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- The SA sugar association says the sugar industry will face catastrophic consequences if there are changes to sugar tax threshold.
- It claims the move could put up to 6 000 jobs and the livelihoods of 3 000 small-scale farmers at risk.
- The lobby group is pleading for a moratorium on tax increases and changes to its threshold.
- For more financial news, go to the News24 Business front page.
The sugar industry’s largest representative body has warned of catastrophic consequences if the government cuts the threshold for levying the controversial sugar tax or hikes its rate above inflation, saying this would put up to 6 000 jobs and the livelihoods of 3 000 small-scale farmers at risk.
South African Sugar Association (SASA) CEO Trix Trikam told journalists at a presentation in Durban on Monday that his organisation’s position was a "plea" to the government to place a moratorium on any changes to the thresholds of the Health Promotion Levy, or the sugar tax. The lobby group is looking for a break of at least three to five years to give the industry enough time to diversify production out of sugar and into other products such as sustainable aviation fuel and bioplastics.
"Give us the time to get to the end of our research and feasibility studies and hopefully we will come up with some products that will move from crystal sugar to something else," said Trikam.
Major job losses already
SASA says the Health Promotion Levy or sugar tax, as it is commonly known, has already cost the industry more than 9 000 direct jobs since it was introduced in 2018.
News24 reported previously that a possible 4.5% inflationary increase of the sugar tax could be looming this April, with the government having also indicated to the industry it could extend the levy to cover more products and lower the threshold at which sugar is taxed.
At the moment, the threshold is 4g of sugar, which means the first four grams of sugar per 100ml does not attract any tax. Thereafter, tax applies at a rate of 2.21c per gram.
Finance Minister Enoch Godongwana first mentioned the possible increase in the sugar tax in his budget speech in February 2022, but after submissions from the sugar industry and other value chain players, the government had agreed to delay it for a year until April 2023 so it could consult with the industry.
According to research conducted by Bureau for Food and Agricultural Policy (BFAP) on behalf of SASA, if there was a change made to the threshold at which the tax was applied – to 2g or below, for example – it could result in beverage companies, which are the biggest users of sugar in SA, reformulating their drinks to avoid sugar.
This would result in sugar producers having to move the production that would have gone to beverage producers to export markets, which were unprofitable because all sugar producing countries had tariffs in place to protect their industries. As a consequence, all sugar for export was sold at lower prices than it cost produce the product.
Sandy Jackson, who is head of agrisocio-economics at BFAP, said at the SASA presentation that if more sugar is exported at lower prices, the "viability becomes increasingly under threat." She estimated the industry stood to lose almost 54 000 hectares of cane production over the next 10 years, with "the bulk of the hectares going out of cane production between 2023 and 2025".
She said that with this reduction in cane production, it would put a total of 6 000 jobs, half of them permanent, at risk while up to 3 000 small-scale farmers could potentially lose their livelihoods and be forced out of the industry.
As it stands, Trikam says there are about 65 000 people directly employed by the sugar industry, which earns about R18 billion in annual revenues. An estimated 270 000 people are indirectly employed.
READ | SA sugar growers want to produce jet fuel, ask for tax hike freeze
Demand concerns
Even an inflationary increase in the sugar tax could have implications for the sugar industry.
Jackson said that beverage producers had indicated that if there was inflationary increase it would not trigger a huge reformulation of ingredients they use in the short term, but that they would pass this onto consumers.
But Trikam said the consequences of this were also unknown, adding this could also lead to a significant drop off in demand from consumers due to higher prices.
This was why, he said, the industry was wanting a moratorium on any changes – both in terms of rate increases and threshold changes.
"If there is an inflationary related increase the chances are that the beverage companies would not reformulate any further but then the consumer might not be able to afford the higher price. If you extend that there would be less demand and therefore the sale of refined sugar to beverages would drop. So our plea is to just leave it as because no one knows what impact is."
Trikam said importantly the government was also still working on its National Dietary Intake Survey which is aimed at establishing what South Africans are eating and what is potentially contributing to obesity problems in SA.
He said this study still needed to be completed to establish if there were other variables at play in obesity in SA.
"At this stage, everyone is working in the dark and choosing sugar as the intervention. It could be something else, or a whole host of products."
The results of this survey are expected at the end of February, said Trikam.
