The sugar industry wants the finance minister to declare a six-year halt on increases in the health promotion levy (sugar tax) to avoid a potential loss of almost 300,000 jobs and a total collapse of the industry.
In 2018, South Africa became the first country in Africa to introduce a tax on sweetened beverages with a sugar content of over 4g per 100ml, as a response to the growing public health crisis caused by obesity and diabetes.
Finance minister Enoch Godongwana gave the industry some reprieve in his budget in February 2023, announcing that the tax of 2.1 cents a gram of the sugar content exceeding 4g per 100ml would not increase for the next two fiscal years.
With this grace period set to expire in February next year, the South African Sugar Association (Sasa) has urged the National Treasury to extend it until 2030 if the sugar master plan, aimed at saving the sector, is to have any chance of success.
Sasa executive director Trix Trikam said the global sugar market was distorted and an industry that produced a surplus for domestic consumption now had to protect itself from collapse. He said two of South Africa’s 14 sugar mills had been forced to close down as production dwindled due to the sugar tax and increased imports from neighbouring Eswatini.
"The sugar tax is the number one priority," Trikam said. "It’s a big problem, a big issue, and has had a major impact. Then we have the sugar imports from Eswatini. We do understand that Eswatini is part of Sacu [Southern African Customs Union], so I don’t think there’s much that we can do."
He said the South African sugar industry produces about 2Mt of sugar annually, and 1.4Mt of that is for domestic and regional consumption. About 500,000t of sugar is exported annually.
The industry employs 65,000 people permanently and another 217,000 indirectly, he said.
"There are 23,900 small-scale growers and 1,079 large-scale growers. There are about 1-million people [whose livelihoods are] dependent on the industry."
Trikam said the sugar tax would devastate a sector reeling from drought and an influx of imports over the last 10 to 15 years. He said the government’s sugar tax had cost the sector 250,000t of sales, which forced the industry to export sugar at a huge loss of R1.2bn.
But Prof Karen Hofman of the Wits University research group Priceless SA disputed Sasa’s claims on the sugar tax’s impact, saying the industry has been in decline for two decades due to challenges that include competitively priced imports from the Southern Africa region and inclement weather.
"The way that they are dealing with this is very typical of organisations in the tobacco industry and the alcohol industry. So when people want to make this into something, they sow doubt and spread false information ," Hofman said.
She said the industry’s reaction to the health promotion levy was not an appropriate response to the prevalence of sugar- and obesity-related diseases in the country, which are the highest they have ever been. She suggested the industry look at other uses for sugar, such as producing ethanol from sugar cane as a biodiesel.
"This is not about the sugary beverages levy at all. An analysis of the Stats SA QLFS [Quarterly Labour Force Survey] shows that there was not a loss of employment as a result of the tax. There are several countries in the world, including India and Brazil, who are leaders in producing ethanol from sugar cane."
University of Stellenbosch researchers Yolande Smit, Zarina Ebrahim, Maritha Marais, Daan Nel and Nelene Koen also said that, according to their research, dietitians had a positive opinion of the sugar tax but did not believe that imposing a tax alone would change consumer behaviour or reduce obesity.
"Key industry role players regard the health promotion levy to be insufficient to affect consumers’ purchasing behaviour. The health promotion levy should form part of a multi-pronged approach to create a supportive environment to reduce sugar consumption," they said.
"It is recommended that approaches should include fiscal measures, consumer education and controlled marketing of sugar-sweetened beverages. Trained dietitians would be able to enhance the goal of the health promotion levy to combat the obesity pandemic."
The South African sugar industry has enjoyed multiple protections from the government over the years, including the sugar industry agreement of 2000 and the 2018 International Trade Administration Commission (Itac) ruling that import duties be increased from $566 a tonne to $680 a tonne to protect the local industry from deep-sea imports.
A report by the United States Foreign Agricultural Service blamed the introduction of the sugar tax for a 250,000t loss in sales in 2018 and the near-collapse of leading sugar producer Tongaat Hulett. It said the tax had resulted in a R1bn loss to the industry.
"In October 2022, Tongaat Hulett, South Africa’s largest sugar miller, opted to enter voluntary business rescue due to financial distress caused by a R369m loss of sugar at a refinery, a depressed property market, the withdrawal of support by a credit insurer, and significant cost increases in commodities and raw materials because Russia invaded Ukraine," it said.
The agency also noted that revenue earned by the fiscus from the sugar tax since its introduction in 2018/19 had declined steadily from R3.9bn to R1.9bn in 2020/21.
But Hofman said the declining contribution of the sugar tax to the fiscus meant there was a strong case for it to be increased.
"I don’t think it’s a sign of success at all. It was just a sign that the sugary beverage tax must be increased. It’s not high enough ... It needs to be increased so that there is more revenue and it will decrease the amount of sugar that people are consuming."
In reply to a parliamentary question earlier this year, Godongwana said the culminative revenue from the sugar tax from April 2018 to March 2021 was R7.9bn.
Sasa nutrition manager Priya Seetal said the biggest customer of South Africa’s sugar industry was the beverages industry, which has seen a drop in sales since the introduction of the tax.
"Beverages dropped in sales from over 600,000t to around 300,000t. There were 10,000 job losses in the sugar sector and major losses in the beverages sector. In 2023, Godongwana gave a two-year moratorium from the sugar tax to give the industry time to prepare, but this is not enough."
Seetal said they were aware of an intention to reduce the 4g tax-free threshold on sweetened beverages, and warned that expanding the sugar tax would compound socioeconomic troubles, including the loss of livelihoods in communities near sugar mills.
The organisation estimates R720m in losses per annum if the health promotion levy is increased from next February. According to Sasa, when the beverages industry switches away from sugar to other sweeteners, the local sugar industry loses R4,500 per tonne in sales.
"We are asking that the government keep the moratorium in place until diversification takes place, and ensure a comprehensive consultation before any changes are made. Any changes to the health promotion levy must consider the outcomes of the socioeconomic impact assessment study being undertaken by the Presidency and the results of the dietary intake study."
Sasa said it has been working to diversify local sugar production to other industries and has done a cost-benefit analysis into the conversion of its produce into bioethanol and biogases.
The analysis found that up to 750Ml of ethanol can be produced by the sugar industry and contribute to 80% of the need for this type of energy when blended with petrol. However, this would require significant investment.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.