Report Highlights: 

Post forecasts that the 2014/15 MY sugar cane production will decrease by nine percent to 18.2 MMT, from the 2013/14 MY sugar cane production of 20.0 MMT, as a result of very dry weather conditions experienced in 2014. The impact of increasing the domestic dollar-based reference price from US$358/ton to US$566/ton has been significant, and post forecasts that imports will decline by about 49 percent to 305,000 MTRV in the 2014/15 MY.

Executive Summary 

For the 2014/15 MY, post forecasts that the South African sugar cane production will decrease by nine percent to 18.2 MMT, from the 2013/14 MY sugar cane production of 20.0 MMT, as a result of very dry weather conditions experienced in 2014 in the Kwa-Zulu Natal (KZN) province. The decrease in sugar cane production will result, in a nine percent decrease of sugar production to 2.1 MMT (2.2 MTRV) in the 2014/15 MY, from 2.4 MMT (2.5 MTRV) in the 2013/14 MY. 

Post forecasts that South Africa will have enough stocks to export about 800,000 MTRV of sugar in the 2014/15 MY, an eight percent decrease from the 2013/14 MY exports of 868,000 MTRV, based on the decrease in sugar production. 

Post forecasts that sugar imports for the 2014/15 MY to decrease by 49 percent to 305,000 MTRV, due to the increase in the domestic dollar-based reference price which resulted in import tariffs being applicable to non-SACU sugar imports. The impact of increasing the domestic dollar-based reference price has been significant, as imports from non-SACU countries have decreased by about 98 percent in 2014. 

Exchange Rate 

US$1=R11.25 (10/01/2014)

MMT – Million metric tons 

MMTRV – Million metric tons raw value 

MY – Marketing Year

Sugar cane

Production

Post forecasts that the South African 2014/15 MY sugar cane crop will decrease by nine percent to 18.2 MMT from the 2013/14 MY sugar cane production of 20.0 MMT. The nine percent decrease in sugar cane production is due to very dry weather conditions in 2014, in the sugar cane production areas of Kwa-Zulu Natal (KZN) province. According to industry sources, in the period from January to August 2014, the sugar cane production areas of KZN areas have received approximately 35 percent less rainfall when compared to the same period in 2013. The 2014/15 MY production figure forecasted by post, is four percent lower than industry published forecasts because industry published figures lag by one month, and post believes that the industry estimate was conservative at the time and had not anticipated that the dry conditions would continue beyond October. 

Alternative uses for sugar cane 

The South African sugar industry currently uses bagasse to generate electricity which is largely fed back to the sugar mills. Other mills produce downstream products such as furfuryl alcohol, furfural and industrial alcohol. There is currently no commercial production of biodiesel and fuel grade ethanol from sugar cane in South Africa. On August, 23, 2012, the South African government published regulations regarding the mandatory blending, and on September 30, 2013, the Minister of Energy announced that the date for the mandatory blending of biofuels with petrol and diesel will be October, 1, 2015. Post contacts have indicated that while there is a strong interest in biofuels, actual production is anticipated to only commence once government finalizes and passes the government position paper on biofuels. The position paper was published for public comments on January, 15, 2014, and the deadline for public comments was February, 10, 2014. There is uncertainty as to when government will finalize this regulation, and some post contacts have indicated that this could occur after the approval of the budget in February 2015. 

Cane prices 

In South Africa, the sugar cane price paid to cane growers is determined by the South African Sugar Association (SASA) using a formula called the Division of Proceeds, in accordance to the Sugar Act of 1978 and the Sugar Industry Agreement of 2000. The Division of Proceeds formula aims to ensure that the revenue that accrues to the sugar industry is allocated to millers and growers fairly under a partnership arrangement. The industry notional revenue earned from the domestic sugar and molasses sales, as well as actual export revenue are accounted for by SASA. After the deduction of administration costs, the net proceeds are shared between growers and millers at a predetermined percentage of net proceeds. Cane growers are thus paid for their sugar cane according to the quality of the cane delivered to the mill through this revenue sharing arrangement. Cane quality is measured by the Recoverable Value (RV) formula, which estimates the amount of sugar and molasses that can be produced from a delivery of cane. A provisional Recoverable Value (RV) price is declared monthly to ensure provisional payments to growers during the season. 

In September, 2014, the industry forecasted that the 2014/15 RV price for sugar cane will increase by four percent to R3,274.31/RV ton (US$291.05/RV ton) from the 2013/14 RV Price of R3,137.87/RV ton (US$278.92/RV ton), based on the weakening R/US$ exchange rate and the impact of the drought conditions.

Sugar 

Production 

Post forecasts that the 2014/15 MY sugar production will decrease by nine percent to 2.1 MMT (2.2 MMTRV), from the 2013/14 MY sugar production of 2.4MMT, as a result of a nine percent decrease in the sugar cane crop, due to dry weather conditions experienced in 2014. Some industry stakeholders have recently been quoted by the media indicating that some mills would be closing a month earlier due to the drought conditions. 

There are six sugar milling companies in South Africa, namely, Tongaat Hullet Sugar, Illovo Sugar, Tsb, Umfolozi Sugar Company, Gledhow Sugar Company and UCL Sugar Company. These six milling companies own a combined total of 14 sugar mills in the Kwa-Zulu Natal Province (12 Mills) and Mpumalanga Province (2 Mills). 

Consumption 

The South African Customs Union (SACU) is the primary market for the South African sugar industry. The SACU market comprises South Africa, Botswana, Lesotho, Namibia and Swaziland. Access to the market is regulated by the Southern African Development Community Sugar Cooperation Agreement. South Africa and Swaziland are the only sugar producing countries in SACU. The SACU sugar demand for the 2014/15 MY is estimated to grow by five percent to approximately 2.3 MMT (2.4 MTRV) or 37 kg per capita sugar consumption. Economic growth and the rise of the middle class is the main overall driver for the increase in the demand for sugar and sugar products in SACU. However, South Africa’s domestic consumption is forecasted to only increase by an average of two percent due to lower than average economic growth as a result of labor unrest, upwards inflationary pressures, dimming consumer demand, and electricity constraints. 

Post forecasts that South Africa`s 2014/15 sugar supply to SACU will increase by 25 percent to approximately 1.8 MMT (1.9 MTRV), based on the increase in import tariffs which have significantly slowed down non-SACU imports. Swaziland`s supply to SACU will also increase by eleven percent to 340,286 MT (364,106 MTRV) in the 2014/15 MY. Imports into SACU are forecasted at only about 200,000 MTRV in 2014/15 MY due to the impact of the tariff increase. 

In the 2013/14 MY, the South African sugar industry supplied 1.4 MMT (1.5 MTRV) to the SACU market and Swaziland supplied about 307,918 MT (329,472MTRV). The rest of the sugar demand was met by record high imports of approximately 480,000 MT (475,082 MTRV), mainly from Brazil. In the 2012/13 MY, the South African sugar industry supplied 1.6 MMT (1.7 MTRV) to the SACU market and Swaziland supplied about 302,043 MT (323,186 MTRV). The rest of the sugar demand was met by approximately 220,000 MTRV imports.

Trade policies 

Increase in the domestic Dollar Based Reference Price 

The domestic Dollar Based Reference Price (DBRP) mechanism is designed to ensure that, inclusive of the duty, the DBRP (currently US$566 per ton), is the lowest price that an importer will pay for imported sugar. In the event that the import prices are lower than the DBRP, an import duty is applicable, while an import price higher than the DBRP would result in no import duties payable. 

On April, 4, 2014, the South African Revenue Service implemented the International Trade Commission of South Africa’s (ITAC) recommendation that the DBRP for sugar be increased from US$358/ton to US$566/ton. The ITAC recommendation was in response to an application lodged by SASA for the DBRP to increase from US$358/ton to US$764/ton, to protect the domestic sugar industry from duty free imports. The main justification provided by SASA for the increase was the important role of the sugar industry in socio-economic development in the rural areas, and that in order for the sugar industry to continue its contribution to governments’ development objectives it required financial and economic stability through fair protection from the distorted sugar world market. Some industry sectors have raised concern on the impact such a decision would have on the domestic and SACU sugar prices as the increase in import duties would be passed on to consumers. 

Customs Import duties 

On September, 26, 2014, the South African Revenue Service published the customs duties. There is a rebate on the rate of duty for sugar imported from SADC countries, thus all SACU imports are duty free.

Free Trade Agreement 

The Department of Trade and Industry has issued media statements on the potential 150,000 tons sugar quota that South Africa could be granted under the SADC/EU Economic Partnership Agreement. The SADC/EU Economic Partnership Agreement was initialed by the participating negotiators on July, 15, 2014, and will become effective after it is signed by all participating member countries. Post contacts indicated that South Africa expects to start utilizing the EU quota in the 2015/16 MY once the EPA becomes effective and provided that the EU sugar prices improve. 

United States sugar Tariff Rate Quota (TRQ) allocation 

South Africa was allocated a TRQ of 24,220 MTRV to the United States for the 2015 FY. South Africa confirmed that it would fully utilize this quota and has additional capacity to supply 20,000 MTRV should it be allocated an additional TRQ. 

Exports 

South Africa only exports surplus sugar after supplying the domestic market. Post forecasts that South Africa will have enough stocks to export about 800,000 MTRV of sugar in the 2014/15 MY, an eight percent decrease from the 2013/14 MY sugar exports of 868,000 MTRV, based on the decrease in sugar production. In the 2014/15 MY, South Africa had high beginning stocks of about 460,000 MTRV due to slow domestic sugar sales as a result of record high imports in the 2013/14 MY. In the 2012/13 MY, South Africa exported 355,730 MTRV of sugar. Indonesia, Japan, Australia, New Zealand and countries in sub-Saharan Africa were the main markets. 

Imports 

Post forecasts that South Africa sugar imports will decline by about 49 percent to 305,000 MTRV in the 2014/15 MY, from the 2013/14 MY record high imports of 598,771 MTRV, due to the increase in the domestic dollar-based reference price which resulted in import tariffs being applicable to non-SACU sugar imports. The impact of increasing the DBRP has been significant, as imports from non-SACU countries have decreased by about 98 percent in 2014. About, 80 percent of the 2014/15 MY sugar imports in South Africa will be from Swaziland as they are duty free