Sugar price rises to protect local industry

Trade and Industry Minister Rob Davies this week endorsed a massive hike in protection for the sugar industry following a recommendation from the International Trade Administration Commission (Itac).

Sugar, like wheat, is protected by a special variable tariff based on a dollar reference price.

This price is effectively what a fair price for sugar is deemed to be, and the tariff is automatically adjusted to reach that level.

Itac had recommended that the sugar reference price be raised from $566 (R8 373) a ton to $680. This is much less than the industry wanted – $856 a ton.

The effect is to raise the current R2.33 tariff on each kilogram of imported sugar to R4.20 a kilogram, which would just about eliminate the cost advantage of Brazilian sugar, which has been landing in South Africa at less than R5 per kilogram this year.

By way of comparison, sugar from Swaziland costs R8.63 per kilogram.

The additional protection has been justified in part by the effect the new sugar tax will have on primary sugar producers. The tax is paid by the manufacturers of sugary drinks and they have reacted by trying to reduce the use of sugar in their drinks.

Cooldrink manufacturers make up 38% of the market for sugar in South Africa.

Davies this week said there were commitments from the major sugar companies organised under the SA Sugar Association to “meaningfully” improve the prices they paid to small sugar cane farmers, which means that some of the benefit of the higher tariff wall should go to them.