THE South African sugar industry has been in decline for years. Local demand dropped dramatically after the imposition of the ‘sugar tax’ in April 2018.
Officially called the Health Promotions Levy, this tax created a strong incentive for drinks producers to change their formulations to include less sugar, use alternative sweeteners, or focus on non-sweetened drinks. It is estimated that this cost the sugar industry at least R1.2-billion in lost sales in its first year of implementation.
Adding to the reduced demand are supply dynamics affecting prices. Countries like India where there are export incentives and subsidy programmes, can distort prices. The result is that global prices are below the cost of production in South Africa, where input costs are rising.
In November 2019, the industry – in consultation with a broad base of stakeholders – drew up a Master Plan to 2030, to provide a coordinated way forward for the industry as a whole.
“Prior to the master plan, there was an existential crisis precipitated by serious challenges,” according to executive director of the South African Sugar Association, Trix Trikam.
Recognition of the industry’s importance
Sugarcane provides a unique economic agricultural opportunity ideally suited to job creation in rural areas. The crop is suitable for small-scale growers in the particular topography of communal lands and the values per ton compared to other field crops are significantly higher.
A single planting generates a crop for 7-10 years. The crop in the ground lacks sufficient value compared to high-value tree crops, obviating the need for growers to invest in expensive security measures on their land.
The employment multipliers for sugarcane are higher than any other alternative crop – generating 133 permanent and 210 seasonal jobs for every 1,000 hectares under cane, notes the Master Plan.
Diversification of the sugarcane downstream value chain
With the demand for sugar in decline and a strong desire to maintain high levels of employment in the industry – particularly among small-scale farmers, the Sugarcane Master Plan proposes sugarcane-based value chain diversification as one of its key strategies.
The Master Plan identified the following potential downstream diversification products:
- Bioethanol for fuel blending (subject to a viable economic model).
- Bio jet fuel
- Potable, industrial and pharmaceutical-grade bioethanol
- Biomass / co-generated electricity
- No- and low-calorie sweeteners
- Various platform and speciality chemicals and bio-based polymers for application in different sectors i.e. plastics, packaging, automotive, industrial and textiles.
A task team was set up to investigate and provide detailed recommendations regarding attractive and feasible opportunities in local and international markets.
Trikam says that diversification opportunities being investigated include sustainable aviation fuel, bio-ethanol for fuel blending, food additives and bioplastics. “Most projects are still at scoping, market analysis or pre-feasibility stages, with the Department of Science and Innovation and the Industrial Development Corporation providing some financial support for some of the scoping work,” he said.
Trikam explains that sugarcane is included as an approved feedstock under the National Biofuels Feedstock Protocol which is part of the Biofuels Regulatory Framework. “In simple terms, sugarcane can be utilised for bioethanol production.”
Industry stakeholders are working together, he said but added that “government has to ensure there is a conducive policy and legislative framework to enable the realisation of the objective of implementation. Also importantly, is for government to see to it that there are sufficient subsidies in place to get the project(s) off the ground and incentives to reward capital investment.”
The South African Biofuels Regulatory Framework (2019), recognises that first generation (crop-based) biofuels can ameliorate the declining agricultural sector. “However, first generation biofuel production can be a risk to food security if commercial farmers switch from food to biofuel feedstock production.” In agreement with Trikam’s earlier comment, the National Biofuels Feedstock Protocol which forms an annexure to the regulatory framework appears to encourage the use of sugarcane as a feedstock.
“The South African sugar industry had been producing large volumes of surplus sugar which is said to have been exported to world markets at a loss…Developing the biofuel industry will, amongst others, solve this long-standing problem…This will reduce the industry’s losses and create more jobs+ within South Africa.”
An inter-departmental pilot study run by the Biofuels Task Team from 2007 to 2013 concluded that The cost of producing first generation biofuels is still higher than the cost of conventional mineral transport fuels. “Therefore, there is no financial incentive for transport fuel manufacturers to buy and blend biofuels into conventional mineral fuels. Globally, the use of biofuels as a transport fuel is enabled by national mandatory blending policies to reduce the negative environmental impact of transport fuel use,” the Biofuels Framework says.
The sugar industry is highly regulated. According to the Sugar Industry Agreement, all proceeds from sugar and molasses sales are pooled and then distributed among growers and millers according to a ratio. This is achieved through a system of levies and proceeds redistribution, administered by SASA.
The Master Plan to 2030 notes that revenues from diversified downstream products – which represent a small share of total miller revenues – fall outside of the Sugar Act and the Sugar Industry Agreement, and thus do not form part of the Division of Proceeds mechanism.