Increasing sugar imports and the so-called sugar tax are significant risks that may impact on the profitability of the agricultural sector in the short to medium term, says Land Bank research analyst Gilberto Blacuana.

He adds, however, that these risks can be mitigated through higher import tariffs and investment in alternative uses of sugarcane, such as ethanol production.

“The global sugar market is distorted by production and export subsidies, which create an oversupply of sugar. Additionally, almost all countries have tariff protection in their domestic sugar industries.”

Blacuana says data from the South African Revenue Serviceshows that sugar imports from India have increased substantially in recent months.

He says the Indian government offers its sugar producers a $150/t rebate or subsidy on sugar exports.

“This unfair practice, or dumping, makes the Indian sugar [industry] competitive in the global market, thus depressing global prices. This unfair practice has prompted Brazil, the world’s largest sugar producer, and Australia, to lodge a formal complaint against India at the World Trade Organisation.”

This is especially relevant since markets compete for share in the massive sugar importer, the US, which increased its sugar imports by 58.3% between the 2015/16 and 2016/17 season, from 470 000 t to 744 000 t.

Moreover, Blacuana says South Africa’s export data shows that sugar exports had increased by 54.5% to 1.2-million tonnes in the 2017/18 season. The proportion of South Africa’s exports to domestic production increased from 13.6% in the 2016/17 season, to 37.3% in the 2017/18 season.

“Should the South African government not take further steps to protect the local market, the domestic market will come under renewed pressure from sugar imports from India. The industry has called for the tariff to be increased from R4 500/t to about R7 000/t.”

Meanwhile, Blacuana says the Health Promotion Levy, or sugar tax as it is better known, which was implemented in April 2018, involved a 5.2% increase in tax on sugar sweetened beverages.

Estimates from the South African Sugar Association indicate that the revenue lost since the implementation of the sugar tax is about R1.3-billion, Blacuana points out.

“While it is difficult to quantify the impact of imports and the sugar tax on employment, the South African Cane Growers Association estimates that the sugar tax is likely to lead to about 10 000 people losing their jobs in the primary level of the sugar value chain; however, this figure does not consider the impact on job losses in the milling and beverage industries. The sugar industry employs about 350 000 people.”

However, the African News Agency earlier this week reported that the National Treasury’s Mpho Legote had stated that any current estimates are guesswork and that the government was undertaking an assessment of the impact of the sugar tax.

While the Land Bank’s mandate is good in its current form, its funding model needs work if it is to provide adequate funding for black business in the agricultural sector, Land Bank strategy and communications executive manager Sydney Soundy said during a Black Business Council (BBC) roundtable discussion.

 TLU SA predicts further downgrades of SOE’s after Moody’s junk status for Landbank

Agri SA questions the state of corporate governance at the Land Bank. Moody’s downgrade of the Land Bank is evident of an unhealthy state of affairs at governance and management level within the bank. And it is a setback for growth and transformation of the agricultural sector.

Die Land Bank het krediteure ter waarde van R50 miljard gewaarsku oor die risiko van wanprestasie.

South African farmers are increasingly turning to commercial lenders to top up their working capital as the Land and Agricultural Development Bank battles a liquidity crisis.

The recapitalisation of the Land Bank announced by National Treasury last week has given the lender some breathing space by preventing imminent default on some of its debt that fell due in June and the near-term.

The Land Bank, which is in the throes of a liquidity crisis, slashed lending by about two-thirds in the five months to the end of September, starving farmers of capital ahead of the production season for the food staple maize.

One of the biggest lenders to South African farmers can’t take on new clients or meet half the needs of existing customers until it gets another government bailout to keep operating.

The time has come to create a rescue plan for the failing Land Bank, and agricultural organisations should take the lead.

Efficient and competitive financing is the lifeblood of SA’s commercial agriculture sector.

Fanie Brink, Independent Agricultural Economist

The beleaguered Land Bank snuck through a horrible set of results shortly after the market closed early at 12pm on New Year’s Eve, revealing an annual total comprehensive loss of more than R2.8bn for the year ended March 31 2020, while non-performing loans almost doubled to 18.1% of total gross loans.

The Auditor-General’s damning report on the status of the Land Bank’s financial sustainability necessitates an urgent intervention.

The beleaguered Land Bank, which defaulted on R50bn of its debt in April last year, appears set for another state bailout even as the government battles to stave off a fiscal debt crisis amid a worsening Covid-19 pandemic that has strained its finances to breaking point.

The state-owned institution’s financial woes have led farmers and agribusiness to consider making an oer on the bank, starting a cooperative bank or partner with global commodities futures traders Agriculture: 

President Cyril Ramaphosa, in his most recent newsletter, acknowledged that small businesses were helped by various grants and loans provided by a number of government departments to survive the lockdown. While this is all good and well, the reality is that many businesses in need never received a cent from government. 

The Land Bank has recorded another significant financial loss despite efforts by its management and board to turn the state-owned agricultural bank around.

The Land & Agricultural Development Bank of SA (Land Bank) has faced numerous challenges in its 110-year existence. Still, the entity remains vital to SA’s agricultural sector and the economy at large.