Willemien Viljoen, tralac Researcher, discusses SACU’s variable tariff formula for sugar and the recent application to increase the Dollar-based reference price (DBRP) for sugar imports

Currently the import of sugar, into South Africa and the rest of the SACU market, is subject to a variable tariff formula that was introduced in 2009. This tariff formula is based on the difference between the Dollar-based reference price (DBRP) and the world price of sugar which can fluctuate over time, depending on the fluctuations in the variables of the pricing formula. According to the International Trade Administration Commission (ITAC) the variable tariff formula for sugar is shown as a specific duty in the South African Tariff Book. This tariff formula takes international price adjustments into account and operates on the basis that the South African domestic price of sugar should equal the domestic price of sugar in developed countries (the reference price) after adjustments for transport costs and the effect of interventionist policies (like subsidies to foreign producers) have been made.

The current DBRP for sugar in South Africa is US$ 358 per ton and the world price is that of the London No.5 sugar settlement price on the London International Financial Futures and Options Exchange. In terms of the variable tariff formula the tariff applicable to sugar imports is calculated as the difference between the reference price of US$ 358 per ton and the 20 day average of the London No.5 sugar settlement price. The tariff will be adjusted if the 20 day world price falls below the reference price by more than US$ 20 per ton for 20 consecutive days. The adjustment in the tariff is then equal to the difference between the world price and the reference price, converted to Rand according to the R/US$ exchange rate on the day the adjustment was triggered. This means that the South African sugar industry enjoys tariff protection when the world price of sugar is below the reference price, while the tariff is zero if the world sugar price is higher than the reference price.

On 20 September 2013 ITAC published a notification on the application for an increase in the DBRP for sugar imports classified under tariff heading 1701 of the Harmonised System of Commodity Classification (HS codes). This application was brought by the Sugar Association of South Africa (SASA) to increase the DBRP from US$ 358 per ton to US$ 764 per ton. This translates into a 113 % increase in the current reference price. This application is similar to the 2008 application by SASA to increase the then DBRP from US$ 330 per ton to US$ 400 per ton, due to alleged distortions (mainly due to subsidies) in the world sugar price. At the conclusion of the 2008 application ITAC recommended an increase in the DBRP from US$ 330 per ton to the current US$ 358 per ton to mitigate the effects of the distortions in the world sugar market.

According to the South African Tariff Book the products that will be covered, if there is an increase in the DBRP under tariff heading 1701 (Cane or beet sugar and chemically pure sucrose in solid form) include:

• 1701.1 (Raw sugar not containing added flavouring and colouring matter) including 1701.12 (Beet sugar), 1701.13 (Cane sugar) and 1701.14 (Other cane sugar).

• 1701.9 (Other cane or beet sugar and chemically pure sucrose in solid form) including 1701.91 (Containing added flavouring or colouring matter) and 1701.99 (Other).

According to the current application SASA alleges that an adjustment in the DBRP is justified as the sugar industry is a key component of South African agriculture and important to national socio-economic development. SASA emphasises the following, as important considerations:

• The South African sugar industry and sustainable socio-economic developments

• Government policy coherence

• Imports and financial sustainability of the industry

• Distortions in the world sugar market and competitiveness

SASA states that for the South African sugar industry to continue playing a vital role in national development objectives, economic stability in and sustainability of the sugar industry is necessary and this is where the sugar tariff plays an important role. The sugar industry will not be able to meet the socio-economic development objectives of government if the sugar tariff does not take into account distortions in the global sugar sector. Given the tariff formula and the current world price of sugar the applied rate of duty on raw and refined sugar products is currently zero and has been so for a while. According to SASA the world price has been above the DBRP for a while, but the actual problem is that the reference price is too low, resulting in no tariff protection afforded to the South African sugar industry against low cost sugar imports. Although there has been a significant increase in the world price of sugar since 2008, SASA states that the true problem is the increasing costs of sugarcane and sugar production in South Africa over the same time period. There has been a significant increase in the cost of production in the South African market which must be taken into account in the reasoning for increased protection of the South African industry against cheaper sugar imports. On average the DBRP is lower than the cost of sugar production in South Africa. Due to high domestic production costs, associated with the increase in the cost of inputs necessary for sugar production and processing like fuel, the domestic demand for South African sugar has decreased, while the domestic demand for imported sugar has increased.

However, the Association of Southern African Sugar Importers (ASASI) argues that the increase in the DBRP will result in an immediate increase of 44 % in the price of all imported sugar. This will affect the cost of various staples, including bread and cereals. According to ASASI if the application succeeds the sugar industry in South Africa will eliminate import competition from the domestic market and effectively create a monopoly in the South African market. Imports play a vital role in the South African market to fill the gap between domestic production and consumption. ASASI states that crystal sugar, for instance, is a key ingredient in confectionery and sweet processing but is not produced in South Africa and as such accounts for a significant portion of sugar imports into South Africa.

The trade data according to the Global Trade Atlas exemplifies the following patterns in South Africa’s sugar imports:

• In 2012 South Africa imported approximately 207 095 tons of cane or beet sugar and chemically pure sucrose (HS 1701). This was mainly imported from Brazil (87 percent), with smaller contributions from Thailand (4 percent), Malaysia (4 percent), India (3 percent) and Finland (1 percent). Between 2000 and 2012 imports of sugar under HS 1701 increased by 31 % with imports from Brazil increasing by 179 468 tons over the time period.

• In 2012 South Africa imported 61 tons of beet sugar (HS170112) mainly from Belgium, Germany and Taiwan. However, between 2000 and 2012 South African beet sugar imports decreased by approximately 3 %.

• South Africa mainly imported cane sugar (HS 170113) from Brazil (99 percent) in 2012, followed by imports from Mauritius (0.08 percent) and the Netherlands (0.03 percent).

• Other cane sugar products (HS170114) imported into the South African market in 2012 where mainly sourced from Brazil (74 percent), Malaysia (26 percent) and India (1 percent).

• Between 2000 and 2012 imports of sugars containing added flavouring and colouring (HS 170191) decreased by 33 %. In 2012 South Africa mainly imported these sugar products from Brazil, the UK, Germany and the US. However, in 2000 these products were mainly sourced from Malaysia, South Korea and Zimbabwe.

• Over the last 12 years South African imports of other sugars (HS 170199) increased by 50 %. However, source countries changed significantly over the time period. In 2000 South Africa mainly imported other sugars from Malawi, the Netherlands and Belgium, while these products were mainly imported from Brazil, Thailand and India in 2012.

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Sources:

Global Trade Atlas (www.gtis.com)

ITAC (www.itac.org.za)

Mail & Guardian (http://mg.co.za)

Parliamentary Monitoring Group (www.pmg.org.za/node/36308)

SASA (www.sasa.org.za)