Market Competitiveness

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Market Competitiveness

South Africa continues to be one of the world's most cost competitive producers of high quality sugar. According to independent surveys of the costs of production of more than 100 global sugar industries, the South African sugar industry consistently ranks amongst the top 15. Its excellent export infrastructure, world-renowned agricultural and industrial research platforms and efficient industry organisation are key drivers of excellence.

Despite its comparative production efficiencies, the South African sugar industry finds it difficult at times to export profitably to the world market, as the global sugar price is severely eroded by subsidyinduced overproduction in some major sugar-producing countries. Access to the major markets for raw and refined sugar is furthermore restricted by high tariffs and preferential trade arrangements in the form of tariff rate quotas. These same global market distortions also threaten the maintenance of a profitable and sustainable sugar price on the domestic market.

Government's strategic support for the South African sugar industry recognises the distorted nature of the world market for sugar, and the severe impact of producer support measures on price determination on the global market. Based on these considerations government support includes intervention in the following three areas: tariff protection against disruptively low world sugar prices; provision for the establishment of equitable export obligations for millers and growers; and the Sugar Cooperation Agreement between the members of the Southern African Development Community.

The South African Government's support in these areas is endorsed in the Department of Trade and Industry and the South African Sugar Industry's Joint Strategy for the Optimal Development of the Sugar Industry within a South African Customs Union and SADC Context.

Tariff protection

The industry is protected through a dollar-based reference price tariff system that is based on the long-term average world price for sugar, adjusted for distortions, which only delivers protection when the world price drops below this reference price.

Equitable export obligations

The profitability of the industry's exports to the world market is at stages severely affected by a subsidy-induced oversupply of global demand. The South African sugar industry exports approximately 40% of its sugar production to the world market at prices which are normally substantially below the domestic sugar price. In order to distribute exposure to the world market equitably amongst growers and millers, a redistribution of proceeds is effected via the South African Sugar Association. The Sugar Act and the Sugar Industry Agreement provide regulatory support for this redistribution of proceeds.

The Southern African Development Community Sugar Cooperation Agreement

A Southern African Development Community (SADC) Sugar Co-operation Agreement has been established and is incorporated into the SADC Trade Protocol.

The main objectives of the SADC Sugar Co-operation Agreement are:

  • To promote, 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;
  • To create a stable climate for investment, leading to growth and development of sugar industries in the member states;
  • To improve the competitiveness of the sugar-producing member states in the world market;
  • To facilitate the sharing of information, research and training with a view to improve the efficiency of growers, millers and refiners of sugar in member states;
  • To facilitate the development of small and medium sugar enterprises; and
  • To create stable market conditions in the member states so as to encourage the rehabilitation and development of all sugar industries with a view of facilitating direct foreign investment and the creation of employment opportunities.