If you use sugar, import sugar, trade in sugar or produce sugar, then it is really important to pay attention to the current duty review on sugar.
Understanding of the duties on sugar work
Unlike almost every product imported into South Africa (aside from wheat and maize), sugar has its duties calculated by way of a structure known as the Dollar Based Reference Price (DBRP). The reference price at present is $566 per ton with the duty calculated as the difference between the global sugar price and this reference price. So if the local price remains below the reference price for a defined period, then the duty becomes the difference between the reference and the global price. On the other hand if the global price is above the reference price for a period, the duty is removed.
The current applications aims to raise this reference price to $856.32 per ton.
Implications of this change in reference price
The South African Sugar Association (SASA)’s request for this 51.29% increase in the reference price, has serious implications, such as:
- Duties will be triggered more frequently, as the global price is more likely to be below $856.32 per ton, than below $566 per ton. In other words, duties will go up more frequently
- When the trigger is hit, the size of the duty will be 51.29% larger than it would have been before.
- Once the trigger has been hit, the duty will remain in place for much longer
The reasons given for the review
- The sugar industry faces ongoing challenges of reduced profitability, with rising costs and stagnant yields.
- The continued include influx of duty paid imports
- The current reference price of $566 is below the cost of production
- As a mitigation measure against the sugar tax on beverages
Put differently, the producers cannot increase their prices because of imports, and the imports continue unabated even after attracting duties at the current levels. The local price actually has to rise considerably above $566 per ton for the industry to remain profitable and interestingly, the sugar tax is driving down sugar consumption and the growers would prefer that lost volume to be taken out of import rather than local volume.
Timeframes to respond
The deadline for responding is 1 June 2018. An extension of up to 2 weeks can be requested, but may very well not be granted.
If sugar affects your life, you need to send us a mail on email@example.com to join the consortium opposing this application or complete the form below.
This problem does not disappear without a concerted effort by interested parties to deal with it.
Understanding the problem
The duties on sugar are poorly understood, which is why we see truly catastrophic trades occurring. Responding to this investigation is crucial if sugar is in any way an important part of your business.
XA is running a training workshop to give training specifically on how this duty works, how to manage risk around the duty and to better understand the reality of the duty change process, rather than hoping for the best on each trade. Companies have been liquidated on the back of poor sugar duty risk management, so getting this right is important.
If you would like to be part of the training session, please contact us on firstname.lastname@example.org or complete the form below.