Despite the South African sugar industry’s production efficiencies, it operates within the context of a distorted world market, characterised by subsidy-induced overproduction in a number of major sugar-producing countries. Sugar remains one of the most distorted international commodities and will remain so in the absence of multilateral reform and liberalisation.
The South African government’s support in the area of regional trade is endorsed in the Department of Trade and Industry’s Strategy for the Optimal Development of the Sugar Industry within the context of the South African Customs Union and the Southern African Development Community (SADC).
SADC is comprised of 15 member states of which 11 produce sugar. Within SADC, South Africa is the largest sugar producer. To advance the objectives of Annex VII (referred to as the Sugar Co-operation Agreement) of the SADC Trade Protocol, a Regional Sugar Strategy and Action Plan have been developed. The main objectives of Annex VII include promoting, within the region, production and consumption of sugar and sugar-containing products according to fair trading conditions and an orderly regional market in sugar for the survival of the sugar industries in all sugar producing member states, in anticipation of freer global trade.
Access to major markets for raw and refined sugar is restricted by high tariffs and preferential trade arrangements such as tariff-rate quotas.
These global market distortions also threaten the maintenance of a profitable and sustainable sugar price on the domestic market. Less than 10% of the industry’s production on average enters foreign markets under preferential market access arrangements. The majority of sugar exported must therefore be sold on the world market.
Government’s strategic support for the South African sugar industry recognises the distorted nature of the world market for sugar, and the impact of prevalent producer support measures on price determination on the global market. Government support includes intervention in the following three areas: tariff protection; provision for the establishment of equitable export obligations; and support for the SADC Sugar Cooperation Agreement. When compared to its global partners, South Africa remains one of the least regulated producers of sugar.
Within the South African Customs Union (SACU), in which South Africa and Swaziland are the only sugar producers, the dollar-based reference price tariff system delivers a measure of protection when the world price drops below a reference price. The sugar industry addresses matters relating to the effectiveness of tariff protection with the Department of Trade and Industry and the International Trade Administration Commission (ITAC) on an on-going basis.
Equitable Export Obligations
The profitability of the industry’s exports to the world market is affected by subsidy-induced oversupply of global demand. The South African sugar industry typically exports more than 5% of its sugar production to the world market at prices which are normally substantially below the domestic sugar price. World market prices have historically trended below the average global cost of production. The Sugar Act and associated Sugar Industry Agreement provide regulatory support in the distribution of exposure to the world market equitably amongst growers and millers.