Sugar industry stakeholders recently met trade, industry & competition minister Ebrahim Patel and agriculture, land reform & rural development minister Thoko Didiza to mark the successes of the first phase of the Sugarcane Value Chain Master Plan. While there was much to commend on this occasion, we must not lose sight of the urgent need to address existential threats to the future of a sector that supports a million livelihoods.
The first phase of the master plan created a framework for discussion and consensus between the government, growers, millers and end users — leading to some stabilisation of the industry even in the face of extraordinary challenges. But the industry as a whole will be sustainable over the long term only if all stakeholders can agree to a coherent plan that details critical interventions, policy commitments and industry investment.
Significantly, the master plan included a premium price for small-scale growers, investing in their sustainability. Additionally, the sugar cane industry disbursed R1bn over the same three years to small-scale growers. They are especially susceptible to shocks in the market, such as the milling crisis or the knock-on effects of the sugar tax.
The master plan’s objective was to design mechanisms to stabilise the industry and secure the jobs and livelihoods dependent on it. The first three-year phase came to an end on April 1 2023 and there is yet to be a firm agreement on the shape of the second phase or firm actionable plan on the diversification stream investigated in phase one.
One such diversification stream is for aviation fuels. Sugar cane has been shown to be a good source for the production of ethanol, which is converted into sustainable aviation fuels (SAF), also called aviation biofuels or bio-jet fuels. As increased scrutiny is placed on carbon emissions from the aviation industry, SA is ideally placed to contribute to the shift to more sustainable alternative fuels, creating the opportunity to protect and expand opportunities for sugar cane growers.
In 2021, SA Canegrowers and the Roundtable on Sustainable Biomaterials published research that showed that by diverting 50% of the 19-million tonnes of sugar cane produced by growers each year towards ethanol production, the industry could produce about 700-million litres of ethanol a year for local or international biofuel markets. This ethanol could then be converted into 433-million litres of sustainable fuel for the aviation industry.
The study shows that if both aviation and road transport are considered, the SA demand for fuel ethanol alone could be about 2.4-billion litres a year. Globally, SAFs account for less than 1% of jet fuel use and are likely to hit 2% by 2025 with the right policy support. The potential for growth is exponential.
To use this opportunity, SA needs a regulatory framework within which the industry would operate to meet national and international standards. A favourable environment is needed for businesses to bring this investment to SA and government funding will be critical in the early exploratory stages.
But any delays in implementing the second phase of the master plan threaten this opportunity. SA is not the only country with this opportunity, and our competitors are already taking the necessary steps to develop their SAF industries.
India has announced plans for all domestic airlines to use 1% of SAFs from 2025. Brazil is already the world’s second-largest producer of ethanol, with output of more than 26.5-billion litres a year. According to its agriculture ministry, Brazil has 349 plants producing ethanol from sugar cane. The country is also converting grain into biofuel.
Lessons from India
SA can learn from the blending approach to fuels that India is taking. This could allow SA to introduce these fuels at a realistic pace, increasing the percentage of SAFs as production increases and becomes more efficient and cost effective.
Diversification can indeed open new markets for sugar cane, but it also creates an environment in which growers are protected against shocks in demand from existing markets. The demand for locally produced sugar, for example, has been directly affected by the introduction of the health promotion levy, a tax on products containing sugar.
The levy illustrates why the master plan can be such a powerful tool. Its introduction (and potential future increases in the tax) comes at a great economic cost to sugar cane growers. The master plan is supposed to be the framework for an actionable plan on diversification of sugar cane-derived products to mitigate the income losses small-scale growers experience when taxes such as the levy lower demand. Such diversification cannot happen without the support of the government. This has been the case in all the leading sugar industries throughout the world, again most notably the Brazilian and Indian sectors.
In the first year after its introduction, the health promotion levy cost the industry value chain more than R2bn and destroyed 16,000 jobs. For the National Treasury to increase the levy without proper consultation with the industry would put the livelihoods of thousands of individual small-scale and developmental cane growers, as well as other industry stakeholders, at real risk. It could lead to thousands of job losses and destroy billions of rand in value. The levy poses an existential threat to vital livelihoods in the rural economies that can least afford it. SA Canegrowers has consistently asked that the levy be scrapped to avoid this.
A coherent policy environment is needed where all factors are considered by all stakeholders. Commitments from the government and end users are needed to invest where necessary, or commit to use SA-made products, such as SAF. SA Canegrowers believes an urgently negotiated and agreed-on second phase of the Sugarcane Value Chain Master Plan is the right platform to seek this agreement.
• Russell chairs SA Canegrowers.
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