THE sugar industry’s application for protection from cheap imports is unlikely to hurt consumers and will safeguard an important and empowered industry, an analyst says.
In contrast, the poultry sector — which was recently granted protection from Brazilian imports but is now seeking similar buffers against European imports — has faced criticism that its push for help will weigh on consumers’ pockets.
The sugar industry is protected through a dollar-based reference price tariff system that is based on the long-term average world price of sugar. However, this tariff system comes into effect only when the world price drops below this reference price.
A variety of factors affects the tariff, but it is roughly the difference between the world price — which early yesterday was quoted just above 17c/lb — and the set reference price, which is currently 15c/lb. But a world price that is only slightly lower than the reference price means local producers do not benefit meaningfully from the tariff.
The South African Sugar Association has applied to the International Trade Administration Commission of South Africa (Itac) for a higher dollar-based reference price on imports in order to give teeth to the tariff. Investec Securities investment analyst Anthony Geard says the move against cheap imports, which are almost entirely from Brazil, "should be positive for the (local) sugar sector" without having a material effect on prices.
If the tariff protection is not implemented, "jobs could be at risk at black-owned millers and cane growers", given that the sector is a highly empowered one.
While sugar prices in the domestic market are well above those in the world market at the moment, Mr Geard says it seems sugar importers are absorbing most of the import margin, which means consumers have not benefited much from lower world prices. South African producers were dealing with surging Brazilian imports, which was likely to reduce their domestic sales.
However, while excess supply would need to be exported, world sugar prices are below the marginal cost of production because of "four consecutive years of global surpluses". This has been worsened by export subsidies, particularly in India.
The average selling price achieved by South African producers, including both domestic sales and exports, has reduced over the past two years as the mix has shifted towards lower-priced export sales. "At present, I judge that the South African industry — growers and millers — would be running at a meaningful loss at current world prices," Mr Geard says.
Furthermore, the application for tariff protection "is not unusual in the world of sugar", which is likely the most protected major soft commodity in the world. The expected new reference price of about 30c/lb "should extinguish imports completely", he says.
Itac has finalised its investigation of the sector’s application "and a final decision will be made by the minister of trade and industry in due course", Itac spokesman Thembinkosi Gamlashe says.
Illovo Sugar MD Gavin Dalgleish says the move to raise the dollar-based reference price on sugar imports is aimed at preventing independent traders from importing sugar that is being sold at prices "below the cost of production of even the most efficient producers on the world market". Illovo, a member of the South African Sugar Association, contributed to the application for a review of the existing tariff mechanism.
Mr Dalgleish says that 160,000 tonnes of sugar was imported into South Africa during the past two months of this year alone.
The domestic sugar market is about 1.6-million tonnes annually, with local producers exporting about 400,000 tonnes each year.
"The imports currently entering South Africa almost match its total exports — in effect forcing the industry to export its own sugar onto the low-priced world sugar market and in the process taking significant losses in revenue," Mr Dalgleish says.
He says the South African sugar industry is an important contributor to economic and development growth, with about 1-million people directly and indirectly dependent on the industry for their income.
Meanwhile, also on the hunt for import protection is the embattled poultry sector, which was granted import tariff hikes in September last year on imported chicken products. The hikes were aimed largely at curbing Brazilian imports, but as was widely expected, the industry has reported that imports have since shifted to European chicken products.
South Africa does not impose duties on members of the European Union because of a trade and co-operation agreement it has with the 28-member bloc.
The industry is now seeking antidumping duties on various European imports, but has come under fire for an expected material rise in chicken prices should it be granted further protection.
Source:- bdlive.co.za
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