Durban - The divergent views of the sugar industry on the one hand and industrial users of sugar on the other are likely to widen in 2002 as the government moves to finalise new legislation.

At the centre of the disagreement is the domestic price of sugar and the protection afforded by the department of trade and industry (DTI) to this most volatile of world commodities.

The sugar industry, represented by the SA Sugar Association (Sasa), insists that the country's legislative dispensation is already among the most deregulated in the world. Yet it believes some form of protection must remain to guard against a world sugar price that has been driven abnormally low due to heavy subsidisation of the sugar industries of the US and European Union (EU), among others.

However, Coca-Cola, one of the biggest industrial users and a campaigner for the removal of sugar tariffs, has argued that South African cane farmers are inefficient and responsible for keeping the domestic price of sugar too high.

Johan van der Merwe, the DTI's director of agroprocessing industries, has promised that a new act will be implemented in time for the 2003 sugar season.

The rationale for the review, he says, is to encourage greater efficiencies in sugar production. Nevertheless, some form of protection is necessary to compensate for the world's protectionist policies.

"We've said we'll support the industry from disruptive competition so long as the world market is distorted," Van der Merwe says, while cautioning that future discussions at the World Trade Organisation will ultimately decide policy.

That Coca-Cola and Sasa are poles apart in their thinking was perhaps best illustrated by a visit in the latter half of 2001 to Australia and Thailand to benchmark the local industry. The trip was undertaken by the DTI and included representatives of the sugar industry and industrial users.

Upon their return, Coca-Cola declared that South Africa was likely to model its review of the act on Australia, the world's only nation to have abolished sugar tariffs.

But this may be wishful on the part of the soft drink maker. In a follow-up report issued by the DTI, it was noted that South Africa's growing and milling sectors were "substantively less regulated" than Australia's.

Sasa, on the other hand, believes the government intends to maintain the three pillars that currently underpin South Africa's regulatory environment: a single desk for the export of raw sugar, a proceeds-sharing formula between growers and millers, and the tariff, which is calculated using a dollar-based reference price that is adjustable for large and sustained movements in the world price of sugar.

According to Trix Trikam, Sasa's executive director, there have been two tariff adjustment triggers in 2001 alone, the first of which pushed up the tariff to R666 a ton and the second up to R784 a ton. However, he compares this with the EU tariff of $450 a ton and the US system in which domestic prices ranged from two to three times that of the world price.

During the year, the world price lived up to its volatile reputation, with raw sugar coming off highs of more than 11c a pound to drop below 7c. In December, it traded at an average of 7,35c.

Trikam says the world price is likely to remain at these levels next year or possibly move a little higher if economists at the International Sugar Organisation are correct in predicting a balance between demand and supply.

The lower price could mean reduced realisations on South African exports, which will account for about half of local sugar production, in the 2002/03 season. So it is fortunate for South Africa's three primary millers - Illovo, Tongaat-Hulett Sugar and Transvaal Suiker Beperk - that the devalued rand will compensate.

The local industry is earning more attractive returns from exports this season after having been hammered by low prices last season. This was reflected in, for example, Illovo's 41 percent rise in headline earnings for the six months to September 2001.

Nevertheless, the industry is not expected to reap the full benefits of the exchange rate in the current financial year due to a forward-selling hedging strategy and the fact that this season's sugar has already been exported.

Furthermore, unfavourable weather conditions have reduced the expected crop by 300 000 tons to 2,4 million tons for 2001/02.

South Africa still remains the region's biggest producer of sugar, followed by Zimbabwe at about 600 000 tons.