Sugar tax has cost South Africa more than 16 000 jobs and R2.05bn in 2019 alone – a year after its implementation. Maintaining sugar tax at the current level will cost the industry a further 15 984 seasonal and permanent jobs and will contribute to a decline of 46 600ha of area under cane over the next 10 years, says Andrew Russell, chairman of the SA Canegrowers Association.
In his Budget speech in February, finance minister Enoch Godongwana announced the decision to increase the Health Promotion Levy (sugar tax). This increase came four years after the sugar tax was first implemented in 2018, causing massive damage to the sugar industry and in the absence of any evidence to show that the tax has had a positive impact on health outcomes or obesity levels in South Africa.
Scrap the tax
The National Treasury made the subsequent decision to delay the 4.5% increase by a year to conduct further consultations on lowering the 4g/100ml threshold and extending the levy to fruit juices. The intervening period has provided yet another opportunity to highlight the magnitude of this ill-conceived tax on the industry, with no discernible health benefit. The tax must be scrapped or it will risk thousands of livelihoods.
While to many the tax, at 2.31 cents per gram of sugar, sounds immaterial, it is far from it. This is because when working on a tonne of sugar, which usually costs around R11 500, it pushes up the cost by an additional R23 100, which means the tax amounts to 200% of the cost of sugar.
Considered alongside excise taxes on alcohol and tobacco, the levy attached to sugar is disproportionate and punitive for South Africa’s small-scale growers.
When one considers that all carbohydrates including bread, potatoes, rice and maize meal break down into a form of sugar, which means overindulging in these foods would have a similar health impact as eating too many sugary products, the disproportionate penalty on sugar becomes even more nonsensical.
Lower-income consumers often rely on a number of carbohydrate-based staple foods for energy, so laying the blame on sugar-sweetened beverages alone is simplistic while also putting the one million livelihoods that rely on the sugar industry at risk for no good reason.
Tax serves no purpose
This is even more illogical in light of there being no research or data available that demonstrate that the tax has had a positive impact on obesity in the country. Like many other countries, South Africa needs to wake up to the fact that a sugar tax serves no purpose.
For example, Denmark, which had a sugar tax since the 1930s, eliminated it in 2013. Similarly, Norway has had a sugar tax since the 1920s. The country increased the tax dramatically in 2018 — the same year South Africa introduced its tax – but subsequently clawed this increase back in 2020, and then cut it again by more than 48% last year. More recently, the government in the UK is also expected to scrap the sugar tax to combat the rising cost of living.
With a poorer population than these European countries and an economy in decline, South Africa cannot justify maintaining – let alone increasing – this destructive tax. Indeed, earlier this month, Uganda’s Parliament recognised this fact and removed the excise duty on confectionaries to boost the economy. For the sake of the livelihoods at stake, South Africa must wake up to this reality too.
Jobs lost
A socioeconomic assessment commissioned by Nedlac revealed that the sugar tax cost South Africa more than 16 000 jobs and R2.05-billion in 2019 alone – a year after its implementation. Modelling commissioned by SA Canegrowers also showed that maintaining the sugar tax at the current level will cost the industry a further 15 984 seasonal and permanent jobs and will be a major contributing factor towards a decline of 46 600ha of area under cane over the next 10 years.
The fact that the government plans to increase the tax next year means that there could be even more job losses than the projection of 15 984, and a further reduction in the hectares under cane.
The tax has also had real implications for the country’s milling crisis, with millers also being hard-hit by the sugar tax. This is due to manufacturers of sugar-sweetened beverages reformulating their beverages to contain less sugar, leading to a significant decline in revenue for the sector.
With milling capacity and performance continuing to decline and underperform, it is critical that greater investment is secured to recapitalise their operations. However, this becomes increasingly difficult due to the financial situation of the industry.
Farmers at risk
This becomes a vicious cycle where growers have no incentive to increase their production of cane due to the mills being unable to crush what they receive. As it stands today, most growers face a dire situation where between 20% and 32% of their crop is at risk of not being crushed. This situation is both undesirable and unsustainable.
Should the tax increase be enforced next year, it will undermine the work done to date during the first phase of the Sugarcane Value Chain Master Plan. Since the signing of the plan in November 2020, the industry has remained true to its commitments and has worked diligently to ensure its success. We have seen remarkable collaborations to bolster initiatives, like SA Canegrowers’ Home Sweet Home “buy local” campaign.
Yet the sugar tax and its continued existence stand out as one of the failures of the plan. Whereas the master plan includes an undertaking to review tax policy, there is no evidence that any effort has been made to take an evidence-based approach to the tax, and SA Canegrowers’ repeated calls for a comprehensive dietary intake study have gone unanswered.
The result is that the sugar tax remains a threat to the ultimate success of the master plan to the detriment of growers and workers throughout the sugarcane value chain, and to the national economy.
It is critical that the government weighs the gains the tax brings in the form of health benefits and tax revenue against the price we have paid and will continue to pay in terms of critical jobs and livelihoods in the nation’s rural communities.
The action we take – or fail to take – on the sugar tax may well determine the futures of one million South Africans whose livelihoods depend on the sugar industry.
This Thought Leader article was first published on SA Canegrowers.
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