President Cyril Ramaphosa’s economic recovery strategy hinges partly on the industry-by-industry development of master plans that set out in more granular detail the changes required to reconstruct and repair the many ailing sectors of the SA economy.

So far, master plans have been signed off in the poultry, sugar, automotive and clothing sectors, with agroprocessing and the broader agricultural sector expected to follow in the new year.

SA’s sugar industry master plan, signed in late November, sets out in broad brushstrokes a programme to restructure and diversify the sector and halt its vicious downward spiral.

SA’s annual sugar production has declined by nearly 25%, from 2.75Mt a year to 2.1Mt, over the past 20 years. During this time the number of sugarcane farmers has dropped by 60% and the number of sugar industry-related jobs by 45%.

The industry blames its decline on falling volumes (partly due to competition from cheap, tariff-free imports from Eswatini), depressed global sugar prices (thanks to a global sugar glut) and increasing costs (SA’s sugar tax has so far pushed down revenue in the industry by R1.2bn).

According to the master plan, the industry can no longer keep absorbing losses, and over the next 12-24 months significant operations at all levels will be forced to close. This will potentially destroy existing assets, accelerate rural poverty and undermine the viability of small towns — two of SA’s 16 sugar mills, in Darnall and Port Shepstone, have recently closed.

As in all good master plans, the sugar one is honest in its self-appraisal, conceding that the industry’s primary recourse of lobbying for higher tariffs and its tendency to use these as cover for hiking prices have only accelerated the drop in demand and loss in market share to low-priced imports. Far more fundamental solutions are required.

Industrial users agree to buy local

The new master plan sets these out. The most significant result is that industrial users and retailers have agreed to buy at least 80% of the sugar they consume from domestic farms and millers during the first year, and to increase this to 95% by 2023. The industry has agreed to keep sugar price increases at or below consumer inflation during this period, provided the government doesn’t raise the sugar tax again.

This should be enough to halt the industry’s immediate decline. But to ensure it prospers over the longer term a process of managed restructuring will be required.

Seven multistakeholder task teams will develop the various elements of the restructuring roadmap. One will focus on developing a job retention and mitigation strategy; another, an industry proposal to provide predictability on the future of the sugar tax; and a third will investigate the potential for the industry to beneficiate raw sugar to form new downstream products.

This is something India and Brazil have done successfully, and there is widespread agreement in the domestic industry that significant opportunities exist to diversify into the production of sugarcane-based products such as bioethanol, biomass for co-generated electricity, biogas, bioplastics and low-calorie sweeteners.

Tongaat Hulett sugar MD Simon Harvey says the company is already exploring a range of opportunities to produce downstream products, such as bioethanol and bioplastics, while continuing with its electricity co-generation programmes.

He believes the master plan will position the business to explore these opportunities on an even greater scale.

Harvey considers the master plan to be “a game changer” that will place the industry “on a new trajectory of growth and sustainability”. After 15 months of consultation, the process has engendered “a huge level of commitment” across the various stakeholders to ensure the undertakings are upheld, he says.

Of course, the industry won’t be able to diversify successfully unless the cost of raw sugar is competitive.

The master plan acknowledges that this will require a significant restructuring of the value chain to reduce inefficiencies, as well as investment in new technologies.

“The danger,” says Barnes, “is that people say: ‘Yay! the hard work is done now that we have a master plan,’ but if you don’t fix the infrastructure, the energy supply, the rail and the ports, we’re all finished.”…..

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