Report Highlights: 

For the 2014/15 MY, South Africa’s sugar production is estimated at 2.4 MMT (2.5 MMTRV), three percent more than in the 2013/14 MY, on the back of a higher expected sugar cane crop. Post forecasts that South Africa will have enough stocks to exports about one million MTRV of sugar in the 2014/15 MY. In the 2013/14 MY, South Africa’s sugar exports could increase by more than 100 percent to reach 760,000 MTRV. Sugar imports are expected to decline to about 250,000 MTRV in the 2014/15 MY, due to an increase in the sugar import tariff that is imminent.

Executive Summary 

For the 2014/15 MY, post forecasts a five percent increase in sugar cane production to 21.0 MMT. Most of the sugar producing areas received good rains during the early parts of 2014, which will contribute to an increase in sugar cane production. The 2013/14 MY sugar cane crop is estimated at 20.0 million tons, 16 percent higher than the 17.3 MMT produced in the 2012/13 MY. 

For the 2014/15 MY, sugar production is estimated at 2.4 MMT (2.5 MMTRV), three percent more than the 2.3 MMT (2.4 MMTRV) produced in the 2013/14 MY, on a higher sugar cane crop. In the 2012/13 MY, South Africa produced only 2.0 MMT (2.0 MMTRV), due to a drought-affected production season. 

Post forecasts that South Africa will have enough stocks to exports about one million MTRV of sugar in the 2014/15 MY. In the 2013/14 MY, South Africa’s sugar exports could increase by more than 100 percent to reach 760,000 MTRV, on increased sugar production. In the 2012/13 MY, South Africa exported 355,730 MTRV of sugar. 

Sugar import for the 2013/14MY, could increase by more than 100 percent to almost 500,000 MTRV, as local sugar prices are currently higher than world sugar prices and the current import tariff is zero. South Africa imported 218,558 MTRV of sugar in the 2012/13 MY. Most sugar imports are from Brazil. Sugar imports are expected to decline to about 250,000 MTRV in the 2014/15 MY, due to the increase in the sugar import tariff that is imminent. 

Sugar cane 

Production 

For the 2014/15 MY, post forecasts a five percent increase in sugar cane production to 21.0 MMT. Since the 2011/12 MY, sugar cane production in South Africa is on an upward trend, after the drought years of 2010 and 2011,  and post predicts that this trend will continue in the 2014/15 MY. In addition, most of the sugar producing areas received good rains during the early parts of 2014, which will contribute to an increase in sugar cane production. 

The 2013/14 MY sugar cane crop is estimated at 20.0 million tons, 16 percent higher than the 17.3 MMT produced in the 2012/13 MY. Better climatic growing conditions were the main reason for the increase in production.

For the 2014/15 MY, sugar production is estimated at 2.4 MMT (2.5 MMTRV), three percent more than in the 2013/14 MY, on the back of a higher expected sugar cane crop. 

Alternative uses for sugar cane 

In August 2012, the South African government published regulations regarding the mandatory blending of bio-fuels with petrol and diesel. The regulations allow for five percent blending for biodiesel production, and set a permitted range of two percent up to ten percent for ethanol. The regulations did not mention the specific feedstock that can be used for bio-fuels, but it is general knowledge that the government will allow canola, sunflower and soybeans as feedstock for biodiesel, and sugar cane, sugar beet and sorghum as feedstock for ethanol. 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 

However, the South African Sugar Association (SASA) recently stated that the local sugar industry would need to be highly subsidized to kick-start the production of fuel grade ethanol. In addition, funding would be needed to extend existing sugar mills by building distilleries. So far, only one sugar cane company has been granted a license to make bioethanol, while licenses have been granted to four plants to manufacture bioethanol from sorghum. 

Cane prices 

The South African sugar industry is a net exporter of sugar. In order to distribute export earnings equitably amongst growers and millers, the South African Sugar Association (SASA) has implemented a Division of Proceeds. The Division of Proceeds is the formula where revenue that accrues to the sugar industry is allocated to millers and growers under a partnership arrangement. The Sugar Act and the Sugar Industry Agreement provide regulatory support for the Division of Proceeds. 

Industry revenues earned from domestic and export sales of sugar and molasses 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. 

The RV price for sugar cane in the 2013/14 MY decrease by two percent to R3,116 per ton from the final price of R3,197 per ton that was set in the 2012/13 MY. This follows on a global decline in the price of sugar. However, a weakening R/US$ exchange rate supported the domestic sugar price.

Sugar 

Production 

For the 2014/15 MY, sugar production is estimated at 2.4 MMT (2.5 MMTRV), three percent more than the 2.3 MMT (2.4 MMTRV) produced in the 2013/14 MY, on a higher sugar cane crop. In the 2012/13 MY, South Africa produced only 2.0 MMT (2.0 MMTRV), due to a drought-affected production season. 

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 region’s sugar demand is estimated at approximately 2.2 MMT (2.3 MTRV) or 37kg per capita. In the 2012/13 MY, the South African sugar industry supplied 1.6 MMT (1.7 MTRV) to the SACU market and Swaziland about 302,043 tons (312,615 MTRV). The rest of the sugar demand was met by imports (218,490 MTRV), mainly from Brazil. 

The demand for sugar in the SACU region is expected to grow by only two percent in the 2013/14 MY and by another two percent in the 2014/15 MY to 2.3 MMT (2.4 MTRV). Economic growth is the main overall driver for the increase in the demand for sugar and sugar products and South Africa’s economy is expected to grow by less than three percent in 2014 and 2015. Labor unrest, upwards inflationary pressures, which are dimming consumer demand, and electricity constraints are some of the factors contributing to weak economic growth forecasts. 

Posts expects that South Africa’s sugar sales to the SACU market will drop by at least 200,000 MTRV in the 2013/14 MY. Currently, South Africa cannot compete with sugar imports, especially from Brazil, and the industry has asked for an increase in import tariffs. When the import tariff increases, South Africa’s sugar sales in the SACU market should rise again. 

From South Africa’s SACU sales, approximately 45 percent is sold to industrial customers, with the balance sold directly to consumers at retail. Approximately 77 percent of sugar sold to customers is refined sugar and the balance is brown sugar. 

Trade 

Tariff increase 

In September 2013, SASA applied to the International Trade Administration Commission of South Africa (ITAC) for an increase in the domestic Dollar-based reference price for sugar, classified under tariff heading 17.01, from US$358 per ton to US$764 per ton. Using the requested reference price of US$764 per ton, the variable tariff formula of sugar will trigger an increase if the 3-week moving average price for the London No. 5 sugar settlement price falls by US$20 per ton below the base price. 

The main motivations given by the SASA for the application of a higher tariff is that the sugar industry is a key component for socio-economic development in the South African agricultural sector. For the sugar industry to continue its contribution to the government’s development objectives, it requires economic stability and sustainability in a distorted global sugar sector. SASA argues that an increase in import tariffs can play a crucial role in this regards and will help the sugar industry to maintain its contribution to socio-economic development in South Africa. 

In March this year, the Minister of Trade and Industry said that a change to the import tariff on sugar is imminent, as a new regime has been processed and passed on to the South African Revenue Service for implementation. The Minister did not disclose the new tariff as it still needs to be published in the government gazette. The decision confirms the current policy shift by the South African Government to use raising import tariffs in order to protect local industries. 

Exports 

Post forecasts that South Africa will have enough stocks to exports about one million MTRV of sugar in the 2014/15 MY. In the 2013/14 MY, South Africa’s sugar exports could increase by more than 100 percent to reach 760,000 MTRV, on increased sugar production. In the 2012/13 MY, South Africa exported 355,730 MTRV of sugar. In the first 10 months of the 2013/14 MY, South Africa already exported 636,585 MTRV of sugar. Indonesia, Japan, Australia, New Zealand and countries in sub-Saharan Africa were the main markets. 

Imports 

Sugar import for the 2013/14MY, could increase by more than 100 percent to almost 500,000 MTRV, as local sugar prices are currently higher than world sugar prices and the current import tariff is zero. South Africa already imported 440,595 MTRV in the first 10 months of the 2013/14 MY. South Africa imported 218,558 MTRV of sugar in the 2012/13 MY. Most sugar imports are from Brazil. Sugar imports are expected to decline to about 250,000 MTRV in the 2014/15 MY, due to the increase in the sugar import tariff