ANDREW RUSSELL: Sugar industry is resilient but it depends on an ecosystem that works

South Africans are feeling the pinch of the recent 13-year-high inflation surge, which hit 7.8% in July. Food prices have shot up 9%, electricity and other household energy sources by 14.5%, and petrol by a shocking 45.3% over the past few months.

With households having less money to spend on even the most basic staples, it comes as no surprise that speculation of a sugar shortage caused by the April floods in KwaZulu-Natal, which in turn could cause a sugar price hike, has been met with concern.

SA Canegrowers has been assuring the public that there are no expected shortages because of the floods. Critically, sugar price increases are also capped under the Sugarcane Value Chain Master Plan. While this is good news for cash-strapped households, particularly due to sugar serving as an affordable carbohydrate for many poor South Africans, there are many other challenges that threaten the sustainability of the local sugar industry.

One of these is close to home and sits within our own value chain, which is deeply interconnected. The main links in the chain are sugar cane growers, millers and refiners, retailers and consumers. If one of these fails it will have devastating consequences for the whole ecosystem.

Growers rely on millers to crush their cane and refine their sugar. But millers are economically viable only to the degree that growers produce sufficient, quality cane. Once we have the end product, we rely on consumers to buy locally produced sugar, but this can’t happen unless retailers ensure local sugar is available in all stores.

This multiparty dance is what enables the sugar industry to contribute R19bn to GDP each year and support more than 1-million livelihoods, mostly in poor rural communities in KwaZulu-Natal and Mpumalanga.

Growers are arguably the most important link in this value chain as there would be no sugar industry without cane. Millers are a close second; we cannot convert cane to sugar without them. This is why SA Canegrowers has been particularly concerned about the declining cane processing capacity at the country’s mills. Each year we are seeing many more tonnes of cane going uncrushed as some mills simply cannot handle the volume they are receiving from growers.

This would be understandable if there had been rapid growth in cane production over the past few years. Unfortunately, this is not the case. Rather, we are seeing a dramatic decline in the operational capacity of mills to process cane. Even as workers at the mills continue to work diligently, this has not made up for the lack of investment in ageing infrastructure, and the effect on growers has been substantial.

In 2021 alone more than 2.6-million tonnes of cane valued at R1.5bn had to be carried over into the next financial year. This is R1.5bn in cash flow growers desperately need, particularly due to the major surge in input costs faced by farmers. This constriction of cash flow not only affects growers; it is also money rural communities desperately need.

The consequences of declining milling capacity do not end there. A key commitment of the sugar master plan is to restore local demand for SA sugar. Many stakeholders have gone to great lengths to realise this commitment and the overall success of the master plan. Notably, the Shoprite Group partnered with SA Canegrowers’ Home Sweet Home campaign, which is focused on educating and encouraging consumers to buy local sugar, including committing to prioritising the procuring of locally produced sugar. While this is certainly commendable, retailers like Shoprite cannot honour these commitments unless the local industry produces enough sugar.

Moreover, the industry has committed to spending R1bn over five years to advance transformation by assisting and supporting black growers, in particular small-scale growers. This funding, which also provides funding for education, training and vital subsidies, is derived from industry contributions, of which large-scale growers fund two-thirds. With growers facing declining cash flows as a result of their cane not being crushed, this will undermine the industry’s ability to continue funding transformation initiatives.

Some growers have taken steps to safeguard their cash flow by diversifying into other crops, such as cotton, timber and macadamias. The diversification of the sugar cane value chain is also a priority under the master plan. However, while increased diversification might ensure the sustainability and profitability of growers, if a large number of growers diversify away from cane the unintended consequence will be less cane being supplied to mills, resulting in their operations becoming economically unviable.

Not only will this have a devastating effect on the workers employed at these mills and the remaining growers, but alternative crops also tend to require far fewer farm workers than labour-intensive cane, which means many more livelihoods could be affected. It is critical that the milling crisis be resolved to prevent the loss of vital rural jobs.

If we fail to fix this problem the country will find itself importing larger quantities of sugar, which will undermine the important work already achieved under the master plan. So, while consumers can rest easy when it comes to short-term sugar shortages, the longer-term and far bigger existential threat of poor-performing mills to the sugar industry and the broader economy must be addressed.

SA Canegrowers remains committed to working with all stakeholders, including the government and the millers and refiners, to come up with solutions so we can ensure the whole ecosystem continues to create value. This is critical for the 1-million livelihoods reliant on the industry and to beat the rising food prices South Africans face right now.

• Russell chairs the SA Canegrowers Association.