Increased sugarcane production for the 2020/21 season marred by mill closures

Published 2020년 12월 21일

Due to favourable weather conditions in South Africa this year, the sugarcane crop yields for this season are expected to exceed those of the previous year, reaching an average of 73 tons per hectare. In addition, producers have placed specific attention on improving cane quality and optimising their efficiency. According to GEOGLAM, South Africa is expected to experience a La Niña this season, a weather pattern renowned for bringing heavy rainfall conditions to Southern Africa, which is conducive to sugar production. However, the closure of sugar mills in the country and increased sugar imports are set to lead to a reduction to domestic sugar production. TRIDGE has collaborated with Moa Consulting Resources to shed light on the current state of the sugar industry.

Impact of mill closures on sugar production

The 2020/21 sugar season which began on the 1st of April has been hit by the closure of two large-scale sugar mills, Darnall Sugar Mill and Umzimkulu Sugar Mill. The closures were backed by an independent study commissioned by Illovo Sugar South Africa (ISSA), the largest sugar producer in South Africa, that cited a number of strategies that the organisation could undertake to achieve long-term commercial viability, one of which was to suspend operations at Umzimkulu Sugar Mill. Darnall Sugar Mill also shut its doors earlier this year, with Tongaat Hulett Limited citing cost cutting and improving company efficiency as reasons for the closure.

Darnall Sugar Mill

The closure of the 2 mills, however, is set to put severe strain on the 12 remaining national mills that will now have to shoulder excess capacity, thereby increasing the likelihood that an adequate amount of sugarcane may not be processed this season. Therefore, despite increased sugarcane crop yields, it is expected that close to 1 million tons of sugarcane will be left uncrushed this season. This quantity could then be carried forward to be crushed in the following season, which would negatively impact the income of the affected growers.

12 Remaining National Sugar Mills

Source: South African Sugar Association (SASA)

Impact of sugar imports on the local market

South Africa continues to import large quantities of sugar, with an estimated 563,005 tons of sugar entering the South African market. The current trade agreements in place have allowed for cheap sugar imports from Brazil, the United Arab Emirates and Southern African Customs Union (SACU) countries to increase, and in turn, affect the competitiveness of locally produced sugar. This has led to a reduction of local sugar sales in recent years. According to SA Canegrowers, an estimated ZAR 4 000 is lost by the South African industry for every ton of sugar imported, leading to a loss of ZAR 2 billion during the 2019/20 season. South Africa is expected to export more sugar during the 2020/21 season from regions such as Swaziland, where South Africa can benefit from free-trade agreements within the SACU. As a result of the local market being flooded with imported sugar, local producers may be driven to export their sugar to an already saturated global market at a financial loss.

Sugarcane Value Chain Master Plan 2030

The Sugarcane Value Chain Master Plan 2030 has been formulated and signed by the South African government and other major industry stakeholders, as a way to resuscitate the sugar industry which has suffered from increased sugar imports, insufficient tariffs, sugar tax and other factors. The plan is set to be implemented in phases, with an emphasis on local sales, supporting small businesses, women-owned enterprises and township businesses. According to Daniel Moalosi from Moa Consulting Resources, many sugar suppliers are looking at this Master Plan with much optimism.

The initial phase is set to focus on re-establishing the local sugar industry over the next three years. Within the first 2 years 150,000 tons of sugar demand is set to be restored to the local market, a number that will increase to 300,000 tons in the third year. Retailers and wholesalers have also committed to the plan and to ensuring that, within the first 2 years, 80% of the sugar they stock is locally produced, a figure that is set to rise to 95% during the 3rd year. This “buy local” campaign has also been supported by government departments and state-owned enterprises.

The Master Plan has also been placed to deal with the sugar tax which was placed in 2018, fixed at 2.1 cents per gram of sugar content that exceeds 4g per 100 ml. This tax was placed as a health measure, meaning that beverages with added sugar will increase in price due to the tax.Lower-sugar or sugar-free products, however, were not affected, thereby promoting the purchase of low sugar beverages. The sugar tax has been controversial amongst producers and many stakeholders as it has cost the sugar industry ZAR 1.5 billion and caused over 9,000 jobs to be lost.