Sugar Act Review: briefing

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Trade and Industry

29 August 2006
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Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
30 August 2006
SUGAR ACT REVIEW: BRIEFING

Chairperson: Mr B Martins (ANC)

Documents handed out:
Department of Trade and Industry presentation on Review of Sugar Act

SUMMARY
Members met with representatives of the Department of Trade and Industry to receive a briefing on the latest legislative proposals pertaining to the local sugar industry. An overview of the sugar industry was provided. South Africa was a world leader in cost-competitive production. Local industry was expanding investment in the southern African region. Attempts at increasing the level of industry competitiveness had been initiated. The fledgling biofuel industry was a recent development. Transformation at both grower and miller level was a prerequisite.

Members asked numerous questions including the number of black small-scale cane farmers, the difference in farm ownership between black and white farmers, the need for a balance between state intervention and a free market, the high price of domestic sugar, an inter-departmental approach to development, business management skills for small-scale farmers and research and development in the local industry.
 
MINUTES
Department of Trade and Industry presentation
Ms Elize Koekemoer (Project Manager-DTI) provided an overview of the sugar industry in South Africa. Approximately 500 000 hectares were under cane. 50 000 small-scale farmers were active in the country. South Africa was a world leader in cost-competitive production and occupied eleventh position in the global production list. Detail was provided on local company investment in southern Africa. A Southern African Development Community agreement had been established to circumvent logistical problems and promote training, research and small business development. A revamped port at Maputo had been developed and would be opened in two weeks. The sugar industry contributed 5.3% to gross domestic production and generated R6 billion in sales income. 6% of total agricultural employment was located in the sugar industry. The industry offered training and skills transfer to workers. Significant changes had been recorded in the industry since 1999. Competitiveness had been promoted in the past five years. Key strategic challenges to the industry were outlined. The production of boifuels had become an important issue. Domestic market competition had to be improved. More black cane growers had to be developed.
 
Discussion
Ms D Ramodibe (ANC) sought clarity on the exact number of black cane-growers. Transport infrastructure had to be developed to assist small-scale farmers. The division between growers and exporters should be clarified. She asked why no figures were available on local investment in Tanzania and Angola. Discrepancies in land ownership between black and white farmers had to be reduced.

Mr S Rasmeni (ANC) indicated that the review process had been underway since 2001 with many workshop and discussion documents. More engagement was needed with the department to unpack all the issues.

The Chairperson reminded Members that the present briefing was part of a long-term process. Interaction would also take place with other relevant portfolio committees to evaluate progress and gain insight. 

Mr D Dlali (ANC) noted the distinction between normal free market dynamics and the need for the government to represent the interests of the majority. A balance had to be found. He asked whether profit-sharing revolved around amount of production. The Department of Agriculture and Land affairs had to play an active role in enhancing the local industry. He asked which areas lacked sufficient amounts of water. Detail was sought on progress made in human resource development. Sugar was extremely expensive in the local market.

Ms B Ntuli (ANC) noted that only 33474 small-cane farmers had delivered cane in 2005/6. She sought reasons for non-delivery in terms of the remainder and whether the department had provided assistance. Clarity was sought on the South African Development Community (SADC) free-trade agreement. She asked for clarity on the period of employment of seasonal workers.

Dr P Rabie (DA) asked how much sugar cane would be committed to the biofuel industry and whether Sasol had been approached to provide input. 

Mr S Maja (ANC) proposed that disabled people be incorporated into plans to develop small-scale farmers. Blacks had to acquire a larger proportion of the arable land for sugar production. He asked whether any plans were in place to develop communal land as sugar production zones.

Mr Mxolisi Matshamba (Acting Deputy-Director-General-DTI) acknowledged that transformation in the sugar industry was of paramount importance. The majority of land remained in white hands thereby adversely impacting on the number of black small-scale farmers. The Department was also considering steps to increase the number of black millers. The biofuels industry was anew development with continuous research. The market should drive sugar pricing but the government had to ensure adequate levels of regulation. Low sugar yield areas could be used for biofuels. The local industry had to be protected to some extent. Cheaper imports could create downstream opportunities and contribute to job creation. Competition amongst millers would be encouraged.

Ms Koekemoer stated that women comprised 80% of small-scale farmers. Co-operatives could be introduced to enhance the levels of production. China was a net importer of sugar while Mauritius exported its entire production to the European Union and imported domestic requirements from South Africa. The intention investment in the Southern African region was to expand the current milling capacity. Regulations on the biofuels industry were needed to create a market. Currently, investments had been made in maize production for biofuels with a view to export. The Sugar Act would ensure equality between growers and millers. Profit share for growers would be based on size of production. Legislation would seek to promote efficiency amongst millers. Disease control remained a major challenge that necessitated much research. Current high sugar prices were due to protectionist tendencies in other producing countries. South Africa was a world leader in cane quality production. Brazil had admitted that certain cane varieties had been sourced from South Africa. The local industry would seek to cultivate certain types conducive to particular geographic regions to increase the yield and facilitate cost-competitiveness. One single piece of legislation was required to regulate the industry. Irrigation remained an expensive option for farmers in low rainfall regions. Certain areas particularly in Kwazulu-Natal received adequate amounts of rainfall. Such areas enjoyed high productivity and consequently high levels of return on investment.

Recent research in Australia had revealed that production in Australia was more expensive than the local industry. The intention in South Africa was to provide rebates to farmers and millers for value-added endeavours. Sugar was obtained locally by manufacturers at world market prices. South African manufacturers received highly competitive prices for sugar. Annexure 7 was a component of the regional free-trade agreement. A Technical Committee on Sugar would report to the relevant ministerial cluster. Biofuel initiatives could provide 6% of local fuel needs if all current sugar exports were redirected to the biofuel industry. No sugar for the domestic market would be utilised. No statistics were currently available on the number of disabled small-scale sugar farmers. Seasonal workers tended to work for three months of the year. Sugar cane was grown for nine months. A percentage of small-scale farmers did not deliver cane due to variable growing patterns and lack of adequate infrastructure.

Mr Matshamba stated that the department would investigate other employment opportunities for seasonal workers to facilitate expanded income opportunities. Workers could migrate from one farm to another.

Mr S Njikelana (ANC) noted that the Department’s discussion document released in 2003 and the presentation tended to contradict each other. A Sugar Charter was needed to guide the process. Relevant departments had to be involved in a cluster approach to promote efficacy. Members requested an enhanced understanding of the entire industry to assist oversight. More detail on the regional co-operation agreement was required. The number of small-scale growers had to increase over time. He asked whether the industry had sufficient levels of expenditure in research and development.

Ms Ramodibe asserted that inter-departmental relationships were vital in achieving positive outcomes. Further information was needed on current levels of interaction.

Ms Koekemoer responded that the 2003 discussion document had been commissioned to stimulate debate and access background information on the sugar industry. The presentation dealt with current issues. Much interaction occurred with relevant stakeholders. The Competition Commission was involved in activities to increase levels of competition. The interdepartmental group met on a regular basis and a report on the biofuels industry would be released soon. Transformation within the industry was a key objective. Sugar cane growers did not benefit from the preferential access agreement with the United States.

Mr Matshamba reiterated that the department had sound relations with other pertinent departments in terms of industry development. For example, interactions occurred with the Department of Minerals and Energy with regard to biofuel industry plans.

Ms Ntuli declared that economic empowerment in agriculture remained a topical debate and was unresolved.  The issue could not be overlooked in attempts to transform the sugar industry.

Mr Dlali stated that business management skills should be promoted amongst small-scale farmers. Senior management at state level had to improve inter-departmental communication.

Mr Matshamba replied that the department’s project plans would be aligned with the biofuel industry once research had been completed. The industry had initiated enhanced interactions between stakeholders.

Mr Njikelana proposed that a balance was desired between sufficient levels of state intervention to achieve objectives and adequate levels of free enterprise to maintain a competitive industry. Research and development should be undertaken to assist the production levels of the small-scale farmers.

Ms Koekemoer declared that the local industry was well regulated and remained world leaders in technological innovations. Much research took place on cane varieties.

The Chairperson stated that the presentation served as a starting point for further engagement. Many issues had to be discussed at forthcoming meetings. Members would seek to understand the issues at hand by means of critical questions.

Mr Matshamba stated that the discussion document would be revisited.

Mr Njikelana added that certain terms peculiar to the sugar industry should be clearly defined for Members.

Ms Ntuli stated that the overview had to make reference to the second economy and the urgent need to reduce levels of poverty and improve living standards.

Mr Njikelana sought clarity on the various forms of slicing referred to in the presentation. He asked how much black ownership was involved in regional investment initiatives and the amount of regional cane imported into South Africa.

Ms Koekemoer stated that previously growers had placed total production into a horizontal pool where profit was based on the recoverable value of cane delivered. Millers had shared 36% of production. Currently the plan was to foster competition amongst millers. Growers would subdivide output by means of an agreement on full vertical slicing. SADC countries had tended to export raw sugar to the European Union. Therefore no refining capacity had been constructed. Raw sugar was not fit for human consumption. The sucrose content of cane was calculated per ton. Investment would seek to create refining capacity in SADC countries.

 The Chairperson stated that joint meetings with other relevant portfolio committees would be arranged to deal with various cross-cutting issues.

The meeting was adjourned.

 

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