Sugar tax does not support SA’s drive for inclusive economic growth
By Higgins Mdluli
As the new government seeks economic growth, it is self-evident that it needs to withdraw policies like the sugar tax that stymie it.
President Cyril Ramaphosa recently said that the drive for inclusive economic growth is at the heart of the Government of National Unity’s agenda. Minister of Agriculture John Steenhuisen similarly said the agricultural sector should work to enable farmers to flourish, and for small farmers to become self-sustainable and productive as fast as possible.
SA Canegrowers strongly supports this approach as small-scale growers are at the heart of our industry. SA Canegrowers is an industry association of sugarcane growers that represents over 24 000 small-scale growers and 1 200 commercial growers.
But to fully realise this inclusive economic growth, the government will need to create a cohesive, forward-looking set of policies that enable economic growth on all levels. This includes eliminating government policies that hamper growth and put much-needed livelihoods at risk.
One such policy is that of the Health Promotion Levy or sugar tax. Introduced in 2018, the tax is currently levied on sugar-sweetened soft beverages. The logic, according to the proponents of a sugar tax was that a reduction in consumption of sugary soft drinks would lead to reduced-levels of obesity and lifestyle diseases.
But in the six years since the introduction of the tax, there is not one single study that has proved the tax has had any effect on rates of diabetes and obesity.
There is however clear and undeniable evidence of the profoundly negative economic impact the tax has had on South Africa and the sugar industry. In the first year of the sugar tax alone, the levy destroyed 16 621 sugar industry jobs and R2 billion of revenue, according to an independent 2020 study commissioned by the National Economic Development and Labour Council (Nedlac).
Of the over 16 000 jobs, the Nedlac study found that 9 711 jobs were lost at the start of the value chain: at commercial and small-scale canegrowers.
Ironically, increased poverty has clear impacts on worsening health and disease outcomes.
Demand for sugar from the beverage industry has fallen due to the sugar tax, with the SA Sugar Association estimating the sugar tax accounts for a 250 000 ton drop in domestic sales after the introduction of the tax, which has to be exported at a significant loss.
Studies done by agricultural consultancy, the Bureau for Food and Agricultural Policy (BFAP) have shown that by merely continuing the current sugar tax regime, canegrowers can expect a further loss of 10% of direct jobs by 2032. Should there be even a small increase in the sugar tax in February, land under sugarcane cultivation will decrease even further as demand for sugar decreases.
BFAP found that the biggest job losses are expected among small-scale growers in rural areas of KwaZulu-Natal and Mpumalanga. Precisely the areas where these jobs are needed the most.
Sugarcane accounts for a considerable area of the field crops in these two provinces. With such a large reliance on sugarcane, these growers are vital anchors in their rural communities. They provide jobs and opportunities, and often play a big role in maintaining infrastructure such as roads.
It only stands to reason that with a maintained or increased sugar tax, the devastation will be felt the hardest by the rural communities of KwaZulu-Natal and Mpumalanga. As BFAP said in their studies, the sugar tax’s impact is significantly felt by general wage-earning workers and small-scale farmers.
Over the past five years, the sugar industry has worked towards a roadmap to address threats and seize opportunities under the guidance of the Sugar Industry Value Chain Masterplan. While acknowledging threats such as the sugar tax and cheap sugar imports, the industry has worked at diversifications plans and other measures to safeguard jobs and grow the industry.
One promising new potential market for sugarcane is in producing sustainable aviation fuels (SAFs). But South Africa needs an enabling legislative environment to ensure these exciting new industries are given the room to establish and prosper.
But this work will be undone should the sugar tax be increased or expanded at this crucial time. Opening up new markets for sugarcane in the medium to long term will be for naught if we devastate sugarcane growers now.
As Finance Minister Enoch Godongwana prepares for his upcoming Medium-Term Budget Policy, it can serve as an opportunity to create a new way forward for cohesive, evidence-based policies for the government’s stated objective of economic growth and job opportunities. SA Canegrowers believes this includes scrapping the sugar tax.
As BFAP has said, any proposed increase or expansion of the sugar tax will have a significant effect on the industry’s ability to protect employment, retain small-scale growers, and transform the industry. This not only frustrates the work that the sugar industry has been doing over the past five years but is clearly out of step with the overarching objective of the current government of inclusive economic growth.
What the economies of KwaZulu-Natal and Mpumalanga need is inclusive economic growth and job security. The sugar tax achieves the opposite of this.
Higgins Mdluli is chairman of SA Canegrowers.