Sugarcane is the source of, between 80- 85% of the world’s sugar supplies, with the other 15% derived mainly from sugar beet and corn starch. Apart from uses in foodstuffs, sugarcane is also utilized in the manufacturing of various products such as ethanol, animal stock feed, fertilizers, paper, plastics and various types of chemicals.
Local statistics
South Africa’s, sugarcane value chain has 21 776 farmers, directly employs 65 000 workers and indirectly employs 270 000 people. Up to 1 million people, especially those in rural areas, are dependant on this sector of the economy for their survival. According to the South African Sugar Association (SASA), the industry has a modest annual turnover of R20 billion, adding almost 1% to GDP and makes up 6% of total agricultural output. The overall numbers may deceive one to arrive at the conclusion that the industry is minor and irrelevant. However, it is indispensable to the economies of KwaZulu-Natal and Mpumalanga. Sugarcane makes up about half of the total agricultural activity (agricultural GDP) in both provinces. Thus, the failure of the sugar industry will have an adverse impact on the well being of vulnerable people in numerous towns and rural villages.
Headwinds
One of the major problems the industry faces, involves cheaper sugar imports which are usually priced lower than the local product. Owing to comparative disadvantages in production, South Africa has been importing cheaper sugar from, Brazil, Eswatini and India, among other sources. According the USDA’s, Foreign Agricultural Service, S.A imported 405 433 tonnes of sugar (361 860 raw sugar + 43 573 refined sugar), in the 2021/22 marketing year. Resultantly, some of the higher priced and less competitive South African sugar had to be sold in export markets, at a loss. In the 2021/22 marketing year, sugar exports were 534 605 tonnes (342 266 raw sugar + 192 339 refined sugar). This implies that, the country was self-sufficient in sugar, had it not been for cheaper imports.
The Health Promotion Levy (HPL), also known as the “sugar tax”, which was introduced in April, 2018, has further reduced the size of the domestic sugar market. The Levy is set at 2.1c/ gram of sugar content that exceeds 4g/ 100 ml. The first 4g/ 100ml are not levied. In the first year of implementation of the HPL, 250 000 tonnes of sales to the local beverage sector, were lost. Resultantly, the sugar industry registered a loss of at least R1.2 billion, in revenue. In that same year, a total of 9000 farmers and farm workers lost their jobs. An additional 580 jobs were lost in the sugar processing industry, which includes milling and refining. The South African Sugar Association (SASA), reported that, by February, 2022, about 16 000 jobs had been lost in the sugarcane value chain, since the introduction of the HPL.
Tailwinds
Fortunately, for the sector, stakeholders in the industry (including government) developed an actionable Sugar Value Chain Master Plan, which was signed for, in November 2020. The plan, aims to revive and set the industry into growth, by 2030. Some sections of the Master Plan entail: finding alternative uses for sugarcane (such as ethanol biofuels); promoting S.A sugar to local industry, retailers and consumers; better tariff protection, and; a moratorium on HPL increase until 2025. More detail is provided on the first two strategy options of the Master Plan, with additional suggestions on how to improve it.
South Africa has a Biofuels Industrial Strategy (BIS), dating as far-back as 2007. The BIS proposes blending ethanol in petrol, at a rate of 2% ethanol and 98% petrol. For diesel, the tabled ratio is, 5% biofuel with 95% diesel. This implies that, once the BIS is implemented, at every fuel station, the distributor will be mandated to sell blended fuel. However, the proposal has not been implemented, since then. The Sugar Value Chain Master Plan has revived interest in the BIS. If implemented, the sugar industry will benefit, as more crops will be cultivated and processed for domestic ethanol requirements. This can be a win-win situation as jobs will be created, energy security is improved, the economy will grow, whilst motorists are likely to pay less for fuel at the pump, since ethanol is typically cheaper than petrol.
Moreover, with only a few modifications, a regular petrol vehicle can take as much as E85 (85% ethanol and 25% petrol). This can be achieved by making minor adjustments, such as upgrading the fuel pump and injectors. Getting back to economics and the sugar value chain, it therefore makes sense if government encourages motorists to upgrade to E85 vehicles and provide commensurate rebates to those who transition. This will make higher ethanol blending ratios possible and assist in strengthening the sugar value chain whilst adding to the economy’s industrial capacity.
Rebates may include, reducing vehicle license and toll fees for motorists who use E85 vehicles. To avoid fraud, a new and reflective number plate and vehicle registration book may be issued to consumers who upgrade. If the proposed policies find success, then the next target might be to blend diesel with its commensurate, locally cultivated biofuels. Such policies may seem radical and earn resistance in the present but they can be a crucial part of managing energy security and reducing the import bill, going forward.
Ethanol’s importance goes beyond fuel blending, as it can be used in generating electricity. Currently, local sugarcane processors, use a production method called co-generation, where ethanol and other sugarcane by-products, such as bagasse, are used to concurrently provide both heat and electricity, in the processing of sugarcane. Going forward, ethanol power plants of a larger size can be established across the country, with their output contributing to the national grid. Brazil provides plentiful opportunities to learn from, in developing this area, as it has a considerable portion of its energy, powered by ethanol plants.
The Sugar Value Chain Master Plan has created mechanisms for negotiating with manufacturers and retailers, requesting them to commit to stocking at least 80%, of South African produced sugar. Resultantly, there has been an upswing in sugar sales, on a retail level.
ConsolidationStudies into the feasibility of cultivating sugar beet and corn, for sugar and their by-products, may also prove useful, and assist in consolidating the sugar industry. Areas unsuitable for sugarcane, may be used for sugar beet or corn. This can be so, since, for example, sugarcane and sugar beet require almost opposite climatic conditions. Excellent results may be reaped, if other provinces are utilized for alternative sugar crops.
Kevin Tutani is a political economy analyst- tutanikevin@gmail.com
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