Posted in 2019
On the Brink of the Abyss
The sugar industry in South Africa is on the brink of the abyss threatening the livelihoods of 1 000 000 South Africans dependent on the industry.
The industry has been brought to its knees; not because the import tariff protection in US$ terms is insufficient; not because sugar production itself is poor; not because deep sea imports are out of hand but rather because the tonnage of sugar imports from eSwatini into the SA market has gotten completely out of hand, literally swamping the market. In other words the import tariff afforded the SA sugar industry to protect it from the dumped world market is being significantly eroded from within the tariff wall itself.
The eSwatini Sugar Association (ESA) is a creature of statute in terms of eSwatini law – much the same as the South African Sugar Association (SASA) is incorporated by statute in South Africa.
Likewise, the regulatory framework for the sugar industry in eSwatini is not dissimilar to that prevailing in South Africa in that there is an overarching Sugar Act with subordinate legislation in terms of a Sugar Industry Agreement. However, the distinguishing feature of the two regulatory frameworks is that in South Africa, SASA does not sell sugar onto the domestic market (this is left to the millers and refiners who compete for market share) whereas in eSwatini the ESA ‘compulsorily acquires’ all sugar produced (raw, brown and refined) by the three sugar mills there. It is significant to note therefore that the sugar industry in eSwatini on this score is significantly more regulated than its counterpart in South Africa.
It is also important to note that the sugar industry in eSwatini (milling, refining and importantly growing) is controlled by three corporates; RCL, Illovo and Tibiyo Taka Ngwane – the former two also millers in SA and the latter a state-owned corporate in eSwatini.
As the single desk seller (by statute) of all sugar produced in eSwatini, the ESA is also a major competitor in the Southern African Customs Union (SACU) sugar market.
In terms of SA’s regulatory framework, although there is no physical cap on the tonnage of sugar production each miller sells in the SACU market, financial restitution is paid to other SA millers should that tonnage exceed the ‘overselling’ miller’s percentage share of total SA production for that season.
In other words in SA, the inter-miller redistribution of proceeds reinstates the notion of an equitable share of the proceeds earned in the SACU market and facilitates the calculation of a common minimum price payable by all millers for sugar cane (on a fixed division of proceeds basis between millers and growers).
The sugar producing countries in SACU (being South Africa and eSwatini) are protected by the same common external tariff barrier; that barrier also applying to Namibia, Botswana and Lesotho as the non-sugar producing SACU countries.
It is worth noting that the consumption of sugar in eSwatini is estimated at 30 000 to 40 000 tons annually and therefore is not an effective retaliatory option for SA millers or even for SASA itself.
It is self evident from the foregoing that the ESA and its industry are thus the beneficiaries of the regulatory framework in SA; without any cap on the extent to which they are able to benefit (unlike in the SA regulatory framework).
So what we have in SACU are two sugar industries, each with its own legislative framework, competing in the same market; one with limits to effective access and the other with no limits. This has the effect of forcing the SA industry to export more and more of its production onto the dumped world market. In this situation, competitiveness and cost of production has nothing to do with the market place dynamics, as one would normally expect.
There is effectively no end to eSwatini sugar production expansion unless the issue is addressed.
One Remedy
I believe a case should be made by SASA to the SA competition authorities and/or their counterparts in eSwatini that structurally there is an untenable disparity in the respective legislative frameworks leading to an unfair competitive market in SACU and that ESA is abusing its dominance to exploit that unfair advantage.
It is unlikely though that the Council of SASA will take this course of action in the sense that many of the Councillors are conflicted in that a number of the SA companies are investors in eSwatini and are beneficiaries of the status quo.
Growers to Act
I believe though that the two Cane Grower Associations in SA have locus standi to lodge the complaint themselves in that sugarcane growers in SA have a legislated share in the proceeds of the SACU market when determining the minimum price of sugarcane payable by all millers.
My strong advice to cane growers in South Africa is that should SASA decline to lodge an anti-competitive complaint, then your Associations should do so.
It is time for action in the interests of the 1 000 000 livelihoods who are increasingly threatened by the lack of any push back by the leaders of the SA sugar industry.
Justice Hunt