the HPL for the next three to five years, while the sector was working on alternatives to mitigate the impact of the HPL.
SA Canegrowers CEO Thomas Funke said canegrowers had repeatedly warned of the devastating impact of merely maintaining the HPL.
“It, therefore, comes as no surprise that modelling from the Bureau for Food and Agricultural Policy confirms the jobs losses expected if the HPL is increased.
“Like the rest of the country, the sugar industry is already suffering heavily as a result of load shedding, with growers expected to lose at least R700m in 2023 alone. In this context, raising the HPL would devastate the workers in our rural economies who rely on the industry for their livelihoods,” Funke said.
The organisation reiterated its call to Finance Minister Enoch Godongwana to not only withdraw the planned increase in the HPL, but to suspend the tax in its entirety.
“This is the only way to prevent a jobs bloodbath in our nation’s most vulnerable communities, and protect the long-term investment we have made into the sustainability of the country’s small-scale growers,” SA Canegrowers said.
South African Farmers Development Association (Safda) executive chairperson Dr Siyabonga Madlala said they had previously raised concerns about the increase in HPL.
“Our position remains that any further increase in HPL will affect the sugar master plan’s commitments. Most small-scale growers rely on sugar cane farming for their income, so any further increase will eventually force them to abandon sugar cane farming, which will be an unfortunate loss of rural livelihoods in the face of the persistent poverty and unemployment,” Madlala said.
He said the industry was currently facing many challenges. He said input costs like fertiliser had tripled in the past year as a result of the Russian-Ukraine war.
“A number of growers in irrigated areas have also been affected by load shedding. If the government increases their burden further, they will be forced to exit farming.”
Safda said the exit of many sugar cane farmers would entail the retrenchment of their workers because of their inability to pay them. It said that, in principle, it was in support of programmes and interventions aimed at reducing the prevalence of non-communicable diseases, which was why the sugar tax was put forward as a health measure.
However, it believed that this could be accomplished in a more effective manner without killing livelihoods and impoverishing rural communities, especially in Mpumalanga and KwaZulu-Natal.
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