FACT CHECK - ANALYSIS

South African industry falsely blames job losses on sugar tax

By Aisha Abdool Karim 7 March 2019
Caption
Illustrative Photo: Raw Pixel/(Unsplash)

Even before the sugar tax was introduced, key stakeholders in the sugar industry were arguing that it would cause massive job losses. Now, less than a year after its implementation, there are calls for a moratorium on the tax.The argument is that the tax is directly responsible for the loss of anything from 1,000 and up to 10,000 jobs. In reality, there is no firm evidence to support that claim – and the industry faces much greater challenges.

So far 1,000 jobs have already been lost in the (sugar cane) sector and this figure is steadily climbing,” reads a statement issued by DA Chief Whip John Steenhuisen on 25 February.

The statement also claims that there are 350,000 jobs at risk in the sugar industry and that the job losses are due to the sugar tax.

With election campaign season under way, political parties are setting agendas and deciding what causes are worth campaigning over in the fight for votes. Unemployment has been identified as one of the biggest national issues, which the Democratic Alliance has hooked on to, focusing in on the sugar industry.

The DA’s statement goes on to mention other factors, including illegal sugar dumped into the country, inadequate tariff protections and a lack of drought relief funding. It states that all these factors “have combined to create the perfect storm for a jobs blood bath in the industry”.

Yet there is no quick fix to address the complicated nature of these other factors, making the elimination of the sugar tax an easy but deceptive remedy to offer in time for the elections.

More formally known as the health promotion levy, the sugar tax is only applied to sugary beverages. Despite only being introduced in April last year, the levy has become a soft target to blame for a sugar industry already in decline.

Exactly how many jobs are at risk within the industry, and how many have actually been lost, is a contested question. Even before the levy was implemented, there were large figures floated around, with the Beverages Association claiming that up to 72,000 jobs would be lost. However, this was shown to be a highly exaggerated figure.

Currently, the lowest estimate is at 1,000 jobs, with this figure being repeated by the Department of Trade and Industry. Both the Department of Trade and Industry and the DA have said this figure was provided by the South African Cane Growers Association.

However, when asked about this figure by Daily Maverick, the Cane Growers Association instead said they estimate that there have been a total of 10,000 job losses across the sugar industry as a direct result of the sugar tax.

But the Cane Growers Association’s figure is merely an estimate based off an annual survey conducted with farm owners. Through the survey, the association has projected that by the end of this month, when the sugar cane season ends, the total number of jobs lost will reach 10,000.

Given that this is a projection, it is not an actual count of job losses. It also counts the end of employment for seasonal workers as a job loss, when this form of work is always temporary.

Daily Maverick asked Dr Thomas Funke, commercial executive at the Canegrowers Association, how many jobs had actually been lost to date.

We’ve got that information, but the thing is we need to stick to our 10,000 because that is what we’re pretty sure of will be the total job loss number,” Funke said.

An alternative source for the figure of 1,000 job losses wrongly attributed to the Canegrowers Association may be correspondence between Coca Cola Beverages SA and the Food and Allied Workers Union (FAWU).

The message given to the union, on 5 January 2019, was that 1,730 jobs were at risk as a direct result of the sugar tax being implemented. Since the initial letter, the union has since begun a consultation process through the CCMA.

FAWU general secretary Katishi Masemola told Daily Maverick that the sole reason being raised for the potential retrenchments at Coca Cola was “the impact of the sugar tax”.

But Coca Cola Beverages SA says the supposed job losses are not set in stone.

It’s not as simple as there are going to be job cuts,” spokesperson Tshidi Ramogase told Daily Maverick.

We are re-organising, but we just started the process with the union (FAWU) so we don’t know where it’s going to land.”

Prior to the implementation of the levy, the Coca Cola company merged with Coca Cola Beverages Africain September 2017. As part of the conditions for the merger, Coca Cola signed an order with the Competition Tribunal, which in its ruling prohibits workers from being retrenched as a result of the merger.

Even if Coca Cola does not retrench any employees, the decision to reformulate and decrease the amount of sugar in the products has also been used to blame the decline in sugar sales on the levy. The South African Sugar Association has claimed that the almost R2-billion in revenue lost this season was due to declining demand from beverage companies.

However, a spokesperson for Coca Cola said that the increased tariffs placed on sugar last year were “a large contributing factor to commodity price increase for our business”.

These tariffs, which were lobbied for by the sugar industry and Department of Trade and Industry, made imported sugar more expensive to encourage companies to purchase local sugar. The increasing tariff cost would therefore only effect Coca Cola if they had been purchasing imported sugar.

While the DA and FAWU are calling for a moratorium on the tax, Department of Trade and Industry director-general Lionel October says the department has instead asked that a previously established task team looking into the sugar tax be reconvened to “really look at what can be done to lessen the burden of the tax”.

Parliament’s trade and industry committee has also called on Minister Rob Davies to engage with the Department of Health and National Treasury to discuss the impact of the levy on the sugar industry, after this issue was raised during a meeting on 26 February. It is important to note that all decisions regarding the levy itself must be made by Treasury.

Even without such a tax (the Health Promotion Levy) the industry is under threat,” said committee chair Joanmariae Louise Fubbs. “The industry needs to be supported until diversification can take place.”

The Department of Trade and Industry has been looking into diversifying the sugar industry beyond just consumption, but also for use in biofuels and electricity.

The issues currently facing the sugar industry are, in reality, much wider than the sugar tax.

In the past year, the sugar industry has been dealing with the effects of a drought that has been ongoing for the past three years as well as a huge influx of cheap imported sugar, also known as “sugar dumping”. This meant that other countries were supplying sugar at a much lower price than South Africa and that local sugar had to be exported for a price lower than the cost of production: an issue that was only partially remedied by the introduction of increased tariffs on imported sugar in October last year.

Given that all these issues occurred within the sugar industry simultaneously, all of which affect sales, there is no way to isolate the direct impact of the levy from that of the other factors.

The South African Farmers Development Association (SAFDA) also pointed out to Daily Maverick that there has been a steady decline in the number of small-scale sugarcane farmers over the past 20 years – dropping from 50,000 farms in the 2000s to around 19,000 this past year.

There may be a list of 10 different things that are hitting the industry all at the same time, such as drought, high input costs,” said SAFDA Spokesperson Ronda Naidu. “The HPL (sugar tax) is becoming almost the last straw that’s breaking the camel’s back, (but) even without the HPL we were all very aware that there was a need to start looking at diversification.”

This sentiment of frustration with the sugar tax as an unnecessary additional burden is one that appears to be widely shared within the industry, and is fuelling calls for the tax to be dropped. It’s clear, however, that the health promotion levy has become a convenient scapegoat for much wider problems within the sugar industry.

Calls like the DA’s to end the sugar tax are likely to be popular with unions and the sugar industry. But they present a simplistic answer to a complicated situation – and they do so on the basis of job loss projections which appear to have little basis in fact. DM

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