Food producer RCL Foods has called on the government to swiftly implement an effective tariff on sugar imports, warning that cheap and dumped imports are threatening the stability of the local industry.
Speaking to Business Day after the release of the group’s interim results on Monday, CEO Paul Cruickshank said faster action is needed to give the sector certainty and allow it to plan for recovery.
Cruickshank said the R24bn sugar industry is under severe pressure from excess global production and cheap imports, which have started eating into the company’s profit and that of many of its rivals in the industry. He said effective tariff protection is essential to stop these imports, restore market stability and protect profitability.
RCL suffered a steep decline in earnings at the halfway stage of the financial year, forcing it to cut shareholder payouts by a quarter.
It reported HEPS for continuing operations for the six months to end-December fell more than 30% to 75.9c. Revenue declined 1.9% to R13.3bn, while underlying earnings before interest, tax, depreciation and amortisation (ebitda) from continuing operations fell more than 14%.
According to RCL, the sugar situation threatens the sustainability of the local industry, with inadequate tariff protection allowing imports to displace domestic production. The tariff formula is under review by the International Trade Administration Commission of South Africa.
Tongaat Hulett
The sugar crisis has been worsened by the financial turmoil of major producer Tongaat Hulett and the effects of the sugar tax. Tongaat recently filed for provisional liquidation after a failed 37-month business rescue process and the collapse of a takeover by the Vision Group. The company is facing an R11.7bn debt crisis. Any disruptions in milling operations have the potential to upset the rural economy and further reduce profit for affected businesses.
The South African Federation of Trade Unions reports that between 35,000 and 40,000 workers’ livelihoods are in jeopardy, while nearly 15,500 cane growers face adverse effects.
The government recently acknowledged the crisis, emphasising the importance of preventing sugar mill collapses and protecting rural jobs and livelihoods.
Agriculture minister John Steenhuisen said the department is working with industry stakeholders to find practical solutions, particularly in light of Tongaat Hulett’s potential liquidation.
“The government’s concern is simple: the crop cannot wait. Agricultural production works on biological timelines, not legal or financial ones. An intervention that unlocks funding and restores operational certainty is urgently required to protect both production and jobs,” Steenhuisen said.
Better sugar yields
Cruickshank has said RCL is taking steps internally to mitigate the effect of imports by improving agricultural yields, ensuring efficient cane crushing and tightly controlling production costs. However, he said these measures cannot fully offset the damage caused by uncontrolled imports.
He also raised concern over the financial uncertainty surrounding Tongaat, noting that a quick resolution is critical to prevent further disruption to the industry.
According to Cruickshank, the outcome of tariff negotiations will have a significant effect on earnings recovery. A tariff could provide short-term relief to earnings, while continued or increased imports before any protection is applied would keep pressure on results. He assured consumers, however, that most imported sugar is used by industrial users, meaning consumers may not immediately benefit from lower shelf prices.
Beyond sugar, RCL Foods’ core grocery and baking businesses also faced difficult trading conditions, reflecting pressure on consumer demand.
The groceries division experienced lower volumes, though profitability improved due to better margins in its culinary products, higher pet food sales and a favourable product mix in beverages. However, a temporary halt in production at its dry pet food facility limited its ability to fully meet demand towards the end of the period.
RCL said the baking division reported a flat underlying performance, with declining volumes in bread, buns, rolls and milling offset by stronger sales in pies and speciality products, supported by operational efficiencies and product innovation.
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