DEPARTMENT OF TRADE AND INDUSTRY SOUTH AFRICA REVIEW OF THE SUGAR ACT

1. DEPARTMENT OF TRADE AND INDUSTRY SOUTH AFRICA REVIEW OF THE SUGAR ACT Presentation to the Portfolio Committee on Trade and Industry Wednesday, 30 August 2006 Parliament Cape Town

2. Presentation layout Purpose of Presentation Perspective and Sector Overview Process Followed Way forward

3. The South African Sugar Industry Area under cane 429 045 ha. 50 000 cane growers of which nearly 48 000 are black small scale cane growers. Produce around 21 million tons of sugarcane or 2.5 million tons of sugar during the 2005/06 season. Local Market 1.26 million tons sugar. Export Market 1.24 million tons sugar. 26% of Sugarcane under irrigation. 6 Milling Companies 14 sugar mills 10 refineries [PMG note: maps not included, please email info@pmg.org.za]

4. Industry Structure SA Sugar Association Council 50/50 Representation by Millers and Growers SA Sugar Millers’ Association Ltd SA Cane Growers Association 6 Milling Companies Tongaat Hulett Sugar Limited Illovo Sugar Limited TSB Sugar RSA Limited Union Co-operative Limited Usukela Milling Limited (BEE) Umvoti Transport Limited (BEE) 14 Local Grower Councils Growers (50 000) Millers

5. Competitiveness and Contribution to Economy • One of the world’s leading cost competitive producers of high quality sugar. • 11th biggest producer of sugar in the world and the 8th biggest exporter of sugar in the world. • Diverse industry combining the agricultural activities of sugarcane cultivation with industrial factory production of raw and refined sugar, syrups, specialised sugars and a range of by-products. • Major investments and co-operation within the region. • Makes an important contribution to the South African economy. • Supports the AgriBEE Framework and its implementation: • Agricultural land • Agricultural Support Services • Human Resource Development • Enterprise Ownership and equity

6. Changes in the sugar industry since 1994 The sugar industry is regulated by an Act, i.e. Act No. 9 of 1978, as well as an Industry Agreement. The Industry Agreement was substantially revised in 1993. The 1994 Sugar Industry Agreement resulted in the following changes: • Competition on sugar in packed sizes less than 25kg for local and export market. • The removal of quota restrictions on the production of cane and freedom of entry to new growers. • The termination of mandatory delivery by growers to specific mills. • Sugar industry Agreement 2000: • Sugar sold on an “ex-mill” basis and no longer “free on rail” Durban. • To improve competitiveness the cane payment system was changed from a “sucrose content” to a “recoverable value of cane” basis. • Milling companies are responsible for the exportation of refined and direct consumption raws. • Fixed export quotas replaced by flexible market shares. • Maximum price replaced by notional price. Notional price is used as basis for proceeds sharing between millers and growers.

7. Key strategic challenges facing the industry • The international sugar market remains one of the most distorted and volatile commodity markets in the world. • Sugarcane is not a nationally tradable commodity. • Provide appropriate and adequate protection to growers against the monopsony powers of millers in the buying of sugarcane from cane growers. • To ensure equitable exposure to the world market by all role-players. • To provide appropriate incentives for competition in the domestic sugar market to ensure the long term competitiveness of the industry in South Africa as well as in SACU and SADC context. • To provide the necessary authority to manage and mitigate the rapid spread of sugarcane pests and disease that could otherwise have dire consequences for the industry. Therefore need for a review

8. Objective of the review of the Act • To improve the competitive environment in which the industry operates in a manner that will contribute to the optimal development of the industry – ensuring the long term cost competitiveness of the industry. • To provide a positive legal position and minimise self regulation by industry. • The optimal development of the South African industry within the SACU and SADC context.

9. Process followed • Bio-fuels an ASGISA project requiring alignment of sugar industry regulation. • Full vertical slicing.

10. Issues for consideration on way forward • Agreement between millers and growers to share proceeds within full vertical slices will increase companies’ ability to respond to market changes. • Therefore investment decisions will be based on normal commercial considerations rather than the level of government intervention in the industry. • Bio-fuels an ASGISA project and sugar regulation needs to enable national aspirations and has to be aligned with Department of Minerals and Energy Affairs’ objectives in this regard. • Amendments required are substantial.

11. Thank You Presented by: Mxolisi Matshamba Acting Deputy Director General the dti Division: Trade and Investment South Africa Tel: 012 394 1318 Fax: 012 394 2318 e-Mail: mxolisim@the dti.gov.za