The European Commission’s proposals, announced this week, to reform the sugar industry are expected to have little impact on the South African industry.
Experts are predicting dire consequences for lesser developed countries, but the effect on South African producers is expected to be limited. They are likely to get lower prices but will make up for these by expanding into the new markets that will come with increased access to Europe.
The European Commission is proposing price cuts of about 40% over a two-year period beginning next year.
Don MacLeod, managing director of JSE Securities Exchange-listed Illovo Sugar, said the group has been expecting cuts of this nature.
“While there would be a negative impact on the group in the short term, Illovo will still look to supplying existing markets in Europe at the reduced prices, which, at current exchange rates, are at about $400 per ton. The current world price for raw sugar is less than $200 per ton,” said MacLeod.
Illovo, which exports 139 000 tons of sugar to Europe, said it will continue with “marginal expansion” plans for operations outside of South Africa to take full advantage of the increased access to Europe when duties on sugar emanating from lesser developed countries is reduced to zero in 2009.
Tongaat-Hulett, also JSE-listed, referred inquiries to its annual report, which speaks of the potential to increase exports as a result of the European Union cuts in subsidies.
“The continuing discussions around reform of the EU’s Common Agricultural Policy and the recent move in the world sugar price from US6c to US9c per pound is encouraging and should result in additional export realisations,” said Tongaat-Hulett.
The South African sugar industry produces about 2,5-million tons of sugar a season worth R6-billion in direct income, said the South African Sugar Association. Half of South Africa’s production is marketed in the Southern Africa Customs Union and the remainder is exported.
The industry employs 85 000 workers, but has an estimated direct and indirect employment of 350 000 people.
MacLeod said Illovo continues to support the lesser developed countries’ standpoint of managed exports of sugar into Europe at a lesser price reduction than has been mooted.
“It must be noted that, between now and November when the European Council of Agricultural Ministers will announce the final reform package, there is a considerable amount of political discussion to take place among all stakeholders, not the least of which are the sugar-producing countries of Europe,” said MacLeod.
Shehnilla Mohamed, Oxfam GB’s South Africa director, said EU sugar policies must change, but that Wednesday’s proposals will hurt many farmers in poor countries.
“Member states should listen to developing countries’ calls for a more gradual price cut over a longer timetable and improved access to EU markets,” said Mohamed. “The steep, sharp price cut will be very damaging for poor African countries and the overall reform package doesn’t guarantee an end to EU overproduction and dumping.”
Mohamed said European sugar traders get paid more than â,¬500 a ton in export subsidies, which costs Europe more than â,¬1-billion a year.
The EU has a commitment to present its final reform package at the World Trade Organisation meeting in December.