What’s subsequent for South Africa’s sugar tax?

The South African authorities had been anticipated to hike up the Well being Promotion Levy on Sugary Drinks final month: however determined as an alternative to maintain it at its present charge for the subsequent two years. That’s welcome information to the nation’s sugar trade, which had campaigned tirelessly in opposition to the ‘job-killing’ enhance.

However neither does the federal government seem to have any intention of abandoning the tax: it is merely said there shall be a hiatus to any will increase, and says it’s contemplating increasing the levy’s attain to a wider vary of drinks.

So the sugar trade wants to seek out its path for the longer term: which might embody turning to different makes use of for sugar akin to sustainable aviation biofuel (SAF), animal feeds, alcohol and co-generation of electrical energy.

A million livelihoods at stake

With the best degree of weight problems in sub-Saharan Africa, the sugar tax was launched in 2018 to attempt to cut back sugar consumption. A 2021 examine printed in The Lancet steered that South Africa has certainly seen large reductions in purchases of sugary beverage volumes since plans for the levy were announced in 2016.

But South Africa is a large sugar producer: with the R18bn ($1bn) industry ranking consistently in the top 15 of around 120 sugar producing countries worldwide (the October 2022 cane crush came in at around 17,963,900 tons).

Furthermore, it’s the lifeblood of many rural communities, and a significant contributor to the national economy, according to the South African Sugar Association: one million livelihoods depend on South African cane sugar.

Sugar growing challenges

The levy sugar tax was introduced at a time where sugarcane growers and millers were recovering from a prolonged drought: and since then the industry has continued to be plagued by a number of challenges, ranging from cheaper sugar imports and lower global sugar prices.

The South African government had intended to make a 4.5% increase in the levy from April 2022: which was pushed back to 2023 and now will not take place for at least another two years.

In its budget released on February 22, the finance minister confirmed that the levy will remain unchanged ‘to enable the sugar industry to diversify or restructure’.

That’s welcomed by industry organization SA Canegrowers, which says that – with cane sugar growers already plagued by several serious challenges – the levy increase ‘would have decimated the industry’.

The decision to not increase the #sugartax is a welcomed reprieve for #canegrowers, worth chain companions & the #onemillionlivelihoods that the #sugarindustry helps. It’s a main step in making a secure setting for the trade. https://t.co/Hkb5cTVvr8pic.twitter.com/ysxxc5wG4c

— SA Canegrowers (@sa_canegrowers) March 10, 2023

The trade is already going through greater than R700m in misplaced income resulting from loadshedding, a milling disaster, and the impression of current floods alone, says SA Canegrowers. And it believes the HPL enhance would have been one other hit for sugar farms.

Modelling from The South African Sugar Affiliation confirmed the deliberate enhance within the Well being Promotion Levy would have ‘price the sugar trade greater than 6,000 jobs and jeopardised the companies of almost 3,000 small-scale growers.’

That provides to the ‘whole of greater than 16,000 jobs and R2 billion misplaced due to the levy within the first 12 months of its implementation alone’, based on the trade organisations.

The SA Sugar Affiliation says the HPL has been one of many components in a ‘good storm’ of challenges for the trade: alongside distorted world costs and cheaper imports.

In the meantime, the pandemic, civil unrest and the burning of sugarcane fields in June/July 2021, have added to the sugar cane trade’s woes.

“The HPL (sugar tax) has had a deleterious impression on the trade since its introduction in April 2018, resulting in multi-billion-rand income loss, hundreds of job losses and everlasting closure of two sugar mills in KwaZulu-Natal,” it says.

Can the sugar trade make a dwelling from biojet fuels and animal feed?

The choice to not enhance the levy, says SA Canegrowers, marks a important reprieve for the growers, worth chain companions, and the a million livelihoods they help.

“We’re hopeful that this two-year reprieve may also be used to foster additional engagement concerning the effectiveness of the Well being Promotion Levy and the potential for crafting various, much less damaging and holistic well being interventions,” stated Andrew Russell, Chairman of SA Canegrowers.

“On the identical time, growers will use alternative to revive the trade, and to place it for long-term profitability and sustainability.”

In April 2018, South Africa turned the primary nation in Africa to introduce a sugar tax as a part of its Well being Promotion Levy. In addition to searching for to cut back weight problems, its introduction was important as a possible mannequin for different African nations.

The sugar tax applies to drinks with over 4g sugar per 100ml, with every gram above this taxable at 2.21c per gram (a tax charge of 12.1%)

For the 2018/2019 fiscal 12 months, tax revenues collected from the levy reached R2.3bn, some R700m above finances estimates.

However the next 12 months noticed this decline to R2.6bn, suggesting a ‘important diploma’ of reformulation.

In most situations, a part of the prices associated to the HPL had been handed onto customers. In different circumstances, producers have used the chance of the introduction of a HPL to extend costs by greater than the efficient tax charge. Consequently, the burden of the HPL was handed onto customers within the type of increased costs.

Probably the most important will increase had been noticed within the value indices associated to ‘fizzy’ drinks in cans and bottles, which elevated by 4.2% and three.7% month-on-month in April 2018, respectively.

Supply: Financial Affect of the Well being Promotion Levy on the Sugar Market Business: Affect Evaluation Report, November 2020 – Nationwide Financial Growth and Labour Council (NEDLAC)

The industry needs to restructure and re-model around current market expectations. One way to help farmers is to encourage people and manufacturers to buy sugar from local, South African growers. But this will only go so far.

The SA Sugar Association has already produced a plan of how the sugar industry can look to the future: highlighting product diversification.

“We are grateful to government for acceding to our request for a moratorium on any increases to the HPL while we vigorously pursue opportunities identified during Phase 1 of the all-important Sugarcane Value Chain Master Plan to 2030,” said Trix Trikam, Executive Director.

“These diversification projects have the potential to change the trajectory and performance of the industry. The HPL remaining unchanged gives us time to achieve a just transition of the sugar sector into new activities and industries.”

So what could these other opportunities be? The industry has turned to the world’s largest sugar producers – India and Brazil – for inspiration. These markets have developed their industries on a ‘far more diverse set of foundations’, with sugarcane being used to produce a wider range of downstream products in addition to sugar including biofuels, animal feeds, alcohol and co-generation of electricity.

Producers are investing on further downstream production of a range of platform and specialty chemicals that are the key feedstocks for the production of bio-based products and materials for application in several sectors such as plastics, packaging, automotive, pharmaceuticals, textiles and industrial uses.

Some sugar millers in South Africa have already diversified into electricity generation for use within mills and some surplus sale to the grid, while others have accessed animal feed, alcohol and furfural markets.

And other opportunities could exist in areas such as biojet fuel, biogas, no and low calorie sweeteners. SA Canegrowers calculates, for example, its members could produce 433 million liters of sustainable aviation fuel (SAF) a year.

What is #SAF? SAF is sustainable aviation gasoline, a low-carbon gasoline various for the aviation trade, that may be manufactured from #sugarcane. To search out out what SAF might imply for South Africa’s #sugarindustry, click on right here: https://t.co/BGR2a7UYm8pic.twitter.com/tLxleGPfIn

— SA Canegrowers (@sa_canegrowers) March 22, 2023

The viability of many of those attainable value-streams, nonetheless, will rely on the economics of every market – which have to be fastidiously researched. And there’ll additionally have to be ‘important restructuring’ of the present worth chain and funding in further and upgraded applied sciences.

Levy might prolong to decrease sugar drinks

In the meantime, the sugar tax dialogue isn’t over. Whereas the federal government has pledged to not enhance the levy over the subsequent two years, it says it would quickly publish a dialogue paper for session on proposals to increase the levy to pure fruit juices and decrease the 4g threshold.

That can please South Africa’s Wholesome Residing Alliance (HEALA) – a key supporter of the levy – which had been pushing for the tax to be raised to twenty% per liter (up from the present 12.5%) and widened to incorporate fruit juices and drinks containing greater than 2g of sugar per 100ml.

Annual sugar manufacturing in South Africa has declined by almost 25%, from 2.75 million to 2.1 million tons each year, over the previous 20 years, based on the SA Sugar Affiliation’s Grasp Plan.

The variety of sugarcane farmers has declined by 60% throughout this era, and sugar trade associated jobs are estimated to have lowered by 45%.

It says that ‘lots of the points plaguing the sugar sector have little to do with the Well being Promotion Levy’.

As an alternative, it highlights issues akin to low cost sugar imports, local weather change, floods, loadshedding and the ‘sugar trade’s personal inefficiencies’ (akin to excessive labour outputs and outdated expertise).

“The HPL can’t be the principle cause for the sugar trade’s drawback,” says Nzama Mbalati, Programme Director at Wholesome Residing Alliance (HEALA). “It can be crucial for trade to start addressing its personal inefficiencies that have an effect on jobs and cease scapegoating the HPL.”

Like in different markets with sugar taxes, the South African beverage trade has realized to take care of the sugar levy by reformulation. Whereas the sugar trade’s challenges could also be rather more acute, it too must discover a technique to adapt to the longer term.