South Africa’s sugar industry is in a dire state as it is experiencing the worst drought since 1992 as the dry spell grips the eastern and central parts of the country, with cane yields expected to drop by six-million tons in the 2015/16 season, leaving many farmers, big and small, and farmworkers unable to sustain their livelihoods.
South African Sugar Association (Sasa) executive director Trix Trikam tells Engineering News that the average required rainfall by South Africa’s sugar industry has decreased by about 60%, with very low rainfall experienced by most of the industry from November 2014 to date.
South African Canegrowers Association (SA Canegrowers) MD Nhlanhla Gumede says unless the means are found to provide assistance, a large number of growers face a potential disaster that could result in widespread retrenchment of labour and, in extreme cases, forced farm sales.
Total indirect employment in the sector is estimated at at least 350 000 workers, according to the University of KwaZulu-Natal’s Professor Jeff McCarthy, who emphasises the indirect employment created through numerous supporting industries.
Labour union Uasa, which currently represents 1 000 employees in the sugar industry, says that the sector creates about 79 000 direct jobs, which represents more than 11% of the total agricultural workforce in South Africa, a sector that has shrunk drastically in recent times.
“Some studies have shown that total dependence can be as high as one-million. The industry employs over 79 000 people in rural areas, where sustainable job creation is a challenge,” Gumede states.
More than 7 000 people are employed by the sugar milling sector at 14 sugar mills and administration offices in KwaZulu-Natal and Mpumalanga. Illovo Sugar and Tongaat Hulett Sugar own four mills each, TSB Sugar owns three and Gledhow Sugar, UCL and Umfolozi Sugar Mill each own one mill.
Uasa sector official Avril Kotze confirms that the labour union is hugely concerned by the drought, as it has caused several sugar mills to shut down in recent months as a result of insufficient sugar cane. She suggests more catchment areas/dams to assist in times of drought to avoid the resultant slack in production.
With this in mind, the labour unions representing workers in the sugar industry dropped their demands in the May wage negotiations from 12 to 4. Uasa described the approach to negotiations as “very responsible”, having initially demanded 13.5% but lowering this to 9.7%. The counteroffer by the employers was 5.3% and they were prepared to backdate wages to April 1.
Kotze says that, at present, employers are using fixed-term contract employees to perform core functions, which does not assist with job creation – a “huge problem” in the sector.
In addition, the sector is further jeopardised by looming retrenchments as Illovo has sent unions a Section 1899 letter, notifying them that an information sharing session will start on September 7. The company expects the process to be concluded by October, with the affected employ- ees to work their notice month in November.
Further, she explains that the sector is a precarious industry in terms of employment if you are not on a fixed-term contract, as seasonal workers seem to get the short end of the stick of employment relations.
New legislation – Section 198 b of the Labour Relations Act – is also not helping very much in terms of encouraging long-term contracts and many fixed-term contract employees are still not receiving adequate benefits.
Some employees have been in their current jobs for 15 to 30 years as fixed-term contract workers, yet they have no pension or provident funds to show for it, putting further pressure on government to supply State pensions, Kotze points out.
However, Uasa spokesperson Gerhard Ueckermann adds that there is legislation that can be used to challenge the situation in these instances. He says: “We will, should the employer not comply.”
“Agricultural businesses are unfortunately susceptible to changes in the weather on a constant basis,” Gumede explains, saying that, with climate change, these weather variations are expected to increase in intensity and frequency.
It is, therefore, important that industry players and government formulate strategies to deal with these uncontrollable events, he says. “[As such], the industry [has started] processes aimed at developing long-term mitigation strategies, such as appropriate price and volume risk-mitigation strategies.”
JSE-listed sugar producer Tongaat Hulett tells Engineering News that it is engaging with the farmers that supply its operations to identify interventions that mitigate the impact of the drought.
“Initiatives currently being discussed include the implementation of a pesticide spray scheme and the securing of grant funding from government for root planting. The sugar cane stalk is a resilient plant that responds well to rainfall, and reasonable rains during the coming spring and summer will have a significant impact on the size of the 2016/17 crop,” explains the company.
SA Canegrowers is hopeful that the 2016/17 season will bring the “very much-needed” rains that could assist the industry in getting back on track, while Sasa adds that the recent rains have been encouraging and the industry is hoping for more.
South Africa, on average, produces 2.2-million tons of sugar in a season; however, production is expected to drop to 1.714-million tons of sugar when the 2015/16 season closes on March 31, 2016.
“The average yield for the sector is around 20-million tons of cane a year and, this year, we are expecting to harvest around 14-million tons,” Gumede says.
It is estimated that sugar cane production across the industry will decline by about 23%, compared with the 2014/15 season. Sugar cane production is estimated to decline by about 33% in the rain-fed/dry land areas where most of the KwaZulu-Natal operations are located, while in some of the KwaZulu-Natal mill areas, crops have declined by as much as 53%.
SA Canegrowers believes that production will stabilise and grow slightly over time as rainfall returns to normal levels and yields improve as a result.
Feeling the Pinch
There are currently about 1 700 commercial growers and 22 500 small-scale growers operating in the South African sugar sector, with the gross revenue loss for growers this season, owing to the drought, presently estimated at about R1.7-billion.
“The situation is worse for small-scale farmers, who, because of the size of their operations, are unable to build reserves to sustain themselves during these periods. Therefore, such a crisis has unfavourable outcomes for much of the rural economy of KwaZulu-Natal,” Gumede points out.
He says the value of small-scale farmers, which contribute about 15% of the local industry’s total crop in a good year, cannot be underestimated, emphasising that sugar cane farming is sometimes the only viable economic activity in some rural KwaZulu-Natal economies.
Tongaat Hulett believes the long-term sustainability of the South African sugar industry lies in ensuring that the reward for growing sugar cane is sufficiently attractive to retain current commercial and small-scale farmers and encourage the expansion of areas that are planted, thereby facilitating economic activity and job creation in rural KwaZulu-Natal.
Tongaat Hulett’s view is that implementing strategic levers will substantially improve the value of sugar cane and boost agricultural viability. One such focus is local market protection, with a new application currently in progress for an increase in the reference price on which the import tariff is based.
The company also emphasises the need for direct support for small-scale and land reform farmers.
“The largest cost involved in establishing new sugar cane is the initial root planting exercise. It is, therefore, essential that government, through its various agencies, support this initial input to allow for the establishment of new small-scale and land reform farmers.”
Lastly, the company highlights the production of ethanol for biofuel and electricity generation.
The sugar industry is working with government on a biofuel framework that will seek to divert most export sugar to the production of ethanol, which would add substantial value to this sugar component of the cane price, Tongaat Hulett explains.
The company also adds that its use in electricity cogeneration significantly impacts on the value of the fibre in the sugar cane stalk that remains after crushing – known as bagasse. Electricity generation, therefore, has the potential to substantially enhance the agricultural value chain and, hence, the viability and profitability of farmers.
“A reasonable degree of success in some or all of the above elements will secure the future of the South African industry and allow players in the industry to reinvest in the business at an attractive level of return,” adds Tongaat Hulett.
Trikam concurs, emphasising that the sugar is a diverse industry that, in line with global developments, has the potential to be a producer of renewable energy, biofuels and bioplastics.
Besides drought, which the industry has experienced occasionally over the past 150 years, the sugar sector is also exposed to spells of depressed prices, but has always weathered the storm to emerge strong, says Gumede.
“The sugar industry, like most commodity sectors, is currently under considerable stress owing to depressed commodity prices. But, as a result of effective and continued government support, [in the form of the prevailing import tariff of R2 426/t of sugar], the South African industry is, to some extent, shielded,” he advises.
He highlights that South Africa is one of the world’s leading cost-competitive producers of sugar and ranks in the top 15 countries in the world, of which there are about 120.
The South African sugar industry produces an average of 2.2-million tons of sugar a season. About 75% of on average is marketed in the South- ern African Customs Union (Sacu). The balance is exported to the US, Korea, the Philippines, Indonesia and the Middle East. Some refined sugar is also exported into other parts of Africa.
South Africa is one of the world’s leading cost-competitive producers of high-quality sugar and is supported through a dollar-based reference price system based on the long-term average world price for sugar. The majority of sugar industries in the world are protected from the world sugar market, often referred to as a dumped market. World market prices have historically trended below the average global cost of production owing to subsidy-induced oversupply.
The world sugar price, explains Trikam, has historically trended below the average global cost of production owing to this subsidy-induced oversupply, which is why South Africa continually faces potential imports from major exporting countries like Brazil and India.
Based on revenue generated through sugar sales in the Sacu region and world market exports, the South African sugar industry generates an estimated average direct income of over R12-billion a year.
Gumede adds that, despite the drought reducing the amount of sugar available for export this year, the industry is still expected to contribute about R12-billion from sugar and molasses production alone.
“Sugar exports are likely to remain stable but could also increase or decrease if imports rise or fall,” Gumede comments, stressing, however, that without continued government support for the local industry, these imports will unfortunately increase, to the detriment of the local industry.
“During periods of low global prices and low import tariffs, imports from outside Africa have been as high as 470 000 t in the past. It is expected that about 150 000 t of sugar from Brazil will still hit our shores, despite [South Africa’s import] tariff, which is detrimental to the country’s industry. There are, of course, also imports from the Southern African Development Community (SADC) region, which are governed by trade agreements within Sacu and the SADC,” says Gumede.
In the National Development Plan, government stipulates that it intends to redistribute 20% of agricultural land by 2030 on a district basis. The lodgment process for land claims was reopened for a five-year period to June 30, 2019, after President Jacob Zuma signed the Restitution of Land Rights Amendment Act into law on June 30, 2014. The first phase of the restitution process was closed on December 31, 1998.
The South African sugar industry has long recognised the need to promote diverse ownership of agricultural land under sugar cane and the need for a range of support initiatives, which are in place to promote the sustainable transfer of land, says Trikam. These initiatives have contributed to the transfer of 21% of freehold land under commercial sugar cane production from white growers to black growers.
Gumede attests to this, highlighting that the industry is a leader in land reform as the national private agricultural land redistribution average is about 8%.
“The industry has a structured relationship with government and participates and contributes to policy debates. We view land reform as a partnership that is key for the sustainability of our sector as opposed to a risk. The industry is continually engaging with government on its land reform policies, such as the mooted 50:50 policy,” he outlines.
As such, the sugar industry is currently working on ways to assist government in achieving its stated objectives. To that effect, the industry is working on the adoption of a social accord aimed at implementing certain initiatives at farm level to improve the socioeconomic conditions of farmworkers.
In April, Sasa, together with SA Canegrowers, signed a memorandum of understanding with the Commission on Restitution of Land Rights whereby the title deeds to sugar cane farms were given to communities. Trikam says this is another step on the sugar industry’s successful road to land reform and restitution together with government.
However, SA Canegrowers stressed the need to quickly settle sugar industry land claims, stating that gazetting claims that take a year to settle will lead to uncertainty and disinvestment in the industry.
Regulations & Sales
South African Sugar Millers Association (SAMA) CEO Deane Rossler explains that, while it faces competition from many sources, including from fructose, maltose and glucose, as well as non- nutritive sweeteners, sugar offers a taste and functional properties that are not easily replicated.
This stance is shared by others. In May, Frost & Sullivan Chemicals, Materials and Food senior industry analyst Carolyn Krynauw said proposed regulations by the Department of Health (DoH) had driven manufacturers back to sugar while the search was on for new, more natural sweeteners, creating uncertainty in the non-nutritive sweetener segment, which could affect profit in that industry.
She noted that, while the sugar-free trend had led to an increase in the use of non-nutritive sweeteners in South Africa, government was looking to limit the dependence of the food and beverage industry on such sweeteners.
The draft R429 regulations on the labelling and advertising of foods, which were published on May 29, 2014, and had yet to be promulgated, proposed a prohibition on producer claims with regard to non-nutritive-sweetener-containing product under regulation 53 (11).
However, Rossler advises that as non-nutritive sweeteners do not currently have a significant share of the entire sweetener market, including sugar, the association does not expect a material impact on sugar sales following the introduction of R429.
The SAMA is unsure when the Department of Health expects to implement the proposed regulations, but understands that there are a significant number of comments on the proposed regulations. As such, the association expects that it will take government some time to deal with the process of responding to these.
The South African Association for Food Science and Technology (SAAFost) is one such complainant.
In a document on R429, dated August 26, 2014, SAAFost states that it “strongly” rejects regulation 53 (11), unless the DoH can produce significant credible scientific evidence to justify its inclusion.
“We have been unable to find any evidence in this regard but can refer you to the comprehensive list of non-nutritive sweetener evaluations published by [the Joint Food and Agriculture Organisation/World Health Organisation Expert Committee on Food Additives], dated 11/3/2003, which reiterate the regulatory status of non- nutritive sweeteners as specified in the General Standard for Food Additives 192-1995.
“We can also, if required, provide the department with numerous peer-reviewed articles relating to the toxicological safety of numerous non-nutritive sweeteners.”
Meanwhile, Rossler says sugar is a natural sweetener that has a clean taste profile and important functional properties in many manufactured products that are not easily replicated, adding that, through Sasa, consumers have access to the most up-to-date scientific evidence about the role of sugar in nutrition through various publications and interventions.
However, he adds that sugar can also be used in combination with non-nutritive sweeteners in manufacturing. “These advantages of sugar have resulted in the industry not having to specifically address the non-nutritive sweetener matter,” Rossler points out.