Sugar Industry Status Report

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Trade, Industry and Competition

04 September 2019
Chairperson: Mr D Nkosi (ANC)
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Meeting Summary

The Department of Trade and Industry pointed out that the sugar industry had been facing major challenges, including transformation to ensure participation and representation of black farmers. The DTI, as advised by Parliament, was currently undertaking an interim transitional arrangement that aimed to include black farmers; this arrangement would end in the first quarter of the year 2020.

The DTI indicated that in KwaZulu-Natal (KZN), the land area under sugar cane had shrunk by 70 000 hectares – from 430 000 ha in the year 2000 down to 360 000 ha. This equated to a 2% annual loss. Many farmers had stopped investing into the industry and marginal growers were going out of business as the cost of production was higher than the revenue generated. Milling and refining companies had been facing overcapacity and there were job losses in both the growing and milling sectors. There was thus an urgent need for diversification to prevent further shrinkage and to create a sustainable industry.

DTI was amending the Sugar Act regulations to improve competitiveness, minimise industry self regulation and to ensure transformation, growth and sustainability of the sugar industry. It aimed to have these in place by the end of March 2020. It discussed the support given to emerging black farmers. The Department of Agriculture, Land Reform and Rural Development (DALRRD)  had made a grant of R133 million to the South African Farmers Development Association (SAFDA). The transitional arrangements for transformation were discussed. DTI would report back to the Committee on progress on amendments to the SASA constitution and the Sugar Industry Agreement by the end of September. The diversification options for sugar farmers were outlined. The finalisation of a diversification plan for the sugar industry was expected by March 2020 with implementation commencing April 2020. An inter-departmental task team had been established and would provide a report to the Minister within four weeks.

Members were pleased with the progress in transformation within the industry. However some felt that if the government did not step in to avert the challenges facing the sugar industry, there would not be an industry left to transform. There were concerns that many black farmers were set up for failure as there were no proper mechanisms in place to assist them in fully integrating into the industry. A Member wanted a moratorium on Health Promotion Levy (HPL) as its tax on sugar had led to a crisis in the sugar industry, while others insisted that the government should be commended for protecting the health of its citizens. DTI confirmed that the HPL revenue was merely placed in the National Revenue Fund. There was a debate on whether the Minister of Trade and Industry had the power to appeal to the International Trade Administration Commission to review the sugar import tariff and not wait for three years. Members suggested that it was not good enough to tell farmers to diversify, there had to be subsidies and policy certainty to take this huge step.

Meeting report

National Credit Amendment Act: clarification
The Chairperson announced an extract of a memorandum from the 21 August 2019 Committee meeting  that dealt with National Credit Amendment Act as it had been assented to and signed by the President on 13 August 2019. He had written to the Minister’s office to request a briefing on the implementation plan by the DTI. The Minister had acceded to this request and the briefing was set for 10 September 2019 and would include the Socio Economic Impact Assessment System (SEIAS) report. The SEIAS report, although requested by the Committee, was a product of the DTI.

The Chairperson then asked a Member to express his grievances with the DTI about the SEIAS report.

Mr D Macpherson (DA) said that he had been requesting the SEIAS report which the DTI was instructed by the Committee to undertake. To date, he had still been unable to ascertain as to when the report was undertaken, finalised, submitted to the Chairperson of the Committee and the Office of the Presidency. Every Member of the Committee has a right to access the SEIAS report and that this was also indicated by the DTI Director-General on 18 July 2019. It was unthinkable and nonsensical to have to wait for a Member of the Executive to be available to present the SEIAS report that the Committee had already requested; the report was, in fact, meant to be presented by the DG.

The Chairperson explained that at the 21 August meeting, the Committee had agreed on the memorandum and took a decision to have a meeting on 10 September 2019 at which the Minister and DTI would present the Amendment Act and the SEIAS report. Mr Macpherson was not present at that meeting. The Chairperson asked Mr Macpherson to bear with the Members, because unlike him and two other Members, most were still new to the Committee.

Ms T Mantashe (ANC) said that it was a Committee resolution on 21 August 2019 for the report to be presented by the Minister and the DTI to the Committee on 10 September 2019.

Mr S Mbuyane (ANC) agreed.

Sugar Industry Status Report
Mr Lionel October, DTI Director General, said that the sugar industry was part of a larger agricultural sector which was well-organised and well-regulated. Despite this, the industry had been facing major challenges, including transformation to ensure participation and representation of black farmers. The DTI, as advised by Parliament, was currently undertaking an interim transitional arrangement that aimed to include black farmers; this arrangement would end in the first quarter of the year 2020.

The global oversupply conditions led to international pressure that forces local farmers to drop their prices below their production costs. For instance, the recent bumper harvest in India led to the decrease in the world price of sugar. The South African government had in the meantime introduced a sugar tax, which increased the price of sugar and thus reduced its national demand. Another challenge was that one of the largest sugar milling companies suffered a major governance and stock market crisis similar to that of Steinhoff. Fortunately, industry and the Minister convened a forum with all stakeholders to jointly work on a turnaround plan and a diversification strategy for the industry.

Ms Ncumisa Mhlauli, Chief Director: Agro-processing and Resource-based Industries, DTI, said that the South African sugar industry was regulated within the wider context of the Sugar Act of 1978 and most particularly by the Sugar Industry Agreement (2000) and the South African Sugar Association (SASA) constitution. SASA is an autonomous organisation and operates free of government control. Statutory powers of self-governance were granted to the sugar industry via the Sugar Act and Sugar Industry Agreement.

The South African share of the Southern African Customs Union (SACU) local market had shrunk from 1.6 to 1.2 million tonnes. This was the lowest share since 1983. In KwaZulu-Natal (KZN), the land area under sugar cane had shrunk by 70 000 hectares – from 430 000ha in the year 2000 down to 360 000ha. This equated to a 2% annual loss. Many farmers had stopped investing into the industry and marginal growers were going out of business as cost of production was higher than the revenue generated. Milling and refining companies had been facing overcapacity and there were job losses in both the growing and milling sectors. There was thus an urgent need for diversification to prevent further shrinkage and to create a sustainable industry. Financial sustainability was a prerequisite for realising meaningful transformation. The year 2018/19 saw about 410 000 tonnes of sugar being imported from the Eswatini sugar industry and R196 782 was paid in foreign import duties.

The SA sugar industry was not only facing import duties from Eswatini imports but also from deep-sea imports and thus it had to protect itself from tariffs. The International Trade Administration Commission of South Africa (ITAC) received a properly documented application from SASA on 6 April 2018. ITAC completed its investigation and submitted its recommendation to the Minister on 9 July 2018 and it was approved by the Minister on 17 July 2018. The increased Dollar-Based Reference Price (DBRP) level of US$680/tonne (from US$566/tonne) was implemented in the Government Gazette by the South African Revenue Service (SARS) by 03 August 2018. The review of this new DBRP was scheduled for August 2021. The three-year period would enable ITAC to conduct a meaningful impact assessment of trends in terms of employment, production and investment level and downstream effects.

The Sugar Regulations needed to be reviewed and amended with the objective of improving the competitive environment in which the industry operates, in a manner that will contribute to the optimal development of the industry's inclusive growth; ultimately realising its transformation, sustainability and long term cost-competitiveness of the industry. This amendment would also provide a positive legal position and minimise self-regulation by the industry. The Minister had the powers to make the amendments according to his prerogative and in consultation with SASA. This process had already commenced and the transitional arrangement was to last until 31 March 2020; the industry therefore had to act swiftly in finalising the regulation amendments.

The new industry structure consisted of the SASA Council which had a 50/50 representation by the South African Sugar Millers’ Association (SASMA) and the South African Cane Growers’ Association (SACGA). Under this Council, there were six milling companies and 14 local growers’ councils. Small-scale farmers had complained through SAFDA, saying they were not benefiting from the sugar levies that were being paid to SASA and thus could not consistently cover their operational costs. The transitional arrangement included a 50/50 in levies agreement between SAFDA, SACGA and SASMA to address these complaints and this was approved by industry.

SAFDA also entered into a service level agreement (SLA) with the Department of Agriculture, Rural Development and Land Reform to help with farmer support. This SLA was signed and celebrated by SAFDA at the third anniversary imbizo held in December 2018. DALRRD made a grant of R 133 million to SAFDA which was to be used to apply seasonal fertilizer on perennial sugarcane shoots to 35000 ha of sugarcane fields; benefiting a total of 11650 farmers in KZN and Mpumalanga. However, the grant mostly helped with primary production support but the DTI looked to diversify it to fund agro-logistics and for acquiring and establishing more milling facilities.

Ms Mhlauli indicated that for the transitional period, SACGA, SAFDA and SASMA operation and administration costs would be included in industry obligations and deducted by SASA from the gross proceeds. SASMA costs will be a sum of SACGA and SAFDA costs of operation and administration. The costs that SACGA and SAFDA provided to SASA by 30 September 2018 were reflected in the SASA final budget for 2018/19. For 2019/2020, the deadline was set to 1 April 2019. These costs had to be deemed reasonable and justifiable.

As part of the NEDLAC Health Promotion Levy (HPL or sugar tax) process, government committed to a Jobs Mitigation and Creation Plan (JMCP) on 6 October 2017. This plan included targeting markets that were regulated by government such as ethanol fuel, electricity and biogas plants. The plan also targeted open markets such as bio-based plastic products, chemicals and long-term bio-refinery. Some milling companies were already generating their own electricity and were independent from the grid. DTI recognised the need to collaborate with the Department of Energy (DoE) to work with Eskom on an expansion plan for the sugar industry. Since the sugar industry was on a decline, DTI was encouraging farmers to use cane to diversify and explore other crops such as macadamia and sugar beans to diversify their revenue streams and sustain the industry. These plans would also facilitate industry transformation to improve black economic participation in the industry, especially in the milling sector.

The engagements held between the Trade & Industry and Agriculture Ministers led to a few general outcomes. It was agreed that the protectionist strategy for the industry needed to be phased out and replaced with another one that would be based on competitiveness.An export orientation was thus adopted as a pillar to support industry competitiveness. It would target the African market through the implementation of the African Continental Free Trade Agreement (AfCFTA) - which would institute trade reforms in July 2020. It was agreed that the imposition of a surcharge on Eswatini imports would not be adopted to preserve regional ties enshrined in the Southern African Development Community (SADC) and SACU agreements. The Ministers agreed that the proposal for the HPL proceeds could not be used for agricultural development as these were ring-fenced for health promotion by the Department of Health.

The Trade & Industry Minister planned to reconvene a meeting with all stakeholders for the concretised action plans to be presented to Minister Thoko Didiza. DTI, in collaboration with SASA, was committed to fast-tracking the process to ensure the current regulations were amended before 31 March 2020. Added to this was the finalisation of the diversification plan by March 2020 and for its implementation to commence April 2020. An inter-departmental task team which was inclusive of DALRRD and the Industrial Development Corporation (IDC) had been established and would provide a report to the Minister within four weeks.

Ms Mhlauli concluded by quoting the words of the late Former President Nelson Mandela: “Action without vision is only passing time, vision without action is merely day dreaming, but vision with action can change the world.” She proclaimed that DTI aspired through the same vision.

Mr F Mulder (FF+) suggested that the challenge the sugar industry was facing should not be looked at in isolation. By December 2018 government had raised about R2.4 billion in sugar tax revenue but this did not reflect the number of jobs lost in the industry due to the tax. The South African sugar industry was reportedly ranked 15th out of 120 sugar-producing countries around the world. He reckoned that the industry’s biggest enemy was the Minister of Health. He added that the Committee should check if the Health Ministry was rightfully using the funds as proposed in public health campaigns. He believed that this was not the real reason; that the government just need an excuse to raise more tax revenue. The Minister should reconsider the levy and government should generally review its financial policies.

Mr W Thring (ACDP) noted that the DG made a comment on the sugar industry crisis - that one of the role player had engaged in Steinhoff-like activities. He asked the DG to elaborate on his statement because the comparison was alarming.

Mr Thring asked if the stevia sugar plant could also be promoted as part of the diversification plan.

Mr Thring pointed out that many of the black farmers were set up for failure as there were no proper mechanisms in place to assist them.

Ms J Hermans (ANC) insisted that the government should be commended for setting the sugar tax to protect the health of its citizens. The consequence of that policy was bound to be job losses and this could be alleviated by bringing the Department of Employment and Labour on board as job losses affect the entire South African economy.

Ms Hermans asked if it was possible for part of the sugar tax revenue to be diverted to fund the diversification plan of the sugar industry.

Ms Mantashe commended DTI on the work done in transforming the industry. She was looking forward to its briefing after September and hoped there would not be a regression.

Ms Mantashe recounted that during an oversight visit in 2018 the Committee was informed that there were milling facilities which were inactive in Umzimkhulu and surrounding areas in KZN. She asked if those facilities could be revived for the benefit of emerging black farmers as part of transformation; the milling sector mostly comprised white farmers.

Mr Mbuyane commended DTI for the work it had done towards realising transformation. He asked if the transformation was targeting the entire value chain of the sugar industry. He asked if the 50/50 agreement was also considering transformation.

Mr Mbuyane said that the SASA organogram structure was not clear. Was it speaking to the membership of companies in the various sub-associations or the tonnage of sugar these companies were producing? He asked DTI to indicate when the amended regulations and the diversification plan would be finalised. He added that the SASA collaboration should be fast-tracked. The relevant departments should integrate to deal with the transformation and there needed to be a clear transformation plan.

Mr Macpherson said that the presentation was depressing and filled with inaccuracies. He recounted that on 26 February 2019, he proposed that there should be a meeting to discuss the impending crisis in the sugar industry. The Committee voted against that motion based on the fact it did not have time for it. He later realised that the sugar industry never had time. The industry abrogated its responsibilities to the former Minister of Trade and Industry to engage with the Ministers of Health and of Finance to discuss the HPL, ensure compliance with implementing HPL mitigating measures agreed to in NEDLAC, and ensure that the sugar industry utilises its full quota in the European Union. Since February, none of this had been done.

Mr Macpherson said the presentation was a continuation of a discussion that had been ongoing for the last two years, without a resolution. Transformation was important but it would be futile if there were to be no industry. He said that the industry would collapse should its crisis not be addressed.

He denounced the claim that the proposal for HPL proceeds could not be used for agricultural development because they there ring-fenced for health promotion by DoH. Government had added the levy into the National Revenue Fund and it was not used for health promotion. National Treasury disingenuously raised the Health Promotion levy by 10% with the aim of generating more revenue. Ms Hermans was thus mistaken in thinking the levy was for a noble cause because it had led to farmers having to retrench more workers. He proposed that the Committee should call for a moratorium on the HPL because there was no data that proved its impact on the health of the citizens.

Mr Macpherson said that when the Committee passed the budget report, it had asked the Minister to engage ITAC to review the tariff. It was therefore wrong for DTI to decide to wait for three years before the review could be done. Instead, it should update the Committee about when that engagement would take place.

He was astounded that DTI was still encouraging the industry to consider diversification as the industry had already been waiting to implement it for the past 10 years; they could not do it because there was no legislation framework that enabled them. There was no regulation that gave them certainty that the investment into diversification would yield returns. It was arrogant of DTI to tell farmers to plant other crops.

Mr Macpherson said that the farmers were unable to generate their own electricity because there was no agreement with Eskom, nor any legislation, that allowed them to feed it into the grid.

He said it was disrespectful to the Committee for DTI not to indicate when it would submit a biofuel bill which had been requested by the Committee for the past two years. This bill would allow farmers to diversify and venture into cogeneration. When is the biofuel bill going to be submitted? The Committee should call for a moratorium on the HPL. What is the update on the Minister’s interaction with ITAC on the tariff review?

Ms Mantashe reiterated that the ANC representation appreciated the progress made by the Department so far. She noted that not all the existing conditions within the industry was DTI's responsibility. The Department of Agriculture should intervene and revive the milling facilities to help integrate emerging black farmers.

The Chairperson asked Mr Macpherson and the Members to maintain decorum in their communication with fellow Members and the Department delegation.

The Chairperson expressed his support for the HPL but raised a question on the extent of the impact it was having on the health of South Africans.

Mr October replied that sugar tax policy and regulation was a matter that was beyond the scope of DTI powers. However, from a technical perspective, DTI did deem the HPL policy as one of the stimulants of the crisis. Sugar demand dropped immediately after the levy was introduced and farmers had to retrench some of their workers. DTI recommended that there should be a review of the HPL policy and that there needed to be compensation allocated to industry participants who were affected by the levy. He confirmed that the HPL proceeds did go into the general revenue fund.

Mr October said that sugar remained a consumer preference regardless of the imposed levy. Therefore, industry needed to diversify their crops. He acknowledged Mr Thring’s suggestion of the stevia sugar plant as part of diversification.

Mr October indicated that the KZN sugar millers owned nearly half of the land area in the province. The millers had been speculating on selling their land; this dropped the share price and led to the resignation of the SASMA CEO. The assets were being overvalued even before they were paid for and this falsely inflated their books. It was similar to the Steinhoff saga in the sense that it was an accounting phenomenon and it thus needed to be interrogated further.

Mr October said that an industry support body needed to be formed to support emerging black farmers. The Sugar Act ensured that the industry was well-regulated but the regulations needed to be amended to account for transformation. Counting votes according to either membership or tonnage produced was not a viable method; DTI thus recommended that the industry should consider the government of national unity arrangement that was developed at the Convention for a Democratic South Africa (CODESA).

Ms Mhlauli replied that DTI was working hard, in partnership with SASA, to ensure that black players were included in the sugar industry value chain. Some milling companies such as Tongaat Hulett and Illovo reached out to DTI and the Minister about possibly collaborating with a smaller player. DTI recognised the downstream value chain opportunities in the refinery space that could help propel transformation.

Ms Mhlauli replied that DTI had engaged ITAC but the Commission responded that the review application was only allowed after three years. They offered to advise the industry on other protection measures. DTI was engaging with the industry and the industry said it would finalise the transitional arrangements by end of September 2019; the gazetting process would begin in October 2019.

Mr October said that the state’s role in the industry and globally was always in terms of price support mechanisms; the tariff system was thus preserved because of the global oversupply of sugar. During the European Partnership Agreement (EPA) negotiations, DTI managed to open up the market for the South African sugar industry – for it to be able to export into the EU duty free, per given quota. However, due to the decrease in the global price, exporting was no longer as profitable. This was the reason the Eswatini sugar industry was diverting its exports to South Africa. He stated that the state never regulates, it only provides price support, produces research and development support and develops marketing support for the agricultural sector; it thus cannot draw up regulations for diversification.

The Chairperson told the DG that the Committee had convened on 28 February 2019 to review the Fifth Parliament Committee Legacy Report to capture the unresolved matters that would be inherited by the Sixth Parliament Committee. Most of the matters arising were inherited and it was thus unreasonable to expect them to be addressed without sufficient time to do so. The content of this Legacy Report was to become the foundation of the work to be done by the Committee.

Some of the matters captured by the Legacy Report were tariffs, lack of transformation and having to review the impact of the HPL. The Committee identified the necessity to monitor the review of the Sugar Act and its regulations, to ensure transformation. The HPL impact on the social economy and sugar industry and agricultural projects would be evaluated in conjunction with National Treasury and DoH. Another target was the implementation and the monitoring of the mitigation measures agreed to at NEDLAC due to implementation of the HPL. These were some of the collaborative strategic platforms that were at the Committee’s disposal. Therefore Committee meetings would not necessarily be a platform at which every key decision was made. There was a plan to oversee the implementation of transformation commitments made by SASA for small-scale, black sugar cane growers. Lastly, the Committee would continue its engagements with DTI to ensure diversification of the sugar cane value chain and to take advantage of the existing EU market under the SADC-EU EPA.

The Chairperson hoped that the DTI sugar industry status report created a sufficient space for working on the key issues that it identified. It would be futile for the Committee to debate the work of the previous Committee as it was nonsensical and a waste of time.

Mr Macpherson remained adamant that the three-year waiting period was not true. The Minister could ask ITAC to review the tariff immediately as this was a motion that the Committee had already agreed on. The Committee should put pressure on the Minister to ascertain when he would submit the review application.

Mr Macpherson disagreed that the protectionist strategy for the industry needed to be phased out in favour of another one based on competitiveness. Although he did not subscribe to protectionist measures, by his personal political orientation, he strongly believed that the sugar industry was one that needed protection as long as its mechanisation was in effect. He suggested that there should be a non-binding agreement between industry and farmers for there to first be an uptake of the local quota and thereafter an importation of as much sugar as required.

Mr Macpherson indicated that he did not say that regulations were required for diversification but rather legislation was required for it. The industry was looking for a commitment from government that there would be a clear roadmap for its participants to be confident about making vast capital investments into ethanol and cogeneration. DTI needed to formulate policy, and subsequently draw up legislation, that would enable and guide the industry on the ethanol option and how to deal with the intricacies of cogeneration. It would be the prerogative of the Department to decide whether this necessitated an amendment to the Sugar Act.

The Chairperson asked Mr Macpherson to engage the response given by the DG on the points that he felt were misleading the Committee. This was important because if it remained unaddressed. Parliament records would stipulate that the DG misled the Committee whereas he, in actual fact, did not.  He asked Mr Macpherson to indicate if the DG had clarified his statements or if he still felt that the DG was misleading the Committee.

Mr Macpherson defended his comment, stating that page 20 of the presentation said that the HPL proceeds were ring-fenced for health promotion by the DoH; this was misleading. The DG did clarify that the funds were, in fact, not ring-fenced and they were added to the general revenue fund.

The Chairperson asked Mr Macpherson to withdraw the comment about DTI “misleading” the Committee.

Mr Macpherson maintained that he would only acknowledge that the DG clarified the statement.

Ms Mantashe asked the DG to indicate the reason ITAC had to do a balancing act when increasing the dollar-based reference price (DBRP), citing that they may have increased it based on emotions rather than considering the economy.

She highlighted the importance of reviewing ownership within the milling sector – promoting the participation of black farmers in the entire value chain of the industry.

Mr Mbuyane asked for clarity about the membership system. What criteria were going to be used for voting?

Mr Mbuyane explained that the diversification plan was not aimed at telling farmers what crops to plant but it was a way of advising them to use the sugar cane to explore other commodities that they could produce.

Mr Mbuyane suggested that the Committee should inquire from SASA about the land audit and the farm land that was being sold and used to build houses on.

Mr Mbuyane asked the DG to clarify if the tariff review by ITAC was the Minister’s prerogative or not.

Ms Hermans asked if the Eswatini sugar industry mainly exported its produce to South Africa. What about the rest of Africa? Is sugar not grown in sub-tropical areas?

Ms Hermans asked if the process of making the transitional arrangement permanent would involve further deliberations with the Committee or if the arrangement would simply be effected for the industry to use.

Mr Thring said that his inquiry about the stevia sugar plant was not addressed.

Mr Harold Harvey, Special Advisor to the Minister, said the sugar industry was facing a sunset in terms of sugar being used as a sweetener for human consumption. The global price was not only affected by oversupply but was used as instrument for social policy in markets like India. The price of about $323/tonne on the global market was a reflection of the large subsidies being injected into rural development in India.

Mr Harvey explained that creating a masterplan would require two elements: structuring the conditions necessary for a sustainable industry while dealing with the short-term pressures. One of the limitations internal to SA was the fact that the mills were running at about 64% capacity utilisation. The notion of introducing new mills into production, in the context where 85% of the cost associated to the spare capacity of the existing ones was a fixed cost, would only make it more difficult to obtain enough productivity, efficiency and competitiveness from the milling process. Some small-scale black farmers were located farther away from mills and therefore logistics costs were a significant reason they were running at sub-economic levels, despite the DBRP. Mills were fighting amongst each other over the way transport subsidies were being applied. Efforts were being made within the industry to adjust the logistical structures to address this problem.

Mr Harvey indicated that the Tongaat Hulett and Illovo mills had already been diversified. Tongaat Hullet had ventured into property development while Illovo expanded into using a chemical derivative of sugar called furfural, which could be used in different industrial solvents. Illovo was selling ethanol to the European and Asian markets. Both companies were exploring using sugar to create bioplastics. There were still more diversification opportunities such as cogeneration.

The Chairperson asked if DTI was encouraging other small-scale farmers to participate in the milling sector.

Mr Harvey said that the increased sugar tariff had caused adverse consequences for DTI because it relieved the pressure on the industry to do things differently. However, the new production capability presented an opportunity for competitors to collaborate on investments and there were some new instruments in the Competition Amendment Act that allowed some exemptions. The products that sugar sat on were so price elastic that the tariff barrier could be raised and the on-cost would go straight to the downstream users; the immediate response to passing the price onto the consumer would be a decrease in demand. The sugar-sweetened beverages contained less sugar and producers were driving up their prices to get enough revenues to reduce the tax burden. This was a balancing act contained in the masterplan that DTI was working on.

DTI's aim was to help keep the small-scale farmers in business, in the short-run, through mechanisms such as the logistics subsidies from DALRRD and to come up with a diversification plan as soon as possible.

Mr October said that the industry needed certainty about biofuels, including their blending requirements, in order to invest in them. It needed certainty from Eskom about the wheeling agreements on cogeneration. Disclosing the information about how much fuel was to be pumped into the fuel grid was solely the responsibility of the Minister of Energy; it was not the Minister of Trade and Industry’s jurisdiction. The biofuel industry had been in the pipeline for over 18 years. It required to be subsidised because it was expensive to implement.

Mr October said tariff setting was a complex matter. The Trade Administration Act regulated the administration of ITAC and the powers of the Minister. The ITAC independent board would make recommendations to the Minister on any tariff matter; the Minister had no exclusive power to set the tariff but only to decide whether to accept or reject the recommendations made to him. If the tariff was set too high, the demand would drop and the industry would collapse because of the price sensitivity of the demand. Due to the country's isolation under apartheid, SA prices were well above world prices and this made selling products abroad even more difficult. This forced the sugar industry to survive mainly on tariffs.

Mr October said that the Department had submitted its recommendations on how to deal with transformation and how to institutionalise it in the Sugar Agreement and SASA constitution. The industry operated on a tonnage membership system – big farmers had a disproportionate amount of the vote.

Mr Macpherson said that although the Minister did not have the power to set tariffs, he did reserve the right to submit an application for a review.

Mr Macpherson said that he was going to leave the meeting being more depressed that when he came into it. He added that the Department seemed to be telling the industry to diversify but could not provide subsidies for that diversification. Transformation cannot happen once the industry has completely collapsed. If the Department could not address the HPL policy, the Committee would have to intervene and use its legislative powers to challenge for a moratorium on the policy. Sugar cane farmers should all be enabled to produce their own electricity through cogeneration.

The Chairperson expressed his disappointment in Mr Macpherson for not stating the specific steps in doing what he proposed that the Department and the Committee should do.

Mr Macpherson said that the Committees should call for an HPL moratorium and engage the Finance Standing Committee with the Minister of Finance on the policy. For the diversification strategy, the Committee should have a joint meeting with the Minister of Trade and Industry and the Minister of Energy to settle the matter.

Mr M Cuthbert (DA) pointed out that there were a lot of interdepartmental linkages within the problems faced by the sugar industry and there was a need for sound cooperative governance to deal with them effectively.  The Committee could look at how it would address job loss problems with the Ministry of Employment and Labour. This would a good way to manage the institutional arrangements.

Ms Mantashe rejected Mr Macpherson’s proposal for an HPL moratorium and said it was ANC policy.

Mr Mbuyane asked Mr Harvey if there were any transformation plans within Illovo. How are black farmers benefiting from the diversification at Illovo?

Mr October indicated that DTI would finalise the regulations amendments as per the Legacy Report and the amendments to the SASA constitution and the Sugar Industry Agreement. DTI would report back to the Committee on these tasks by the end of September. The diversification plan would be finalised by March 2020 and commence its implementation in April 2020.

Mr October said that the Sixth Administration was the first administration that immediately adopted the reimagined Industrial Policy Action Plan (IPAP) and this meant that DTI was now working with masterplans for 13 industries, including the sugar industry. DTI was engaging the Energy and Agriculture Departments and working with the Minister of Energy. It had formed an interdepartmental task team that included DALRRD, IDC and CSIR. He thanked the Committee for its guidance and comments and for reviewing the state of the sugar industry this early in its parliamentary programme.

The Chairperson said that it would be important to accommodate amending the Sugar Act because the industry no longer had the conditions that existed when the legislation was first passed. This could improve the efficiency and effectiveness of the operations it legislated.

The Chairperson said that the Committee was comfortable with DTI’s proposal on the way forward, in conjunction with the pages 18, 19 and 20 of the Legacy Report, as a foundation for the work that needed to be done. The Committee was in full support of the visionary inspiration that the Department drew from Nelson Mandela’s words.

Mr October supported the Chairperson’s summary of the way forward. The Department would share the Sugar Act, the Agreement and the SASA Constitution with the Committee. The general position of some political parties or the Free Market Foundation and the Institute of Race Relations is they would like to abolish the Act. He opined that not all Apartheid legislation was bad; the problem was that it only catered for a minority population. The Sugar Act needed to continue and to extend to other agricultural sectors as well.

The meeting was adjourned.

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