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3 April 2008

Programme director
eThekweni Deputy Mayor, Mr Logie Naidoo
eThekweni Municipal Manager, Dr. Michael Sutcliffe
KwaDukuza Municipal Manager, Mr Mdu Zungu
Mr Rodger Stewart and other members of the Sugar Industry Leadership
Members of the media
Ladies and gentlemen

Thank you for the invitation to deliver the keynote address at this important occasion of the sugar industry. This "Opening of the Season" event takes place at a time where it is possible that there may be some change in the international environment in which the South African Sugar Industry (SASI) has to operate, but it is also possible that you reconvene for next year's "Opening of the Season" event with such conditions exactly the same as they are today.

It is possible that in the near future a World Trade Organisation (WTO) ministerial meeting may be convened to attempt to conclude the modalities in agriculture and Non Agricultural Market Access (NAMA) which have thus far eluded negotiators in the Doha round. But it is also possible that such a ministerial is not convened any time soon. If a ministerial is convened, it remains at this point in time uncertain how the 170 or so square brackets in the Chairperson's text on agriculture will be closed, or if they are indeed closed, how they will impact on the global sugar market.

Major issues around the designation and treatment of sensitive products of which sugar is likely to feature prominently in the list from the European Union (EU), remain unresolved at this point in time. All I think that we can say with certainty, is that there is a very strong probability, that even if modalities on agriculture at NAMA are agreed, the global sugar industry will remain an industry characterised by distortions to benefit small numbers of sugar beet producers in the developed world, against competition from more efficient sugar cane producers in the developing world.

The Economic Partnership Agreement (EPA) negotiations, to which South Africa has not yet signed on, also underscore the specific sensitivity of sugar to the European Union (EU). The duty free quota offer that was extended to most Africa, Caribbean and Pacific (ACP) countries that participated in regional negotiations and agreed Free Trade Agreements (FTA) with the EU, contained two major exceptions, one being rice and the other of course, sugar. These products will continue for a period of time to enter the EU on the basis of a quota arrangement.

In our own Southern African Development Community (SADC) EPA negotiations, Swaziland did not obtain a particularly generous additional quota allocation from the EU, while South Africa would not have been included as a preferential sugar supplier of last resort even if we had found ourselves able to sign on to the interim EPA. That being the case, I believe that the fundamental conditions that underpinned the Sugar Act and the review document which was issued by our department a few years ago, will remain basically intact as we move ahead.

The South African sugar industry is an important economic sector which makes a significant contribution to income and employment. Direct employment in the industry is approximately 77 000 which is a significant percentage of the total agricultural workforce of South Africa. An estimated one million people depend on this industry for their livelihood.

The South African sugar industry is a relatively low cost producer by global standards and we are convinced that it will continue to have a significant contribution to make to our growth and employment objectives as well of those of economic transformation. We are pleased to see that the growing industry has taken a lead in the promotion of Black Economic Empowerment (BEE) in the agricultural sector.

The Inkezo Land Company operated as an independent land reform entity by the industry, has already managed to transfer 17% of the freehold land under sugar cane cultivation to black growers. There is still some considerable way to go to achieve the growing industry’s target of 30% black ownership by 2014, but I hope and trust that progress will continue to be made. Progress has also been made in terms of BEE initiatives in the milling sector. Two black owned milling companies, i.e. Ushukela Milling and Umvoti Transports, jointly own 12% of South Africa's sugar milling capacity and 10% of South Africa's refining capacity. Tongaat Hulett Sugar that accounts for 30% of the sugar industries total annual production has also sold 25% of its shares to Black owner-growers.

It is furthermore pleasing to note that study undertaken by Jeff McCarthy of the University of KwaZulu-Natal, found that the quality of life in rural towns and areas with sugar mills is higher than that in other comparable towns or areas in rural KwaZulu-Natal. Sugar milling towns and areas were found to have lower levels of unemployment and higher per capita incomes than other towns or areas; the transport infrastructure is more advanced; and there are opportunities for firms to supply inputs to the milling and farming operations.

It was also found that virtually every town in the mill and sugar growing areas has an HIV and Aids programme and clinic and that the organised sugar industry was directly involved in these initiatives as well as in various educational and training programmes. In short, the sugar industry is a very important actual and potential contributor to livelihoods and economic opportunities for large numbers of people in the rural areas of this province. We therefore need to work together, to guarantee the conditions that will enable it to continue to grow.

An important new opportunity for growth will arise with the emergence of the bio fuels industry which is of course one of the AsgiSA priority sectors. As I am sure you know Cabinet has recently taken a decision not to support bio-fuels industries using raw materials that are also important food crops. The reason for this is obvious. The diversion of significant volumes of grain products into bio fuels industries in the United States and elsewhere has provoked a very significant rise in global grain prices which are having adverse effects on low income consumers across the world, including our country.

Sugar cane however, is a different case and indeed is probably the most promising feedstock for the production of bio-energy in the form both of fuel ethanol and electricity. Through redirecting part of our export crop and or increasing production, we could supply six percent energy of our ethanol fuel requirements. Sugar bagasse, according to information provided by the industry, could be used to produce as much as 1 200 megawatts of electric power. The first pilot phase of the bio-fuels strategy was released in December 2007. The full bio-fuels strategy will be released in three phases. The first or pilot phase that was released in December focuses on new Greenfield plants; the second phase will be implemented in 2013 and will be refined based on lessons learned from the first phase; the third phase will be implemented by around 2025. A formal monitoring en review of progress in terms of the bio-fuels initiatives in South Africa will start in 2013.

The need to co-ordinate our approach with the bio-fuels strategy is the main reason why the process of reviewing the Sugar Act has been delayed. As I indicated earlier, the dti continues to be of the view that some level of intervention will be required to allow the domestic sugar industry to continue to prosper in the light of severely distorted conditions in international sugar markets. As you know, the discussion document envisages the continuation of the three pillars of support to the industry, viz:

* tariff protection against disruptively low world sugar prices
* provisions for the establishment of equitable export obligations for millers and growers alike
* the maintenance of a managed, equitable special arrangement for sugar trading within the South African Development Community (SADC), through the Sugar Co-operation Agreement (SCA) appended to the SADC Trade Protocol.

Within such a framework, the discussion document also highlights the need to promote greater competition as a driver of efficiency within the sugar industry. We envisage final consultations on these proposals being concluded during the first half of this year to enable the drafting and presentation to the next Parliament of an amended Sugar Act. Simultaneously with this process, we have also been engaged in the review of Annex VII of the SADC Trade Protocol.

This process is now almost concluded and we are convinced that when the outstanding rather important, issue of access to the South African Customs Union (SACU) market for net sugar exporting countries in SADC has been resolved, the revised Annex VII will provide a basis for improved co-operation in the region. A draft sub-sector strategy is currently also being developed. This is based on the proposition that addressing key challenges facing the industry is indispensable to the advancement of key government objectives such as sustainable land reform, infrastructure development and rural development, promotion of equity and small medium and micro enterprises (SMME) development. The sub-sector strategy will identify proposed action plans to address each of the identified challenges facing the sector.

Such an approach is consistent with that identified in the National Industrial Policy Framework (NIPF). The next Industrial Policy Action Plan (IPAP) currently under preparation will give greater priority to Agro processing sectors. Already we are advancing with the sugar based value added project at Makhathini. Financing for this project, which will create at least 4.300 jobs, has already been secured and infrastructure requirements for this project in one of the least developed parts of the country have been placed on the planning programmes of critical infrastructure supplier agencies.

Programme director, ladies and gentlemen, I hope that this brief review of some of the work underway in our department indicates that we continue to regard the sugar industry as an important national asset which we must continue to nurture and support. May I wish you all good wishes for an excellent season and assure you of our desire to continue to co-operate with you in the future.

Thank you.

Issued by: Department of Trade and Industry
3 April 2008
Source: Department of Trade and Industry, (http://www.thedti.gov.za)