The Sugar Importers' Association of South Africa chairperson Chrisjan Engelbrecht says consumers pay almost double the imported, landed price.
Engelbrecht says the landed cost of a ton of sugar, based on the London spot price, is about R5500. However, tariff protection and duties add another R4018 to the price per ton on an import parity basis.
“These kinds of price controls were taken out of the agricultural sector many years ago.
"It has meant the price of sugar has remained artificially high for years. For reasons we don't know, the industry is protected by the Sugar Act. The DTI has promised to change the act for many years, but it never gets done.”
Last August, the government, with the International Trade Administration Commission, increased the dollar-based reference tariff 20percent to $680 per ton from $566 per ton.
A month later, according to a Tongaat Hulett result presentation, local sugar prices increased by 19.5percent following this increase in protection.
At the time, the South Africa Sugar Association (Sasa) said the protection was necessary because all the other major sugar producing countries impose high import mechanisms to protect their industries.
“The world price is a dumped price it has no relation to the cost of production,” Sasa said, arguing that the financial viability of the local industry was in such a bad state, due in part to drought, that the increased protection would in any case only be likely to provide some short term financial relief for farmers and sugar mills.
Sasa executive director Trix Trickam said world markets were heavily distorted due to subsidies and incentives, which results in significant over production globally, and the price at which sugar traded was far below any country's cost of production - “it is not reflective of a competitive market price”.
Engelbrecht agrees that most major sugar producing countries support their industries, but the difference, he says, is that for example, sugar prices in India and Brazil, two of the world's largest producers, come very close to world prices in spite of the protection.
Another reason that Sasa gave in its submission for the need to keep the sugar industry protected from cheaper imports was potential job losses. There are about 22500 sugar farmers and the local industry supports 85000 direct and 350000 indirect jobs.
However, says Engelbrecht, saving jobs was not a reason to force consumers to pay extraordinarily high prices. He says sugar farmers should instead have diversified from unprofitable crops many years ago, which would have sustained employment levels.
Trickam says the criticism of protection is inaccurate.
“Mozambique has a much higher reference price for refined sugar versus South Africa. In addition, South Africa has limited or no access to a number of key destinations for sugar. South Africa has limited quotas into the EU and US and enjoys no other preferential access to key consumer countries such as China and Indonesia.
“The large proportion of South African exports are sold at a significant loss due to market distortions,” he says.