HPL threatens industry recovery

The Health Promotion Levy (HPL), commonly known as the sugar tax, still poses the greatest threat to the continued existence of the sugar industry, says South African Sugar Association (SASA) executive director Trix Trikam.

The HPL has resulted in the beverages sector reformulating its products away from sugar to avoid the levy, leading to substantial revenue loss for the sugar industry.

Since the implementation of the HPL in April 2018, the sugar industry has lost revenue of about R1.2-billion a season.

The industry also had to shed almost 10 000 jobs – according to an independent study commissioned by the National Economic Development and Labour Council – owing to the HPL’s exacerbating the already dire financial state of the sector.

The industry also faced several other serious challenges over the years such as droughts, sugar imports and insufficient tariff paid by sugar importers.

Therefore, the proposed increase and extension of the HPL will aggravate the negative impact and threaten the progress that the industry Master Plan achieved in the past three seasons.

An increase in the HPL from 2.21c/g to 2.32c/g was expected to come into effect on April 4, but Finance Minister Enoch Godongwana announced a 12-month delay in the levy’s implementation that same month.

Trikam says the sugar industry operates in deep rural areas, creating 65 000 direct and 270 000 indirect jobs, with at least one-million livelihoods depending on the industry. Therefore, an increase would likely also result in massive job losses.

“We have ten sugar mills in KwaZulu-Natal, and two mills in Mpumalanga. Two mills were recently closed owing to challenges, especially the HPL, facing the industry.”

He explains that any adverse impact is bound to have a domino effect, which will reverberate throughout the value chain and communities where operations are based.

Therefore, SASA implores government to grant the industry a three- to five-year moratorium on the HPL while the industry pursues, through the Master Plan, diversification efforts aimed at ensuring a sustainable and viable industry.

One of the main priorities of the plan is the optimisation of the local market, but sugar imports work against that – imports create ramifications for local sugar producers, “leaving the industry with no choice but to export more sugar at a loss”.

Trikam adds that the loss experienced when producers export sugar is a result of the world market being distorted in terms of sugar prices.

Diversification in the industry would allow for exporting less sugar and ensuring its sustainability; therefore, as part of the Master Plan process, the industry is investigating various product diversification opportunities to determine viability before implementation.

Such opportunities include sustainable aviation fuel, bioplastics and food additives. Investigations are still at the scoping and prefeasibility stages for ten shortlisted diversification options, but there is potential to expand the basket of products under consideration in the future.

Trikam notes that, for diversification to become a reality, an enabling policy and legislative environment is required. Therefore, engagement between the industry and government is ongoing.

“The Master Plan has had, to an extent, a stabilising effect on the industry. We hope this momentum can be maintained going forward. The onus is on all stakeholders to see to it that the Master Plan is successfully implemented and targets are met,” he concludes.