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 introduced in 2018, causing massive damage to the sugar industry and with no evidence that the tax had any positive impact on health or obesity in South Africa.
The National Treasury then made the decision to defer the 4.5% increase by a year in order to conduct further consultations on lowering the 4g/100ml threshold and extending the levy to fruit juices. The meanwhile provided another opportunity to highlight the magnitude of this ill-conceived tax on the industry with no discernible health benefits. The tax must be abolished or it will jeopardize thousands of livelihoods.
The tax of 2.31 cents per gram of sugar may sound insignificant to many, but it is far from it. This is because processing a tonne of sugar, which normally costs around R11,500, adds a further R23,100 to the cost, meaning the tax is 200% of the cost of sugar. Compared with the excise duties on alcohol and tobacco, the levy on sugar is disproportionate and punitive for small farmers in South Africa.
When you consider that all carbohydrates, including bread, potatoes, rice, and cornmeal, break down into a form of sugar, meaning that overindulging in these foods would have health effects similar to eating too many sugary items, the disproportionate punishment becomes even more nonsensical for sugar. Low-income consumers often rely on a number of carbohydrate-based staples for energy, so it’s easy to pin the blame solely on sugar-sweetened beverages while jeopardizing the one million livelihoods that depend on the sugar industry for no good reason.
This is even more illogical given that there is no research or data showing that the tax 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 had a sugar tax since the 1930s, abolished it in 2013. Similarly, Norway has had a sugar tax since the 1920s. The country raised the tax dramatically in 2018 — the same year South Africa introduced its tax — but scraped that increase back in 2020, then cut it again by more than 48% last year. More recently, the government is in the UK also expected to abolish the sugar tax to counteract the rising cost of living.
With a poorer population than these European countries and a declining economy, South Africa cannot justify maintaining – let alone raising – this destructive tax. In fact, earlier this month the Ugandan parliament recognized this fact and abolished the excise tax on confectionery to boost the economy. In the interests of the livelihoods at stake, South Africa must also wake up to this reality.
A socio-economic assessment commissioned by Nedlac found that the sugar tax cost South Africa more than 16,000 jobs and R2.05 billion in 2019 alone – a year after it was introduced. Modeling commissioned by SA Canegrowers also showed that keeping the sugar tax at current levels will cost the industry a further 15,984 seasonal and permanent jobs and will be a major contributor to the 46,600 ha reduction in sugarcane acreage over the next 10 years.
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The fact that the government plans to increase the tax next year means there could be even more job losses than forecasts of 15,984 and a further reduction in hectares under sugarcane.
The tax also had a real impact on the country’s milling crisis, as millers were also hit hard by the sugar tax. This is because sugar-sweetened beverage manufacturers are reformulating their beverages to contain less sugar, resulting in a significant drop in sales for the industry. As mill capacity and output continue to decline and underperform, it is critical that major investments to recapitalize their operations are secured. However, due to the financial situation in the industry, this is becoming increasingly difficult.
This becomes a vicious circle where growers have no incentive to increase their sugar cane production because the mills are unable to crush what they receive. As it stands today, most growers face a dire situation where between 20% and 32% of their harvest is at risk of not being shredded. This situation is both undesirable and unsustainable.
If passed next year, the tax increase will undermine the work done so far on the first phase of the Sugarcane Value Chain Master Plan. Since signing the plan in November 2020, the industry has stayed true to its commitments and worked hard to achieve success. We’ve seen notable collaborations to strengthen initiatives like SA Canegrowers’ Home Sweet Home’s Buy Local campaign.
But the sugar tax and its continued existence stand out as one of the plan’s failures. While the Master Plan includes a commitment to tax policy review, there is no evidence that efforts have been made to adopt an evidence-based approach to the tax, and SA Canegrowers’ repeated calls for a comprehensive study of dietary intake have gone unanswered.
The result is that the sugar tax poses a threat to the ultimate success of the master plan, to the detriment of growers and workers throughout the sugar cane value chain and the economy.
It is critical that the government weighs the gains the tax brings in the form of healthcare benefits and tax revenue against the price we have paid and will continue to pay in the form of critical jobs and livelihoods in the country’s rural communities.
The actions we take – or fail to take – on the sugar tax may well determine the future of the million South Africans who depend on the sugar industry for their livelihoods. DM