Consumers will be facing higher sugar prices amid rocketing food prices.
The SA Sugar Association (Sasa) has issued a notice to increase the notional price of refined and brown sugar for the purposes of determining the price of sugarcane.
The price increase is set to come into effect from August 31.
“This price adjustment is necessitated by the increase in our principal cost driver being the cost of sugarcane and increased overheads, transport, distribution, energy, and other variable costs, “ it said in a notice sent to industry players last month.
“Quality Sugars will increase sugar prices effective from August 31 by an average of 4.5 percent, however, this price increase might vary by product and/or pack size.
Sasa sets a national notion price, based on variables ranging from the rand/dollar exchange rate, and gross sugar production to the world sugar price. It is a similar set of rules to the local regulated petrol price.
And although the big mills and some of the independent producers are allowed to set their own sales margins, considering their respective overhead costs, they are not allowed to exceed this standardised Sasa price.
Meanwhile, two years into the Sugarmaster Plan’s three-year agreement major sugar players Tongaat Hulett, Illovo and RCL announced their production prices would go up by between 4.5 and 5.5 percent at the end of August in a notification sent to customers last month.
“That will push up retail prices by over 7 percent,” said Chris Engelbrecht, chairperson of the Sugar Importers’ Association of South Africa.
In the past industry players increased their prices by between 6 to 18 percent,” said Engelbrecht.
The Sugar Masterplan stipulates that producers cannot hike prices more than inflation on an annual basis. This is what was agreed on by all private sector signatories of the plan. It also served as a commitment from large users of sugar to procure at least 80 percent of their sugar needs from local growers, according to the master plan, and that the government would not adjust the health promotion levy (sugar tax) during the same period.
But earlier this year, National Treasury confirmed that the health promotion levy for beverages with more than 4g of sugar content per 100ml would be increased from 2.21c/g to 2.31c/g from April 1.
“Not only have Cabinet ministers delayed adjusting duties that should have been triggered by lower global prices, Treasury also broke the agreement on keeping the health promotion levy as is,” said Engelbrecht. “This enabled Sasa to increase the nominal price by more than the agreed inflation limit.”
So basically, the government is considered in breach of contract of this specific clause within the Sugar Masterplan, and local industry took full advantage of that.
This means that Friday’s announcement by the South African Revenue Service (Sars) that sugar tariffs will be reduced from 299.46c/kg to 195.28c/kg in terms of the existing variable tariff formula, will prove little relief for local consumers.
What is interesting about the recent amendment is that it is the first time in two years that the duty clause was applied by the Department of Trade, Industry and Competition (dtic) and approved by the minister of finance, despite local industry policy compelling them to do so.
The duty reduction is unpacked in greater detail on the International Trade Administration Commission of South Africa (Itax’s) website, but in layman’s terms, this means that the international reference price came down which automatically triggers a duty clause, and local import duties are pushed downwards.
The opposite occurs when the international price of sugar goes over a certain level for a specific period. So in essence, prices are supposed to be R1 cheaper per kilogram at R2/kg on production-level.
But Engelbrecht says the price is not so much the problem as the lack of supply.
“In April/May 2022 South Africa recorded a huge shortage in sugar supply,” he said. “We at Super Syrups (where Engelbrecht is also the managing director) were short supplied by about 500 tons of sugar as per our allocation with Tongaat Hulett, for example.
“Illovo could not supply any sugar to us at all, while RCL Foods could supply only half of its allocation in May, but as a sole provider, it did so at a premium of R700 per ton on top of our normal price,” he said.
The shortage of supply can almost be compared to the current Eskom problem. The lack of infrastructure and maintenance of sugar mills and refineries in the country are just not able to sufficiently supply and match the demand of consumers.
In its results presentation for the financial year ending March 31, Tongaat reported that it expects a 9 percent reduction in overall sugar production year-on-year, due to the high proportion of fixed costs applicable to sugar production. “Profitability has also been impacted by higher costs for commodities, maintenance and labour,” it said.
Illovo closed two of its mills in the past financial period, and the sugar tax is being blamed for its woes.
Trix Trikam, an executive director at Sasa, said the closure of the two mills could be directly linked to the deleterious nature of the sugar tax, adding that any sugar tax increase had the potential to decimate the industry.
“The industry has lost nearly R4 billion in sales to the beverages sector since the levy was introduced in April, 2018 and in addition, there have been about 9 600 job losses, according to a socio-economic impact study commissioned by Nedlac,” Trikam said.
Meanwhile, Remgro subsidiary RCL foods seems to be the only operation coming close to normal production. They produce the most popular retail brand – Selati brand, and their higher margins, according to Engelbrecht, will hit retail consumers’ sweet tooth the hardest.
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