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.

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.

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

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 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.

It is disheartening to see how many South Africans, including parliamentarians, have forgotten the simple and influential role the Land and Agricultural Development Bank (Land Bank) played in South African agriculture.

Farmers have been thrown a lifeline with a blended finance instrument that aims to tackle the negative impacts of rolling blackouts on productivity faced by agricultural producers, said Thoko Didiza, the minister of agriculture, land reform and rural development, at a media briefing in Pretoria on Tuesday.

The R1.21-billion Agro Energy Fund — a partnered effort by the Department of Agriculture, Land Reform and Rural Development and the state-owned agricultural Land Bank — is aimed at providing financing for farmers to find alternative energy solutions.

 
The fund is aimed at a range of producers, from small-scale farmers to large commercial agricultural companies. 

“We are delighted to be in this partnership with the department for the implementation of the Agro Energy Fund, which is important to provide energy security to ensure that farming continues uninterrupted even during load shedding hours and there will be extra energy stored through this funding,” said Thabi Nkosi, chair of the Land Bank board. 

 
“This may also reduce the electricity bill of the farms as they will no longer buy full units but use solar-generated energy.” 

The blended financial instrument includes grants and loans, ranging between R500,000 and R1.5-million. The Department of Agriculture, Land Reform and Rural Development will contribute R500-million towards the grant aspect of the fund, while the Land Bank will match that with R710-million for the loan portion. 

Small-scale farmers can receive financing in the form of a 70% grant and a 30% loan, with the grant set at a maximum of R500,000. For medium-scale farmers, 50% will be a grant with a 50% loan capped at R1-million. Large-scale and mega commercial producers are eligible for a 30% grant and a 70% loan capped at R1.5-million. 

Targeted sectors for the financing include grains and oilseeds, fruits and nuts, livestock, food sectors such as sugarcane and vegetables, non-food sectors such as wool and mohair, and industrial crops such as cotton. Prioritised sectors include dairy farming, piggeries, poultry, all irrigated commodities and on-farm processing. 

“[The Land Bank] will also roll out its Green Finance product offering with a focus on financing solar panels, biogas and biomass plants which will result in the installation and commissioning of energy-efficiency projects across the country which will partially offset electricity usage from the grid,” the department said in a joint statement with the bank. 

Ongoing load shedding has been a thorn in the side of agricultural practitioners. Agroprocessing equipment, storage facilities and overall production have been hammered by regular power cuts that have continued aggressively over the past year and a half.

  It is financing products that is sinking Landbank

Read more in Daily Maverick: Farming in SA hobbled by power cuts and poor roads leaving rural towns hardest hit

Eastern Cape’s Ncora Dairy Trust Farm recorded R2.7-million in losses in December 2022 due to rolling blackouts.  

Agri SA has noted the impacts of rolling blackouts on the agricultural sector. The industry body flagged farmers planting less because grocery stores were unable to store as much fresh produce due to rotational power outages. Agri SA said that farmers were reporting huge losses as processing machines, irrigation equipment and other machinery are unable to operate during power cuts. 

“This vital funding is essential to help maintain the financial viability of the sector, thus also protecting the livelihoods the sector sustains. While the funding will not address the magnitude of the challenges facing South Africa’s farmers or the extent of the impact of the energy crisis on their enterprises, it is a strong indicator of the department’s commitment to protecting the nation’s food security,” said Agri SA on Tuesday. 

The fund is now open and applications can be processed through the department and Land Bank websites. 

Didiza said: “I must emphasise that the purpose of the Agro Energy Fund is to incentivise farmers to invest in alternative energy sources. This fund will run parallel to other existing financial instruments that are designed to support farmers with production, farmer infrastructure, market and others. Applications will be directed to the Land Bank and will be subject to approval guidelines of the bank.”