Struggling South African sugar industry in talks with government over possible biofuel subsidy

The South African sugar industry is in talks with the government over a possible subsidy that could enable it to convert more than a third of its annual production into biofuel, according to a group representing companies in the sector.

Currently, 800,000 tonnes of the industry’s annual output of 2.1 million tonnes is exported at a loss, according to the South African Sugar Association.

The talks follow the signing of the so-called sugar master plan by the government, farmers, industrial users and industry retailers of 16 billion rand ($1.06 billion). The plan aims to ease a crisis caused by a flood of cheap imports, much of it from neighboring eSwatini, and a tax on sugary drinks that has dented demand from drink makers.

While the plan includes off-take agreements with industrial users and retailers that helped boost local demand by 14% in the year ending March, diversifying the crop’s uses could improve sustainability of the industry, said Trix Trikam, executive director of the sugar association.

“Biofuels are one of the revenue streams the industry can venture into, provided there is a conducive policy environment and an attractive subsidy mechanism,” he said in response to questions. by e-mail.

fuel tax

Companies that could benefit from a biofuels program include the country’s largest sugar producers – Tongaat Hulett Ltd, the local unit of Associated British Foods Plc and RCL Foods Ltd.

The National Treasury did not immediately respond to emailed questions.

South Africa’s biofuels regulatory framework, which was issued by the Department of Mineral Resources and Energy in February last year, approved sugar cane as a feedstock for biofuels, it said. he declares.

The Treasury said in its 2013 budget review that the scheme could be subsidized by increasing the fuel tax from 3.5 to 4 South African cents per liter on all petrol and diesel products. The biofuel would be mixed with fuels.

Failure to move forward with this program has stalled previous attempts to launch a biofuel industry in the country. Potential developers were told they could not use corn due to food safety concerns. Although sorghum can be used, the lack of subsidy has led to the abandonment of plans for at least six proposed plants.

A program to produce 460 million liters (121 million gallons) of biofuels a year could create 13,000 jobs, generate 1.8 billion rand in taxes and result in savings of 1.3 billion rand on the balance of payments through a reduction in fuel imports, according to the regulatory framework, which cites an economic impact study by Industrial Development Corp.

Most of South Africa’s sugar cane is grown in the east of the country and the industry employs around 85,000 people. It has been in decline for two decades, with annual sugar production falling by almost 25%.

The sugar-sweetened beverage tax which came into force in 2018 as a health promotion tax resulted in industrial losses of over R3.6 billion, the closure of two factories and almost 10,000 job losses. jobs, according to Trikam.

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Rachel J. Bradford