Sugar barons with sticky fingers

They're taking candy from babies – sweet and cold drink makers.

Big industrial sugar users are up in arms over an application by the SA Sugar Association to the Department of Trade and Industry (DTI) for a 21% increase in the benchmark level of its import protection.

The sugar industry has asked the DTI to raise the "dollar-based reference price" (DBRP), on which its protection rests, to $400/t from the current $330/t, outraging its biggest customers, the sweet and soft drink manufacturers. They say the measure will act as a shield for future regulated price increases.

Said James Parkin, group supply chain executive of Tiger Brands, which buys 30 000-40 000 tons of sugar a year: "We are concerned that the sugar industry continues to be run as a regulated industry was before the new competition dispensation. The sugar industry does good PR on its social and economic contribution but I doubt SA consumers know what it is costing. Changing the DBRP creates headroom for another domestic price increase."

"We would prefer a deregulated market on sugar trade, as this would allow for growth in the broader food producing sector of our economy."

Parkin said the whole sugar industry stood on protection. Tiger is paying R4 800/t for local sugar - around $400/t, when it could import at $320/t. He says the regulations force Tiger to buy very high grade white refined product, when it could get by with much cheaper grades.

The DBRP is used in calculating duties on imported sugar. Duties kick in only when world prices drop below that price, which is supposed to be a long-term international price plus $60/t for "distortions in the global market". At the moment, the world price is roughly $400/ton. Should the price of London No.5 sugar drop to say $330 for 20 consecutive days, any SA importer under the proposed new benchmark would have to pay an additional $70/t in duty, which would make imports unthinkable and thus protect the industry further. If the present $330 benchmark were unchanged, no duty would be payable.

The sugar industry says it needs protection because world prices are "severely reduced by subsidies in many countries, which induce over-production". Meanwhile the International Sugar Organisation recently published that for the first time in years it expected global sugar production of 165mt this year would be matched by demand.

Soft drink and sweet makers have also objected to the proposal. They say the sugar industry is already a cartel and if its request is granted, they will be prevented from importing sugar to keep the local industry honest.

Said Mandla Tisani, president of the Federation of Soft Drink Manufacturers (FSDM): "We oppose increasing the reference price trigger. It's counter-productive and not in the spirit of fair trade and competition. The sugar industry is well protected already." The FSDM accounts for 95% of the soft drink industry, which is the biggest industrial user of sugar, representing 60% of industrial demand.

Andrew Cooper, chairman of the SA Chocolate and Sweet Manufacturers Association, says: "The sugar industry acts in a monopolistic manner... there is no basis on which to increase the sugar producers' protection... the prevailing conditions in the global market warrant lowering protection."

In his deposition to the DTI, Cooper says: "The SA sugar price is nationally fixed by the applicant (SA Sugar Association)...users have not experienced any benefits from domestic competition. He says the SASA's request, if granted, would eliminate the limited competition that imports provide.

"The applicant is trying to eliminate any form of competition to entrench its monopoly.

Industry leader Illovo Sugar could not be reached for comment and Tongaat-Hulett spokesperson said the matter was being handled at industry level.

Trix Trikam, executive director of the SA Sugar Association, said through a personal assistant:

The South African Sugar Association has made an application to increase the dollar based reference price from $330 to $400.

This application was gazetted on August 1 2008 .

The application was made to the International Trade Administration Commission (ITAC)
Fuller details you would find in this gazette .

SASA is not aware of the soft drink manufacturers and chocolate and sweet associations having opposed this application.

SASA understands the process in considering the application is that ITAC would advise SASA if further information or comment was required and have not as yet asked SASA to do so.

As the application is still under consideration any comment from SASA would be made directly to ITAC at this stage if required.

When it turned down Tongaat's proposal to purchase Transvaal Suikerkorporasie from Rembrandt, the Competition Commission said Illovo accounted for 20,4% of local production, Tongaat-Hulett for 27,1% and Transvaalsuikerkorporasie for 13,7% of the southern African market. The balance came from Swaziland, Zimbabwe and artificial sweeteners.

The Consumer Goods Association takes no stand on the matter but Nick Tselentis, regulatory and legal affairs boss said: "Personally, given the food inflation question, I don't see how any government can support this."

The DTI could not be reached for comment.

SOURCE: moneyweb