Sugar Industry intervention report by DTI

Meeting report

Copyright Amendment Bill Subcommittee report-back
Ms L Theko (ANC) informed the Committee that the Subcommittee agreed to go through the bill clause by clause effectively from tomorrow.

The Chairperson asked whether this was a true reflection.

Ms L Ntlangwini (EFF) agreed that was concluded during the meeting that took place in the morning.

The Committee agreed to the recommendation of the Subcommittee.

Committee Report on Sugar Industry: recommendations
The Committee Researcher gave a short outline of the report and said she would not go into details as Members had it for quite some time. Members went on an oversight visit on 25 and 26 January 2018 to Kwa- Zulu Natal and the Committee met with SAFDA, SASA and other industry players. The Committee was briefed on SAFDA challenges and its current status at the time the report was undertaken. The Committee also met with the small scale farmers. SASA highlighted its challenges on the sugar tax as well as the sugar imports and tariffs. These issues needed to be followed up with ITAC, DTI and the Department of Economic Development.

The Chairperson requested recommendations Members to specify any issues that they would want to be addressed under the overarching Recommendations in the Committee Report.

Mr G Cachalia (DA) said that there were a number of issues that needed attention such as imports, final price determination which happened in March now with a top- up requirement resulting in negative pricing for the first time, as well as tariffs that need to be addressed. The Committee needed to understand why ITAC and DTI did not foresee this eventuality and why it has not been dealt with - as far as he understands. On what the industry receives in assistance (R2 to R4 billion depending on the exchange rates), the Committee needs to look into how that figure can be ring-fenced for small scale farmers. Currently, the small scale farmers receive only about R1.3 billion over three years. He suggested that the figure should be in percentage form or asked why the amount was fixed

The industry appears to be in crisis, infrastructure development for small scale farmers needs to take place. The industry in KZN alone employs about 300 000 people and the current crisis is going to affect the employment rate. The question of levies needed to be addressed as well as infrastructure development. This is an issue that begs for real transformation rather than the transformation of the elite.

The Chairperson said that everyone agreed on the infrastructure in terms of the logistics during the oversight visit. Things like roads and equipment do not speak specifically to legislation, those can be addressed through regulations. Those issues must be noted as well as their impact but the other issue was the principle of “big-growers-first”. She understood that the smaller growers would come in after the big-growers, and she asked how the process worked.

Mr Suresh Naidoo, SASA Chairman, replied that the way the system works in the mill was that the mill has a certain capacity a day to crush that is allocated to all growers based on estimates. Large scale farmers would get about two truckloads, but small scale farmers may only be able to deliver one truck in ten days which may cause deterioration of the sugar cane. We are looking at measures for how those issues can be addressed so that small scale farmers did not have to wait that long to transport their products.

The Chairperson asked for confirmation that the mills have been engaged to factor in small scale farmers.

Mr Naidoo replied that SASA has written to ascertain how the small scale farmers could be assisted. They were still waiting for more responses; a few responses have been received thus far.

Ms Ntlangwini said that she did not feel comfortable with the way the Committee was moving forward on milling – there must be a written enforcement or a compliance protocol issued so that these mills comply.

The Chairperson said that SASA has the authority to enforce compliance in the industry.

Ms S Van Schalkwyk (ANC) said that one of the concerns was that due to the closure of a lot of millers, the mills were very far from the small scale farmers. Perhaps there may be a need to re-open those mills so that the small growers may have a mill closer to their farms.

Ms Ntlangwini referred to the seedling types. She wanted to know how it would be enforced.

The Chairperson said that it seemed there were different types of seedlings, but according to the scientist there was a proposal to test the one seedling that was glorified by all the farmers. That particular seedling seems to withstand the limitation of water because sugar required a lot of water.

Mr D Macpherson (DA) said thus far the Committee has looked at symptoms instead of causes of what is happening in the industry. The importation of sugar has a devastating impact on small growers because they do not have the deep pockets to afford this impact. This is something a number of people have complained about and it seems to fall on deaf ears. Low tariffs on imported sugar continue to pose a significant threat on the industry. There is a lack of in-depth discussion on this and we have not yet deliberated on the lack of capital for small scale farmers that are working on communal land. The seedlings matter was symptomatic.
He was not prepared to sit in the meeting to adopt recommendations that will not be followed by the DTI.

The Chairperson said the reality is that it was identified during the visit that the low tariffs is a critical issue, and the industry asked the Committee to find ways to address it. It was clear that imports were landing widely in the country at a lower price but that is not reflected on the local retail price – there is a significant difference.

Another point was that as a result of the pressures in the industry, when the small farmers do not get paid they are unable to pay their workers. The small farmers proposed the Committee address the tariffs expeditiously as it affects them the most. The President has committed himself to ensure that this will be addressed. She said that Mr Macpherson mandated her to instruct the Department of Economic Development to expedite the process as it did with the Steel Industry. The point raised by Mr Macpherson was dealt with during the oversight visit.

The Committee Researcher said that she would like the Committee to note that some of the points being discussed were already captured in the Committee Report, and advised Members to go through it.

Ms Ntlangwini said that the Committee needed to ascertain whether the small scale farmers get the seedlings  for free or pay for them. She suggested that the Committee ensure that it enforced the former.

Mr S Mbuyane (ANC) asked SAFDA to comment on security of tenure.

Mr Macpherson said there was no regulation on the importation of the sugar as well as the price, and with all the challenges that have been cited it seems that there was little progress in sorting these matters out. When will the Committee get an understanding about when these would be addressed, and to know what the Ministers of Economic Development and Trade and Industry are doing to address them. He suggested that the Committee needs to meet with International Trade Administration Commission (ITAC) and impose timelines to address these because each passing day tons of sugar is imported into the country, and small scale farmers in the industry continue to suffer as a result.

The Chairperson indicated that the Committee would continue to expedite the process on previous recommendations. DTI has the best performance record according to the track-down on the Speaker’s Office and independent players. It was important that people were pinned down because this was a very important issue for economic development. If the tariffs was addressed effectively, to a large extent part of the transformation would be expedited.

The Committee Report would be adopted after the DTI presentation.

Ms Van Schalkwyk proposed that there should be a revised payment system in the mills to ensure that the small scale growers were protected from this.

DTI response to comments
Ms Mhloli, DTI Chief Director: Agro Processing, said that the DTI appreciated the support from the Committee to address the challenges in the sugar industry and ensuring that black farmers participate fairly in the industry – it is a legacy issue that is taken very seriously. DTI would ensure that SAFDA was part of the solution making process, and it is participating in the SASA Council. Sugar Industry regulations were almost completed and amendments have been received. SAFDA will be a full time member of the SASA Council after the regulations are gazetted. Hopefully, these will be finalised very soon by DTI legal services. On tariffs, the DTI has had a couple of meetings with ITAC to address this and ITAC is working on this on day to day basis – a response is expected any time soon.

On levies, this is work in progress and small growers have been complaining about this for a while but a settlement was reached in December last year. R9 million was paid in tranches of R3 million for SAFDA operational costs funding. Budget proposals were also submitted to SASA and SASA is perusing that. Some issues were not dealt with because DTI was constrained by the legislation and the regulations, but as soon as the regulations are finalised,  those would be dealt with.

Transformation is a very important element DTI is focusing on. With regards to a tariff application, this might be a solution for some of the transformation issues. SAFDA has presented to SASA the reciprocity proposal which is currently being discussed with the industry to ensure that there is some reciprocity. All industry stakeholders were part of the transformation discussion, and the progress would be communicated to the Committee.

The Chairperson drew Members’ attention to the 23 April 2018 letter from the DTI Director General, Mr Lionel October, which packages a lot of issues. It dealt with the consensus agreed to.

Ms Ntlangwini suggested that the timelines in the DTI presentation should not be lost and suggested that a breakdown of the timelines should be provided on the regulations and the agreements.

Sugar Industry intervention report by DTI
Ms Mhloli said the DTI had focused on two approaches in its intervention which were the regulations and the matters raised by the Committee in its oversight report. She noted that 83% of production is contributed by large scale growers, and 10% by small scale growers and 7% by six millers who own sugar estates. There are 22 500 registered sugar cane growers, approximately 21 110 are small scale growers on tribal land.
DTI gave a progress report on its Sugar industry intervention aimed at addressing economic transformation:
- Support was provided on agro processing (retrenchments, labour absorption, labour support) as well as exports, competitiveness, tariff application to assist the industry to be price competitive.
- DTI launched the agro processing support scheme worth about R1 billion in which the industry can submit application for funding for agro processing activities – the scheme is already operating and effective;
- DAFF was now providing the Comprehensive Agricultural Support Programme (CASP) programme for primary production and for sugar beverage levy diversification – there is a plan already proposed for this;
- DTI participated in the mediation process led by mediator, Mr Charles Nupen, as the discussion amongst the parties was heated. Out of the process all parties agreed on 3 December to the Draft Agreement of Cooperation, proposed amendments to the sugar industry regulations and a proposed new structure to serve as umbrella body for the sugar cane farmers.  This required amendments to the South African Sugar Association (SASA) Constitution and the Sugar Industry Agreement of 2000.
- On 16 April 2018, SASA and South African Farmers Development Association (SAFDA) approved the amendments to the SASA Constitution and the Sugar Industry Agreement, 2000.
- DTI Legal Services aims to complete perusal and approval of these documents this week and send for promulgation in the Government Gazette with the completed Ministerial notice.
- The new SASA membership structure will have two members constituted by the millers and growers federations: South African Sugar Milling and Refining Federation (SMRF) and South African Cane Farmers Federation (CFF). This will ensure that the DTI and industry will no longer come to Parliament to ask for permission for new associations to join. Cane Growers Association (CGA) will have representation on the CFF. Every cane grower is obliged to be a member of the CGA.
- In the interim until the regulations are passed, SAFDA has observer status with a voice at SASA Council.
- On SAFDA funding, legacy issues are problematic for new entrants, so there is approved operational costs funding until 31 March of R9 million and it has already been paid. The DTI was ensuring that going forward, SAFDA is supported.

Ms Mhloli concluded that the amendments to the sugar industry regulations shall come into effect upon gazetting of the amendments to the SASA Constitution and the Sugar Industry Agreement (SIA) and that process has commenced through the Legal Services of the Department of Trade & Industry. The Department’s intervention was aimed at addressing economic transformation in the sugar industry and specifically the importance of recognising black players in the sugar industry.

South African Sugar Association (SASA)  comments
Mr Hans Hackmann, SASA Vice-Chairman: said that SAFDA is currently a fully-fledged member within the sugar industry, despite the new amendments still to be gazetted.
 
Mr Suresh Naidoo, SASA Chairman, said that a lot of the Members' questions were answered by the presentation. There is a positive story to tell, and he acknowledged the important role played by SAFDA in helping the sugar industry to address its shortcomings as well as transformation. It sat together with those associations to craft solutions holistically and economically taking cognisance of the scale of operations.

He said the Chief Director had covered the status on transformation. We agreed recently as an industry to not wait for regulations to be gazetted, so we found a legal way of establishing a transitioning governing body or committee which has the powers of the SASA Council, SAFDA sits in the powerhouse, in the decision making body equally and fully represented.

On the levies, SASA will through the millers to collect all monthly levies from the growers and pay the proportional amounts to the interim Cane Farmers Association in accordance with the estimated budgets. For the duration of the transitional arrangements, SASA has offered to serve as a secretariat function for the interim Cane Farmers Association whilst the Cane Farmers Federation is being established. SAFDA made a request to SASA Council for a loan of R13 million to assist SAFDA. Thus far R9 million has been paid.

Mr Hackmann said they currently pay a premium of about R54 million to small scale farmers. It was also important to allocate money into a transformation fund which would be governed by an independent body with directors within and outside the industry as well government. This would be a minimum of R1 billion, and it would administer programmes such as the land reform or restitution programmes – transferring some of the sugar cane growing land to black ownership. Secondly, it would deal with agro processing value chain activities. The independent board would set up its governance structures and develop guidelines and a report for receipts, review, and payments as well as for review proposals.

Part of the funding could be utilised to assist small scale farmers with their infrastructure and capital requirements at zero interest charged. The fund will also assist youth and social development activities. It could be used to subsidize small scale farmer transportation needs and to some extent their levies. Another example would be business rescue for distressed black owned farms. The discussions will continue.

South African Farmers Development Association (SAFDA) comments
Mr Siyabonga Madlala, SAFDA Executive Chairman, said that the Committee was not given enough credit for what it has done because it has unlocked the industry in terms of transformation and pioneered the way for how transformation of other industries can be put into action. Hopefully the Committee would continue assisting the industry in defining transformation where and when there are challenges. Parameters were being set up by both the beneficiary and the foregoer and it was important for both the beneficiary of transformation and the forgoer to understand their positions.

Discussion
The Chairperson said she was pleased with the progress and the Committee would be far more pleased when the regulations and amendments were in operation. Timely implementation was important.

Mr Macpherson said that everything indicated today was commendable and precise. He asked what the timeline is for when ITAC, DTI and EDD will address the tariffs.

Mr Williams asked what would happen to industry transformation if the dollar-based reference price was not increased because it sounds as though transformation would only be effectively implemented if the dollar-based reference price was increased. He believes that this was somewhat exerting pressure on government to do what the industry wants. For transformation to be implemented in the sugar industry it should not be conditional, otherwise the industry’s intentions are questionable.

Mr Mbuyane asked what the value of R1 billion was in three years' time. He asked for percentage instead of a nominal value because R1 billion in today’s rand value is not same in three years’ time.

Mr Cachalia said in the absence of the detail which speaks to transformation, there is some low hanging fruit which included percentage fixing dependent on the exchange rate – surely there is some mechanism to hedge or fix this to allow a stable rate. Transformation needs to be defined – the beneficiaries are the black farmers, so this needs to be clear. Also on levies, we want to understand what is received.

Ms Ntlangwini asked for more details on the R13 million loan granted to SAFDA and how will it be paid back.

Adv A Alberts (FF+) said that fructose manufacturing was excluded in the new agreement; thus there is need to create some regulatory certainty on this so that those who wish to invest in it can do so without any heaviness.

The Chairperson said that ITAC did not form part of the DTI mandate; thus, it was important that any recommendation for ITAC did not overlap another Committee’s mandate without prior engagement with that Committee.

Mr Hackmann replied that the team needed to go back into its industry to look into putting in a percentage that can be committed to transformation. He did not have the mandate to come up with the percentage in his own personal capacity.

On the enhanced tariff, if we talk about the dollar-based reference price being increased, the percentage can be determined because the dollar-based reference price is below the costs of production.

Mr D Mahlobo (ANC) said if the fund for transformation was made conditional, it would be problematic. However, if a percentage is put in place as a minimum target then it becomes easier for the legislature to hold the industry to account. He advised that the industry re-look at its approach to this.

Mr Macpherson asked for clarity on how the levy contribution was determined, is it a fixed levy for big growers, or is it a percentage of the turnover or sales?

Mr Hackmann replied that the levy would be borne by everyone in the industry based on turnover. It would be a percentage value of every ton of sugar sold in the market. The more the industry sold, the more contributions would be made.

Mr Macpherson said that was very important to indicate.

Mr Mahlobo said there was a fundamental problem with how the percentage is determined. He asked for a minimum percentage that the industry would contribute with or without the sales. There must be a minimum percentage imposed on the industry, a baseline that the industry will contribute in a percentage form regardless of the quantum of sales – it cannot solely depend on sales.

Ms Ntlangwini agreed with the proposed baseline in a percentage form; otherwise, this would be a complete fallacy.

Mr Cachalia said if there is a baseline and sales decline, somebody has to pay for it. That needs to be taken into consideration by the Committee as it did not want to hobble the industry - there must be a balance.

Mr Williams asked what would happen if the dollar-based reference price was not increased. He was concerned that transformation was used as a negotiation tool to influence government to change the price. He felt that this was an insult because it almost seemed that the industry was leveraging government. There is no commitment from the industry that it will invest an amount for transformation regardless of whether the dollar-based reference price was changed or not.

The Chairperson said that she will adopt a yes-and-a-no approach. Within a month, the Committee would like to see an outline of the transformation plan. The first plan should be in by 13 May 2018, and then after that a projected five year plan can be furnished to the Committee.

The tariff concerns everyone in the country and it would lead to the closure of certain towns and villages because it affects the local economy. Imported sugar is coming in at a very low price, and then it is sold at high local prices. She asked Members to separate the issues of the tariff and transformation.

The critical issue is to determine an enhanced tariff to combat the dumping of sugar into the country. The Committee will engage the Minister of Economic Development to mitigate the impact of sugar imports.

The Chairperson thanked SASA and SAFDA as well as the Department for the work that has been completed in transforming the sugar industry. Unanswered questions could be submitted to the Committee.

The meeting was adjourned.