Industry organisation the South African Canegrowers' Association (SA Canegrowers) has called on Finance Minister Enoch Godongwana to scrap the Health Promotion Levy (HPL), or sugar tax, during the upcoming Medium Term Budget Policy Statement (MTBPS) on October 21.

It argues that the sugar tax risks placing the future viability of the entire sugar value chain at risk, as it has continued to turn beverage manufacturers away from locally produced sugar.

The sugar industry is facing an unprecedented confluence of crises.

At present, owing to various reasons, the current harvesting season has seen an 18% drop in sugarcane delivered to mills compared with the previous season. The season also saw a 17% drop in the recoverable value extracted from that cane as it is processed.

It is expected that the milling season may be extended for longer than usual this year, but, should there not be a recovery in volumes of sugarcane crushed, smaller harvests will lead to losses for growers, SA Canegrowers points out.

This will further compound the impact of over two years of foreign sugar flowing into the country owing to weak tariff structures and enforcement and the ongoing business rescue process at distressed sugar miller Tongaat Hulett.

“Our small- and large-scale growers are being hit from every side. Less cane is reaching the mills and local sugar processed at the mills is being displaced from retail shelves by foreign sugar,” says SA Canegrowers chairperson Higgins Mdluli.

“Growers and millers have committed, through the Sugarcane Value Chain Master Plan, to create a future for the industry, but we need the same commitment from government policies. The sugar tax is a burden on the sugar industry the government can lift immediately.”

As long as the levy remains on the books, growers, millers and investors cannot plan adequately for the future. Diversification needs long-term capital, which, in turn, requires policy certainty.

“The only way to provide that certainty is to scrap the sugar tax. We, therefore, urge President Cyril Ramaphosa and his administration to scrap the sugar tax entirely. Doing so would give the industry the opportunity to focus on forward-looking initiatives, including the role that the sugar industry can play in green industrialisation,” says Mdluli.

The success of the master plan depends on policy alignment across government, and the sugar tax works directly against the master plan.

Since its introduction in April 2018, the sugar tax has caused severe damage to the sugar industry, including multibillion-rand revenue losses and substantial job losses, in a country with one of the highest unemployment rates in the world, and contributing to the permanent closure of two mills in KwaZulu-Natal, the organisation states.

The National Economic Development and Labour Council-commissioned study on the HPL's socioeconomic impact found that, by 2019, the industry had lost 16 000 sugarcane farming and milling jobs. In the levy's first year, the industry lost 250 000 t of sugar sales, Mdluli points out.

Additionally, the revenue raised through the HPL is not ring-fenced for health promotion or public-health initiatives, instead flowing into the National Revenue Fund alongside other tax revenue.

This raises questions about maintaining a levy that imposes significant costs on a strategic agricultural industry while its proceeds are not directly dedicated to the health objectives used to justify it, Mdluli says.